05 Jan A look back into 2020 for bunkering and LNG bunkering
Twelve months ago, some analysts predicted that the impact of IMO 2020 could be as momentous as when ships’ switched fuel type from coal to fuel oil. They often went on to predict widespread availability issues, compatibility problems, and high prices. With the exception of a few weeks at the start of the year, none of them have proven to be as consequential as those analysts feared.
Covid-19 has impacted every industry in different ways, and it is no surprise that it has been one of the factors dominating a sector as diverse and global as bunkering. The pandemic has had a major impact on marine fuels throughout the year. In some sectors, such as cruise, there was very minimal demand for many months. In others, such as containers, demand has fluctuated massively.
Twelve months ago, there were concerns that some regions would not be able to supply enough distillate fuels to meet demand for both domestic and post-IMO 2020 maritime needs. However, the global reduction in fuel demand from land sectors produced by the pandemic has meant that more than enough compliant bunkers have been available for shipping.
A volatile year
There has been an unprecedented level of volatility across bunker prices this year. For example, VLSFO prices in Rotterdam fell from roughly $600 per ton in January to $150 per ton in May and have since risen to the low $300s. This has presented a textbook example of why it pays to consider hedging as part of a viable bunker procurement strategy.
Big price moves are nothing new in the marine fuels industry. Indeed, the market had already seen a series of more volatile years in the lead up to 2020. Shipowners, charterers, and bunker suppliers are left exposed by even modest price movements, let alone the dramatic shifts we have seen over the past 11 months.
Unexpected cost spikes can quickly eat into liquidity, let alone profitability. The only way to navigate these hazards is to implement a comprehensive and robust risk management strategy. This requires planning, an expert understanding of the risks involved, and sound financial backing.
As vaccine roll-outs commence, life will eventually return to ‘normal’ for other petrochemical-intensive industries and demand for distillates will rise. However, it is not realistic to expect bunker markets to maintain stability in the medium term.
A new dynamic
The complexity of marine fuels increases the more they are regulated. IMO 2020 has created new issues for shipowners to consider before any fuel purchase; where at one time a buyer might only have to worry about price, today they also have to consider compliance, compatibility, and availability.
This new dynamic means that the traditional, commoditised relationship between bunker suppliers and customers no longer delivers the kind of value that shipowners need. Modern bunker traders need to act as trusted partners, acting transparently and collaboratively with customers and stakeholders across the industry to implement bespoke ‘energy’ strategies that meet a shipowner’s needs, now and in the future.
As price volatility is expected to persist, at least for the medium term, risk management is becoming even more critical. This must be included in any ‘energy’ strategy, with hedging and other measures in place to safeguard a client’s liquidity from abrupt cost rises – and modern bunker traders need to be equipped with the financial strength, comprehensive insurance, and specialist knowledge to deliver this.
In this new environment, some players in the bunker industry will need to change to stay relevant and significantly adapt their business model. Local and technical expertise, global coverage, and financial and organisational strength are the base requirements to deliver in this new environment.
2020 – LNG bunkering powers ahead
The use of LNG as a marine fuel and the development of LNG bunkering facilities and assets have increasingly and tangibly made their way into shipping over the past year, putting LNG at the forefront of being a viable alternative fuel for shipping.
Globally, LNG bunkering facilities are being established alongside a gradual rise in the number of LNG bunker tankers to support ship-to-ship fuel transfers, in addition to major players securing fuel supply deals and placing orders for LNG-powered newbuildings and
Perhaps the most significant new LNG-powered ships entering into operations are the series of nine 23,000-teu CMA CGM containerships, with the first vessel making a maiden call in Singapore on 12 October.
By 2022, the French carrier plans to have a fleet no fewer than 20 LNG-powered ships in service, including the nine 23,000-teu units, five 15,000-teu units and six 14,000-teu units.
On a smaller scale, Taiwan’s dry bulk owner U-Ming in November ordered four LNG dual-fuel 190,000-dwt capesize newbuilds on the back of 10-year charters with mining giant Anglo American.
The fleet of four vessels, to be delivered through 2023, is expected to transport around 5m tonnes of iron ore a year from Anglo American’s operations in Brazil and South Africa, with both U-Ming and Anglo American committing to reduce greenhouse gas (GHG) emissions.
Australia’s mining giant BHP has also shown its commitment to reduce GHG emissions by awarding a LNG supply agreement to Shell for five LNG-powered newcastlemax bulkers for transporting iron ore between Western Australia and China from 2022. The bulkers are chartered by BHP for five years from Eastern Pacific Shipping.
Back in January, Chinese firms Zhejiang Wuxing Logistics and Shanghai Zhixian Transportation Shipping have agreed to jointly invest in and construct four plus four LNG dual-fuel 26,000-dwt multipurpose heavy lift carriers. The first vessel, scheduled for delivery by end-2020, will be deployed for the transportation of LNG modules to Russia, Singapore and Malaysia via the Chinese port of Mentou in Zhejiang province.
In October, China’s Guangzhou Shipyard clinched an order from Hafnia for two LNG-powered aframax LR2 tankers, for long term charter to French oil major Total upon delivery in 2023.
