Those who have started planning their FuelEU compliance, know by now that blending in biofuels is for many in the industry the most cost effective way to compliance. Even bunkering relatively small percentages of biofuel can lower a vessel’s average greenhouse gas intensity sufficiently to avoid FuelEU penalties altogether, which will offset the biofuel’s price premiums. In addition, blending in biofuels decreases EU ETS exposure and potentially generated FuelEU surpluses can even generate additional revenue.

Knowing this, the next question often is: “how much biofuel do I need”? 

The answer: it depends. It depends on your goals - do you want to be just FuelEU compliant or generate surpluses? It depends on your commercial contracts - do you own the compliance balance or not? Have you made sure that the benefits of using cleaner fuels flow to you? It depends on your current fuel mix, your exposure to the EU, the quality of biofuel you’re planning to bunker, fuel prices, the market prices for pooling, …

Those looking to simply become FuelEU compliant may opt for a ‘one size fits all’ approach and work with rules of thumb. Although this approach is likely to result in a higher operational cost, surpluses can be simply banked and benefited from in next years.

For those who want to optimise operational costs, and for example shorter-term operators that want to make sure they are fairly compensated for bunkering cleaner but more expensive fuels, a ‘one size fits all’ approach is not enough. In this article, we’ll show you why.

“How much biofuel do we need?”: Three cases, three answers.

First things first. What biofuels are available to you? Biofuels and their quality in terms of feedstock, energy content, and greenhouse gas intensity, can wildly differ from one another. And indeed, its quality will dictate the volumes you’ll need to offset the high greenhouse gas intensity of the fossil fuels you’re already bunkering.

In our calculation examples we look at a FAME biodiesel from used cooking oil (UCOME) with a Lower Calorific Value of 0.037 MJ/gram fuel and a greenhouse gas intensity of 16.23 gCO2eq/MJ.

The impact of the current fuel mix

Let’s assume our vessel has an annual consumption of 10,000 tonnes of HFO and is solely traveling within the EU. In this case, if we replace part of the HFO by 329 tonnes of biofuel, the vessel’s average greenhouse gas intensity is decreased sufficiently to avoid any FuelEU penalties. This is about 3% of the vessel’s fuel mix. This fuel switch costs us about $266,000.

Things quickly get more complex when the vessel is operating on a mix of different fuels. For example, if our vessel were operating on a 50/50 MGO/HFO split, replacing part of the MGO with 262 mt of biofuel - accounting for about 2.4% of the fuel mix - is already enough to reach compliance. This switch costs us about $182,000.

The impact of EU exposure

Another important element to consider is the vessel’s EU exposure. In the previous examples we assumed our vessel is sailing intra-EU only and therefore all its energy consumption is in scope for FuelEU. Let’s now look at a case where only 40% of our energy consumption is used on intra-EU voyages and EU port calls (meaning this energy is fully in-scope of the FuelEU regulation) and the other 60% of the energy consumption is used on voyages to and from the EU (meaning this energy is 50% in scope of the regulation).

This is where redistribution, or the prioritized allocation of fuels, comes into play. The EU has clarified that all energy on voyages into and out of the EU can contribute to the vessel’s average annual greenhouse gas intensity. This means we can allocate fuel consumption in such a way that fuels with the lowest intensity contribute most to the average greenhouse gas intensity, and we shift fuels with higher greenhouse gas intensity as much as possible out of the scope of the regulation.

In our last example, this means we will let our biodiesel consumption count as much as possible towards the annual average, followed by MGO, and lastly the fuel with the highest intensity - HFO. This way, we get the full advantage of using the biofuel on voyages into and out of the EU, as if they were used on intra-EU voyages.

This also means that with the same amount of biofuels (262 tonnes in our last example), we would now generate a surplus. Or - if we aim to minimise our cost and exactly meet FuelEU targets - we can bunker less biodiesel: in this example we would only need 183 tonnes - about 2.1% of the fuel mix.

Data-driven decision making vs. the ‘one size fits all’ approach: a cost comparison

These examples show that the vessel’s unique consumption profile and operational schedule have a big impact on the share of biofuels you actually need in order to reach FuelEU compliance. The more information we take into account, the more accurate our calculations get. 

An often heard rule of thumb is to bunker 4% biofuels to be sure you’re FuelEU compliant. As illustrated in the previous examples, following this ‘one size fits all’ approach, you would bunker more biofuels than needed to meet FuelEU targets. For compliance balance owners who can bank the generated surplus to future years or decide to pool the surplus with other vessels, this can be a perfectly fine approach. If the prices per tonne of CO2eq on the pooling market outweigh the biodiesel premiums, this can be a successful strategy.

However, operators that do not own the compliance balance (short-term time charterers) will not benefit from banking or pooling by the ship owner. Those who want to optimise operational costs will therefore have to look beyond these rules of thumb. As shown in the below graph, the potential cost savings by adopting a more data-driven decision making approach are significant.

Although for the sake of this example we zoom in on a single vessel, operators are likely to assess their fleet as a whole and decide on a bunker strategy on a higher level. FuelEU’s pooling mechanism, minimal bunker volumes and the incentive to secure larger contracts, are all factors driving this. When fleets consist of vessels with diverse characteristics and trading patterns, the importance of taking into account underlying data is even bigger and cost savings compared to a ‘rule of thumb’ strategy are magnified.

About ZERO44

At ZERO44 we believe that smart, data-driven decision making helps the industry decarbonise and shipping companies reach their targets. We understand that your strategy for FuelEU compliance needs to be continuously reassessed based on the vessel’s actual movements and consumption. We offer a seamless integration between our planning module and vessel monitoring and provide you with automatic recommendations to adjust your strategy when needed.