Rystad Energy: ultra-low sulfur critical to decarbonising global shipping industry
Ultra-low sulfur fuel oil (ULSFO) will increasingly become the dominant fuel on the Mediterranean Sea and elsewhere as the International Maritime Organization (IMO) expands the mandate for Emission Control Areas (ECA), according to Rystad Energy. The development follows the IMO's approval of the landmark Net-Zero Framework last month, the world's first such regulation that combines mandatory emission limits with greenhouse gas (GHG) pricing across an entire industry sector.
The Mediterranean Sea is fast approaching a deadline to reduce bunker fuel sulfur limits required by the IMO. Nearly a year ago, the Mediterranean was designated as an Emission Control Area – and in order to maintain this status, very low sulfur fuel oil (VLSFO) will have to virtually be eliminated from vessel fleets in the region, Rystad Energy observed in a recent analysis.
“The inclusion of the Mediterranean Sea to the existing ECA zones leaves very little room for VLSFO in Europe. Now, vessels operating in the Mediterranean Sea must reduce sulfur limits to 0.1% from the previous level of 0.5%,” said Valerie Panopio, Vice President, Commodity Markets Analysis – Oil at Rystad Energy.
“We believe that VLSFO will be displaced by ULSFO, marine gas oil (MGO), and high sulfur fuel oil (HSFO) resulting in a reshuffling of bunker fuel flows and optimisation of vessel fleets. We believe that this regulation of bunker fuel will result in a surge in compliant fuel demand, particularly in MGO,” Panopio said.
Supply gaps for marine oil
According to Rystad Energy, this will fill in any expected gaps and encourage more flow of MGO from Northwest Europe to the Mediterranean and ultimately from the US and the Middle East.
“The rerouting of fuel flows will open an arbitrage of VLSFO from Europe to the East of Suez, catering to Asia’s shortage and depressing VLSFO cracks in the short term. Tighter emission controls in the Mediterranean will force vessel operators to revisit strategies on fuel supply and fleet routes, investment on exhaust gas cleaning systems, or ‘scrubbers’, and exploration of alternative fuels,” Panopio said.
With the new IMO norms being rolled out, according to Rystad Energy, vessels plying the Mediterranean have the following options to respond to the tighter emission standards:
- Complete switching to 0.1% sulfur bunker fuel such as ULSFO or MGO
- Use of separate fuels depending on prevailing regulation
- Retrofitting with scrubbers
- Exploring alternative fuels such as liquefied natural gas (LNG), biofuels, hydrogen
- Bypassing the Mediterranean
However, these options come with their own challenges. Ships fitted with open-loop scrubber system need to adhere to local regulations on the discharging of their scrubber wash water. Meanwhile, the use of separate fuels requires intensive crew training to ensure proper segregation and flushing procedures are followed to avoid stability issues and cross contamination, Rystad Energy said.
In the past year, vessel traffic by the Mediterranean Sea has reduced – a consequence of the sporadic Houthi attacks along the Bab-el-Mandeb strait. Rystad Energy analysis found that in the first four months of 2025, large tankers such as VLCC’s and Suezmaxes comprised only 10% of vessels using the Mediterranean Sea.
MGO bunkering on the rise
Vessels opt for the longer Cape of Good Hope route over the lofty risk premium of taking the Red Sea. This indicates that the majority of the ships operating in the region are smaller vessels that are most likely already using MGO as fuel, Rystad Energy said.
MGO bunkering has already been on the rise, signaling a likely increase in use of this fuel as regulations tighten. Based on bunkering data from the Port of Rotterdam, MGO bunkering has increased by 67,000 barrels per day (bpd) from the third quarter of 2024 to the first quarter of2025, while VLSFO dropped by 48,000 bpd in the same period.
The capability to produce ULSFO in the region, and in the broader European continent, is limited by a lack of refining complexity. ULSFO may be imported from other regions such as the Middle East into entry and exit points of the Mediterranean, such as the recent ULSFO deliveries from the UAE to Turkiye. Additionally, Rystad sees HSFO demand to be steady with potential upside as economics heavily favor the use of scrubbers over the more expensive ULSFO leading to a slow but steady rise in availability of scrubber-fitted vessels.
IMO's pathway to net-zero on the seas
A relatively low viscosity, low density fuel oil with good ignition properties, ultra-low sulfur fuel oil (ULSFO) not only reduces the risk of thermal shock during fuel switchover as it can be heated, but also provides relative ease of fuel handling with no major increase in crew workload, and provides better lubricity and reduces the need for additives.
Last month, the International Maritime Organization moved closer to setting up a legally binding framework to reduce greenhouse gas emissions from ships globally with the approval of the IMO Net-Zero Framework. The framework is the world's first to combine mandatory emissions limits and GHG pricing across the full spectrum of an industry, and aims to help the sector achieve net-zero emissions by 2050.
Measures within the framework include a new fuel standard for ships and a global pricing mechanism for emissions. Based on the adoption of the framework due in 2025, the measures will be in force from 2027, and is based on a two-tier compliance system, alongside differential pricing for “remedial units” designed to ensure vessels remain within agreed emissions limits.
