INTERVIEW: Bunker industry supports IMO decarbonization pathway despite concerns over future fuels

Bunker traders will find ways to support the International Maritime Organization's decarbonization pathway for global shipping, according to a senior industry representative, even as they could face challenges in shifting to a multi-fuel environment amid regulatory uncertainty.

Since the UN agency, tasked to regulate maritime transportation, set targets to have 5%-10% of the world's bunker mix from zero-emission energy by 2030 and achieve net-zero emissions close to 2050, many shipping professionals have raised concerns over limited availability of sustainable bunker fuels.

In an interview with S&P Global Commodity Insights, the International Bunker Industry Association's executive director, Alexander Prokopakis, said the IMO offers "a clear path" for cutting greenhouse gas emissions in the coming decades "so we are here to support them."

"Our members will find whatever fuels that are available in the market in order for the ships to be fueled," Prokopakis added.

Current production of low-carbon marine fuels is limited, and many industry participants said shipping companies could face a diverse bunker mix in the future as no single fuel's volume is sufficient in decarbonizing the global fleet.

In its latest forecast, Commodity Insights expects the share of oil-based bunker fuels in exajoule terms to decrease from 98% in 2024 to 46% in 2050, and ammonia to grow from zero to 20% as the most used low-carbon fuel.

Chicken-and-egg issues

As the world's largest trade association for bunker industry participants, the IBIA is "fuel-agnostic" but its members might need to handle different types of fuels in the future, Prokopakis said.

"We have [IMO] targets, but the regulations are not clear," said Prokopakis, adding that prevailing industry concerns center around the lack of "visibility" over future fuel supplies.

Many producers are only willing to invest in new facilities to ramp up green fuel output when locking in sufficient offtake agreements, but shipping firms have been reluctant to commit to new fuels whose supplies are small, shipping and bunker market players said.

For the chicken-and-egg dilemma to be solved, "I believe that any move should come from the supply side, then the demand will come," Prokopakis said.

"You give a product to the market and there is availability when you have a regulation, then you have a price. Then the demand will come," he added.

However, shipping companies have often preferred spot purchases and opted for the cheapest fuels available even as multiple industries are vying for limited green supplies.

"The shipping industry also needs to understand it's competing with other industries stronger in buying power, like aviation," Prokopakis said. "So it would be hard."

Regulatory development

Based on the announced timeline, IMO member states are scheduled to finalize safety guidelines for the highly toxic ammonia later this year before hammering out new technical and economic measures, potentially a carbon levy on marine energy, next spring for their implementation from 2027.

The EU, on the other hand, has extended its Emissions Trading System to cover shipping from 2024 and will introduce FuelEU Maritime rules on the GHG intensity for fuels used by ships involved in EU-related trades.

While seeing the EU moves as "an important step" for maritime decarbonization, Prokopakis said bunker regulations should be better imposed at a global level.

"We believe that the industry needs a global measure, not regional," he said, adding that regulations and procedures on bunkering safety should be "the most important part."

Prokopakis suggested he remains overall optimistic that the IMO could eventually meet its net-zero target by 2050, as there could be further technological advancements in the coming decades. For example, the bunker industry needs to deal with more paperwork on fuels' emissions and sustainability criteria during the low-carbon transition, but such tasks could be simplified by digitalizing bunker delivery notes.

Singapore, the world's largest bunker hub, plans to make such digital requirement mandatory by end-2024.

"History shows that all the [IMO] targets and emission restrictions have been met," Prokopakis said. "The market will be able to adapt. I don't have any grounds to doubt that."