China Securities Co., Ltd.: The carbon neutralization of the European shipping industry is expected to stimulate a surge in demand for hydrogen energy.

China Securities Co., Ltd. securities research report stated that according to the requirements of FuelEU Maritime, EU ships will inevitably incur compliance deficit and fines if they continue to use conventional fuel from 2025 onwards. Using green hydrogen synthesized from biomass-derived carbon sources and renewable electricity to prepare green methanol can achieve low-carbon emissions for ships. Compared to fossil fuels, synthetic fuels can achieve up to 100% emission reduction, and are considered as one of the ultimate energy sources to achieve an 80% emission reduction by 2050 under FuelEU Maritime. China Securities Co., Ltd. predicts that the global demand for green alcohol fuel for shipping will reach 780/2522/15123/45293 million tons per year in 2025/2030/2040/2050, respectively. Corresponding green hydrogen demand under neutral expectations is estimated at 39/131/841/2689 million tons per year. The development of the green alcohol industry chain from 0-1 will drive investment opportunities in core equipment and operation. China Securities Co., Ltd.'s main points are as follows: Background: According to the requirements of FuelEU Maritime, starting from 2025, continuing to use conventional fuel will inevitably incur compliance deficit and fines. On September 13, 2023, European Parliament and Council Regulation 2023/1805 on "the use of renewable and low-carbon fuels in maritime transport" issued carbon reduction requirements. The regulation applies to ships with a gross tonnage (GT) of 5000 tons and above, requiring ships to achieve a reduction in annual average greenhouse gas emissions by 2%/6%/14.5%/31%/62%/80% by 2025/2030/2035/2040/2045/2050 based on 91.16gCO2e/MJ. In the short term, shipping companies are responding to the decarbonization requirements of the International Maritime Organization using LNG and other methods; while in the long term, using green hydrogen synthesized from biomass-derived carbon sources and renewable electricity to prepare green methanol can achieve low-carbon emissions for ships. Compared to fossil fuels, synthetic fuels can achieve up to 100% emission reduction and are considered as one of the ultimate energy sources to achieve an 80% emission reduction by 2050 under FuelEU Maritime. Demand projection: 1) Ship demand: It is estimated that the global shipping fleet affected by FuelEU Maritime regulations accounts for approximately 20-25%. We calculate that the demand for green alcohol ships in 2025/2030/2040/2050 will reach 0.02/0.06/0.34/1.01 million vessels, with an average annual growth rate between 2025-2030 at 26.4%. 2) Global green alcohol/hydrogen demand: We predict that the global demand for green alcohol fuel for shipping will reach 780/2522/15123/45293 million tons per year in 2025/2030/2040/2050. Corresponding green hydrogen demand under neutral expectations is estimated at 39/131/841/2689 million tons per year. 3) China green alcohol/hydrogen demand: China, as an important port region globally, will handle some of the EU ships' requirements for stopping and refueling. We estimate that the demand for green alcohol fuel at Chinese ports for stopping and refueling will reach 273/883/5293/15852 million tons per year in 2025/2030/2040/2050. Corresponding green hydrogen demand under neutral expectations is estimated at 14/46/294/941 million tons per year. Recommendations focus on two main lines of equipment and operation: Focusing on the green alcohol industry chain for decarbonizing European ships, we believe that two main lines are worth paying attention to: 1) Core equipment: Investment in core equipment for green alcohol projects is relatively upfront, including gasifiers for biomass gasification to generate carbon sources, as well as electrolysis systems for water and test equipment, which are the core equipment for green alcohol production. 2) Operation end: In the current policy penalty background, the green premium of green alcohol will gradually be released and continuously improve. It is recommended to focus on targets that control core operational assets in the green alcohol industry chain. Risk warnings: 1) Cost aspect: If the cost of renewable energy generation does not decrease as expected and the installation scale is not as expected, the further promotion of renewable energy hydrogen production is hindered. Therefore, if the cost of renewable energy sources such as solar and wind power do not decrease as anticipated, achieving cost parity for renewable energy hydrogen production becomes challenging. Inadequate installation scale and electricity production may not be able to support the power demand of the hydrogen production industry. 2) Technological iterations: If the development of electrolysis cell technology does not meet expectations, reliability improvements and cost reductions of PEM electrolysis cells need to be achieved through technological iterations and scale-up. Technological improvements such as PEM electrolysis catalysts are essential for the industry's development; AWE electrolysis cell efficiency iterations affect the cost reduction of green hydrogen. 3) Market demand: Market demand affects industrial scale realization, which in turn affects cost allocation for research and development and production. 4) Policy aspect: The hydrogen energy industry is still in its early stage of industrial scale development. Effective policy promotion plays a positive role in the industry's development. If policy support is lower than expected, it will affect the enthusiasm for industrial development.