Biofuels For Bunkering: What Lies Ahead?

Marine biofuel specialist FincoEnergies has been in the ARA market for several years and established itself as perhaps the world’s biggest supplier of biofuel blends to ships.

Countless shipping firms have grabbed news headlines through trialling GoodFuels’ biofuels supplied by FincoEnergies to their ships. Various feedstocks have been tried and tested, with differences in performances and greenhouse gas (GHG) reduction potentials recorded.

ENGINE spoke to FincoEnergies commercial director Johannes Schurmann to explore some of the more pressing questions and challenges around biofuels for bunkering. Have there been a lot of teething issues so far, where are we now, and what will a more GHG-regulated marine fuel future look like?
Erik Hoffmann (EH): We are seeing a wide range of price levels from various biofuel bunker suppliers in the Netherlands. These are given either for fuels based on feedstocks such as cashew nut shell liquid (CNSL), palm oil mill effluent (POME) or used cooking oil (UCO), which have different properties. Are there major differences in the performances of these fuels?
Johannes Schurmann (JS): If you look at POME and UCO, those are indeed different feedstocks that can have different properties. But it’s not a given that they have different properties. POME is of course a waste product from the palm oil industry, but UCO could also be a waste product from palm oil.

We have quite some clients that want solely used cooking oil methyl ester (UCOME), which is biodiesel made from UCO, because they believe they have engine acceptance for UCOME. But in the end, it’s impossible to prove that physical UCO ended up in the biodiesel. Only if you control the entire supply chain you could say ok, the physical UCO ended up in the biodiesel.
It’s very hard to base the quality of the biodiesel on the original feedstock if we are working with waste-based products.
CNSL is a totally different ball game. It’s a fuel that we don’t have much data about. We know that it has been used for some years in fuel oil blends. Some shipping companies are testing it, but there are also some nasty stories about all kinds of problems that occur with this product.
If you look at the composition of CNSL, it’s composed of mainly carbonyls and anacardic acids, and those are different from the fatty acids that we are well known in biodiesels.
It could be an interesting product for the future because there are quite some volumes available. It’s much cheaper than the biodiesels that we see today, but from a technical side, there are still quite some challenges that we need to overcome. So to just start using it because it fits in the ISO 8217 specification, that is too easily said.

EH: POME should not be confused with virgin palm oil, but how can a shipowner know that a POME-based biofuel is actually POME and not something else?
JS: We have been looking at POME for a while. In the Netherlands we have worked with this Dutch HBE [hernieuwbare brandstofeenheden] system, that does allow certain feedstocks to be used for international shipping if they are eligible for those HBEs, those bio tickets. And 2-3 years ago, they narrowed down the feedstock list which pushed us towards POME.
We didn’t use it before because we were scared of this “palm” word in the feedstock, and if you can use UCO or tallow, why look at POME? Due to the legislation we had to look at POME.
What we did was first looking at where is this POME coming from? It’s mainly coming from Southeast Asia – Malaysia for example, Indonesia as well. To prove that the POME is really a waste product, we need to rely fully on the ISCC [International Sustainability & Carbon Certification]. The ISCC is certifying basically all the parties in the chain, including the ones producing POME.
And when the auditors visit sites that are producing POME, they are checking whether those sites are actually increasing or decreasing the amount of POME that they produce on a yearly basis. They say you cannot produce more than you did in previous years. Those auditors are really looking to make sure that you are not purposely producing POME. We think that this is a good mechanism.

A better way to check that they’re not purposely producing POME is to see whether they even have a financial incentive to produce POME. And what we have done over the past years is that we have checked the POME price, so the raw feedstock, compared to palm oil.
What you see is that most of the time, not always but most of the time, the price of palm oil is higher than the price of POME. If the price of palm oil is higher than the price of POME, then for the producers of POME, there is no incentive to optimise the waste products rather than their premium product, which is palm oil.

EH: You have been looking into various ways of tracking feedstocks…Are either physical and blockchain tracers being used to guarantee that a biofuel’s origin and supply chain is what it says on the Proof of Sustainability (PoS)?
JS: Setting up a chain where a lot of mass balancing is done on paper, and setting up a chain with a physical tracer in there is extremely hard because you need to put tracers in all the big pools of feedstocks. You need to be able to track them to the vessel with a bunker sample for example, including what the dilution is of each tracer that you put in the original feedstocks.
Then you need to link those together – the tracers you find in the bunker sample and the tracers you’ve put in the original feedstock. In reality, we see that it is insanely hard to organise that. And it is quite costly because you need to physically put tracers in all those feedstocks. Because they’re coming from all over the world, it’s quite costly to organise that. From a physical side, we are not yet convinced that such a system would work.

