Trafigura points to Global South’s potential in decarbonising shipping with Hydrogen-based fuels

Swiss commodity trading house Trafigura has released new research emphasizing the pivotal role that hydrogen-based fuels will play in decarbonising the shipping sector. The study highlights the significant potential for countries in the ‘Global South’ to produce green ammonia and green methanol, meeting the increasing global demand for low-emission fuels.

While technology such as onboard carbon capture and biofuels have a role to play, ultimately the only way to achieve deep decarbonisation of shipping is by switching to low-emission fuels, Trafigura said.

The utilization of LNG as a marine fuel, coupled with the implementation of innovative approaches like decarbonizing liquefaction, has the potential to reduce life cycle greenhouse gas (GHG) emissions by approximately 20 percent to 25 percent. As such it falls short of meeting the growing societal demands for a comprehensive and expeditious decarbonization of the shipping industry

According to the research findings, the ‘Global South’ has the capacity to produce nearly 4,000 exajoules per year of competitively priced green hydrogen, surpassing the projected annual shipping demand of 20 to 40 exajoules.

The analysis shows that there is potential to produce large volumes of so-called electrofuels in Africa, Asia and South America, to meet future demand from the shipping industry and provide countries in these regions with the chance to develop new export industries and create thousands of skilled jobs.

Drawing on the work of IRENA, Trafigura found that sub-Saharan Africa could produce up to 1,923 exajoules per year of competitively priced green hydrogen. High potential regions could produce up to 3,852 exajoules per year of competitively priced green hydrogen, equivalent to 6.5 times primary energy consumption in 2021.

Well positioned nations, according to Trafigura research, include, but are not limited to, Argentina, Brazil, Chile, Colombia, Egypt, India and Morocco.

These countries have access to abundant sources of renewable energy that could be used to produce green hydrogen – the main feedstock needed to produce electrofuels such as methanol and ammonia for shipping.

“This could provide developing countries with the chance to develop new export industries and create thousands of skilled jobs,” said Margaux Moore, co-author and Head of Energy Transition Research and Venture Investments at Trafigura. 

“It will, however, only be realised if the shipping industry can agree on ambitious decarbonisation targets and, crucially, implement a global price on carbon for marine fuels.”

The whitepaper said that the electrofuels produced in the Global South could be two times more competitive than those produced in Europe. At USD2.00 per kilogramme of green hydrogen, the estimated production costs of electrofuels in the Global South is approximately USD 750 per tonne, whereas in Europe, with higher electricity prices, it would be closer to USD 1,200 to USD 1,500 per tonne.26

Even at USD4.00 per kilogramme of green hydrogen, electrofuels produced in the Global South would still be 20 percent cheaper than electrofuels produced in Europe, where the cost is assumed to be USD5-6 per kilogramme for green hydrogen.

In comparison, long-term contracts for Very Low Sulphur Fuel Oil (VLSF) are currently pricing between USD 600 and USD 800 per tonne. When adjusted for energy density, the electrofuel alternative is 4 times more expensive in Europe and 2 times more expensive in the Global South compared to VLSF, highlighting the need for a price on carbon to ensure a level playing field.

“In our view, hydrogen produced in Europe will be used domestically to decarbonise heavy industry and will be transported mainly by dedicated pipelines,” the paper said.

However, the realization of this potential hinges on the shipping industry’s ability to agree on ambitious decarbonisation targets and, critically, implement a global price on carbon for marine fuels.

“The decarbonisation of the shipping industry must happen in a global way. We cannot afford a two-tiered transition. There is significant potential to produce hydrogen-based fuels in the Global South but that won’t become a reality unless we can close the cost gap between bunker fuels and low-emission alternatives. 2023 presents a window of opportunity to make that happen. We must not waste it,” said Moore.

The International Maritime Organization (IMO) is presently revising its initial GHG strategy, and experts believe that 2023 presents a vital window of opportunity to set a zero or minimum net zero greenhouse gas (GHG) emissions target by 2050. Additionally, setting ambitious goals for 2030 and 2040 is crucial.

By adopting and implementing demanding science-based decarbonisation targets within its revised GHG Strategy, the IMO can expedite the development of low- and zero-emission fuels while establishing global fuel standards. Such actions will attract the necessary investment to transform the infrastructure of the global shipping industry, facilitating large-scale retrofits or the construction of new ships.

To align the industry with the Paris Agreement, expert groups such as the Global Maritime Forum, argue that scalable zero-emission fuels18 need to make up at least 5 percent of the “bunker market” by 2030, from virtually nothing today, and rising to 27 percent by 2036.

The paper’s authors believe 5 percent zero-emission fuels in the shipping industry by 2030 is realistic and possible. But given the long lead time needed to bring projects into production, at least three to five years of development and construction, decisions need to be taken now otherwise the 2030 milestone will not be reached and a chance to scale up low-emission shipping fuels will be missed.

As such, there is a pressing need for the IMO to introduce a mandatory carbon levy by 2025 to address the price gap that exists between the fuels currently used to power ships and hydrogen-derived alternatives.

“Delaying action will only add to the eventual cost of decarbonisation. The IMO needs to decisively move forward to tackle the shipping industry’s emissions and start the journey to a sustainable and resilient future,” added Rasmus Bach Nielsen, Global Head of Fuel Decarbonisation at Trafigura and co-author of the whitepaper.