future of marine fuels - how will prices of key marine fuels evolve until 2040

1 The global maritime regulatory landscape is moving towards stringent emissions control. To comply with these regulatory changes ship owners need to make a choice among the various emission reduction techniques. Since these emission reduction techniques differentiate themselves mainly on fuel costs, thus future fuel price developme nt is an important input needed for comparison of the “cost-effectiveness ” of competing technique s. In this briefing note we first give a brief description of the prominent marine fuels and their observed price relationship with cru de oil. Then we explore the differe nt factors affecting crude oil price . Based on this, we f inally propose a first scenario of future price developmen t of prominent marine fuels. Our results suggest that marine fuel prices will increase significantly and the relative price differential between the different grades will widen, thereby reducing the economic attractiveness of using distillates for ship operation. Introduction In recent years, an increased awareness of both local and global environmental issues and the growing realization of the actual impact of emissions from ships have resulted in an accelerated effort by the international community to curb these harmful emissions. In the maritime industry, the International Maritime Organization (IMO) is utilizing regulatory tools to ensure change. In the next decade key environmental regulations for the maritime industry are coming into force to address harmful emissions such as sulphur oxides (SO x ), nitrous oxides (NO x ), particulate matter (PM) and greenhouse gases (in particular CO 2 ). 1 A summary of recent and future emission regulations can be seen in Table 1. Regulations 2010-2013 2014-2020 Sulphur Oxides (SO x ) 2010 - Emission Control Area (ECA) fuel oil sulphur limit of 1% 2012 – Global fuel oil sulphur limit of 3.5% 2015 – ECA fuel oil sulphur limit of 0.1% 2020 – Global fuel oil sulphur limit of 0.5% (Subject to IMO review in 2018) 1 (Det Norske Veritas As, 2012) Nitrous Oxides (NOx) 2011 – NO x Tier II emission standards for new ships 2016 – NOx Tier III emission standards for new ships (Subject to Marine Environment Protection Committee vote in 2014) Green House Gases (GHGs) 2013 – Enforcement of Energy Efficiency Design Index (EEDI) and Ship Energy Efficiency Management Plan (SEEMP) 2017 – Probable launch of Market Based Mechanisms (MBM’s) for GHG reduction in the European Union (EU) Table 1 - Recent and upcoming maritime emission regulations Source: (Det Norske Veritas AS., 2012) A number of solutions are currently available within the maritime industry which can significantly reduce emission from ships. Several incentive mechanisms are currently under examination. IMO has already proposed a mandatory Energy Efficiency Design Index (EEDI) for new-build ships. A brief description of the most prominent emission reduction solutions is given below. Note de Synthese / Briefing note 2 21 January 2014 Future of marine fuels: How will prices of key marine fuels evolve until 2040?

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