Fuel Switch Snapshot: Green gas maintains price edge

LBM cheapest fuel alternative with compliance costs and pooling

B100 $11/mt cheaper than HSFO with EU regs

With EU-EU port compliance costs and estimated pooling benefits added, B100 is $11/mt cheaper than HSFO and $83/mt cheaper than VLSFO. However, the price gap has tightened considerably compared to the previous week, when B100 was $74/mt cheaper than HSFO and $156/mt cheaper than VLSFO.

In Rotterdam, prices for fossil LNG and liquefied biomethane (LBM) have both increased by $11/mt in the past week on a VLSFO-equivalent basis.

VLSFO-equivalent LBM is now priced $453/mt higher than fossil LNG. But when we factor in estimated EU ETS costs, FuelEU penalties and pooling values, LBM becomes cheaper than fossil LNG when consumed in both Otto medium-speed (Otto MS) and diesel slow-speed (diesel SS) engines.

LBM's cost advantage against fossil LNG in Rotterdam is also partly made possible by the Dutch HBE system, which incentivises Dutch bunker suppliers to sell sustainable biofuels or biogases in exchange for HBE tickets that hold value. The HBE rebate for B100 has been assessed to $348/mt by PRIMA Markets, while a Dutch supplier peggs the HBE rebate for LBM to $233/mt.

Liquid fuels

Rotterdam's VLSFO-equivalent B100 price has surged $130/mt higher in the past week. Its compliance premium over VLSFO has risen by $108/mt, to reach $622/mt.

If we factor in the estimated EU Allowances (EUAs) and FuelEU costs between two EU ports, the B100 bunker price has increased by $95/mt.

Rotterdam’s VLSFO price has risen by $11/mt over the past week, outpacing an $8/mt increase in front-month ICE Brent Futures. There has been a slight uptick in bunker demand for VLSFO in the broader ARA region, which appears to have contributed to the increase.

In Singapore, VLSFO availability remains tight, with lead times suggested at approximately 10 days. Expedited deliveries within five days are available but these stems are priced higher.

This tight bunker supply has helped drive Singapore's VLSFO benchmark up by $31/mt over the past week.

Liquid gases

While the VLSFO-equivalent price of LBM is over $400/mt higher than fossil LNG in Rotterdam, the price gap narrows significantly when accounting for EU-EU compliance costs and pooling benefits.

For example, we estimate that LBM consumed in Otto MS engines with a 3.1% methane slip generates a theoretical pooling benefit of $546/mt under the FuelEU mechanism, compared to a $55/mt penalty incurred by fossil LNG in the same engine.

This means that by leveraging the pooling mechanism, the cost of bunkering LBM can be lowered to $597/mt, while fossil LNG's price will increase to $901/mt.

In diesel SS engines with a 0.2% methane slip, LBM offers a significantly higher pooling benefit of $681/mt under FuelEU, compared to a $120/mt benefit for fossil LNG used in the same engine. With this benefit, the cost of bunkering LBM for ships with diesel SS engines is reduced to $462/mt.

By Konica Bhatt

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