Canaries' bio-marine fuel demand hit by ETS exemptions

Spanish energy firm Cepsa has delayed plans to supply marine biodiesel blends in the Canary Islands as increased demand for conventional bunker fuels and EU regulatory exemptions weigh on market fundamentals for the blended products.

Cepsa's international marine fuels sales manager, Francisco Diaz Castro, told attendees at the Maritime Week Las Palmas conference last week that the firm remains committed to supplying marine biodiesel in the Canary Islands but is delaying it in response to a sharp rise in conventional bunker fuel demand in recent months, underpinned by vessels re-routing around the southern tip of Africa to avoid the risk of Houthi attacks in in the Red Sea.

Vessels have been stocking up on bunker fuels before and after sailing around Africa's Cape of Good Hope to avoid stopping along the way. Latest data from the Spanish transport ministry show sales of conventional bunker fuel out of the Canary Islands last month increased by 3pc compared with April and by 41pc on the may last year (see table). This demand growth has pushed suppliers to retain barge availability for conventional bunker fuels, reducing capacity to supply marine biodiesel blends.

Market participants told Argus that another reason marine biodiesel demand in the Canary Islands has not picked up is EU regulatory exemptions for vessels sailing between the islands and mainland Spain. According to article 12 (3b) of the EU's Emissions Trading System (ETS) directive, "an obligation to surrender allowances shall not arise in respect of emissions released until 31 December 2030 from voyages between a port located in an outermost region of a member state and a port located in the same member state, including voyages between ports within an outermost region and voyages between ports in the outermost regions of the same member state, and from the activities, within a port, of such ships in relation to such voyages."

Argus understands that this exemption applies to all vessels covered under the scope of the EU ETS, but would not apply if the vessel is sailing from an outermost region, such as the Canary Islands, to a different EU member nation, for example the Netherlands.

A similar exemption for FuelEU Maritime regulations may be applicable as well, subject to member states asking for the exemption of the specific ports and routes for the vessels. Such an exemption could apply until 2029. Argus understands that requests from member states for this exemption will be published in the coming months.

An exemption from FuelEU Maritime regulations could also be applied to routes connecting islands with a population under 200,000 people. This specific exemption would therefore not apply to Tenerife and Gran Canaria but may apply to other parts of the Canary Islands with smaller populations.

By Hussein Al-Khalisy and Dafydd ab Iago