CITIC SEC: Top-level design accelerated, positioning of green fuel raised again

CITIC SEC released a research report stating that recently, the National Energy Administration organized a special symposium on the development of green fuel industry. The meeting pointed out three major strategic goals of green fuel industry, which are ensuring energy security, reducing carbon emissions, and promoting the utilization and absorption of new energy non-electricity. At the same time, five requirements were put forward for the development of the industry to promote healthy development, emphasizing the need for systematic planning, pilot projects, innovation leadership, environmental optimization, and demand-driven strategies. CITIC SEC believes that this symposium signifies that the green fuel industry will gradually transition from decentralized exploration by local governments and spontaneous behavior of enterprises to a national-level top-level design and systematic promotion. The industrial-scale development is expected. It is recommended to pay attention to investments in green fuel projects such as green hydrogen and alcohol operators. Key points of CITIC SEC: Event: National Energy Administration held a special symposium on the development of the green fuel industry. Recently, Wang Hongzhi, the director of the National Energy Administration, chaired a special symposium on the development of the green fuel industry. Relevant officials from the National Development and Reform Commission, academicians, and representatives from energy companies attended the meeting to jointly plan future development strategies for the green fuel industry. The meeting outlined the significance of green fuel in three aspects: "replacing oil, ensuring energy security," integrating green fuel into the narrative of energy security, directly addressing the issue of dependence on oil and gas imports in the international context of the recent Middle East conflicts that have led to significant increases in oil and gas prices; "reducing carbon emissions, promoting green development" aligning with the dual carbon goals and targeting emission reductions in the industrial sector; "promoting the non-electric use and absorption of new energy, enhancing the development of new energy" responding to the challenges of wind and solar power curtailment, while defining green fuel as a direction toward "new quality productivity." In addition, the meeting put forward five requirements for industry development, emphasizing the need for systematic planning, pilot projects, innovation leadership, environmental optimization, and demand-driven strategies, and coordinating international and domestic markets. We believe that holding a high-level symposium on the green fuel industry at this point in time provides clear guidance for the subsequent implementation of support policies for the industry, significantly increasing the certainty of national-level policies. Green fuel precisely addresses the structural contradictions in the current energy system. The strategic significance of green fuel was summarized in a threefold logic at the meeting: replacing oil to ensure energy security, reducing carbon emissions to promote green development, and promoting the non-electric use and absorption of new energy. From the perspective of energy security, according to the analysis and prospects of domestic and foreign oil and gas resources by 2025 (Wang Yuyan, Zheng Zhihong, and Han Zhiqiang, 2026), China's foreign oil and gas dependence rates will be 72.7% and 39.7%, respectively in 2025. Overseas oil and gas prices are highly sensitive to geopolitical risks, and since the recent Middle East conflicts, oil and gas prices have surged, highlighting the energy security risks of China. The industrial-scale development of green fuel is equivalent to adding a "non-oil and gas pricing" safety redundancy to the industry and transportation systems, fundamentally reducing the country's external energy dependency and serving as an important guarantee for achieving energy security. From the dual carbon perspective, as the clean-up of the electricity side continues, end fuels and raw materials in sectors such as aviation, ocean shipping, high-temperature industrial processes, and chemical synthesis that cannot be directly replaced by electricity will become bottlenecks for emissions reduction. Green fuel is the inevitable choice for decarbonizing non-electric sectors. From the absorption perspective, some regions in China still have high rates of renewable energy curtailment. Electrolytic hydrogen production and downstream ammonia alcohol synthesis are naturally compatible with low-cost off-peak electricity, converting fluctuating marginal electricity into storable and transportable molecular energy, acting as a core solution to curtailment challenges. The policy focus may gradually shift towards economic and demand institutionalization. We believe that the policy focus is gradually shifting from early-stage guidance on technological breakthroughs and business model exploration to addressing economic and demand-side issues through institutional means. Compared to overseas, the EU's ReFuelEU Aviation has stipulated a gradual increase in the proportion of SAF blending from 2% in 2025 to 70% by 2050, while policies such as EU-ETS and IMO's net-zero framework in the maritime sector are driving up the carbon costs of traditional fuels and setting up economic incentives for green fuels. Domestically, in September 2024, the NDRC and CAAC initiated SAF pilot applications, and in January 2025, the guidance on zero-carbon factories by five ministries included green hydrogen and alcohol in the industrial decarbonization pathway. Demand-side policies for green fuels are gradually improving, while the industry currently lacks relatively mandatory policies or economic balance mechanisms. Under the guidance of coordinating international and domestic markets, domestic demand-side policies may be expected to increase, with market demand cultivation expected to be a key focus during the "14th Five-Year Plan" period, and the green fuel industry chain is poised to enter a period of accelerated development. Risk factors: Policy details and implementation pace falling short of expectations; policy enforcement intensity falling short of expectations; major changes in the technological roadmap of the green fuel industry; cost reduction rates falling short of expectations. Investment strategy: Frequent high-level statements, continuous strengthening of green fuel-related policies expected during the "14th Five-Year Plan" period, industry positioning expected to continue to improve, we are optimistic about 1) investments in green hydrogen and alcohol projects, 2) manufacturers of key equipment for green hydrogen production from green electricity.