Nicholas Ball, chief executive and co-founder, XFuel

• XFuel targets parity with fossil MGO, pricing between fossil and biodiesel
• Fossil-origin recycled carbon fuel with GHG savings put at up to 85%
• Feedstock is MARPOL Annex I sludge
• First plant planned in Catalonia to produce approximately 14,000 mt a year
• Scale to come from replicating modules at big ports and from other waste streams

XFuel says the marine gas oil it will produce from waste hydrocarbons can reduce emissions at a price that competes with conventional fossil fuel rather than demanding the premium associated with most other alternative marine fuels.

The claim matters because, as chief executive and co-founder Nicholas Ball told Ship & Bunker in an interview this month, the next best alternative is "multiple times more expensive than fossil pricing", leaving owners to weigh green premiums against compliance savings.

In fact, Ball says his company can produce the fuel "significantly below the price of fossil MGO" with current pricing, leaving XFuel able to capture some of the regulatory upside by pricing the product it sells to bunker buyers somewhere between fossil MGO and the next-best alternative, biodiesel.

The Fuel

The product is made via the company's Chemical Liquid Refining (CLR) process, which the company says refines impure biogenic and fossil hydrocarbon liquids into ultra clean drop-in transport fuels.

Ball describes it as a chemical process with important mechanical elements, which refines, cracks, and deep-desulphurises a liquid hydrocarbon stream in a single step.

"It's based on work that was done in the oil and gas industry back in the 1950s and 1960s, but wasn't really economically viable and didn't make sense commercially," he said.

The difference now, he said, is the efficiency with which the process uses its chemicals, and the discovery that it cracks heavier material at the same time as it refines it.

"We were breaking down heavier material into lighter, more versatile products that people want, and that's where we started realizing what this really could be," he said.

The feedstock for the first plants is MARPOL Annex I sludge, the oily residue from fuel oil use that vessels generate and pay to dispose of.

As such, sludge is fossil in origin rather than biogenic.

Post-dewatering, he said the process converts just over 90% of the usable hydrocarbon into product, which is where part of the economics come from.

The same process can take other waste streams and make other products, including EN 590 road diesel and, in development, sustainable aviation fuel blends. 

Ball said the company does not want to be "pigeonholed" as a MARPOL sludge fuel producer alone.

The Feedstock

Sludge is generated on board by the ships themselves, which own it until it is landed, but Ball says much of it never gets that far.

"Most of this material is incinerated on board for no value," said Ball.

"In fact, they'll have to use fuel in some cases to dry this out before they can even incinerate it."

What is landed is collected by waste management companies, which the ship pays to take it, and is then de-watered and burned for electricity generation or sent to cement kilns.

Ball says that existing collection network is what makes the supply chain workable, because the sludge is already consolidated at ports by licensed contractors, and the busiest ports generate the most of it.

On the size of the resource, he said XFuel calculates between 1.5% and 3% of fuel consumed ends up as sludge, which he says translates to 5 million to 10 million mt of available feedstock globally per year.

The Margin

The economics turn on the spread between IFO and MGO.

XFuel buys waste priced against fuel oil, because its alternative use is heat value, and sells a distillate-grade product.

"Typically our waste is a percentage of the IFO price, to give you an idea," said Ball.

"That spread between a marine gas oil and an IFO has just wildly grown."

Indeed, Ship & Bunker's G20 index that tracks average marine fuels prices across 20 key global bunkering hubs, puts the spread between MGO and HSFO at $706/mt so far this quarter, against an average of $298/mt across 2024 and $293/mt across 2025.

He said the widening of that spread through this year's disruption has left the company's projects "probably the most profitable that they've ever been", though he added that XFuel models returns on multi-year averages rather than current pricing.

"If you're taking fossil hydrocarbons that are basically being thrown out the window for no value, and you can clean them up, that is by far the cheapest low-carbon product you could produce," he said.

The Emissions Savings

The product is to be classified in EU regulation as a recycled carbon fuel (RCF) rather than a biofuel, because the waste it starts from is fossil in origin.

RCFs are the EU's category for fuels made from non-renewable waste that would otherwise be discarded, and they earn their emissions saving on a lifecycle basis: the feedstock carries no upstream production emissions, so the saving comes from displacing the fossil fuel that would otherwise have been refined from crude.

Under the Renewable Energy Directive, an RCF must show a saving of at least 70% against the fossil comparator to count, the same threshold that applies to renewable fuels of non-biological origin (RFNBOs).

Ball said the company expects to meet that 70% threshold for its first production, though certification is still to come.

Savings for shipowners are then realised under FuelEU Maritime and the EU Emissions Trading System (ETS), and potentially under national schemes depending on whether they recognise RCFs.

Being an RCF has another upside, Ball says, in that it removes any compatibility questions that can follow bio blends into the engine room.

"It's a fully compliant ISO 8217 DMA product," he said.

XFuel has carried out its own in-engine testing and commissioned third-party testing, and Ball says neither has raised a concern to date.

Scale

In the context of global marine fuel demand, the amount of product the first plant will produce is very small.

The facility being planned in the Tarragona region of Catalonia, backed by a EUR 4.1 million grant from the region's Nuclear Transition Fund, is a single module of the CLR process, converting around 16,000 mt of feedstock into roughly 14,000 mt of product a year.

For context, Ship & Bunker pegs global demand at around 275 million mt, while the average stem size this year in Singapore is just shy of 1,300 mt.

"It's really a drop in the ocean from a market perspective," said Ball.

"It's tiny, tiny production, but we still aim to achieve price parity and actually get some kind of return and profitability on that."

He said the plant is deliberately the smallest configuration the technology runs at, on the basis that a modular unit can be sited where the feedstock and the demand already are.

At that volume the product is a blend component rather than fuel a supplier would sell on its own.

"We also don't expect someone to be using this as pure anyway, because typically that's just not how it's done," he said.

"This will likely be blended with traditional MGO."

Scale, when it comes, builds from replication rather than a bigger plant, and XFuel is developing a pipeline of sludge projects around the world, Ball said, sited near the large ports where the feedstock is already concentrated.

Beyond that, the company is working on other waste streams for the same process, which he said is how it intends to provide "more meaningful quantities in the future".

"Step by step, we're not trying to do everything at the same time."

Risk

One of the biggest question marks over any alternative fuel project today is what happens if the IMO again fails to deliver its Net-Zero Framework when it returns to the question in December, and the regulatory signals pushing owners towards alternative fuels come later than expected.

Some, the US among them, are even pushing for regional rules such as the EU ETS and FuelEU Maritime to be rolled back.

While Ball acknowledged such an outcome would hurt investor confidence, he said XFuel's projects would survive on the fossil comparison alone.

"Our focus is really making sure we can compete with fossil counterparts," he said.

"So our projects at this scale would still stand up, but it wouldn't be the most incredible project that you would find, of course."

Still, he argued, there will always be customers willing to choose emissions savings without needing a mandate to do so.

And with a product at parity with fossil, he said, any weakening of the regulatory push would likely pressure the business case for the many other higher-priced sustainable fuels more than it would XFuel's.

"Why wouldn't you use our product to save GHGs if you're paying the same as regular fossil?" he said.

Selling Molecules

Ball says for now the company intends to make its money from fuel rather than from licensing the process, though he said XFuel is "not averse to technology licensing in the future".

Shipowners NYK and Stolt-Nielsen, which he described as future customers that have invested in the company, are among its backers.

The last piece of the puzzle is how the fuel reaches vessels, and Ball said XFuel is exploring selling direct, working with physical suppliers on blending and delivery, and separating the sustainability documentation from the physical product.

"All of the above is open," he said.