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Helmsman: Practical tips for bunkering, commodities sectors on compliance with Russian sanctions

Maureen Poh, Director of Helmsman LLC, explains what recent sanctions on Russia mean for the shipping and commodities sectors and offers recommendations to help entities reduce exposure.
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The following article explaining what recent sanctions on Russia mean for the shipping and commodities sectors has been written by Maureen Poh, FCIArb, a Director at Helmsman LLC. Poh has significant experience with energy-related shipping and commodity-related matters, as a Singapore and English qualified lawyer.  She is hailed in Chambers 2022 as a well-regarded lawyer in the market; Legal 500 lauds her commodities trading work in both contentious and advisory aspects and describes her as “a key name for charterparty disputes, carriage of goods by sea and cargo claims”:

The US, EU and their allies have imposed sanctions against Russia in the current Ukraine crisis.  The list of sanctions grows longer by the day.  What does this mean for shipping, in particular the bunkering and commodities sectors? The Russia sanctions landscape is changing rapidly.  You need to keep a close eye on it.

Sanctions snapshot

So far there appears to be no blanket prohibition on trading oil or commodities with Russian entities.  What is in place are restrictions relating to foreign financing and new equity issued by thirteen Russian state-owned enterprises and entities including Sovcomflot, oil producer and refiner Gazprom Neft and natural gas company Gazprom, amongst others.  Rosneft has been on the US Sectoral Sanctions Identifications List (SSI List) for some time now.

Of particular significance are sanctions relating to the financial sector.  The US, and to a lesser extent the EU and UK, have imposed a variety of sanctions against identified banks, such as blocking their ability to do business and freezing their assets blocking sanctions.  Interestingly, the US has in place a waiver for "energy-related" transactions with some of the sanctioned Russian banks until June 2022.  "Energy related" is defined broadly: included are extraction, production and refining of any petroleum products as well as other commodities capable of producing energy, such as coal, wood, agricultural products for biofuels, uranium, and electricity.  This is perhaps an acknowledgement of Russia’s importance to the global supply of energy commodities.

Separately, and more importantly to foreign parties dealing with Russian counterparts, is the cutting off of a number of Russian banks from the main international payment system, SWIFT.  The banks are yet to be identified.  SWIFT does not actually move money – it is a secure platform for banks, acting as a middleman to verify information on transactions by providing secure financial messages services between banks.  It is very extensively used as a way to facilitate payment, particularly by way of telegraphic transfer or letter of credit.

An increasing number of Russian individuals have also been placed on the US Specially Designated Nationals and Blocked Persons List (SDN List) or under EU sanctions regulations.

What does this mean for you? 

While there are currently no sanctions by governments or international organisations over Russian energy commodities, it is likely that the private sector will be very cautious in dealing with cargoes linked to Russia or engaging with Russian entities, as there is always the risk of further sanctions being imposed.  The risks of doing business with Russia may become too much for many companies to take on, even without sanctions.

For instance, bunker purchasers might want suppliers to warrant that bunkers supplied contain no Russian-origin material.

Payment might be a big issue.  Companies will have to find alternative ways for payment, for instance over the telephone or fax.  This will obviously have to be coordinated with the banks.

Business dealings with Russian entities will also be scrutinised.  Recently, France seized a ship that is allegedly linked to an individual on the SDN List.

What should you do? Practical tips

  • Check your contracts: Is there a Russian element in the performance of the contract? Are there any clauses which you or your counterparty can rely on? This might help you reduce your exposure to sanctions and to get out of the contract.  Conversely, it might enable the counterparty to not perform their obligations under the contract. This may have a knock-on effect on your obligations to third parties, so take note.
  • Check your counterparts: It is not sufficient to check that your counterparty is on the SDN List or subject to EU sanctions.  Majority interests in the company, holding company, indirect ownership and control, are also relevant.  I wrote about this in more detail in an earlier article.
  • Your financiers might be particularly sensitive to any dealings with Russia, even uncertain and tenuous ones. If in doubt, check with your banks as soon as possible.
  • Continue to closely monitor the sanctions situation. What works today might not work tomorrow.

