Lack of knowledge on pricing, quality and product availability for biofuels is leading to hesitation in signing term agreements, FincoEnergies told ENGINE.  

When it comes to biofuels, a lack of knowledge and visibility on biofuel prices is one of the main reasons shipping companies are hesitant to close term contracts today, Johannes Schürmann, commercial director of FincoEnergies’ marine division said.

“We have pitched to quite a few customers about closing a term contract, maybe a 1- or 2-year contract based on one biofuel pricing index, but we haven’t succeeded,” Schürmann explained. “The main reason is that internally, they need board approval to lock in certain price levels. They prefer using a floating price with a fossil index, like ICE Gasoil plus a fixed premium, to calculate their exact financial exposure.”

While some globally accepted pricing indexes for biofuels exist, shipping companies often lack access to these essential price points. And without reliable pricing information, these companies struggle to make informed decisions, making them reluctant to engage in long-term commitments. 

“The main reason is they have no clue [about] the pricing indexes in biofuel,” Schürmann said.

To address this, Schürmann argued for fixed-term contracts, which lock in prices over an agreed period, reducing exposure to spot market fluctuations and easing logistical challenges related to adjusting barge or cargo deliveries.

Another challenge is uncertainty about availability of biofuels, particularly outside major bunkering hubs like ARA and Singapore. Suppliers in more and more ports have launched biofuel bunker operations, but there is a perception among shipowners that availability is still lacking and that opting for biofuels to comply with regulations like FuelEU Maritime in the EU can reduce their flexibility if they call at ports without availability.

Term contracts can help mitigate these risks by sending firm demand signals to suppliers, who can then plan future investments and establish logistics to meet increased bunker demand, according to Schürmann.

The sulphur factor for biofuels  

Different grades of biofuels can be used in the road, shipping or power generation industries. However, quality differences among these grades can significantly impact pricing in the shipping sector, Schürmann emphasised. This variability can make it difficult for buyers to predict costs accurately, which in turn can influence their decision to sign term contracts.

Some biofuels can be used interchangeably as road or bunker fuels. Others have higher sulphur content, which makes them unsuitable for road while still acceptable for shipping. 

For instance, a product with 20 ppm sulphur content cannot be used by vehicles because it exceeds the road standard cap of 10 ppm. But it can be used in shipping since it is below the International Maritime Organisation’s (IMO) 0.10% – or 1,000 ppm – cap. This product may be sold at a discount because it is limited to bunkering, he explained.  

Biomethanol’s quality and pricing labyrinth  

The pricing situation becomes even more challenging for new alternative fuels like low-carbon methanol or ammonia, Schürmann argued.  

For instance, he said, green ammonia is not yet widely available, making it difficult to establish prices for it. Methanol, and especially biomethanol, currently lacks a standardised pricing mechanism for shipping. Some companies provide individual quotes, but market prices vary widely across suppliers. This can complicate decision-making for buyers considering these emerging bunker fuels. 

Discrepancy in quality and regulations can add another layer of complexity to the pricing structures for fuels like biomethanol. 

Biomethanol quality, especially for prototype batches, can differ significantly. Specifications of methanol supplied for shipping are gradually aligning with the International Methanol Producers and Consumers Association (IMPCA) Reference Specifications.  

The IMPCA reference specs are a set of standards that define fuel quality of methanol by testing for elements like chloride, sulphur, hydrocarbons, acidity and volatility.

These specifications help ensure consistency within methanol grades. But there remains some uncertainty about the range of methanol grades that engine manufacturers like MAN Energy Solutions and Wärtsilä can accept. Engine manufacturers are still determining which specifications to allow and finalise, which complicates methanol’s pricing and market readiness.  

As methanol begins aligning with chemical industry specifications, any quality variations or unmet specifications could create price disparities depending on which industries can utilise the product, he added. 

Given this uncertainty, shipping companies might feel it is more prudent to adopt a wait-and-see approach, preferring to engage in spot or very short-term deals like quarterly agreements, rather than committing to multiple-year contracts. 

Addressing the biomethanol demand drought 

FincoEnergies started offering truck-to-ship biomethanol deliveries in the Port of Amsterdam last year. But demand remains low.

“We have had biomethanol in stock for over a year; we have a truck ready to deliver, and we have the parts ready to deliver, but we see that demand for biomethanol is very, very low,” Schürmann said. 

The company is still betting on this fossil fuel alternative because it expects demand to pick up in the near-term.

“Whilst current demand is developing, the company maintains its commitment to biomethanol, supported by industry movements such as Maersk’s recent long-term methanol sourcing agreement,” he said.

There are now 43 methanol-capable vessels in operation globally and another 342 vessels are on order for deliveries towards 2033, according to classification society DNV’s database.

“So yeah, we need to invest in that [fuel],” Schürmann said.  

To offset financial risks, he thinks that fuel suppliers should strike the right balance between spot deliveries and term contracts.  

“There will be shipping companies that close contracts; you only need to find the right ones, and you need to set up a partnership approach.”  

By Konica Bhatt

Photo credit: FincoEnergies
Source: ENGINE
Published: 18 November, 2024