Around the Baltic Sea, nearly 300 projects are underway focused on the production of hydrogen-based fuels which, in theory, could in the future correspond to up to 75 percent of shipping’s use of fossil fuels in Europe. In practice, however, the transition is slowed by high costs, limited demand, and weak policy instruments. This is shown by a new report that examines Baltic Sea ports’ readiness for electrofuels – from infrastructure and bunkering to the future availability of hydrogen.

“I was surprised that so many projects are underway, almost 300, in the eight countries around the Baltic Sea included in the study. I would never have guessed that. Most of them are still in planning or pre-study phases, and many will probably not be realized. But it still shows that there is very strong interest among energy companies and ports, despite the fact that there is currently something of a dip in the curve when it comes to green investments,” says Linda Styhre of IVL Swedish Environmental Research Institute, one of the researchers behind the report H2-Derivatives Market Demand Analysis for Baltic Sea Ports.

The report, produced within the H2Deri@BSP project and funded by the EU’s Interreg Baltic Sea Region programme and the Swedish Transport Administration, describes electrofuels – that is, hydrogen derivatives such as electro-ammonia, electro-methanol, and renewable hydrogen – as potential alternatives to conventional marine fuels. However, development is still at an early stage, and only around 2 percent of the planned production capacity is currently operational. If all planned projects were realized, the equivalent of 31 million tonnes of marine gas oil could be produced after 2030, compared with the approximately 40 million tonnes currently used by shipping within Europe.

“The global fleet uses between 220 and 280 million tonnes of fuel per year, so the potential is large even if we believe that only about 7–25 percent of the projects will be realized under current conditions. But the electrofuels that may be produced are also needed in other industries, such as the steel industry. The report’s mapping shows that shipping is intended to be the end customer for roughly a quarter of the planned volumes. However, this varies between countries. In Sweden, there is quite a strong focus on shipping, whereas in, for example, Poland, the focus is solely on industry,” says Karl Jivén, also a researcher at IVL who contributed to the study.

Within the EU, there has previously been much discussion about electrofuels primarily needing to be imported. However, the study shows that the conditions for domestic production are very good, for example in northern Sweden and northern Finland. These regions have access to green electricity, water, large land areas, and biogenic carbon dioxide, which is uncommon further south on the European continent.

“The cost picture is problematic, though. For example, it is much more expensive than producing biofuels, at least as things look today. But no one knows what it will look like in the future, and electrofuels and biofuels do not compete with each other in terms of production. Our view is that many different types of fuels will be needed. The volumes of fuel that need to be replaced are simply enormous,” says Linda Styhre.

Denmark and Finland are leading the way and dominate development, while countries such as Poland and the Baltic states are at an early stage.

“We are also lagging behind our neighboring countries. In Finland and Denmark, there are not only more projects, they also have hydrogen strategies with clear targets for what they want to achieve in the future. That is lacking in Sweden. We are also not expanding wind power as Denmark is, where there is a completely different drive and level of engagement on the issue,” says Linda Styhre.
As mentioned, producing electrofuels is expensive. For them to gain traction in shipping, strong policy instruments are therefore required. FuelEU Maritime and the EU ETS are good and important, but in the short term they are too weak to truly drive the transition in shipping, explains Linda Styhre.

“As a result, there is no great urgency to transition. Shipping companies can cope through pooling (the mechanism whereby emissions from multiple vessels are combined to offset overperformance with lower emissions against underperformance with higher emissions, editor’s note) or by running on LNG all the way to 2035. This means that demand for renewable fuels fails to materialize, which in turn makes energy companies hesitant. Quite simply, stronger – and also global – policy instruments are needed.”

The report H2-Derivatives Market Demand Analysis for Baltic Sea Ports – hydrogen derivatives for marine fuels was authored by Linda Styhre, Elin Malmgren, Karl Jivén, Ignė Stalmokaitė, Nils Jutblad, and Michael Priestley.