Fuel Switch Snapshot: LNG still an expensive choice for dual-fuel vessels

LNG not competitive with VLSFO since July

LSMGO still a cost-effective option in ECAs

Advanced Dutch biofuel prices up amid lower rebate

CHART: The dots represent bunker fuel prices adjusted for calorific contents to become VLSFO-equivalents, and with various estimated levels of EU ETS costs in 2024 excluded (Rotterdam) and included (Rotterdam to non-EU port and Rotterdam to EU port). ENGINE, PRIMA Markets, NYMEX

For dual-fuel LNG-capable vessels without scrubbers sailing outside of 0.10% sulphur-capped Emission Control Areas (ECAs), VLSFO grade has been a more cost-effective choice than LNG in Rotterdam for four months now. For vessels of this kind sailing within ECAs, LSMGO has often been a more attractively priced option than LNG over the past three months, but it has been on and off.

This is when we compare the grades as VLSFO-equivalents on energy content, which is what matters for how far a vessel can sail on a quantity of fuel.

Rotterdam’s VLSFO-equivalent LNG was last at a discount to VLSFO in late July, and has since pulled ahead to wide premiums. LNG was competitive with LSMGO (both as VLSFO-equivalents) in early November and has since shot up to premiums.

Rotterdam’s LNG price has been rather steady in the past week, while VLSFO and LSMGO have made more marked gains. VLSFO-equivalent LNG now stands at $694/mt, a massive $178/mt premium above VLSFO and also $51/mt above LSMGO.

LNG’s premium over LSMGO is slightly narrower at $45/mt with estimated EU Allowance (EUA) costs added – which favours LNG’s lower CO2 emissions – for voyages between EU ports and non-EU ports. Voyages between two ports require more EUAs to be surrendered, and with the estimated costs of those extra EUAs added LNG’s premium over LSMGO drops to $38/mt.

VLSFO

Front-month ICE Brent rallied 6% higher last week on continuous support from the ever-escalating Russia-Ukraine war. On Thursday last week, Russian President Vladimir Putin announced that Russia had fired a ballistic missile at Ukraine and warned of a potential global nuclear war, increasing fears of oil supply disruptions, Reuters reported.

Despite this $4.13/bbl ($30/mt) Brent gain, VLSFO prices only creeped up by $4/mt in Rotterdam and $9/mt in Singapore. The ports’ LSMGO levels made bigger $20-22/mt gains, but still underperformed against Brent.

A slight improvement in VLSFO supply in the ARA might have contributed to put a lid on prices, but lead times are still relatively long at 5-7 days for the grade. LSMGO availability is relatively better in the ARA hub and most suppliers can offer the grade for prompt delivery dates. Lead times of around 3-5 days are advised.

VLSFO availability tightened in Singapore, with lead times at 6-11 days compared to the previous week’s 2-8 days. LSMGO requires lead times of 4-9 days, up from 2-6 days the previous week.

Biofuels

Rotterdam’s B30-VLSFO HBE bunker benchmark has gone up by $13/mt in the past week, while rallying LSMGO levels have pushed B30-LSMGO HBE up by a greater $25/mt.

The port’s B30-VLSFO UCOME benchmark has gone the other way, shedding $35/mt on the week and coming within $160/mt of HBE-rebated B30-VLSFO.

The Dutch HBE A ticket price has been highly volatile, peaking at around €23/GJ ($24.05/GJ) early last week before dropping to €17.50/GJ ($18.30/GJ) by Friday. This translates to a theoretical rebate of $163/mt for B30-VLSFO HBE blends sold in Dutch ports. While down from $210/mt a week ago, the rebate remains significantly higher than the $90/mt recorded in April.

In Singapore, an $18/mt gain for B24-LSMGO UCOME has been more than twice the $7/mt gain for B24-VLSFO UCOME.

Singapore remains a key market for Chinese UCOME cargo imports, with PRIMA Markets noting offers of UCOME FOB China in bulk at $1,020/mt on Friday. That was $180/mt lower than what a supplier indicated pure B100 UCOME at for bunkering in Singapore that day.

LNG

Rotterdam’s LNG bunker price has made a marginal rise of $4/mt to $853/mt – the highest it has been in over a year. The underlying front-month Dutch TTF Natural Gas contract settled at $13.92/MMBtu ($841/mt) on Thursday last week, a level not seen since October 2023.

A period of rising prices reflects growing concerns over gas supply stability in Europe, primarily due to the escalating Russia-Ukraine conflict, ING’s Warren Patterson said.

Singapore’s LNG bunker price has shot up by $37/mt to $889/mt. Colder temperatures have bolstered gas demand for heating and electricity in Japan. Production issues for Brunei LNG, a major producer in the region, has also supported the front-month NYMEX Japan/Korea Marker (JKM) contract, which influences price levels in Singapore’s LNG bunker market.

By Erik Hoffmann, Nithin Chandran and Debarati Bhattacharjee

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