Maureen Poh can be contacted at:

Phone: +65 6950 8667
E-mail: [email protected]

 

Photo credit: Helmsman LLC
Published: 1 March, 2022

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Methanol

Kambara Kisen orders methanol dual-fuel bulker from Tsuneishi Shipbuilding

Firm ordered a 65,700-dwt methanol dual-fuel dry bulk carrier with Tsuneishi Shipbuilding; MOL signed a basic agreement on time charter for the newbuilding that is slated to be delivered in 2027.

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September 22, 2023

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Kambara Kisen orders methanol dual-fuel bulker from Tsuneishi Shipbuilding

Japanese shipowner Kambara Kisen has ordered a 65,700-dwt methanol dual-fuel dry bulk carrier newbuilding from Tsuneishi Shipbuilding Co., Ltd, according to Mitsui O.S.K. Lines (MOL) on Wednesday (20 September).

MOL said it signed a basic agreement on time charter for the newbuilding that is slated to be delivered in 2027. 

The vessel will be designed to use e-methanol produced primarily by synthesising recovered CO2 and hydrogen produced using renewable energy sources, and bio-methanol derived from biogas. 

The vessel's design maximises cargo space while ensuring sufficient methanol tank capacity set to allow the required navigational distance assuming various routes, at the same time maximising cargo space. 

MOL added the vessel is expected to serve mainly in the transport of biomass fuels from the east coast of North America to Europe and the U.K. and within the Pacific region, as well as grain from the east coast of South America and the U.S. Gulf Coast to Europe and the Far East.

Details on the time-charter contract:

Shipowner: Kambara Kisen wholly owned subsidiary
Charterer: MOL Drybulk Ltd.
Charter period 2027: -

Details on the newbuilding methanol dual fuel bulk carrier:

LOA: About 200 m
Breadth: About 32.25 m
Draft: About 13.80 m
Deadweight: About 65,700 MT
Hold capacity: About 81,500m3
Shipyard: Tsuneishi Shipbuilding Co., Ltd.

Photo credit: Mitsui O.S.K. Lines
Published: 22 September, 2023

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Methanol

Argus Media: Alternatives may drive methanol market growth

Driven by low-carbon policies and regulations, the transportation sector — especially the marine fuels industry — could be a source of heightened demand, according to Argus.

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September 22, 2023

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RESIZED Argus media

The growth of sustainable alternatives to traditional methanol production sources likely will shape the market over the next several years, industry leaders said this week at the Argus Methanol Forum.

20 September 

Driven by low-carbon policies and regulations, the transportation sector — especially the marine fuels industry — could be a source of heightened demand.

"The aim is to be net zero by 2050 but [those solutions are] expensive today and one of the main challenges to build e-methanol or bio-methanol plants is a huge queue for these pieces of equipment that aren't available," Anita Gajadhar, executive director for Swiss-based methanol producer Proman, said.

Bio-based and e-methanol plants of commercial scale, like Proman's natural gas-fed 1.9 million metric tonne/yr M5000 plant in Trinidad and Tobago, are not ready today.

"But that's not to say 10 years from now they won't be there," Gajadhar added.

Smaller projects are popping up. Dutch fuels and gas supplier OCI Global announced plans last week to double the green methanol capacity at its Beaumont, Texas, facility to 400,000 t/yr and will add e-methanol to production for the first time. Production will use feedstocks such as renewable natural gas (RNG), green hydrogen and biogas.

The globally oversupplied methanol market will not get any major supply additions starting in 2024 until 2027. But that oversupply will not last long, Gajadhar said.

Global demand has slowed this year, driven by stagnate economic growth and higher interest rates, according to industry observers.

As much as half of methanol demand is tied to GDP growth, with total methanol demand estimates at 88.9mn t globally in 2023. This is essentially flat from 2022, but up from 88.3m t in 2021 and 87.7mn t in 2020, Dave McCaskill, vice-president of methanol and derivatives for Argus Media's consulting service, said.