The only benefit we found during trials, is that onboard the ships you have many different fuel tanks, and to have a tracer in the bunkers that you actually supplied to the ship could be beneficial because then onboard you can prove that if some problems occur, for example with the separator or in the engine, you can prove whether it was your fuel or not that led to a problem.
Regarding the digital tracers, we have been looking into blockchain solutions already for years. But we also see that this ISCC chain is quite solid. In Europe, we will start working with the Union Database soon. It’s a European-wide database for all biofuel streams and everybody participating in the European schemes will need to fill in their mass balance in that system, so that they can basically keep track of all movements of biofuels.

If you at some point adopt such a system globally, that would be very strong, but it’s definitely a good start that we have this unified database in Europe. I would say such a database is stronger than if we had worked independently as companies with blockchain technologies.

EH: Rotterdam’s total bio-blended bunker sales surged from 301,000 mt in 2021 to 791,000 mt in 2022, but then they unexpectedly dipped to 751,000 mt last year. Why was there a declining trend?
JS: It’s based on multiple factors. And what we have seen, and we think has the biggest impact, is that Singapore biofuel bunker sales spiked a lot. There has been some movement away from the Netherlands to Singapore. Of course, what we also see in the Netherlands is that general bunker fuel consumption declined year-over-year from 2022 to 2023. The share of biofuel, or at least the absolute consumption of biofuel, went down in those years. And fossil as well.

We see a tendency that LNG has better economics. I think the LNG business has had quite some tough years in 2022-2023, and in 2021 as well a bit. But we see a lot of new vessels with LNG engines. We see that the LNG business is getting more traction again. So that is definitely an impact.
And maybe the last impact is that in the early years of biofuel adoption, especially in 2022, there were a lot of cargo owners pushing biofuel consumption because they wanted to decarbonise their supply chains in shipping.
Since last year, and especially this year, we have seen some economic headwinds. We see that there is less interest from cargo owners to pay extra for sustainable supply chains. Therefore we are lacking a push from the cargo owner side to bunker more sustainable fuels. We know from a lot of our customers that they are struggling to sell the emission reductions of their consumed biofuels to their cargo owners.

EH: Have you seen any demand help from the EU ETS this year, and do you expect the combined effects of a more phased in ETS, and FuelEU Maritime, from next year to bring biofuels more into the mainstream as a fuel for EU-trading ships?
JS: I think it will become more interesting, but it still doesn’t close the gap. For FuelEU Maritime, of course, everybody will use some alternative fuel, whether it’s LNG or biofuel or methanol. But I think most companies will comply with the bare minimum of FuelEU Maritime rather than exceeding it.
In the Netherlands, we have this incentive system still, the HBE system. Hopefully it will be there next year as well. And then maybe the combination of the three of them, so EU ETS, FuelEU Maritime and a local incentive, can make large uptake of biofuels interesting again.

EH: And with the avoidance of double-counting it by having it in one place, you have the HBE PoS that has to be retired with the Dutch authorities, and then you have the EUA PoS that you can’t get necessarily, what you can get is a PoS copy…
JS: Yeah there is a solution in the make for that, and that’s been pushed by aviation because aviation is in the same boat as we are. And they are pushing for a system where the PoS can be retired with a governmental body like the Dutch Emissions Authority.
There will then be a document created and that’s called a “Proof of Compliance”. Where the PoS today has a blue colour, the Proof of Compliance will have an orange colour and it will have a different status than the PoS. The PoS can really be used when you trade products and can be handed over to the new party in the chain, while the Proof of Compliance is for the end consumer. What it will look like is that we as a fuel supplier will provide the PoS to the Dutch Emissions Authority and we use that data to create a Proof of Compliance, and we share that with the shipping company. They can in turn provide that to the relevant authorities to prove compliance with the EU ETS, FuelEU Maritime and future IMO regulations.

It’s a document in the make, it’s not yet there. I know on the aviation side, certification organisations together with the European Commission are still working out some details, but hopefully they will start implementing that soon and that will solve quite some headaches.

