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Integr8 Fuels: Why are VLSFO prices so high, especially in Singapore?

Inter-relationships of VLSFO with high priced transport fuels is driving prices of the material up, especially in Singapore, according to the report.

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By Steve Christy, Research Contributor, Integr8 Fuels
[email protected]
30 June 2022

Tightness in products still trumps talks of recession

Last month we wrote about the fears of recession versus the tightness in product markets and that tightness in products was definitely ‘winning’. Another month on and it’s oil products that are again driving VLSFO prices even higher! Recession is often mentioned, with obvious higher energy and food costs, central banks hiking interest rates and economic forecasts being downgraded, but the lack of supply and low levels of stocks for key oil products has the overwhelming focus for most oil industry players at the moment.

Integr8 Fuels: Why are VLSFO prices so high, especially in Singapore?

Refinery margins back up to historic highs – it’s a clear signal

In our report a month ago we highlighted the extreme highs in refinery margins, with an indicative global measure up from a ‘norm’ of around $5/bbl to $30/bbl in April/May. These margins had started to ease at the end of last month, but since then they have rebounded, and are back close to $30/bbl. The indicator has been one to watch, and once again reflects the current severe tightness in oil products.

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For us in bunkers, it is worth noting which products are driving prices and margins so high, especially as VLSFO is typically a blended product and/or a decision within the refinery process. Understanding this will give us a signal for what products to watch as an early indicator for VLSFO prices potentially rising further, or to start falling.

Focused on which products are driving VLSFO higher

The graph below illustrates the crack spreads between FOB product prices in Singapore and the price of Dubai crude, and how this has changed from late February to late June this year. Firstly, the current spreads on gasoil/diesel, jet-kero and gasoline are huge at around $500/mt. The gain in the gasoil/diesel crack has been the greatest, going from $125/mt in late February to close to $500/mt more recently (almost a four-fold increase). Gains in the jet-kero crack have been similar, and where as the increase for gasoline has been less, the spread is still $500/mt and around double the level of 4 months ago.

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It is tightness in these ‘transport’ fuels that is driving the crack spreads and refinery margins to record highs. Interestingly, the Singapore naphtha crack has reversed and is now negative versus a $200/mt positive contribution 4 months ago, although this has been influenced by a strike in South Korea which forced the shutdown of naphtha crackers; the strike has ended and operations are reportedly returning to normal.

For us, looking at VLSFO pricing, it is the nature of the product and the inter-relationships with high priced transport fuels that is driving VLSFO prices so high, especially in Singapore. The position in the east is stronger than in the west, with exceptionally low diesel and gasoline exports out of India and China resulting in highly restricted supplies east of Suez. However, this is not to under-estimate the tightness in Rotterdam, where prices and margins are still very high!

In complete contrast, HSFO prices are down

Developments in the market for HSFO are a complete contrast to the high-priced influences on VLSFO. HSFO crack spreads are typically negative as it is now essentially a by-product in the refining system. Since February there has been a slight further negative move in the crack spread, down to around minus $200/mt. In Asia, reports of Russian material moving this far and recent refinery problems in Malaysia have both meant surplus HSFO being sold into the market, and this has helped weaken prices.

Overall, in recent weeks HSFO prices have eased in Singapore and Rotterdam, with both markets now more-or-less in line, and at just below $600/mt.

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Strength in VLSFO & a further drop in HSFO means a wide differential

The more extreme price movements in Singapore have led to a much wider VLSFO/HSFO price differential. Just two months ago this spread was at $100/mt; now it is $500/mt. Although Rotterdam VLSFO prices have not hit the same highs as in Singapore, the VLSFO/HSFO spread is still at $300/mt.

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These are differentials that owners of ships with scrubbers didn’t even dream about two months ago; now the spreads are at or above expectations made when initial scrubber investments were made. This will be extremely important for owners of VLCCs with scrubbers, where current market conditions are dire. A non-scrubber VLCC is currently earning around minus $5,000/day on the spot market, where as a scrubber-fitted one is earning close to $20,000/day; not very high, but at least covering more than fixed operating costs.

It is still the talk of continuing tight markets that dominates pricing

The talk of recession will again continue, but for now tightness in products is more than compensating for economic fears. The IEA reported a drop in global refining capacity last year, something that hasn’t happened since the early 1990s, and there are no quick fixes to constraints in the refining industry. Significantly, net gains in capacity this year and next year are only expected to reach a combined 2.6 million b/d. Also, although we have not mentioned crude oil markets (nor the war in Ukraine) in this report, the ExxonMobil CEO recently spoke out about 3-5 years of “fairly tight markets” because of lack of investment since the covid impact.

We have seen that things can change very quickly and at the extreme it’s the doomsday scenario of an economic and stock market collapse that perhaps some people fear.

