High-sulphur fuel oil (HSFO) may gain a stronger role in marine fuel markets as upcoming International Maritime Organization (IMO) greenhouse gas (GHG) regulations make it more cost-competitive than very low-sulphur fuel oil (VLSFO) and marine gasoil (MGO).
VLSFO and MGO were adopted widely after the IMO's 2020 sulphur cap because they emit lower levels of sulphur oxide (SOx) and nitrogen oxide (NOx), pollutants that contribute to acid rain and smog. HSFO, by contrast, requires ships to use scrubbers to remove SOx from exhaust in order to comply with those air quality standards.
But, on a GHG basis, HSFO performs better than its alternatives. On a well-to-wake basis, HSFO has a GHG intensity of 92.78 gCO2e/MJ, compared with VLSFO at 95.48 and MGO at 98.67. Although all three fuels exceed the IMO's forthcoming GHG limit of 89.57 gCO2e/MJ, HSFO's lower intensity means it would face smaller compliance penalties. At the IMO's tier 1 and tier 2 proposed 2028 penalty rates, HSFO would incur an additional $97.86/t, VLSFO $139.11/t and MGO $199.49/t (see chart). This makes HSFO the least costly option among conventional fuels under the new framework.
In Singapore, Rotterdam and to some extent in Panama, HSFO's share of fuel sales has been increasing since 2021, as more vessels install scrubbers to enable its use (see chart). With both lower GHG intensity and competitive pricing, HSFO is expected to remain a part of global bunker demand, potentially reducing the market share of VLSFO and MGO.
As the IMO's GHG standards approach, ship operators are likely to weigh both environmental performance and cost. In this balance, HSFO is positioned to remain a practical choice among conventional marine fuels.
