Governments must scale up tenders for offshore wind and other renewables to help keep the transition to green hydrogen and ammonia for zero-carbon shipping on track amid the deepening global energy crisis, according to commodities trader Trafigura.

A surge in oil and gas prices since Russia’s invasion of Ukraine means electrolyser-based projects will increasingly have to compete with other industrial and household consumers for cheaper green power, pushing up costs, Rasmus Bach Nielsen, global head of fuel decarbonisation at Singapore-based Trafigura, tells Hydrogen Economist in an interview.

Electricity is the main operating cost for green hydrogen production. The European Commission has proposed doubling the EU’s target for domestic hydrogen production and dramatically increasing imports as part of a plan to make Europe independent of Russian gas well before 2030.

“It is incredibly important that governments immediately escalate tendering of offshore wind,” Bach Nielsen says. “There is a significant shortage of green electricity, and higher fossil energy costs make renewable energy and hydrogen more cost-competitive.”

14GW – Amount by which Denmark could increase offshore wind capacity

Green hydrogen projects in the EU also face constraints on the renewable generation they can source under additionality rules set out under the Renewable Energy Directive.

The European market has an appetite for much larger deployment of offshore wind than is on the table in some countries, according to Bach Nielsen.

“The market is willing, able and ready to take on significantly more green electricity,” he says. "Some countries could be much more ambitious in the speed of tendering out offshore wind projects, while fast-tracking permitting would further support the energy transition.”

The IEA has called for an acceleration of wind and solar deployment as part of a strategy to reduce reliance on Russian gas.

Trafigura is investing in several green hydrogen and ammonia projects, including a $1bn green hydrogen facility in Esbjerg, Denmark, which is under development by H2 Energy Europe—a joint venture between Trafigura and H2 Energy. 

Trafigura has urged the Danish government to scale up its ambitions in offshore wind, which include a tender for a further 2GW this year. Bach Nielsen, who sits on the board of the Esbjerg project, says Denmark could realistically increase the amount of capacity offered to as much as 12-14GW.

Trafigura also has a share in the Iverson eFuels green ammonia project, which will be based in the municipality of Sauda on the southwestern coast of Norway. The initial capacity of the plant will be 210,000t/yr, but the developers see potential to scale up capacity to three times that level in the future. 

“It’s a very, very significant project,” says Bach Nielsen, who is on the board of this development as well.  

Offtake deals

In addition to the surge in energy costs, one of the biggest challenges facing green ammonia projects is securing offtake deals with a shipping sector that is not yet incentivised sufficiently to switch to green fuels, according to Bach Nielsen. 

“If you do not have an offtake, you cannot expect to go to a bank and ask for funding because the cashflow is not there,” he says. “This is a problem that the whole industry will have. And this is why we are so adamant that we need a regulatory framework incentivising the use of zero-carbon fuels so it becomes feasible to pull the trigger on offtaking the fuel so we can make them available to the industry.”

Trafigura, one of the world’s largest ship charterers and responsible for more than 4,000 voyages a year, is a leading proponent of the introduction of a carbon levy via the International Maritime Organization. It supports a levy based on a carbon intensity benchmark. Funds collected from shipping that exceeds the benchmark would be channelled back into the industry to subsidise ships using zero-carbon fuels such as ammonia. 

“So then you can take from here and give to there, just like the California low-carbon fuel system,” says Bach Nielsen.

“It is incredibly important that governments immediately escalate tendering of offshore wind” Nielsen, Trafigura

The capex for a medium-size tanker to run on green fuel is around 10-15pc higher than the equivalent vessel to run on fossil fuel, with the premium covering the costs of the engine upgrade and the need for more than twice the bunker storage capacity.

“The engine itself is potentially not significantly more expensive, but it will need to be dual-fuel because initially there will not be sufficient global availability of the zero-carbon fuels, so you need to have a backstop, which is the fossil fuel,” Bach Nielsen says.

Trafigura, which has committed to convert six vessels—or about 18pc of its own shipping fleet—to zero-emission fuels by 2030, is co-sponsoring the development of an ammonia-fuelled engine for maritime vessels by Germany-based Man Energy Solutions.

---

Author: Stuart Penson