Alternative fuels – a transition from fossil fuels

January 2025  |  SPECIAL REPORT: ENERGY & UTILITIES

Financier Worldwide Magazine

January 2025 Issue

The global energy landscape is undergoing a significant transformation as countries and industries seek to reduce their carbon footprints. It is generally not possible for certain economies (especially the developing ones) to jump straight to ‘net zero’. There needs to be some form of transition to more sustainable energy sources, while not undermining economic growth.

There are many alternatives that are being tested, subject to pilot projects, in the development and even in the uses of such alternatives as transition fuels.

Transition fuels are a relatively new concept which potentially offers alternatives to fossil fuels while allowing countries to lower their carbon footprint. Hydrogen and ammonia (both as a hydrogen carrier and an alternative fuel) have emerged as promising candidates.

But are alternative fuels, such as hydrogen and ammonia, a viable (and long term) solution to meeting carbon targets while, at the same time, ensuring energy security and allowing for economic growth? A consideration that is particularly crucial for the Asia-Pacific (APAC) region generally, as certain nations within this region lag significantly behind other developed economies of the world.

This article explores the potential of these alternative fuels, their market dynamics and the efforts of various countries to drive the global hydrogen economy.

Hydrogen. Hydrogen is certainly a very good candidate as an alternative fuel. It has all the relevant characteristics (it can be produced from a variety of sources, including natural gas, water and biomass) and when used as a fuel, hydrogen produces only water vapour as a byproduct.

That is not to say that there are no challenges with the production, transport and use of hydrogen as a fuel (it is volatile and needs to be super cooled to transport by ship). This is aside from associated challenges with development in infrastructure, supply chains and a trading market.

But what is driving this push for a hydrogen economy? In our view, the key drivers for developing a hydrogen economy include decarbonisation goals, energy security, technological advancements, government policies and incentives, industrial demand and international collaboration.

Of course, utilising green hydrogen is optimal for reducing carbon emissions. However, its production, storage and transportation are not without unique challenges (one of the main challenges are financing and costs in relation to the foregoing). Compared to other existing fuels, green hydrogen, which is produced using renewable energy, remains expensive, leading to more project cancellations than those reaching final investment decisions. The funding for hydrogen projects is nascent and limited due to challenges in proving the bankability of ‘clean’ or low-carbon projects and solutions, which is crucial for their success and ongoing use in the future.

Viable hydrogen infrastructure is needed to transport green hydrogen from production facilities to end-use points. Developing the necessary infrastructure to produce, store and distribute green hydrogen is complex and costly, which again leads to issues of financing such projects.

While the cost of utilising renewable energy (particularly solar) and the costs relating to the technology to produce green hydrogen are certainly declining and the technology is more readily available in recent years than before, the cost reduction has not necessarily channelled down to the various green hydrogen projects currently under development. What is required is an accelerated boost in renewable energy investment, including efforts to decarbonise certain sectors and develop appropriate infrastructure and systems within and across countries.

In short, not all potential applications of hydrogen are economically viable at present. For example, using hydrogen for light-duty vehicles and heating in buildings is less promising compared to other applications, such as fuel for power stations and powering vessels.

Ammonia. Ammonia, composed of nitrogen and hydrogen, is a highly versatile compound. It can be a carrier (hydrogen production), and it is also a promising fuel when used directly in internal combustion engines or blended (or directly injected) into gas turbines. What makes ammonia so versatile is its high energy density, and the fact that it can be easily stored and transported.

In addition, there is an existing global ammonia market (and has been for quite some time). With the existing infrastructure and transportation for the production, transport and offtake of ammonia, this becomes important as it can allow for mitigation of any offtake issues for developers and buyers and offtakers, for example, a failure to produce and supply or a failure to offtake. These issues can be mitigated by selling the ammonia into the ammonia market instead of the hydrogen market.

That said, in order for ammonia to truly be a transition fuel, it needs to be produced from renewable sources (such as solar), as the current ‘grey’ process for producing ammonia is highly energy intensive and usually relies on gas as a fuel.

Although ammonia has an existing market and perhaps currently, the ‘easiest’ and cheapest means of storing and transporting hydrogen, challenges remain, such as ‘cracking’ the ammonia into hydrogen molecules. Moreover, substantial investment and funding are still required, and further development of renewable resources is needed.

