Future Fuel Talks: Global e-methanol prices should come down with scale in few years – Liquid Wind

Efficient operations and lower capital costs could help reduce the levelised cost of e-methanol to €1,000/mt ($1,317/mt), while still “protecting investor returns," Liquid Wind’s chief executive told ENGINE.

IMAGE: TSE's power plant in Nådendal, Finland, where Liquid Wind and TSE plan to build an e-fuels production plant. Liquid Wind

Claes Fredriksson, founder and chief executive of Liquid Wind, is targeting a sharp reduction in e-methanol production costs as the company scales up.

Liquid Wind develops modular plants, each designed to produce 100,000 mt/year of e-methanol to meet demand from shipping and other sectors. Five plants have already been announced in the Nordics, with ambitions to reach 80 plants and 8 million mt/year of annual capacity by 2030. By 2050 there could be 500 plants.

Securing financially viable offtake agreements is crucial in the early phase, Fredriksson said in an exclusive interview with ENGINE. He expects shipping companies' interest in long-term deals to accelerate between 2028-2032, once early projects demonstrate operational success.

To support these agreements and enable more attractive pricing, Liquid Wind already offers long-term offtake contracts with “competitive price ranges for European e-fuels” and is in “mature discussions with traders to offer offtakers shorter period options.”

Fredriksson added that the levelised cost of e-methanol could reach parity with bio-methanol by the 2030s. Levelised cost is the average cost to produce each unit of fuel over the lifetime of a project, factoring in investment, construction, inputs, operation and maintenance.

You’ve set a target of 500 e-methanol plants by 2050, potentially yielding around 50 million mt/year based on your modular unit capacity. What share of that output is expected to be allocated to the maritime sector?

Our vision is to see a world without dependency on fossil fuel, and within that non-dependency we want to play a key role by creating a large pool of methanol availability. We have set a target of developing 500 plants, which would collectively produce around 50 million mt/year of e-methanol by 2050.

When we ran the numbers for the shipping sector, that 50 million mt/year would cover about 8% of the total shipping market converted to e-methanol. This estimate is based on the deployment of those 500 units. So while it may seem like a relatively small share of the overall market, it still represents a significant contribution, and planning for it involves a lot.

As we continue our work, we now see that aviation fuel and methanol-to-jet are emerging as additional possibilities. We are also seeing signs that the road transportation fleet could eventually adopt e-fuels.

Because of this, the number of plants required could increase rather than decrease. Instead of 500 units, it could be somewhere in the range of 1,200 to 3,000 plants. Whether we will be able to build all of them ourselves, or whether others will join us in doing so, remains to be seen. But the point is that the need to convert fossil fuel is phenomenally large.

Nobody really knows how quickly we can do it. But we are committed to doing our part, starting by developing a number of plants ourselves in the Nordics. From there, we aim to package the learnings into what we call a core methanol plant concept, which can then be offered to other developers for implementation in other countries.

What metrics or signals are you using to evaluate whether the 500-plant target is realistically achievable?

Yeah, so in shipping, we account for roughly 300 million mt/year of fuel consumption. If we were to convert all of that to methanol, it would represent around 600 million mt/year of methanol. Within that, as I said, we would be targeting 50 million mt/year, which would account for about 8% of the total.

That’s the metric we’ve used on the shipping side, and we could apply a similar calculation to aviation, which would give us another 500 or so plants, again taking a sub-10% market share in that sector.

Then there was also a recent study indicating that the European Union believes that, from all the liquid fuels used in Europe, it’s likely, or at least possible, that 50% could convert to e-fuels by 2050. If you take the 500 million mt/year of fuel consumed in the EU and convert that to methanol, you will have to double the volume, reaching around 1 billion tonnes/year of methanol. Then the question becomes: how much of that share could we capture?

So, I think the conclusion is that no matter what metrics we use, the number of plants required to meet future e-fuel demand will be phenomenally large. The real issue will be how to find enough electricity – at a reasonable price, in reasonable locations - along with the CO2 needed to make this happen.

IMAGE: World map showing e-methanol plants to be built by 2030. Methanol Institute via Gena Solutions

What kind of geographic spread are you targeting for these plants – will they be concentrated in EU countries, or diversified across multiple continents?

I believe that we will spread across the world, starting with the low-hanging opportunities.

We are starting in the Nordics, primarily Sweden and Finland, where we have relatively low-cost power and good availability of biogenic CO2. After that, we will likely move on to Canada, where the circumstances are similar, and then to Brazil, which also offers comparable conditions. I think there are also a number of opportunities in India, where you have availability of biogenic CO2 and [renewable] electricity.

As renewable electricity continues to develop, we will also see a shift driven by the availability of daytime power, and in parallel, the cost of the equipment for producing e-fuels will come down.

This will allow us to deploy equipment in more and more places that initially would not have been economically viable. As we continue to develop the technology and reduce its costs, we will become viable in even more locations.

So, my long-term view is that, given enough time, we will see e-fuel plants more or less everywhere around the world.

