Doing nothing and paying FuelEU penalties should not be an option

Whereas many shipowners whose vessels trade within, to or from ports in the European Union (EU), Iceland and Norway, are taking measures to limit the penalties they will incur under the bloc’s FuelEU Maritime regulations, many others are failing to adopt strategies to minimise their exposure. Penalties are set to increase  steadily over the balance of the decade.

OceanScore’s Managing Director, Albrecht Grell, has issued a stark warning. “A significant number of shipping companies we have spoken to – especially smaller ones – currently are not considering pooling but simply intend to pay the penalty. But this, as well as pushing compliance deficits into future years through borrowing that will incur interest, will prove increasingly costly in the long run.”

The consultancy has outlined options to reduce the penalties which, in earlier analysis, it has estimated at $1.5 billion next year, spread over the 13,000 ships of more than 5,000 gt that trade in the region. Particularly hard hit will be passenger ships, ro-pax and roro vessels, and container ships.

Fuel-saving strategies that should be weighed up could include adopting shore power, as more ports prepare to offer it. Wind assisted propulsion is another option, but both of these require upfront investment and only yield benefits for certain ships on particular trades.

Related:LNG to score well under new FuelEU regulations from 2025

Another plan, at least in the short run, could be to increase the use of biofuels or cleaner hydrocarbons such as LNG or LPG, the firm said. However, a more commercially viable option would be to implement a pooling system, either within one fleet, or in a market-based pooling arrangement with third parties.

The scale of the penalties next year and their increase over the decade is dramatic. Grell has revealed that the 2025 penalty of €2,400 per tonne of very low sulphur fuel oil equivalent will climb to €3,360 by 2029. The penalties will then tighten further from the beginning of the next decade.

“Everyone knows that the years 2025 to 2029 only represent a phase-in into FuelEU,” Grell declared. “Staying compliant will be much harder after 2030 with target carbon intensities being adjusted downwards and many LNG-fuelled vessels ceasing to generate surpluses then. If the prices drop too low, surplus owners will simply start to bank them.”

Many uncertainties prevail over the marine fuel outlook but Grell expects the price range for fuel surpluses will make pooling a sensible strategy against paying penalties, particularly in view of penalty escalation. The company will be launching what it calls ‘a suite of FuelEU solutions’ at SMM in Hamburg next month.

Related:FuelEU maritime regulation: Synergies with existing legal frameworks and advancement of alternative maritime solutions