INSIGHT: What to Look Out for When Buying Biofuel Bunkers

by Glander International Bunkering
Friday February 16, 2024

Biofuels have rapidly emerged as one of the most popular alternative marine energy choices over the past few years as the shipping industry bears down on its greenhouse gas emissions.

The advantages of using biofuels are clear: they work as a drop-in alternative to conventional bunkers, with little or no changes needed to ships' engines or delivery infrastructure to use them, and result in net reductions in GHG emissions based on their full lifecycle assessment when produced from second or third generation (sustainable) feedstocks. 

Biofuels already help buyers today meet their ESG targets and will soon be one of the solutions to meet the mandatory blend-in requirements as set out in the FuelEU Maritime Regulation, starting in 2025.

Bunker buyers can take on these fuels immediately, without significant up-front investment or any long-term commitment to them.

Biofuel volumes

Demand for these fuels has grown rapidly during the past months. Rotterdam saw 791,000 mt of sales for biofuel/marine fuel blends in 2022, up by 163% from 2021, while Singapore kicked off biofuel sales in 2022 with 140,000 mt of blended product sold in total.

The main products in ARA are B30 and in Singapore B24, which means 30% and 24% respectively of biofuel blended with conventional marine fuel. The fuels are already available at a wide range in other ports, and volumes can be expected only to climb in the coming years.

These sales initially came in the course of  trials from shipping companies looking to try out the fuels in their engines on a one-off basis, but regular sales are now increasingly being seen.

The first thing to note about biofuels in the marine fuel space is that when we talk about them, it's almost always blends being referred to, typically with up to about 30% biofuel content mixed with VLSFO, HSFO or MGO. Higher ratios of biofuel content, even up to 100%, have been shown to work in conventional engines but are as yet rarely used.

Regulations driving biofuel uptake

There is no doubt that one of the main drivers for the shipping industry's transition towards carbon neutrality is the increasing and rapidly developing regulatory requirements.

Firstly, IMO has now set a firm target for reaching net-zero greenhouse gas emissions from international shipping approaching the year 2050.The target includes checkpoints for 2030 and 2040 of 20% and 70% respectively absolute reductions (striving for 30% and 80%).

In addition, the uptake of zero or near-zero fuels are to represent at least 5% by 2030.

Consequently, the shipping industry cannot just wait until 2050, but will be working on reaching these targets already now. The targets of absolute emissions reductions can only be reached by transitioning from traditional to alternative fuels.

Secondly, the CII regulations has now entered into effect. All vessels larger than 5,000 GT will have calculated for them a CII rating based on historical data submitted to the IMO. The rating is a calculation of the CO2 the vessel emitted per unit of cargo capacity per nautical mile.

The rating will come as a letter between A and E, with A at the top of the scale, and ratings will be determined on an annual basis. Ships receiving a D rating for three years or an E rating for a single year will need to implement a corrective action plan as part of the ship energy efficiency management plan (SEEMP) setting out their plans to improve their performance and rating. Alternative fuel such as biofuel will have a significant positive impact on the rating.

Finally, IMO is set to adopt further regulation – such as a price on carbon emissions as well as a green fuel standard – in the coming years to further drive the transition.

But separately from the global effort on decarbonization led by the IMO, the European Union has also been pursuing its own regulatory agenda.

The EU has now included shipping within the union's emissions trading system (ETS). All ships over 5,000 GT in size are included in the ETS, covering 100% of CO2 emissions from intra-EU voyages and 50% of emissions from voyages between EU ports and the rest of the world. In practice, this means that all vessels calling a European port will be affected by the EU ETS.

The system is being phased in starting in 2024 with 40% of emissions covered, 70% in 2025 and 100% from2026 onwards. Shipping companies will be required to buy an equivalent number of "EU Allowances" (representing one tonne of CO2 emissions) to match their annual total fleet emissions, and deliver these to the authorities each year.

