ECA, ETS to drive up Mediterranean biofuels demand

Demand for biofuels for bunkering in the Mediterranean could be driven up in 2025 by the region becoming a sulphur oxide Emission Control Area (ECA) and vessels in EU territorial waters having to pay for 70pc of their CO2 emissions.

The International Maritime Organisation (IMO) starting 1 May 2025 will require that vessels traveling in the EU Mediterranean territorial waters burn marine fuel with sulphur content capped at 0.1pc, down from 0.5pc sulphur. Starting on 1 January 2025, the EU will require that ship owners traveling EU territorial waters, including the Mediterranean, pay for 70pc of their CO2 marine fuel emissions through its emissions trading system (ETS), up from 40pc in 2024.

The Mediterranean becoming an ECA is expected to increase demand for 0.1pc sulphur marine gasoil (MGO) and reduce demand for 0.5pc sulphur residual fuel oil. The Mediterranean 0.1pc sulphur ECA will commence 10 years after northern Europe's. On 1 January, 2015, the North Sea and the Baltic Sea ECAs, transitioned to 0.1pc sulphur marine fuels from 1.0pc sulphur fuel oil. As a result, in the port of Rotterdam, on the North Sea, the share of sales of 0.1pc sulphur MGO of total marine fuel sales rose to 16pc in 2015 from 6pc in 2014. The share of residual fuel oil of total bunker sales in Rotterdam dropped to 84pc in 2015 from 94pc in 2014.

But MGO emits nearly as much CO2 as residual fuel oil, and would not reduce ship owners' CO2 bill. Biofuels can be carbon neutral if made by sustainable biomass and are also compliant with the ECA sulphur limit. In 2025, marine shipping companies could shift to burning biofuels in the Mediterranean provided that biofuel prices do not exceed the cost of MGO combined with CO2 cost. Argus assessed MGO at $849/t average in March in the west Mediterranean hub of Gibraltar-Algeciras-Ceuta. Argus assessed EU-traded CO2 at $96/t in March. Burning 1t of MGO emits about 3.2t of CO2. Thus, at the current snapshot of time, biofuel below $1,156/t would be considered competitively priced compared to MGO.

Companies currently offering or planning to offer biofuels for bunkering in the Mediterranean include: Cepsa, Peninsula and Repsol in Spain, Galp in Portugal and Alpha Trading, Eni and Fratelli Cosulich in Italy.

There are no statistics available for total EU Mediterranean waters marine fuel demand. The ;atest total EU bunker demand statistics — which include Mediterranean, North Sea, Baltic Sea, Black Sea and Atlantic Ocean EU waters — were at 40.3mn t for 2021. This number excludes smaller vessels of less than 5,000 gross tonnes and UK territorial waters.

By Stefka Wechsler