Orsted scraps Swedish FlagshipONE emethanol project under development

Orsted has ceased the development of its pioneering FlagshipONE eMethanol project under construction in northern Sweden, citing slow market progress and an inability to sign long-term offtake contracts, the company said Aug. 15.

The company took a final investment decision on the project in 2022 after acquiring it from Liquid Wind and was targeting emerging demand in the marine fuel sector.

"While we were aware of the substantial uncertainties and risks associated with the development of a pioneering and immature liquid e-fuel project and market at the time of the FID, it was a strategic choice to take a leading position in shaping the industry," Orsted said in a results statement.

FlagshipONE in Ornskoldsvik was to make green hydrogen from a 70-MW electrolyzer to produce up to 55,000 metric tons per year of e-methanol from 2025 using renewable energy and biogenic CO2 captured from the nearby biomass-fired Horneborgsverket heat and power plant.

"We continue to believe in the long-term market for e-fuels, but the industrialization of the technology as well as the commercial development of the offtake market have progressed significantly slower than expected," it said.

Demand issues

The cancelation of FlagshipONE, previously described by the Danish renewable energy firm as "the largest eMethanol project under construction in Europe," came as most shipping firms remained reluctant in committing to long-term procurement contracts for methanol produced via sustainable means.

While methanol has emerged as the most popular alternative population in newbuild orders over the past year, ship operators are not willing to swallow the high costs of sustainable methanol with limited scope of passing incremental expanse onto their customers, industry participants said.

Platts bunker assessments for 0.5% sulfur fuel oil, the world’s most common type of marine fuel, stood at $13.39/Gj in Rotterdam on Aug. 14, compared with $18.01/Gj for fossil-based methanol. Industry estimates suggest sustainable methanol would be at least two to five times more expensive. Platts is part of S&P Global Commodity Insights.

Orsted said the FlagshipONE’s business case had deteriorated since taking FID, "due to the inability to sign long-term offtake contracts at sustainable pricing and significantly higher project costs."

The company has ceased execution of the project and is to de-prioritize work within the liquid e-fuel sector, it said.

Orsted regional CEO for Europe Olivia Breese told Commodity Insights the company had advanced dialogues with several possible offtakers, but these did not progress to signing long-term contracts, despite market interest.

"We believe that this reflects the immaturity of the regulatory environment for the decarbonization of industry," Breese said.

While the EU has extended its Emissions Trading System to cover maritime transportation from 2024 and the International Maritime Organization could introduce a carbon levy from 2027, most shipping professionals said the measures would not be able to bridge the price gaps between fossil and synthetic marine fuels until the 2030s at least.

Project viability

Breese said that decarbonization projects across the board were challenged by higher energy, equipment and capex costs.

"The industry is facing a significant cost-gap between e-fuels and fossil fuels," she said, noting other decarbonization options for many offtakers are seen as more competitive. "The e-fuels industry doesn’t have firm commercial visibility on the offtake side."

And although much of the needed EU regulation is in place, short- and medium-term regulatory requirements, such as sub-quotas for e-fuels and greenhouse gas reduction requirements, do not deliver a clear enough incentive, while national implementation and enforcement is not yet in place, Breese added.

"As a result, timelines no longer match the most matured projects, where developers struggle to find offtakers willing to match the industry production costs for such commercial scale first-of-a-kind projects," she said.

However, the company maintains a focus on renewable hydrogen, seeing it as a critical part of European industrial decarbonization, particularly in steel, chemicals and refineries.

Longer term, it expects the liquid e-fuels market to develop further.

The decision to scrap the project led to cancellation fees of DKK300 million ($44 million) and impairments of DKK1.5 billion, the company said.

Orsted had previously secured EU funding for the project under the EU-Catalyst program and from the Swedish government, and the company was also expecting to receive a grant from Horizon Europe. However, Orsted told Commodity Insights that no funds had been exchanged at the time of its decision.

Funding schemes were still "too complex, ill-funded and not targeted enough" to kick-start the first commercial e-fuels projects, Breese said.

The company had previously given a carbon capture contract for the project to Carbon Clean to capture 70,000 t/y of biogenic CO2. Carbon Clean didn't immediately respond to an email seeking comment on the contract.