Argus analysis shows that VLSFO plus EU ETS costs will remain competitive out to 2025. Starting on 1 January 2024, shipping will be included in the EU Emissions Trading System (EU ETS), resulting in additional costs for shipowners operating within EU and EEA waters.

EU ETS costs for COemissions will be phased in, with cargo and passenger vessels of more than 5,000t gross tonnage liable for 40pc in 2024, rising to 70pc in 2025 and 100pc in 2026.

Assuming a $90/t EU ETS CO2 cost for the forecast period, an additional $113/t would be due per tonne of 0.5pc very-low sulphur fuel oil (VLSFO) bunkered in 2024 and $199/t in 2025. Despite these significant additional costs, VLSFO remains competitive to alternative marine fuel options out to 2025, Argus forecasts show.

VLSFO prices are forecast to trend up at the start of 2024 after shipping is included in the ETS (see graph). The price of Argus VLSFO delivered on board (dob) NW Europe is forecast to rise to $611/t in the first quarter of next year, with a 40pc EU ETS cost raising this by 18pc to $724/t. In January 2025, when the EU ETS component rises to 70pc, VLSFO prices are forecast at $766/t.

At the start of 2025, Argus forecasts that VLSFO will hold a $130-150/t VLSFO equivalent (VLSFOe) discount to LNG, B30 (Advanced Fame 0 & VLSFO blend) and grey methanol.

European bunker forecast with EU ETS CO2 added combustion cost*  $/VLSFOeEuropean bunker added consumption

*- $90/t CO2 cost is applied for the forecast period

From Argus Marine Fuels Outlook

By comparison, 0.1pc sulphur marine gasoil (MGO) including EU ETS costs holds a premium to B30 (Advanced Fame 0 & VLSFO blend), grey LNG and grey methanol but a discount to B100 at the end of the forecast period.

European bunker forecast with EU ETS CO2 added combustion cost*  $/MGOe

 European bunker forecast with EU ETS CO2 added combustion cost* $/MGOe


 *- $90/t CO2 cost is applied for the forecast period

From Argus Marine Fuels Outlook

MGO is bunkered by shipowners that operate within the North Sea and Baltic Sea Emission Control Areas (ECAs) and must comply with a 0.1pc sulphur limit. EU ETS costs from 2024 support higher MGO prices, narrowing the discount to biodiesel, which has a zero CO2 emissions factor under the EU ETS.

Shipowners operating within an ECA can replace MGO with B100, or pure biodiesel, to cut CO2 emissions reporting to the EU ETS for that vessel. This contributes to lower aggregated emissions for the fleet and reduced CO2 costs.

The Argus index and forecast for B100 dob ARA represents 100pc Advanced Fame 0 biodiesel and is inclusive of the Dutch HBE-G ticket deduction. Although this ticket system can provide a 40-60pc price reduction, B100 still held a $600/t MGO equivalent (MGOe) premium to MGO in the middle of 2023 and is forecast to hold firm until the end of this year. 

The Argus B100 premium to MGO is forecast to decline from the start of 2024 to $280/t MGOe in January 2025, while the EU ETS supports MGO prices.

Argus forecasts show that shipping’s inclusion in the EU ETS will boost conventional marine fuel prices but not by enough to significantly decrease their competitiveness to alternative options. The EU ETS impact on conventional marine fuel prices will be more substantial from 2026 when 100pc of CO2 costs are due.

Author Elena Domashenko

The shipping sector is evolving as it seeks to decarbonise. Rapidly changing supply and demand fundamentals continually influence pricing for conventional and alternative marine fuels. Argus Marine Fuels Outlook forecasts are updated monthly to account for fundamentals changes and market developments.  

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