Viewpoint: USGC biofuel bunker may be muted

Demand for biofuels for bunkering in the US Gulf coast is likely to remain low in 2024 unless a bipartisan bill to allow biodiesel marine fuel to be counted toward existing federal Renewable Fuel Standards (RFS) were to beat the odds and gain traction in the Congress.

The marine biofuels market has been focused for some time on a new EU rule that will require cargo and passenger ships at or above 5,000 gross tonnes traveling within EU territorial waters to pay for 40pc of their CO2 emissions starting in January 2024. Vessels also will have to pay for 50pc of their emissions generated when traveling between a port outside of the EU and an EU port. Vessels operators travelling between US and EU ports compare biofuel for bunkering prices at the different locations.

Biofuel prices are cheaper in northwest Europe and the western Mediterranean than in the US Gulf, in part because of government largesse. The Netherlands, for instance subsidises advanced fatty acid methyl esters (FAME) for bunkering for ocean-going vessels,while the US does not.

From January-November, northwest Europe B30 was priced at a $59-$133/t discount to US Gulf coast. In the western Mediterranean, B24 was pegged at $52/t discount to US Gulf coast B30 for November. Argus launched the west Mediterranean price on 1 November. That price trend is widely expected to continue in 2024.

General biofuel bunker demand could also remain steady or increase only marginally, since the market may be saturated for the short term. Container shipping companies — including Maersk, Hapag-Lloyd, Ocean Network Express, CMA-CGM, Matson and Evergreen — have pledged to achieve net zero emissions by 2050. They have been exploring the use of biofuels and passing the extra cost on to their customers in the form of higher freight rates. Their customers represent some of the largest retailers in the world, including Amazon, Ikea, Michelin, Patagonia, and Unilever. But the number of container ship company customers willing and able to pay more for cleaner freight may have peaked.

Bulk carriers and tanker owners are unlikely to embrace biofuels for bunkering on a larger scale just yet as their customers and shareholders often are not as environmentally driven.

Those dynamics could be upended if US lawmakers were to pass legislation introduced in the US House of Representatives that would allow ocean-going ships to consume renewable fuels without forcing the retirement of associated renewable identification numbers (RINs) credits. If approved, the measure would lower the cost of using biodiesel for marine fuel in the US Gulf, likely increasing demand.

But with the Republican majority in the House already fractured and the 2024 presidential race already in full swing, prospects are slim for passage of such a bill before 2025 at the earliest.

HSFO demand alive and well

Ships outfitted with marine exhaust scrubbers could burn high-sulphur fuel oil (HSFO) and forgo use of alternative marine fuels. On the US Gulf coast, HSFO, even with the added 40pc cost of CO2 emissions, is cheaper than LNG, methanol, biofuels and ammonia.

The marine fuel sulphur limit is capped at 0.5pc sulphur in international waters, enabling vessels to burn very-low sulphur fuel oil (VLSFO). In US territorial waters, the sulphur content is capped at 0.1pc sulphur, prompting vessels typically to use marine gasoil (MGO).

Ships equipped with scrubbers can burn HSFO, with maximum 3.5pc sulphur and are compliant even with the 0.1pc sulphur limit.

At average November levels, and considering the added 40pc CO2 cost, US Gulf coast MGO was priced higher than LNG, methanol and B30. VLSFO was priced higher than LNG. Demand for HSFO — and consequently for vessels scrubber installations — is likely to remain healthy.

The US does not publish marine fuel sales statistics. But data from the port of Rotterdam, the Netherlands, showed local HSFO demand was up by 8pc in the first nine months of the 2023 to 2.45mn t compared with the same period in 2022.

By Stefka Wechsler