Sustainable fuels, a young and rapidly growing market

L’electrification it is the main road chosen by governments to achieve the goal Net Zero to 2050, but the growth of sustainable fuels. And it will also be thanks to them that the emissions reduction objective can be achieved. According to the recent study carried out by McKinsey It is entitled “How traders can capture value in sustainable fuels”the demand for sustainable fuels is destined to triple in the next twenty years and investments in this sector already amount to 100 billion dollars.

Biofuels are produced from organic materials, such as food crops and waste materials, both plant and animal. They are blended with conventional fossil fuels at low percentages. Ethanol, for example, is produced by fermentation of plant-based materials. First generation ethanol uses raw materials such as corn, while second generation ethanol is produced from bagasse, an extraction residue from the crushing and pressing of sugar cane, which requires a greater manufacturing process. Ethanol is mainly used in gasoline blends (for example, E10) and in additives (such as ethyl tert-butyl ether), improving fuel characteristics such as octane number and reducing greenhouse gas emissions to a modest cost (for first generation ethanol).

Biogas, on the other hand, is produced through the anaerobic digestion of waste streams such as corn stalks, manure, wastewater sludge or food waste. It is often produced on a small scale, contains approximately two-thirds methane and one-third other gases, and can be burned to produce electricity and heat. When upgraded to biomethane, it becomes a ready-to-use fuel.

“The sustainable fuels market is still largely embryonic, characterized by complex regulations and interdependencies between sectors – write McKinsey analysts – Physical and regulatory constraints on raw materials have caused price volatility; supply chain and infrastructure constraints, variations in prices between regions, and import and export regulations have contributed to this volatility”.

According to the consultancy firm the fuel mix will evolve between now and 2050: Road fuels have accounted for the majority of demand and growth so far, but in the 2020s categories such as sustainable aviation fuel (Saf), renewable natural gas and synthetic natural gas, bio- and e-methanol will constitute a larger share. Through the 2030s, technological advances could spur the growth of new approaches to advanced biofuels and fuels e-fuelsimpacting the global market while injecting the necessary capacity and liquidity.

E-fuels are produced using hydrogen from low-carbon electricity sources (such as renewable or nuclear energy) and captured carbon. Low-carbon hydrogen production through electrolysis based on renewable or nuclear energy can be commercialized as gaseous or liquid hydrogen. When hydrogen is combined with suitable sources of carbon (such as biogenic carbon or carbon derived from direct air capture) or nitrogen, it can form e-fuels such as e-methanol or ammonia.

“A fascinating but complex aspect of the sustainable fuels market is the vast range of categories that compose it – concludes the McKinsey study – Biofuels represent the majority of the current market, but drop-in sustainable fuels (ready to use, ed) and hydrogen e-fuels could reshape the landscape in the coming decades. The development of these fuels will not be linear: they will mature at different rates and their specific applications may replace fossil fuels at different paces.”