FEATURE: Bio-LNG to follow LNG path to Europe's net-zero future

European bio-LNG growth is set to follow in the footsteps of LNG as Europe transitions to a lower sulfur, carbon neutral future in both the transport and maritime sectors.

With countries able to utilize the same infrastructure as LNG for bio-LNG, many firms have been looking to the biofuel to support Europe's energy goals that can work alongside the transitional fuel of LNG.

Traders are seeing the biofuel working in tandem with its fossil LNG counterpart as a "pathway" to meet current energy targets of net-zero by 2050. The EU's Renewable Energy Directive – RED 3 – laid out targets for renewable fuels to account for 42.5% market share of all energy with a sub-target for transport of 29% market share.

"It's (bio-LNG) still relatively new, so it's not as big as your regular bio-methane which is already injected and subsidized... It's difficult for producers to get the numbers to switch from bio-methane to the grid to bio-LNG," a biofuel source said.

The economics of bio-LNG and its prices vary depending on the feedstock and Green-House-Gas savings, traders said, but they are improving in light of the regulatory environment. GHG savings are a calculation of emissions offset by renewable fuels compared to fossil fuels, as stipulated by the EU's RED.

Bio-LNG with 89% savings can trade around EUR70/MWh, while savings of around 200% can trade upwards of EUR200/MWh.

This is around $22.188/MMBtu for bio-LNG with 89% GHG savings, or around $63.393/MMBtu for 200% savings.

In comparison, Platts, a part of S&P Global Commodity Insights, DES Northwest European LNG marker for August was assessed at $10.448/MMBtu on July 2, and significantly less GHG savings.

Bio-LNG transport growth

There are two main demand pathways for the European bio-LNG market: the transportation sector and bunkering. Both sectors are gearing up for the potential growth in the bio-LNG market, with production ramping up and supportive policies entering the European market in the next few years.

According to industry group Natural Gas Vehicles Association (NGVA) Europe, an estimated 400,000 trucks could be fueled by LNG by 2030 in Europe, a significant jump from a current estimate of 2,000 LNG-fueled trucks in use.

With the European Union ramping up its energy goals for 2030 in attempt to reach net-zero by 2050, there is an "urgency for transport to accelerate its decarbonization," the European Biogas Association, EBA, said in a Bio-LNG in Transport report.

The report added that the heavy-duty and maritime transport sectors – the two main demand hubs for bio-LNG – are especially hard-to-abate but "at the same time, cutting GHG emissions must come hand-in-hand with affordability and technology availability, in order to guarantee a successful transition towards carbon neutral transportation."

With biofuel demand forecasted to expand to 6% of road transport energy demand in 2030, the use of bio-LNG will be pivotal to help Europe achieve its targets.

Under the EU ETS scheme, 40% of emissions including CO2 reported during 2024 will need to be covered by allowances. This increases to 70% by 2026 and 100% by 2027 onwards. Given that LNG emits around 30% less CO2 than conventional fuel oils, and bio-LNG even less, traders have said this significantly incentivizes the use of bio-LNG.

"Bio-LNG will become more viable in the future, as it becomes more expensive to use conventional fuels because of EUAs under the ETS scheme. People will switch to bio if it is cheaper than fossil LNG plus the EUA cost," a trader said.

Production, fleet growth

"At the end of 2022, there were 27 active bio-LNG-producing plants in Europe. This number is expected to increase sharply in 2023 (28 plants) and 2024 (42 plants)..., with more than 109 bio-LNG plants scheduled to be ready by 2025," the EBA said.

The report added that the combined bio-LNG production capacity by the end of 2025 is expected to reach 15.4 TWh/year, considering both active plants and forthcoming projects listed in the EBA database.

On the demand side, since bio-LNG can be used interchangeably with LNG as Europe's LNG-fueled truck fleet and refueling stations grow, bio-LNG use is expected to follow.

"Italy has the largest fleet of gas vehicles in Europe and uses all of the biomethane it produces (4,371 GWh in 2022) as transport fuel," the EBA statistical report said. "In October 2023 there were 144 LNG/BioLNG filling stations and 1,545 CNG/BioCNG filling stations in Italy, thanks to its favorable support scheme and the legislative framework for advanced biomethane used in transport."

Shell is looking to add 2,000 LNG-powered trucks in Europe, according to their recent road transport report. Additionally, Shell plans to offer a bio-LNG blend to customers in the Netherlands and Germany by Q1 2024.