• Biofuel prices have remained stable while conventional fuels surged
• Shipping has yet to take advantage of the cheaper biofuels at scale
• Lower biofuel premiums are likely to last until prices return to pre-war levels

Jesper Sørensen is global head of alternative fuels and carbon markets at KPI OceanConnect. Image Credit: KPI OceanConnect

The shipping industry has not sufficiently taken advantage of the narrowing price spreads between conventional fuels and biofuels in recent months, according to global bunkering firm KPI OceanConnect.

The war in Iran has driven up bunker prices back to highs not seen since the Russian invasion of Ukraine in 2022. While Ship & Bunker's G20-VLSFO Index of global prices is now down by almost 30% from its recent peak in March, it remains 36% above its pre-war level on February 27.

This has led to biofuels looking comparatively much cheaper, Jesper Sørensen, global head of alternative fuels and carbon markets at KPI OceanConnect, said in an interview with Ship & Bunker.

"What has largely gone unnoticed, or at least not gotten as much attention, is the fact that alternative fuels, by and large, have stayed stable," he said.

"This means that the price spread for biofuels in particular has narrowed quite significantly, and in some cases over the past couple of months we have seen in certain locations that biofuels are actually cheaper than conventional fuels.

"It has not been taken advantage of to the extent that I think it deserved.”

Image Credit: Ship & Bunker

Looking specifically at Rotterdam, a blend of B30-VLSFO sold at the Dutch port since the start of March has cost on average $248/mt more than VLSFO alone, compared to a premium of $318/mt in the three months to February 28.

Taking in GHG compliance costs for the EU-ETS and FuelEU Maritime, B30 at Rotterdam has worked out $58/mt cheaper than VLSFO for ships on an intra-EU voyage since the start of March, compared to being about the same price as VLSFO overall in the three months before the war.

In some markets the advantage seen for biofuels has been even more pronounced. KPI OceanConnect has observed moments in recent months where B100 has been cheaper outright than MGO at the ARA hub, as well as where blends of biofuels with HSFO in South Korea have been cheaper than HSFO alone.

Why Isn't Biofuel Demand Surging?

With the advantages gained by biofuels in recent months, one might expect a rational market to be delivering surging demand for them, but this appears not to have happened yet.

Sørensen argues the market's focus has been on other issues, holding back a bigger move into biofuel purchases.

“The nerve receptors have received too much stimuli at once," he said.

"If we’re not just looking at the war, which was a disruption in itself, the major thing that changed from the 1st of January this year was the need to settle the first compliance cycle of FuelEU Maritime.

"What do we need to do, have we gotten all the paperwork in order, have we documented and verified all our data?

"Since the end of last year, I always had the suspicion that people’s focus would be on, ‘OK, I need to settle my compliance for FuelEU Maritime for 2025; once that’s done, then I can start making new
considerations'.

"There hasn't been enough bandwidth to focus on this now."

That may be about to change.

"I think there will come a natural change, because fortunately it looks like we’re heading towards a more stable period in the conflict, fingers crossed," Sørensen said.

"The initial rush to secure availability that we saw in March and April in particular has slowed down.

"Also, with the FuelEU Maritime compliance in cycle over and done with in April, there’s now time to look at how to settle 2026 compliance.

"I think that there will be a natural increase in demand in the second half of the year.

"We might need to get over the summer as well, when people are taking breaks, but other than that I would expect it comes up.

"The question is, though, are you then benefiting as much as you could have if you had taken advantage earlier?”

Biofuel Advantages Likely to Persist in Peacetime

The war in Iran now appears in the short term to be drawing to a close.

But the market is not expecting an immediate return to pre-war prices. Most are expecting Brent crude to remain above $75/bl for months, well above the levels seen in February.

In this environment, biofuels should be able to cling on to the relative advantage they have built up since March, Sørensen said.

"The spread remains narrower than it was pre-war, and that will likely continue as long as prices stay high and availability has been affected," he said.

"With the snowball effect of the conflict, it will take some time to stop that and for things to stabilise.”

The IMO Effect

Over the longer term, the key driver for alternative fuels like biofuels will be whether the IMO can get a version of its Net-Zero Framework adopted at the end of this year to incentivise decarbonisation.

“I was here in Greece two years ago for the last Posidonia as well," Sørensen said.

"Greece is perhaps one of the more conservative markets when it comes to adopting alternative fuels - yet every owner and operator I spoke to said we just want clarity, we want to know which direction we should go in.

"The IMO did not respond to that."

Bunker Holding and its units remain supportive of the idea of the IMO imposing global decarbonisation regulation for shipping.

“I hope they agree a way forward, and in KPI OceanConnect and Bunker Holding as a whole we support a global regulation," Sørensen said.

"It will make things a lot easier for shipowners to navigate."

Moving beyond what he wants to happen to his actual expectations, Sørensen argues there is a case for optimism that a global framework can be passed.

"I’m hopeful, and generally I believe shipping as a whole finds a way forward when it needs to," he said.

"This uncertainty is not serving anyone, so I believe that they will find a compromise that can make things go forward so we have a global regulation.”