Europe also has a separate regulation called FuelEU Maritime, which will require shipping firms to gradually incorporate renewable fuels in their bunker purchases in order to lower the GHG intensity of the fuel burned. Like the ETS it is a gradually phased in system with the same coverage in terms of ship size and geographical scope. Meanwhile, the FuelEU Maritime sets requirements not only for CO2, but for other greenhouse gases as well. 

These regulatory drivers are just the start; further developments can be expected from the IMO in the coming years, and over the longer term the US and China may also seek to impose their own rules if they are dissatisfied with the global regulations.

All of this will mean biofuel use is heavily incentivized in the short term as the use of conventional fuels becomes more constrained by regulatory costs.

Which biofuel?

Beyond choosing the appropriate conventional fuel grade for the blend, the provenance of the biofuel component is a key consideration. Biofuels such as Biodiesel or HVO are produced from a range of biomass feedstocks, with varying degrees of environmental credentials.

The feedstock types are divided into generations: first-generation biofuels are produced from food crops on arable land, the second generation come from waste products from industries like fish processing, while the third are sourced from more advanced sources like algae.

Products produced from first-generation are increasingly frowned upon by various groups both for taking away arable land and for not delivering sufficient net reductions in GHG emissions, particularly when sourced from palm oil, and may increasingly face legal restrictions in the coming years. For that reason, first-generation biofuels are considered as 'fossil' under IMO regulations and will not play a role in decarbonizing the shipping sector.

Production of biofuels from second-generation is currently being expanded significantly, but output levels cannot rise indefinitely without sufficient waste feedstock, and a range of industries including aviation will soon be competing aggressively for access to these fuels. And production of the third generation has yet to take off in a significant way.

A certified supply chain

Guaranteeing the origins of the biofuels is another important consideration, to ensure that the emissions savings are genuine and have not been double-counted.

In drawing up their guidelines for biofuel bunkering, Singapore's authorities as an example have recommended that buyers only take on biofuel blends that have been certified by the ISCC (International Sustainability and Carbon Certification).

The ISCC certification ensures that biofuels meet internationally recognized sustainability and traceability standards. Assessing the sustainability credentials of biofuel producers, verifying the compliance of their production processes, and ensuring transparency throughout the supply chain is key when purchasing biofuels. 

IMO has also just adopted a guideline on biofuels defining the criteria for a sustainable biofuel and how it should be reported into the IMO Data Collection System.

Biofuel quality

FAME and HVO are an excellent low-carbon solution and drop-in fuel and the quality is even better than MGO.

In order to make sure the quality is in place, buyers should purchase a biofuel or biofuel blends according to the next ISO 8217 edition (ISO 8217:2024), which will be available soon. 

This new edition will cover fuel stability, cold flow properties and corrosivity in addition to many other familiar test parameters for FAME, HVO and biofuel blends with either MGO or HFO. 

Until this specification is out, buyers are encouraged to request that FAME meets EN14214 specification (ASTM D6751 in case EN 14214 is not available) and HVO meets the EN15940 specification, even if it is to be blended with MGO or HFO.

The final blend must also meet the ISO 8217 specification in order to guarantee a good biofuel product.

Price considerations

Considering costs, this can vary significantly around the world according to local regulations, availability and last mile delivery. In Europe biofuels demand will be driven by the FuelEU Maritime regulation, mandating for GHG reduction in shipping as of 2025, which will have an effect on biofuels prices.

Though today bunkering, for example in the Netherlands, can benefit from subsidies that can apply to biofuel bunker sales and reduce their net costs significantly. In the US the lack of similar measures has meant the marine biofuel market has yet to emerge in a significant way.

In Singapore, recent market analysis has put the cost of a B30-VLSFO blend at a premium of 20-30% over VLSFO prices.

Ultimately, most of the pitfalls around buying biofuel bunkers can be avoided in the selection of an experienced marine fuels firm to help with the purchase. An ISCC certified and well-established company will be able to guide shipping companies through every stage of decision-making, from quality assurance to emissions planning and reporting, delivering peace of mind to the buyer.