ANALYSIS: GHG Compliance May Be Higher Cost Than Bunkers for Some Ships in 2026

Managing ships' exhaust is becoming a higher cost than bunkers in some cases. File Image / Pixabay

As increasingly tough decarbonisation regulations are imposed on shipping, the industry is awaiting the inflection point in the coming years where the regulatory costs associated with using conventional bunker fuels start to outweigh the cost of the fuel itself.

But for a small minority of ships, Ship & Bunker analysis shows this point may already be reached as soon as next year.

A sharp rise in EU-ETS costs coinciding with a projected collapse in crude markets is set to mean some scrubber-equipped ships burning HSFO on intra-EU voyages next year pay more for their emissions than for their bunkers.

Bunker Price

HSFO delivered at Rotterdam cost an average of $424/mt in the year to September 30, according to Ship & Bunker pricing, at an average discount to Brent crude futures of 16.3%.

September's Short-Term Energy Outlook from the US Energy Information Administration (EIA) forecast Brent futures to average $51.43/bl in 2026, or $387.27/mt, as increased production from OPEC+ members outpaces global demand.

If this year's 16.3% discount to Brent held at the same level, Rotterdam HSFO could expect to see an average price of about $324/mt next year.

Compliance Costs

At the same time as this projected slump in prices, regulatory costs are rising. 

Under the EU Emissions Trading System, ships are only required to surrender 70% of their EUA requirement for 2025, but this is stepping up to 100% from 2026 onwards as the system's phasing-in stage is completed.

Tank-to-wake GHG emission factors are also changing to start to take account of methane and nitrous oxide emissions from next year. This means one tonne of HSFO consumed on an intra-EU voyage from next year will require 3.163 EUAs to cover it, up from 3.114 previously.

The latest information from environmental market specialist Grey Epoch Europe* indicates the EUA price may average €86/mtCO2e ($100.97/mtCO2e) next year, up from the €68.77/mtCO2e average seen in the year to September 30.

That means each tonne of HSFO consumed on an intra-EU voyage in 2026 will generate about $319 in EU-ETS compliance costs. 

Beyond that, FuelEU Maritime compliance costs will need to be considered. Decarbonisation firm BetterSea estimated the average traded price for FuelEU Maritime pooling - the system used to buy and sell overcompliance to avoid penalties - at €185/mtCO2e in September. 

That would imply a FuelEU pooling cost of about $14.50 per tonne of fuel for HSFO consumption in the EU next year, if pooling costs stay at the current level.

The total EU-ETS and FuelEU compliance cost comes to about $333.50 per tonne of HSFO, just over the $324/mt projected cost for buying the fuel at Rotterdam next year.

Conclusion

These calculations only apply to one select group of ships, and are subject to what's likely to be significant volatility in energy markets, the EUA price and the euro-dollar exchange rate next year.

But they nonetheless demonstrate that decarbonisation costs are not a trivial issue that shipping firms can afford to ignore or sideline within their company's strategy.

Once the IMO's global system of carbon regulation for shipping comes into effect, it will only be a matter of time before GHG compliance costs for using conventional bunkers outweigh the cost of the fuel for all grades worldwide.

*Grey Epoch Europe Limited is an appointed representative of Thornbridge Investment Management LLP, which is authorised and regulated by the Financial Conduct Authority.