Infrastructure developments look promising
Throughout 2020, various new and existing LNG bunkering facilities globally are being developed to further boost the viability of using LNG as a marine fuel.
In January, LNG solutions firm KC LNG and cryogenic equipment supplier Cryostar clinched a contract to build a LNG ship bunkering and truck fuelling facility in Belgium’s Antwerp port.
In March, Lithuania’s port of Klaipeda conducted its first LNG bunkering with the supply of the clean fuel to a cement carrier from the Malkos Bay Terminal. LNG bunker supplier Cryo Shipping said it will charter a LNG bunker tanker to promote Klaipeda as a key LNG bunker port in the Baltic and introduce ship-to-ship bunkering to the market.
In China, a Shenzhen international offshore LNG refueling centre project is being developed at Yantian port. The project aims to satisfy LNG fuel demands in China’s coastal area and attract more international LNG fuelled vessels to berth at Chinese ports. Upon the completion of the project, it is expected to achieve 230,000 tonnes of LNG refuelling volume annually.
Back in Europe, Finland’s state-owned gas firm Gasum opened a new LNG bunkering station at Sweden’s port of Stockholm premise in July. After a year of construction, the new bunkering station enables two truck-to-ship loading and unloading at the same time, saving time and promoting operational efficiency.
In November, Poland’s port of Szczecin made its first foray into LNG bunkering with also a truck-to-ship operation. In the same month, Spanish utility firm Endesa announced plans to invest $35.6m to develop a LNG bunkering supply chain at its port terminal in Los Barrios in the Bay of Algeciras.
In the Americas, Cananda’s Cryopeak LNG Solutions Corp and Japan’s Sumitomo Corp penned a memorandum of understanding in September to jointly develop a LNG bunker fuels supply chain in Western Canada’s ports including Vancouver, Fraser River Port, Roberts Bank and Prince Rupert. Cryopeak is developing a proprietary design for a 4,000-cu m LNG bunkering barge to be used in an articulated tug and barge configuration (ATB), with plans to be in operation in 2023.
In a Singapore-Nordic tie up, Pavilion Energy and Gasum announced in October a partnership to develop a global LNG bunkering supply network. The move combines some of the largest traditional bunkering ports into a single network for LNG fuel supply to ships. Gasum has established operations in the Nordic region operating five LNG bunker vessels as well as LNG terminals. Pavilion Energy holds one of two existing LNG bunkering licenses in Singapore and carries out truck-to-ship bunkering operations.
Singapore, the world’s largest bunkering port, is moving to entrench its position by scaling up its LNG bunkering capabilities. Chee Hong Tat, Singapore’s senior minister of state, ministry of transport and ministry of foreign affairs, said in October that the Maritime and Port Authority of Singapore (MPA) is ready to issue additional LNG bunker supplier licences to support the growing demand for LNG bunkers.
LNG bunker tankers making entry
Singapore launched its first LNG bunker tanker in June – a 7,500-cu m vessel operated by FueLNG, a joint venture between Keppel Offshore & Marine and Shell Eastern Petroleum. The bunker tanker was built at Keppel Nantong Shipyard in China.
The availability of LNG bunker tankers worldwide is seen as one of the key hurdles for the industry to overcome, as LNG bunker tankers are costly to build and stakeholders have been cautious to put in the investments.
But in addition to Singapore’s first bunker tanker, there have been positive developments on LNG bunker tankers in other countries as well.
At the start of this year, Public Gas Corporation of Greece (DEPA) and European Investment Bank (EIB) signed an agreement with financing of up to $22m to construct the first LNG bunkering vessel for use in Piraeus, Greece. With a capacity of 3,000-cu m of LNG, the bunker tanker is expected to be the first of its kind in Greece and the Eastern Mediterranean.
In August, Japan launched its first bunker tanker capable of delivering both LNG and very low sulphur fuel oil (VLSFO). The 4,100 tonnes vessel, named Ecobunker Tokyo Bay, has a LNG tank capacity of 2,500-cu m and a VLSFO tanker capacity of 1,500-cu m.
The following month, Japan launched its first pure LNG bunker tanker, the Kaguya, which will be operated by LNG Marine Fuel Japan Corp and be based at JERA’s Kawagoe Thermal Power Station to deliver LNG to ships in the Chubu region.
The bunker tanker Kaguya proceeded to conduct Japan’s first ship-to-ship LNG bunkering for a NYK pure car and truck carrier (PCTC) in October.
The year also saw the naming of the world’s largest LNG bunker tanker in Rotterdam – the Gas Agility, a 18,600-cu m GTT Mark III Flex membrane vessel owned by Mitsui OSK Lines (MOL) and chartered by Total Marine Fuels Global Solutions. The Gas Agility is said to meet the highest technical and environmental standards using LNG as propulsion fuel and integrating a complete re-liquefaction of the boil-off gas.
Toward the end of the year, oil major Shell said it aims to double its LNG bunkering fleet by 2025 in view of the expected increase in the use of the clean gas for ships.