What is your projected delivered cost of e-methanol ($/mt) to major bunkering hubs like Rotterdam, Singapore or Fujairah and do these future price estimates account for potential global regulation benefits?

We have a target of getting the production cost and the levelised cost of methanol to €1,000/mt ($1,317/mt) of fuel. [This is roughly $2,318/mt on a VLSFO-equivalent basis.]

That's where we're aiming today. Right now, we are quite a bit higher than that, but we want to get to €1,000/mt while protecting investor returns. We think it's reasonably possible to do that. Whether that's going to be enough for people to be willing to buy depends a lot on what they are comparing with and what the market situation is in their region.

In Europe, for example, we are looking more at energy security and there may be more willingness to pay a premium for security of supply. Previously, we talked about a "green premium"; now, I think we are talking about a "security premium". In other markets, buyers may not be as willing to pay that premium.

On the other hand, mandates are coming. You have the Renewable Energy Directive (RED III) requirements and the ETS coming into force in Europe, so that would be added on top of whatever our base price is.

That means we can potentially achieve a sufficient price level when compared to alternatives. For instance, if you can buy cheap oil, you would have to add your ETS cost. But then our price would come down and meet you at a competitive level.

We believe we could reach price parity with biomethanol sometime in the early 2030s.

Before then, we will be at a higher price. But hopefully there will be enough willingness to pay for a security premium or a green premium in some markets so that we can get our business going.

What specific factors (e.g. renewable energy input costs, production scale, bunker logistics) could realistically bring e-methanol prices to parity with fossil fuels, or even with other green fuels like biofuels or bio-LNG, by 2030 and 2050?

It really comes down to the efficiency of the production process, which uses quite a bit of electricity. We will continue to use that electricity, but electrolyser efficiency will improve over time. This means we will be able to get more methanol out of every kilowatt-hour of power going in. We will also be able to get more kilowatt-hours at a lower capital cost on those electrolysers. So, power efficiency and capital costs are key factors – the efficiency of power usage and the cost of producing it.

Another factor is steam requirements. Today, we need some steam for carbon and CO2 separation. We believe we can significantly reduce, or almost eliminate, that steam requirement. So with just these two factors - more efficient operations and lower capital costs - we are confident we can reach the €1,000/mt target.

In addition to that, electricity pricing will also play a major role. If we can secure electricity at lower costs, which is often possible during certain parts of the day or year, that will help even further. But in the long run, electricity will have a certain minimum cost because otherwise that power could be used for something else.

We are using a reference figure of less than €40/megawatt-hour (MWh) as the electricity cost, we think we will need to pay.

Electricity prices amount to nearly 50% of the levelised cost of methanol. If we can access markets, in the solar belt or elsewhere, where electricity costs could drop below €25/MWh, we could bring costs down even further.

Is your ambition of 500 plants conditional on securing financially viable offtakers?

I mean, that's absolutely essential. Especially in the beginning. This is the hardest part because we don't really have a market yet. We don't know exactly what the price point can or should be. So, yes, it’s critical that we have some key offtakers who step forward, believe in what we are doing, and want to be part of it.

They may or may not be backed by a government support mechanism, but absolutely, we need them. It's only when we have those offtakers that we can confidently develop a plant, or find an investor willing to finance it, and secure the necessary power, and so on.

We can prepare a lot beforehand, but once we start building a plant, everything needs to be lined up.

If we can secure one, two, or three early offtakers who see that we are successful, we believe they will come back and then we’ll likely see a catch-up effect, with a lot of activity happening in a relatively short time.

I think we’ll see that the real take-off period will be between 2028 and 2032 when things start happening. It’s only once we have delivered and started operating a few plants that the people who are not early adopters, the ones who need to see and touch it, will gain confidence. When they see it operating successfully, I think we will see huge development towards the end of that period.

When you talk about securing financially viable offtake agreements, what price point are you talking about? Even if large-scale e-methanol production is still ramping up, what does a financially viable contract look like today, and how does that compare to your future target of €1,000/mt?

Actually, we are already selling today. We are currently offering long-term offtake agreements with competitive price ranges available in European e-fuels. Our goal is to reach €1,000/mt over time by securing offtake at a reasonable price point in order to generate a bankable return and move forward to developing the next facility.

There will still be additional costs for logistics, storage, and so on. But achieving a meaningful reduction by 2030 would be a realistic target. At the moment, prices are a bit higher, but we will see methanol prices eventually fall.

There could be heavy demand initially, and the energy security premium could push costs higher in the short term. Nobody really knows if demand increases, particularly in the shipping market, where methanol could become a major fuel, we could see price increases for a certain period before stabilisation.

Do you foresee a spot market emerging for e-methanol in the maritime sector, or will long-term contracts and offtake agreements remain the dominant model over the next 10-15 years?

I think a spot market is always created when there are enough players in the market.

Right now, we need to secure offtakes in order to build the business, so we don't really have a spot market yet. But I hope, and believe, that we will see a spot market develop. We are also working towards creating a market and establishing a category for e-fuels that will be attractive. We definitely want to move in that direction.

By Konica Bhatt

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