Demand is not expected to rebound to 2019 levels of 89.6mn t until 2024 or 2025, he added.

The period of oversupply combined with lackluster demand places methanol in a transition period, Gajadhar said, which opens the door for sustainable feedstock alternatives to shape market growth.

Danish container shipping giant Maersk and French marine logistics company CMA-CGM announced earlier this week a partnership to drive decarbonization in shipping. The partnership seeks to develop fuel and operations standards for bunkering with alternative fuels. The companies will develop net-zero solutions, including new technology and alternative fuels.

Maersk has previously ordered dual-fuel methanol-powered vessels and CMA-CGM LNG-propelled vessels.

The demand for alternative feedstock-derived fuels is there, but the ability to scale-up such production lags. Certified lower-carbon methanol produced using carbon capture and sequestration — also known as blue methanol— can ramp up much more quickly, according to Gajadhar.

By Steven McGinn

Photo credit and source: Argus Media
Published: 22 September, 2023

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Biofuel

Royal Caribbean completes over 12 weeks of bio bunker fuel testing in Europe

Firm expanded its biofuel testing this summer in Europe to two additional ships — Royal Caribbean International’s “Symphony of the Seas” and Celebrity Cruises’ “Celebrity Apex”.

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September 22, 2023

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Royal Caribbean completes over 12 weeks of bio bunker fuel testing in Europe

Royal Caribbean Group on Tuesday (19 September) said it successfully completed over 12 consecutive weeks of biofuel testing in Europe. 

Royal Caribbean International’s Symphony of the Seas became the first ship in the maritime industry to successfully test and use a biofuel blend in Barcelona to meet part of her fuel needs. 

The company confirmed onboard technical systems met operational standards, without quality or safety concerns, demonstrating the biofuel blend is a reliable “drop in” supply of lower emission energy that ships can use to set sail across Europe and beyond. 

The tests across Europe also provided valuable data to understand the availability and scalability of biofuel in the region, the firm added. 

Jason Liberty, president and CEO, Royal Caribbean Group, said: “This is a pivotal moment for Royal Caribbean Group’s alternative fuel journey.”

“Following our successful trial of biofuels this summer, we are one step closer to bringing our vision for net-zero cruising to life. As we strive to protect and promote the vibrant oceans we sail, we are determined to accelerate innovation and improve how we deliver vacation experiences responsibly.”

President of the Port of Barcelona, Lluís Salvadó, said: “Royal Caribbean’s success is a clear example of how commitment to innovation makes possible the development of solutions to decarbonise the maritime sector.”

“In this case, it involves the cruise sector and focuses on biofuels, an area in which the Port of Barcelona is already working to become an energy hub, producing and supplying zero carbon fuels, such as green hydrogen and ammonia, and of other almost zero-carbon alternative fuels, such as methanol, biofuels or synthetic fuels. Innovation and collaboration between ports and shipping companies is key to accelerate the decarbonisation of maritime transport.”

The company began testing biofuels last year and expanded the trail this summer in Europe to two additional ships — Royal Caribbean International’s Symphony of the Seas and Celebrity Cruises’ Celebrity Apex. 

The sustainable biofuel blends tested were produced by purifying renewable raw materials like waste oils and fats and combining them with fuel oil to create an alternative fuel that is cleaner and more sustainable. The biofuel blends tested are accredited by International Sustainability and Carbon Certification (ISCC), a globally recognized organization that ensures sustainability of biofuels and verifies reductions of related emissions.

With Symphony of the Seas departing from the Port of Barcelona and Celebrity Apex departing from the Port of Rotterdam, both ships accomplished multiple sailings using biofuel and contributed critical data on the fuel’s capabilities. 

“These results will help accelerate Royal Caribbean Group’s plans to continue testing the use of different types of biofuels on upcoming European sailings this fall. The company is exploring strategic partnerships with suppliers and ports to ensure the availability of biofuel and infrastructures to advance the maritime energy transition,” the firm said. 

Photo credit: Royal Caribbean Group 
Published: 22 September, 2023

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