INSIGHTS: Sweden’s Alternative Fuel Development Faces Wider Market Hurdles

Despite becoming a major developer of alternative fuels for the maritime sector, Sweden is facing limited access to the wider European market. Nils Igelström, Managing Director of GAC Sweden, discusses the need for greater clarity to prevent shipping’s energy transition stalling.

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Sweden is in a very strong position to support the maritime sector’s alternative fuel development. Tied closely to the country’s own goal of reaching net zero by 2045, it is investing heavily in infrastructure project to develop biofuels, liquefied biogas and natural gas, and synthetic fuels that will be viable for commercial shipping.

Some of the recent developments support the country’s ambition to become a net exporter of greener fuel options to the rest of Europe and beyond.

For example, in May 2023, Sweden broke ground on the FlagshipONE facility in Örnsköldsvik with ambitions of reaching annual production of up to 50,000 tonnes of eMethanol, a carbon-neutral fuel produced by combining captured carbon dioxide with green hydrogen, making it viable for commercial shipping. In February 2024, Swedish energy company Jämtkraft AB launched NorthStarH2, a new facility that aims to produce up to 100,000 tonnes of eMethanol each year to further Sweden’s green electricity supply and offer the alternative fuel for commercial distribution, most notably for the maritime sector.

These developments are excellent examples of Sweden’s growing prominence in the development of greener maritime fuels. However, there are supply chain and infrastructure challenges beyond Sweden’s borders that could limit their market reach.

Shipping is facing a ‘Catch-22’ when it comes to alternative fuel adoption. Low adoption rates by ship owners means the port-side infrastructure and supply chain is not being developed, while shipping companies wait patiently for that very infrastructure to be built before committing to invest in vessels built or adapted to use the greener fuels.

This disconnect has long threatened the maritime sector’s decarbonisation efforts and with it Sweden’s role in becoming a major exporter of alternative fuels.

The problem will only get worse as Sweden’s new facilities come online. The country has made significant investments into refineries and fuel development and already has a major surplus of renewables. But these fuels are going to be produced regardless of the demand. These facilities that have come online or are set to launch aren’t just going to pull back. The mission now is to get these fuels to the wider European market.

Currently, if a vessel needs green fuel and is passing by Gothenburg every few days, then it has no supply issues whatsoever. But if that same vessel is plying waters in areas around Europe without the necessary infrastructure, then it has limited access to abundant alternative fuel supplies in Sweden. Right now, it’s great that you can get it in Sweden or Finland or Germany, but what if you don’t call there?

Image courtesy GAC

Due to that very conundrum, the shipping industry lacks the confidence to invest in cleaner fuels and more sustainable vessels. And it is that confidence that supplies will be accessible that will pave the way to  the sector adapting and meeting its ambitious clean energy goals.
Sweden has everything it needs to be a net exporter of fuels – except the necessary infrastructure to support a wider supply chain beyond its borders. We need to make sure Sweden’s alternative fuel supply is more easily accessible across Europe to enable ship owners to make the right investments and aid their energy transition.

Naturally, there are concerns about the big price gap between renewables and traditional bunker fuels, and greater logistical challenges bring with them higher costs. With bunkering costs accounting up to 50% of a vessel’s daily operating costs, ship owners are conscious of spending more for greener alternatives that, according to the World Economic Forum, can be up to four times more expensive than traditional heavy fuel oil. For an industry that runs on tight margins and fluctuating freight rates, the effects of zero-emission shipping can severely impact the cost of goods.
According to a study by Drewry, it is estimated that a switch to green methanol would increase fuel costs by 350%, equivalent to an additional US$1,000+ per 40 feet container shipped from Asia to Europe.

Exporting Sweden’s alternative fuels down to the continent or beyond will make them more expensive. But, as an industry, it is a price we have to pay if shipping is to realise its green potential.

The right conditions must be created for renewable fuels to thrive, including a robust, sophisticated supply chain to support the maritime sector’s access to green fuels. Once again, Sweden is once again taking the lead by working with partners in Finland, Iceland and the Faroe Islands to devise a supply chain that can do just that.

In May 2024, the Nordic Maritime Transport and Energy Research Programme launched its STORM project to help scrutinise several areas that are impeding the supply of alternative fuels to wider markets. This includes fuel supply, distribution and fuelling processes to understand the impact of various fuel options. The project will also look to develop and apply a framework for assessing the suitability of fuels for various shipping segments, identify barriers and opportunities within the shipping industry and formulate tailored solutions, and finally propose policy options to accelerate shipping’s transition to renewable marine fuels.

Sweden is a leading the development of alternative fuels and working with partners to create a new supply chain to drive in shipping’s fuel transition - including regulatory frameworks. But it cannot do it alone. Europe is making great strides towards decarbonisation but it needs to work closely together to get surplus renewable fuels across the continent.

Image courtesy GAC