Understanding FuelEU Pooling Market Participants and Related Risks
Updated: Aug 3
As the first FuelEU Maritime compliance cycle progresses, the surplus market has expanded rapidly. What began as a maritime compliance instrument has evolved into a traded commodity. This evolution has attracted far more participants than the regulation or its creators anticipated.
FuelEU Pooling Rights and Their Holders
The regulation assigns compliance responsibility to the ISM company, granting them the right to pool. However, contractual arrangements allow for the reassignment of these pooling rights. For instance, this can occur through SHIPMAN or charter party addendums. We are increasingly witnessing structures where this right is contractually separated from any maritime company.
The existence of such contractual frameworks has led to a diverse range of FuelEU pooling market participants. On one end, we find the expected players: ship owners, operators, and managers. These entities are directly or indirectly involved in fuel procurement, voyage planning, and emissions monitoring. On the other end, there are parties far removed from shipping, such as brokers, fuel suppliers, commodity traders, financial intermediaries, and various consulting entities. All of these can act as sellers or buyers once pooling rights are contractually transferred to them.
A Potpourri of FuelEU Pooling Market Participants
The difference between these groups is practical rather than philosophical. A ship owner, manager, or operator has direct access to the underlying data that determines the compliance balance. This includes fuel quantities, emission factors, voyage definitions, and verifier submissions. They can resolve data inconsistencies, respond to verifier queries, clarify voyage boundaries, correct BDN documentation, or adjust submissions if necessary. In short, they are connected to the compliance process. Furthermore, operators control the ship's operations and can actively counteract anything that deviates from the plan.
Even in this expected setup, complexities can arise. In some cases, both owners and operators believe they hold pooling rights, leading to attempted double pooling of the same vessel. This is not permitted, and resolving such disputes takes time, delaying compliance validation. Fortunately, the risk is contained because the dispute occurs between entities connected to the vessel and the verifier.
The situation changes significantly when the seller is a broker, fuel supplier, commodity trader, or another non-operating party. These entities do not operationally or technically control the vessel. They lack access to operational data, do not communicate with the verifier, and cannot react if the compliance balance changes due to data revisions or verifier challenges. Their role is purely commercial. The transaction becomes one where the buyer pays now and waits for compliance to materialise in April of the following year. They hope that the vessel’s operations, bunkering, and monitoring and verification processes proceed without issue. If the compliance balance is revised, questioned, or rejected by the verifier, the seller has no means to resolve it. At best, the buyer may rely on contractual indemnification, likely resulting from a liability chain from the surplus generator over the seller to the buyer.
This is the core distinction. With an owner or operator, the surplus being purchased is grounded in operational control and data transparency. With an intermediary seller, the surplus is contingent on processes and decisions to which neither the seller nor the buyer is connected. The value of the transaction is therefore dependent on the integrity of a chain of responsibility that neither party manages. The further the seller is from the vessel, the greater the counterparty and execution risk. You may pay for compliance but purchase exposure instead.
Implications for FuelEU Pooling
The above does not imply that intermediaries act in bad faith, nor does it suggest that such transactions cannot be completed successfully. They can, and some will. As long as pooling rights can be transferred contractually, the market will continue to accommodate a wide range of sellers. The question for buyers is whether they want to take the risk of a seller that is not connected to the data and operational decisions determining whether the surplus they are purchasing will ultimately exist and hold true by verification at the end of March the following year. This is why transparency, both on data and on the seller, is key. Surplus trading is not only a financial decision; it is a compliance decision. In compliance, proximity to data and control matters.
BetterSea's FuelEU Maritime Platform transparently connects you to sellers, highlighting the seller's industry role, data availability, and accuracy. It provides a streamlined, end-to-end post-trade process. Trade surplus with reduced risks, no additional intermediaries, and the transparency you need to make the right decision.
The Future of FuelEU Compliance
As the maritime industry continues to evolve, so too will the complexities of compliance. The FuelEU framework is not static; it adapts to the changing landscape of maritime operations and environmental regulations. Stakeholders must remain vigilant and informed about these changes to navigate the compliance landscape effectively.
Best regards,
The BetterSea Team
Contact Us: info@bettersea.tech
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