EH: How do you assess the long-term prospects for bunker suppliers to access sufficient bio-feedstocks to fuel a greener global fleet in the years and decades to come?
JS: Most shipping companies have to rely on contracts with fuel suppliers like us to provide them with sustainable biofuels or sustainable fuels – not per say biofuels. And we see a tendency that more and more shipping companies are asking for long-term agreements and then we are talking about, let’s say agreements up to 2030.
The only thing that we can do is that we offer prices based on indexes, for example a UCOME index which is a well-known index in the biofuel industry. What we see is that the shipping companies are not very familiar with those indexes and that they base their business models mainly on the fossil indexes, like ICE Gasoil, Platts… and the indexes that are used for fossil. So they will rather price long-term agreements on those fossil indexes because then they know exactly what the impact will be on their business cases, rather than a bio index that can go up and down massively.

When proposing those long-term agreements to clients, we also have to secure our risk. We have to work with those bio indexes. And then once we come close to signing such long-term contracts, we see that they often jump out because they cannot foresee the risk they are committing to.
We see today that sourcing of feedstocks is not a problem. It depends a little bit on what kind of feedstock you are looking for, but in general we can get hold of any feedstock we would like for our customer. So for the coming years, we don’t really foresee that as a deal-breaker. In the long run, of course the biodiesels that we use today will be in short supply.
We are also working at those so-called bio-oils and those could be made from lignocellulosic feedstocks. So roadside grasses, woody waste…But we see that technology is not yet there. So we are still investing together with a lot of industry partners and are funded even through European Commission projects.
We are doing our best to expand our portfolio to make sure there will be supply in the future. But it’s a chicken and egg story as you’ve heard before. Demand needs to be there to give enough push for technology developments and supply chain developments.

EH: So with the bio-oils, is there estimated to be greater overall long-term potential for feedstocks in that area than for the more traditional biofuels?
JS: The potential is way higher for bio-oils than for the waste fats and oils that we are using today. We recently had a bio-oil summit organised by the Maersk Mc-Kinney Centre, where engine makers, some shipping companies, technology providers all came together again to see OK, can we put our heads together to see whether we can make this fuel work?
We see in those type of organisations that they are still interested in a big push for those bio-oils. And the main reason for that is that the cost price of those bio-oils is just way lower than for using green hydrogen to produce either ammonia or methanol. The shipping industry always tends to use the cheapest fuel there is and they will be doing so for decades.

EH: FincoEnergies also has a permit to supply bio-methanol in Amsterdam. Have you registered any interest for future spot or term volumes for bio-methanol from owners with methanol-capable ships in their orderbooks?
JS: We are proud to be one of the few suppliers of physical bio-methanol in the ARA region, a product that stands out because its biogenic origin can be verified. Alongside bio-methanol, we also provide mass-balanced and conventional (grey) methanol for blending purposes.

Regarding bunkering operations, we have set-up possibilities throughout the ARA region via two methods: we have a specially dedicated bio-methanol bunkering truck, authorised for operations within the Port of Amsterdam and we offer methanol via barge in the rest of ARA as well.

Methanol in shipping is currently in the early adopters phase. Although the current number of vessels capable of using methanol is limited, there is a noticeable increase in orders for dual-fuel methanol vessels, signalling a growing interest in this alternative. However, the choice for these upcoming vessels remains between regular biofuels, or green methanol variants and the choice often hinges on cost, and methanol is currently generally more expensive.

All in all, we want to be prepared. By offering both GoodFuels biofuels and bio-methanol we cover the complete spectrum.

EH: So you are setting up now for the future in the sense that you will have all the logistics and everything ready for when that demand comes. And then there might be major container ships that are signing up to all of it, right?
JS: So those are the conversations we have today. We have it in stock, but the container ships that are burning methanol today, sometimes require quite sizable stems. And to start from zero to hero, that’s not really the way to grow. We are not stocking 5,000 mt of bio-methanol all at once, while those vessels might require that.

We maintain a stock of bio-methanol, but when demand from methanol-powered container ships exceeds our stock, we complement our shipments with mass-balanced methanol to meet these larger volumes. Our aim is to expand gradually, evolving from a smaller-scale bio-methanol supplier into a leading name in the methanol marine fuel industry.

The answers are highlights from the conversation. Click here to download the full interview or email Johannes Schurmann or  Erik Hoffmann.
Source: By Erik Hoffmann, ENGINE, https://engine.online/news