Dirty tanker Suezmax fixtures begin to factor in EU ETS costs

The first fixtures with EU Emissions Trading Scheme costs factored into the rate have been reported in the Dirty Tanker market for Suezmax voyages between West Africa and the UK-Continent/Mediterranean region.

On Nov. 29, it was reported that Shell had placed the Eco West Coast on subjects for a 130,000 mt cargo loading in Nigeria and discharging in UKCM, off a Dec. 18 laycan, at w102.5.

Later in the week, on Dec. 1, Total placed the Beijing Spirit on subjects for a 130,000 mt cargo loading in Nigeria and discharging in UKCM, off a Dec. 20-22 laycan, at w97.5.

The EU ETS will come into force for the shipping market in January 2024, and will apply to all vessels with gross tonnage -- a measure of a ship's overall internal volume -- of 5,000 and above. The scheme covers 50% of greenhouse gas emissions from voyages starting or ending outside of the EU and 100% of emissions that occur between two EU ports.

Suezmax voyages tend to be fixed several weeks in advance of the reported laycan, and a voyage between West Africa and Europe will usually last in the region of two to four weeks, depending on the distance between the loading and discharge ports, the speed at which the vessel travels and possible delays caused by factors such as bad weather.

This means that, for any WAF-UKCM fixture agreed now, the latter part of the laden leg of the voyage will likely take place in January 2024, and therefore fall under EU ETS regulations.

Market uncertainty

So far, market sources have said that the ETS costs have been factored into the Worldscale rate paid by the charterer to the shipowner. However, some uncertainty remains about the specifics of the contracts being agreed between the two parties, and which of them is liable for the costs.

"The thing with EUAs [EU Allowances] and ETS is that it's in no one's interest to comment -- it's always under the owner's obligation to pay, but we have no idea about what clause, term or wording is agreed," a UK-based shipbroker said.

A second UK-based shipbroker said that charterers will be fixing voyages under terms which ensure that the ETS charges are paid by the shipowner.

"The EU ETS might be why the [Suezmax] market is quiet at the moment, people are waiting to see how it will affect things -- we just need people to come into the market and start trading it," the same broker added.

Platts, part of S&P Global Commodity Insights, assessed freight on the 130,000 mt WAF-UK/Continent at w97.5 on Dec. 1. Suezmax rates have stabilized recently after plummeting from a year-to-date peak of w162.5 on Nov. 1.

US voyages

Voyages discharging in Europe from the Americas are also beginning to fall under EU ETS costs, according to sources.

On Dec. 1, it was reported that BP had placed the Patriotic on subjects for a 145,000 mt cargo loading in the US Gulf and discharging in UKCM, off a Dec. 12 laycan, at w86.25.

However, a US-based shipbroker said that, in this case, the shipowner was passing on the ETS costs to the charterer.

"Charterers are liable to reimburse owners for bunkers, they will also reimburse owners for any associated EUA costs at the agreed EUA price... so charterers are paying the costs," the broker said.