The growth of the synthetic methanol sector has slowed as it faces growing competition from LNG in the maritime fuels markets and pushback from offtakers unwilling to pay a green premium, according to German utility Uniper.

Uniper is investing in production of the green fuel, with a strong focus on the Nordic region as it has the “key ingredients” for synthetic methanol production: competitive power prices, decent access to power grids and available sources of biogenic CO₂, Sebastian Groeblinghoff, the company’s vice-president of Nordic green fuel assets, told the World Hydrogen Congress in Copenhagen.

Earlier this year, Uniper signed an agreement with Swedish municipal energy company Jamtkraft AB to develop NorthStarH2, a CCUS and e-fuel methanol production project in the municipality of Ostersund. At full scale, the project could produce up to 100,000t/yr of synthetic methanol.

“In the shipping industry, LNG is picking up again and driving out methanol” Groeblinghoff, Uniper

However, the company, which was forced into German state ownership in 2022 after losing its supply of Russian gas, is struggling to secure offtake deals, hampering its efforts to progress projects, Groeblinghoff said.

“We do see in the shipping industry LNG is picking up again and it is driving out methanol a bit at this point in time,” he said. “Development activity has slowed. One key challenge is that we have significant problems with the offtake side.” Prices for the green fuel are “too high” in the current market, he said.

LNG offers some carbon savings against heavier maritime fuels, and is roughly 30–40% cheaper than synthetic methane, which is produced from green hydrogen and CO₂, he told Hydrogen Economist on the sidelines of the conference.

Penalties

Dan Feldman, global head of energy at law firm King & Spalding, suggested the recent price transparency provided by auctions, and the prospect of having to pay penalties for non-compliance with the EU’s Renewable Fuels of Non-Biological Origin (RFNBO) mandates and carbon taxes, could be sufficient to convince consumers to pay up for synthetic methanol. EU member states are expected to announce RFNBO penalties by the end of the year. “The value of these molecules essentially is a way to avoid a carbon tax and RFNB penalties,” he said

Groeblinghoff responded that, despite the penalties, it remains challenging to persuade shipping companies to make long term offtake commitments.

Danish renewable energy company Orsted has recently halted construction of Europe’s largest synthetic methanol production project, citing the slower-than-expected development of Europe’s green fuels markets.

The FlagshipONE project, based at Ornskoldsvik in northern Sweden, had been scheduled to start up in 2025, with initial output of 55,000t/yr of e-methanol produced from electrolytic hydrogen and biogenic CO₂.

Orsted’s decision to abandon the project more than a year into its construction has resulted in it booking a DKK1.5b ($220m) impairment loss.

Mind the gap

Uniper said policy and market conditions need to improve for the wider clean hydrogen sector. The industry faces a “huge financial gap” between production costs and offtakers’ willingness to pay, said Christian Stuckmann, vice-president of hydrogen business development. The hydrogen sector will require the “synchronised development” of production, demand and infrastructure, he told the conference. He highlighted public budget constraints in Germany as a challenge for the sector as it seeks greater support.

The lack of a liquid trading market for hydrogen is also problematic, as this prevents suppliers from hedging price risk and deprives buyers of price signals. Uncertainty over the credit rating of potential offtakers also presents a challenge and should be addressed by policymakers. The bureaucracy involved in applying for subsidies should be streamlined, he said, as this would make it easier for developers to have “a free run to scale up production.”

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Author: Stuart Penson