However, in terms of what is happening now, economic threats are leading to downwards revisions to future oil demand, but demand is still forecast to increase, just not by as much as before. Therefore, it seems we are looking at sustained pressures on a currently constrained system. So, for now, the key pointers to watch for price direction are still refining margins (they tell us a lot about the market), with also a keen focus on any increase in product exports from China and India (they are negligible at the moment).’

 

Photo credit and source: Integr8 Fuels
Published: 5 July, 2022

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Ammonia

HD KSOE receives Lloyd’s Register AiP for ammonia fuel supply system

Fuel supply system addresses the pressing need for sustainable fuel solutions, significantly contributing to efforts aimed at reducing greenhouse gas emissions from the global fleet, says LR.

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HD KSOE receives LR AiP for ammonia fuel supply system

Classification society Lloyd’s Register (LR) has granted Approval in Principle (AiP) to HD Korea Shipbuilding & Offshore Engineering (HD KSOE) for their ammonia fuel supply system, which will be used on ammonia new constructions.

The newly developed ammonia fuel supply system shows complete compatibility with high-efficiency cargo handling systems and ammonia engines.

The approval certifies the fuel supply system against LR’s rigorous risk-based certification (RBC-1) process and marks the successful conclusion of a Joint Development Project (JDP) between LR and HD KSOE, which began in April 2024.

The primary objective of the JDP was to develop and refine the design concept of an ammonia fuel supply system for ammonia-fuelled vessels.

LR said the AiP represents the substantial step that LR and HD KSOE have taken towards pioneering innovative solutions for emission reduction in the maritime industry.

“Ammonia, with its capacity to meet the rising demand for emission reduction solutions, represents a promising alternative fuel for the maritime industry,” it said.

“This fuel supply system addresses the pressing need for sustainable fuel solutions, significantly contributing to efforts aimed at reducing greenhouse gas emissions from the global fleet.”  

Young-Doo Kim, Global Technical Support Office Representative for Korea, Lloyd’s Register, said: “This approval in principle represents another significant step for developing the technology required for shipowners and operators' adoption of ammonia, one of the primary candidate fuels for the maritime energy transition.”

“We are pleased to continue our strong working relationship with HD KSOE through this joint project that will provide a valuable solution for ammonia propelled ships.”

Young-jun Nam, Vice Present & COO of HD KSOE, said: “Ammonia is a zero-carbon fuel that is attracting great attention in terms of economics and supply stability. HD Korea Shipbuilding & Offshore Engineering will lead the field of eco-friendly equipment and materials to take the lead in commercialising ammonia in 2025.”

 

Photo credit: Lloyd’s Register
Published: 25 June, 2024

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LNG Bunkering

Erik Thun takes delivery of LNG dual-fuel tanker “Thun Vettern”

Vessel, which is the latest contribution to the Vinga-series, has dual-fuel capability, runs on LNG/LBG or gasoil and is fully equipped for shore power connection when available in ports.

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Erik Thun takes delivery of LNG dual-fuel tanker “Thun Vettern”

Shipping firm Erik Thun on Monday (24 June) said it has taken delivery of Thun Vettern, a 17,999-dwt vessel, which was built by China Merchants Jinling Shipyard in Yangzhou.

The vessel is an upgraded version of the sister Thun Venern. Thun Vettern is the latest contribution to the “Vinga-series”, all trading within the Gothia Tanker Alliance. The Thun Vettern is the newest and latest edition to the Vinga-series and she has ice class 1A. 

The vessels in the Vinga-series all have dual-fuel capability, run on LNG/LBG or gasoil and are fully equipped for shore power connection when available in ports.

They are designed with a battery hybrid solution and several innovative features that reduce fuel and energy consumption, resulting in extensively lowered emissions of CO2, sulphur oxide, nitrogen oxide and hazardous particles. 

The firm said the ships have scored the best Energy Efficiency Design Index or EEDI value in their segment globally, meaning that they are the most energy efficient vessels according to the International Maritime Organization (IMO). 

The Vinga-series is designed for the intense and demanding trade in the North Sea and Scandinavia, well suited to meet the growing European demand for biofuels and renewable feedstocks.

Erik Thun´s close partner Furetank will technically and commercially manage the new vessel which upon delivery will enter into the Gothia Tanker Alliance network.

“Sustainability work has always been and will be a focus ahead for Erik Thun. To take delivery of a resource efficient, top performing product tanker like Thun Vettern, and further deepen our good and long-term co-operation with Furetank is a great example of our vision to be a sustainable Swedish partner over generations,” said Johan Källsson, Managing Director at Erik Thun AB.

