E-fuels ramp-up to provide competitive alternative fuel for aviation, shipping as supply scales: IEA

A wave of new renewable electricity capacity could propel lower prices for sustainable 'e-fuels' in the transport sector, mitigating the price impact for end-consumers, the International Energy Agency said in its December report.

'E-fuels', or fuels made from electrolytic hydrogen, offer one of the few scalable solutions for the hard-to-abate aviation and maritime sectors, leaving both uniquely exposed to price dynamics as regulatory requirements tighten.

To date, 90% of announced e-fuels projects have focused on e-ammonia, while e-kerosene and e-methanol, which rely on CO2 feedstock to produce, have lagged.

The IEA underscored the importance of government regulations to provide demand certainty for 200 e-fuels projects under development, while remaining optimistic that price shocks to end-consumers could be minimal as e-fuel uptake scales.

E-kerosene to rival SAF prices by "end of the decade"

With limited options to decarbonize and a 35% EU target for low-emission e-fuels by 2050, the nascent e-kerosene market is a particular focus for the aviation sector.

The IEA said that the cost of e-kerosene could rival biomass-based SAF "by the end of the decade", driven by the development of electrolyzer capacity and design optimization.

It estimated that the cost of low-emission e-kerosene could be reduced to USD 50/GJ (USD 2,150/t), below current levels for biomass-derived sustainable aviation fuel (SAF). Platts assessed level for CIF Amsterdam-Rotterdam-Antwerp SAF at $2847.75/mt Jan 3. Platts is a part of S&P Global Commodity Insights.

The IEA said that at its forecast levels of $2,150/t, e-kerosene would remain 2-3 times more expensive than fossil jet, however, it would increase airline ticket prices by just 5% when blended at a 10% ratio with conventional jet fuel.

"As a rough estimate, a 5% overall increase in ticket prices as calculated above would reduce travel demand by about 0.5-0.8%," the IEA said in its report, expecting low-price elasticity. It suggested that higher fuel costs could also be levied disproportionately on first class and business segments.

Consumers to feel limited impact of 75% shipping cost spike

In shipping, e-ammonia and e-methanol are both focal points for the energy transition, particularly for long-range container voyages.

According to the IEA, a pivot to low-emission e-fuels could drive container shipping costs 75% higher, after accounting for required vessel modifications and fuel costs.

Despite the headline increase, however, the IEA said the high overall value of transported goods would see price rises equate to less than 1% of cargo value, and associated price increases passed on to the consumer.

"If the added costs from low-emission e-ammonia (both fuel and infrastructure) would be fully allocated to customers (like the members of the Zero Emission Maritime Buyers Alliance), it would increase, on average, the shipping cost of one TEU by about USD 250," said the IEA.

"This would add less than one cent to the cost of an avocado or an iPhone and around USD 1.50 to a 2m x 1m solar panel module," it said.

While e-ammonia is cheaper to produce than e-methanol, a more familiar fuel to the maritime industry in its 'grey' fossil-derived form, higher adoption costs for ammonia could level the price environment for the future fuels.

According to S&P analytics, there are currently 20 specific methanol carriers in the global fleet, with an additional 30 in the orderbook. The inaugural ammonia newbuilds aren't expected to pilot until later in 2024.

Green hydrogen capacity requirements

Renewable electricity requirements for large volumes of e-fuels could reach around 2,000 TWh/year by 2030, the IEA said in the report.

That would amount to around a fifth of the growth in low-carbon power production to 2030 under the IEA's Stated Policies Scenario, it said.

Additionally, over 400 GW of electrolyzer capacity would be needed to produce enough hydrogen for a 10% e-fuels share in aviation and shipping, equivalent to the entire global green hydrogen project pipeline to 2030, the IEA said.

While 31.6 million mt of new low-carbon hydrogen capacity was announced in 2023, with 29.1 million mt of this being electrolysis-based, the vast majority of announced capacity is in the early stages of development, S&P Global Commodity Insights analysts said in the latest Hydrogen Market Monitor.

S&P analysts underscored the impact of government policy in driving new capacity, noting the efficacy generous tax credits for low-carbon hydrogen and renewables production under initiatives such as the US Inflation Reduction Act (IRA). Moves from other jurisdictions, including the EU and Australia, are expected to add momentum.