FEATURE: Mediterranean Market Under Threat From Regulations and Suez Competition

Robin Meech is managing director of Marine and Energy Consulting Ltd. Image Credit: Robin Meech / LinkedIn

The Mediterranean market is facing a series of threats over the coming years with tougher competition from Egypt and as IMO and European regulations change demand patterns, according to bunker industry veteran Robin Meech.

Meech, managing director of Marine and Energy Consulting Ltd, sees the upcoming Mediterranean ECA, the entry of international firms into Egypt's bunker market and the EU's energy taxation directive and emissions trading system as evolving threats to bunker supply in the region, he told Ship & Bunker this week.

Mediterranean ECA

The Mediterranean 0.1% sulfur limit is due to come into effect from May 2025, forcing ships operating in the area either to switch to 0.1% sulfur fuels, install a scrubber or use alternative fuels such as LNG.

"The switch is most likely to be more significant in the ports at the entry to the Mediterranean, namely Gibraltar, Tangier Med, Port Said and Suez," Meech said.

"Vessels transiting the Mediterranean will bunker at the entry points, namely within the Straits of Gibraltar and in Egyptian ports.

"This will diminish the bunker market within the Mediterranean."

Growing Egyptian Market Share

Egypt is starting to present a problem for some European bunker ports in the Mediterranean by offering more competitive prices.

Minerva Bunkering received its licence to supply bunkers at Egyptian ports in both the Mediterranean and Red Sea in the middle of May, and was followed shortly afterwards by Peninsula at Mediterranean Egyptian ports in early June.

Prices have since dropped sharply at Suez. VLSFO delivered in Suez cost an average of $664/mt in June, according to Ship & Bunker data, down from $742.50/mt a month earlier. 

For comparison, Valetta's average VLSFO price in June was $556/mt, up from $543.50/mt the previous month. 

The average price at Suez includes much higher offers from local suppliers, and some of the lower offers from the international firms have been close to the levels offered at European Mediterranean ports.

"Both suppliers claim to be sourcing material within their global supply chains, which permitted them to supply at competitive prices," Meech said.

"The advantage of Egypt as a supply location is that many vessels must await a convoy to pass through the canal.

"Traditionally this waiting time has been used to bunker decreasing the additional time, if any to take on bunker only stems."

Energy Taxation Directive

Meech also identifies the EU's Energy Taxation Directive as a problem, one of the less-discussed parts of the 'Fit for 55' decarbonisation package.

The European Commission is proposing to remove tax exemptions on aviation and marine fuels by updating this directive, with a proposed minimum tax rate for HSFO and MGO of €0.9 per gigajoule. This would result in price increases of at least $50/mt.

"That price difference would make bunker prices in European Economic Area ports less competitive with other options, potentially eliminating current price advantages of taking bunkers in EEA ports," Meech said.

"Moreover, this could make it attractive for ships operating chiefly within the EEA to visit nearby non-EEA ports to take bunkers if the price difference favours it.

"Should the taxation directive be implemented, then ports close to EEA waters offering a competitive bunker-only option might benefit."

EU-ETS for Shipping

The fourth threat identified by Meech is the introduction of shipping into the EU's emissions trading system.

From next year, the EU plans to require cargo and passenger ships over 5,000 GT in size to purchase emissions allowances covering the GHGs from their bunker consumption. The system will eventually cover 100% of the emissions from intra-EU voyages, and 50% of those between the EU and elsewhere in the world.

A gradual phase-in has been agreed, meaning ships will pay 40% of the costs incurred in 2024, moving to 70% in 2025 and 100% in 2026.

"The ETS will cause changes in trading patterns, for example making it attractive to use non-EU ports as transhipment centres for ships above the 5,000 GT threshold and use ships below the 5,000 GT threshold for the EU ETS for onward transport into EEA ports," Meech said.

"Moreover, if ships above 5,000 GT were used for onward cargo transport from transhipment ports close to EEA destinations, it would reduce the length of the voyage they would need to buy ETS allowances for.

"This is damaging to the bunker business as it can be expected to reduce the cargo transhipment business hence reducing port calls and potential bunker sales for ports within the Mediterranean."