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The world’s largest oil company is stepping up investment in synthetic fuels derived from renewable energy, as it bets on the conventional combustion engine to remain a crucial part of transport despite the shift towards electric vehicles.
Ahmad Al-Khowaiter, a senior executive at Saudi Aramco, said the global rush to electrify most road transport “does not make sense” from a climate perspective, especially for countries where energy is sourced from fossil fuels, such as China, which relies on coal power for more than half its electricity.
“There’s been a lot of exuberance around the pace by which electrification will take place around the world,” Al-Khowaiter, Saudi Aramco’s executive vice-president for technology and innovation, said in an interview. “It has its place in the market, but there will always be a need for other solutions like internal combustion engines.”
Saudi Aramco’s bet on internal combustion engines also includes taking a 10 per cent stake in Horse Powertrain, a joint venture with Geely and Renault to create a new engine manufacturer, and a collaboration it announced with Chinese automaker BYD on Monday, under which the Middle Eastern group will share engine technology with the Chinese company for use in its hybrid vehicles.
Its ventures have a common goal: to reduce emissions from the current fleet of cars and prolong the use of internal combustion engines.
E-fuels, produced primarily from renewable electricity, carbon dioxide and water, are seen as a way to decarbonise transport and narrow the emissions gap between EVs and conventional engines.
Carmakers such as Stellantis and Toyota are testing e-fuels to reduce emissions, although auto executives are reluctant to forecast when these fuels will become affordable enough for mass production.
Stellantis said its tests had demonstrated that its engines launched before 2023 could operate well with e-fuels, and that all engines launched since then were ready to use these alternative fuels from the outset.
The owner of Peugeot and Fiat said e-fuels could be “a competitive drop-in alternative to fossil fuels, contributing to decarbonise the existing car [fleet] — assuming favourable financial and regulatory conditions”.
A big hurdle is that e-fuels are prohibitively expensive, costing about $14 a gallon — or four times the price of petrol in the US — according to Rob West, an energy analyst at Thunder Said Energy.
Saudi Aramco has two e-fuel projects under construction. One in Spain to produce 50 barrels a day of e-kerosene for jet engines, and another in Saudi Arabia to make 35 barrels a day of e-gasoline, although these quantities are tiny compared with the company’s net refining capacity of more than 4mn barrels a day.
Al-Khowaiter, who hoped the plants would be in operation by 2027, said Saudi Aramco had put “several hundred million dollars” into the two projects, and would invest more as the businesses scaled up.
“The idea is to have a supply of fuel to meet the needs of carmakers to test it, as well as for Formula 1” and other types of motor racing, he said.
He also said the supply of e-kerosene would help regulators to understand and certify the new aviation fuel. The EU has a mandate for airlines to start using e-kerosene by the end of the decade and wants the fuel to make up 35 per cent of total fuel use by 2050.
While it will take a significant amount of time before e-fuel prices start to fall, Saudi Aramco believes they will help hybrid cars, in particular, come very close to the lifetime emissions of an electric car.
“The other advantage of these fuels is that you can impact 90 per cent of the existing fleet, as opposed to the 10 per cent of new cars that are sold,” Al-Khowaiter said.
The car industry is betting on the longer lifeline for hybrids after the EU relaxed its emissions regulations on petrol cars, while US President Donald Trump has threatened to roll back consumer tax credits for EVs. In the UK, the government has also watered down its EV sales targets and will allow full and plug-in hybrids to be sold until 2035.
Al-Khowaiter said Saudi Aramco was seeing interest in its e-fuels project from carmakers in the EU and China and that any demand for biofuels could “easily be replaced” by e-fuels by 2050. “We believe today that e-fuels are cost competitive with second and third generation biofuels,” he said.