Current pricing fundamentals suggest that Mediterranean demand for B24 bio-blend bunker fuel may not rise sinificantly in 2025, despite the region becoming subject to emissions charges next year.
Ship owners next year will have to pay for 70pc of their CO2 marine fuel emissions in EU waters through the EU's emissions trading system (ETS), up from 40pc this year. Separately, the Mediterranean starting on 1 May 2025 will become an Emission Control Area (ECA), where vessels will be required to burn marine fuel with sulphur content capped at 0.1pc, down from 0.5pc sulphur.
Other regions that became ECAs in the past showed an increase in demand for 0.1pc sulphur MGO. The North Sea and the Baltic Sea ECAs in 2015 transitioned to 0.1pc sulphur marine fuels from 1pc sulphur fuel oil. As a result, in the port of Rotterdam, on the North Sea, the share of 0.1pc sulphur marine gasoil (MGO) sales from total marine fuel sales rose to 16pc in 2015 from 6pc in 2014. Following suit, the Mediterranean becoming an ECA next year is likely to also increase demand for 0.1pc sulphur MGO.
MGO emits nearly as much CO2 as residual fuel oil, and would not reduce the ship owners' CO2 bill. Ship owners also have to mind their CII ratings. Starting in 2023, the International Maritime Organisation's (IMO) CII regulation is requiring that vessel owners record their individual ships' energy efficiency. Vessels' efficiencies are graded from A to E. Using biofuels is one of the ways vessels with D or E ratings could improve their efficiencies.
Currently, the most common bio-blend offered in the west Mediterranean, namely the ports of Gibraltar and Algeciras, is B24, comprised of 24pc used cooking oil methyl ester (Ucome) combined with 76pc of 0.5pc sulphur very low-sulphur fuel oil (VLSFO). In 2025 some ship owners could consider bio-blends comprised of Ucome and MGO.
Argus pegged EU ETS-traded CO2 at $71 per metric tonne (t) and western Mediterranean MGO at $845/t average in January. Burning 1t of MGO emits about 3.2t of CO2. A western Mediterranean B24 MGO blend with added 70pc CO2 cost would have been priced at $89/t premium, or 9pc premium to MGO with added 70pc CO2 cost in January.
If these premiums hold into next year, ship owners operating in the western Mediterranean who do not have to improve their CII rating are likely to have a subdued appetite for B24.