The coming year will be foundational in shipping's decarbonisation, with demand and supply for conventional fuels likely to dwindle and marine gasoil (MGO) prices to rise as regulations steer the sector away from conventional fuels.
Legislations to incentivise the uptake of alternative fuels and bio-blends include the EU ETS scheme — the bloc's emissions levy — that comes into effect on 1 January, and the Mediterranean region will become an Emissions Control Area (ECA) — meaning there will be a 0.1pc sulphur limit — from April.
Energy and efficiency optimisation — adopted to reduce emissions ahead of an alternatives-fuelled fleet — will also lower consumption. This past year has seen decreased consumption from slow steaming, the practice of reducing speed to cut emissions.
Suppliers will probably seek to profit from the uptake of alternative fuels, and to grow their supply chains and infrastructure at the cost of conventional fuels', especially as bunkers demand has been trending downwards in 2023 and as standard marine fuels become less profitable. Unfavourable global economics have slowed global cargo shipping demand and China's consumption has not recovered to pre-pandemic levels.
But lower demand and supply may counter each other's effects on prices. Conventional bunkering will not be entirely replaced in 2024: the current fleet does not have the capacity for all vessels to burn alternative fuels, nor could the extant alternative fuels infrastructure and supply chain meet all of the industry's needs.
As such the ECA will have a grace period of a year for new supply chains, infrastructure, and engine modifications to be implemented before penalties are issued for non-compliance. Under the EU ETS operators will be liable for 40pc of their greenhouse gas (GHG) emissions in 2024, and will have to surrender allowances in 2025.
It is even likely that these legislations support prices of MGO, which is under the 0.1pc sulphur limit and emits less GHG than other conventional fuels. Very low sulphur fuel oil (VLSFO) is also used in bio-blends and remains part of the energy transition. The spread between MGO and VLSFO prices may become more relevant than scrubber spreads, which examine the differential between VLSFO and 3.5pc high sulphur fuel oil (HSFO). The latter can only be used when an exhaust scrubber is installed, under International Maritime Organisation rules.
Scrubbers to spread
Scrubber spreads may widen significantly in 2024. HSFO availabilities tightened in 2023 as European buyers failed to replace embargoed Russian imports and European refineries switched to a lighter, sweeter crude slate, slowing output of heavier refined products.
That support may be less prevalent in 2024 as the market adjusts to rejigged product flows.
Demand for HSFO may fade, not least because in some ports the scrubber spread inverted so HSFO priced at a premium to VLSFO. HSFO is the more traditionally-used fuel, but it is somewhat impractical as scrubbers can only occasionally bring HSFO down to 0.1pc sulphur, depending on weather conditions and routes.
Increased collaboration between industry participants may create new hubs and flows for shipping. 'Green corridors' were announced at the UN Cop 28 climate summit between the US and Korea, and between Finland and Estonia. These could provide stability with similar prices at either end, and guaranteed supply of difficult-to-obtain greener fuels.
Suez may attract more attention in the new year, with suppliers Peninsula and Minerva now bunkering there. Both have been developing green fuels supply and have footholds in the Mediterranean region, meaning they could offer product at any port at a Mediterranean-wide price. Competition between ports may weigh prices down in the region and increase the availability of green fuels.