Market developments

Despite the challenges associated with hydrogen and green ammonia projects, the hydrogen and green ammonia economy is very much alive and continues to gain momentum. There are many opportunities to develop or invest in such projects.

In the APAC region, for example, a number of projects are being developed, as outlined below.

Singapore has launched its national hydrogen strategy to advance the country’s domestic hydrogen and infrastructure development, as well as building a regional hydrogen supply hub. Some projects and plans include the Keppel Sakra Cogen Plant, a hydrogen-ready power plant on Jurong Island which is expected to be operational by 2026 and plans to develop Singapore as a hub for hydrogen and green ammonia bunkering.

Indonesia has developed a national hydrogen strategy, which was released in 2023 and outlines a comprehensive plan to integrate hydrogen into the country’s energy mix and support its decarbonisation goals.

Australia has developed a national hydrogen strategy and regulations which are designed to position the country as a global leader in hydrogen production, use and export. Some projects include the Arrowsmith Hydrogen Project in Western Australia which is focused on renewable hydrogen production for mobility and power use, and Bell Bay Powerfuels Project – a large-scale renewables-based hydrogen and e-methanol facility in Tasmania.

Japan is one of the main drivers of the hydrogen economy. The country has set a target to achieve a complete hydrogen society by 2050. This ambitious goal includes decreasing the price of hydrogen by 90 percent and collaborating with other countries, such as Australia, to establish a robust hydrogen supply chain. Japan’s hydrogen strategy involves significant investments and collaborations. For instance, Kawasaki Heavy Industries is working on establishing a hydrogen supply chain connecting overseas to Japan. This includes developing liquid hydrogen storage tanks and collaborating with CB&I on technology and marketing.

Korea’s hydrogen strategy includes significant investments and collaborations. The ‘2019 Hydrogen Economy Roadmap’ outlines a new hydrogen policy that aims to establish a hydrogen supply chain and nurture a world-leading green hydrogen industry. Major companies like SK, Hyundai Motor, POSCO, Hanwha and Hyosung have pledged to invest approximately $33bn through to 2030 in all areas of the hydrogen supply chain. Additionally, South Korea and Chile signed a memorandum of understanding in 2021 to expand cooperation in the low-carbon hydrogen sector.

Therefore, despite the issues highlighted in this article, the hydrogen and ammonia markets are maturing. There is a growing number of viable use cases, coupled with customer demand that can only assist with the continued development of a global hydrogen and ammonia economy.

Conclusion

Hydrogen and ammonia should be a part of a company’s or country’s arsenal to tackle decarbonisation. Including transition fuels in a company’s or country’s arsenal to tackle decarbonisation is essential. Although green hydrogen and green ammonia are currently rather nascent, they are (in their own right) more than transition fuels as they offer a bridge toward a more sustainable energy source while not largely impacting long term economic growth.

These fuels play a crucial role in supporting energy security and economic growth by utilising existing infrastructure while reducing carbon emissions. But to truly benefit from these transition fuels, it is essential to produce them from renewable sources, thus ensuring their role in reducing overall carbon emissions.

Transition fuels will assist with reaching ‘net zero’, though not on their own; they are not a panacea. They do, however, play an important part in allowing for a transition which accounts for energy security and economic growth.

Reaching ‘net zero’ involves many factors and will be subject to each country either having achieved a net-zero status which has been externally validated or self-declared. There are discussions on a third method whereby net zero can be achieved through a declaration or pledge. Whichever way, it is important to understand that the criteria for net-zero commitments will differ between countries, and a ‘one size fits all’ approach does not work.

The Paris Agreement aims to limit global warming to well below 2 degrees Celsius above pre-industrial levels and pursue efforts to keep the temperature increase to 1.5 degrees Celsius. The United Nations estimates that at the current rate there will only be a 2.6 percent decrease in global greenhouse gas emissions by 2030, compared to 2019 levels. To reach no more than 1.5 degrees Celsius, emissions need to be reduced by 43 percent by 2030 and reach net zero by 2050.

 

Marc Rathbone is a partner and Rheinny Wiraatmadja is a counsel at CMS. Mr Rathbone can be contacted on +65 6422 2824 or by email: marc.rathbone@cms-cmno.com. Ms Wiraatmadja can be contacted on +65 6422 2849 or by email: rheinny.wiraatmadja@cms-cmno.com.

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Marc Rathbone and Rheinny Wiraatmadja

CMS

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