 

Photo credit: Erik Thun
Published: 25 June, 2024

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LNG Bunkering

Wärtsilä on LNG bunker fuel: Expert answers to 17 important questions

Firm gives an expert overview on top questions on LNG bunker fuel including if LNG is a future fuel and what does LNG being a transition fuel means.

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RESIZED Chris Pagan

Technology group Wärtsilä on Wednesday (19 June) gave an expert overview on top 17 questions related to LNG bunker fuel in this insight article including if LNG is a future fuel: 

Your choice of fuel affects both your profitability and your vessel’s environmental compliance. Liquefied natural gas (LNG) is a safe and cost-effective fuel that reduces greenhouse gas emissions and other harmful pollutants. LNG is playing a key role as a transition fuel and is widely seen as the first step towards decarbonising the maritime industry.

Switching to LNG as fuel for ship propulsion requires investment but can save you fuel costs, increase your profitability and reduce compliance risks. The expert answers to these 17 questions will tell you what you need to know about LNG as an alternative fuel for shipping.

What is LNG?

LNG is natural gas that has been cooled to -162°C (-260°F), turning it into a clear, odourless liquid that is easy to ship and store. LNG is typically 85–95% methane, which contains less carbon than other forms of fossil fuels. It is a compact, efficient form of energy that is ideal for ship propulsion.

What is LNG used for?

LNG is primarily used as a clean-burning energy source. It is used for electricity generation, heating, cooking, and as a transportation fuel. LNG is also used as a raw material for products like fertilisers and plastics.

In the shipping industry, LNG as fuel is used for ship propulsion, auxiliary power generation and other onboard energy needs. LNG as an alternative fuel for shipping has gained wide popularity due to its clean-burning properties and potential to help meet stricter emissions regulations.

What are the sources of LNG as fuel for ships? What is bioLNG?

LNG as fuel for ships is produced from natural gas extracted from underground reserves, including both onshore and offshore gas fields.

BioLNG is LNG produced from biogas, which is generated from organic waste like food scraps, agricultural waste, manure and sewage sludge. BioLNG is considered a renewable fuel and can further reduce the carbon footprint of ships using LNG fuel systems.

 Is LNG just methane?

LNG is primarily methane (typically 85–95%), but it also contains small amounts of ethane, propane and other hydrocarbons. LNG can also contain trace amounts of nitrogen and carbon dioxide. The exact composition of LNG may vary depending on the source of the natural gas and the liquefaction process used.

 LNG fuel vs. fuel oil: is LNG better than diesel?

Compared to diesel fuel oil, LNG offers several advantages. LNG produces significantly lower emissions when burned, including:

  • 20–30% less CO2 
  • 15-25% less total GHG
  • 90% less NOx 
  • 99% less SOx 
  • Almost no particulate matter (PM) 

LNG engines are also quieter. 

However, LNG has a lower energy density than diesel, so using LNG as an alternative fuel for shipping will require more fuel and therefore larger fuel tanks to achieve the same range.

 What are the advantages and disadvantages of LNG fuel?

The key advantages of LNG as fuel include reduced emissions and cost competitiveness. There is also an established and continuously growing global network of LNG bunkering facilities.

The disadvantages of using LNG as fuel for ships include the need for specialised equipment and training and the potential for methane slip.

Methane slip is when unburned methane, a potent greenhouse gas, escapes into the atmosphere. Modern dual-fuel engines will minimise this issue. Depending on engine type and load, you can reduce methane slip by up to 65% by upgrading your ship’s existing engines. Over the last 30 years, Wärtsilä has reduced the methane slip from its engines by around 90%.

 Is LNG environmentally friendly?

LNG is cleaner burning than traditional marine fuels, but it is still a fossil fuel. BioLNG, which is LNG produced from organic waste or biomass, can be considered a more sustainable alternative to fossil-based LNG as it has a lower carbon footprint. However, the production and combustion of bioLNG still emit some greenhouse gases. LNG can be seen as a bridging fuel in the transition to alternative fuels like methanol and ammonia, which aren’t yet widely available at scale.

 Is LNG a future fuel?

LNG both is and isn’t a future fuel. It enables lower greenhouse gas emissions and reduces other harmful air pollutants compared to fuel oil, but it is still a fossil fuel. Sustainable future fuels are crucial for maritime decarbonisation, but the current cost, limited availability and insufficient infrastructure are challenging for operators. This gives LNG an important role to play in the shipping industry’s transition to a zero-carbon future.

As more ports develop LNG bunkering infrastructure and more ships are built with LNG fuel systems, the use of LNG as an alternative fuel for shipping is expected to increase. LNG is considered a stepping stone on the path to decarbonisation as the industry moves closer to using true future fuels such as methanol and ammonia.

Note: The full article by Wärtsilä can be found here.

 

Photo credit: Chris Pagan on Unsplash
Published: 24 June, 2024

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