The bunker fuel market in Europe is expected to grow at CAGR of more than 10% during 2020 - 2025. The increasing preference of LNG-based vessels and growing LNG trade is a significant factor in driving the demand for bunker fuels in Europe during the forecast period. Additionally, increasing maritime export and import in countries like Germany and the United Kingdom, considerable growth is anticipated in the coming years. However, the recent outbreak of COVID-19 has significantly affected the consumption of bunker fuel. With the closure of international and domestic trade movements to curb the spread of the virus, the demand for bunker fuel is expected to decline during the pandemic.
- With the implementation of IMO regulations, the share of very low sulfur fuel oil (VLSFO) is expected to increase, replacing high sulfur fuel oil in the forecast period.
- Low sulfur fuel oil and LNG are expected to create ample opportunities for the market players. Due to the increasing environmental concerns, the demand for cleaner fuel is increasing.
- Germany being one of the biggest nations in the container shipping sector globally, is leading the market of bunker fuel. With the expected growth in trade, the nation is likely to continue its dominance during the forecast period.
Key Market Trends
VLSFO to Witness Significant Growth
- Marine fuel containing less than 0.5% of sulfur is generally termed as very-low sulfur fuel oil. From January 1, 2020, HSFO can only be used in ships having scrubbers installed to reduce the emissions, which will drive the demand of VLSFO.
- Most of the high-sulfur fuel oil (HSFO) bunker fuel market is expected to be shortly replaced by low-sulfur alternatives. Most of the VLSFO available in the market is blended from residual and distillate components, which are blended with various cutters of varying sulfur and viscosity to create an on-specification product.
- VLSFO has become extremely popular in Rotterdam, Europe’s largest bunker port. In November 2019, half of all sales were for VLSFO. The demand for VLSFO declined after January 2020 due to global supply chain disruptions, a decrease in demand for general goods and products, lockdown implementation in most of the countries, and a global economic slowdown.
- Some of the significant bunker fuel suppliers have been expanding their presence for suppling low sulfur bunker fuel, following the imposition of IMO 2020. For instance, the Spanish energy producer, Repsol, has expanded the locations in Spain where it can offer very low sulfur fuel oil (VLSFO).
- Spain has 34 operative ports. In 2019, the port of Barcelona reported 1103 TEUs of port traffic. Post COVID-19, the trade is likely to grow, driving the demand of VLSFO.
- The demand for VLSFO is likely to recover at a significant rate after mid-2021. Post-2020, the demand is expected to rise on account of the opening of all the trade routes and relative price rise.
Germany to Dominate the Market
- In an aim to reduce carbon emissions by 2030, Germany has been slowly moving towards LNG bunkering over recent years. In October 2019, Nauticor conducted the first ship-to-ship LNG bunkering operation at the Elbehafen Brunsbüttel, part of Brunsbüttel Ports, Germany.
- About 90% of all merchandise from Germany is transported by ship. The implication of IMO 2020, from January 2020, has led the shift to low sulfur content fuel or installing scrubbers to reduce emissions. The conversion to LNG fueled ship is restricted to newly made ships owing to the higher modification costs for an engine replacement.
- As of 2019, Germany owns a total of 2,672 vessels, with the capacity of 96,532,360 Dead-weight tonnage (DWT), which makes around 4.92% of the total world fleet in terms of DWT. Container ships comprise about 40% of the entire fleet, followed by ferries and passenger ships, with around 18% of total ships.
- Container port traffic in Port of Hamburg, Germany, witnessed significant growth, both in export and import. The port reported 1468 TEUs of import and 4520 TEUs of export in 2019.
- In 2019, Germany was the world’s third-largest exporter, after China and the United States. Germany exported USD 1.486 trillion worth of goods around the globe, amongst which over 2/3rd of the exports are done through sea route.
- However, Germany is one of the worst-hit countries by the outbreak of COVID-19 in the initial months of 2020. To stop the virus, the government implemented restrictions on freedom on the free movement of goods and ban on imports and exports, which can restrain the market growth.
The Europe bunker fuel market is moderately fragmented. Some of the major companies include Gazprom Neft PJSC, BP PLC, Royal Dutch Shell PLC, Total SA, AP Moeller Maersk A/S.
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