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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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Wind-assisted

Singapore: EPS orders its first wind-assisted propulsion system for tanker

Firm signed a contract for its first ever wind-assisted propulsion system, partnering with bound4blue to install three 22-metre eSAILs® onboard “Pacific Sentinel”.

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Singapore: EPS orders its first wind-assisted propulsion system for tanker

Singapore-based Eastern Pacific Shipping (EPS) on Thursday (22 February) said it signed a contract for its first ever wind-assisted propulsion system, partnering with bound4blue to install three 22-metre eSAILs® onboard the Pacific Sentinel

The turnkey ‘suction sail’ technology, which drags air across an aerodynamic surface to generate exceptional propulsive efficiency, will be fitted later this year, helping the 183-metre, 50,000 DWT oil and chemical tanker reduce overall energy consumption by approximately 10%, depending on vessel routing.

Suitable for both newbuilds and retrofit projects, the system delivers energy efficiency and cost savings for a broad range of vessels, regardless of their size and age.

Singapore: EPS orders its first wind-assisted propulsion system for tanker

José Miguel Bermudez, CEO and co-founder at bound4blue, said: “Signing an agreement with an industry player of the scale and reputation of EPS not only highlights the growing recognition of wind-assisted propulsion as a vital solution for maximising both environmental and commercial benefits, but also underscores the confidence industry leaders have in our proven technology.”

“It’s exciting to secure our first contract in Singapore, particularly with EPS, a company known for both its business success and its environmental commitment.”

“We see the company as a role model for shipping in that respect. As such this is a milestone development, one that we hope will pave the way for future installations across EPS’ fleet, further solidifying our presence in the region.”

Cyril Ducau, Chief Executive Officer at EPS, said: “EPS is committed to exploring and implementing innovative solutions that improve energy efficiency and reduce emissions across our fleet.” 

“Over the past six years, our investments in projects including dual fuel vessels, carbon capture, biofuels, voyage optimisation technology and more have allowed us to reduce our emissions intensity by 30% and achieve an Annual Efficiency Ratio (AER) of 3.6 CO2g/dwt-mile in 2023, outperforming our emission intensity targets ahead of schedule. The addition of the bound4blue groundbreaking wind assisted propulsion will enhance our efforts on this path to decarbonise.”

“With this project, we are confident that the emission reductions gained through eSAILs® on Pacific Sentinel will help us better evaluate the GHG reduction potential of wind assisted propulsion on our fleet in the long run.”

Pacific Sentinel will achieve a ‘wind assisted’ notation from class society ABS once the eSAILs® are installed. 

 

Photo credit: Eastern Pacific Shipping
Published: 23 February, 2024

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Crime

Vietnam: Two ships seized over 170,000 litres of unknown origin diesel oil

Vietnam Coast Guard said vessels were transporting various quantities of oil cargo: KG-91487- DR was transporting about 145,000 litres and KG-91602-TS transported about 25,000 litres.

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Vietnam: Two ships seized over 170,000 litres of unknown origin diesel oil

The Vietnam Coast Guard on Tuesday (20 February) said it seized a total of about 170,000 litres of unknown origin diesel oil in an operation. 

Patrol boats belonging to Coast Guard Region 4 Command detected two fishing boats – KG-91487- DR and KG-91602-TS – displaying several suspicious signs.

Initial investigations found all vessels without invoices and documents proving legal origin of the oil material.

The vessels were transporting various quantities of oil material: KG-91487- DR was transporting about 145,000 litres and KG-91602-TS transported about 25,000 litres.

The authorities made records of administrative violations,and escorted the vessels to Fleet Port 422 in Phú Quốc city, Kiên Giang province for further investigations and handling in accordance with the law.

 

Photo credit: Vietnam Coast Guard
Published: 23 February, 2024

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LNG Bunkering

Galveston LNG Bunker Port joins SEA-LNG coalition

SEA-LNG said move will further enhance its LNG supply infrastructure expertise and global reach, while giving GLBP access to the latest LNG pathway research and networking opportunities.

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Galveston LNG Bunker Port joins SEA-LNG coalition

Galveston LNG Bunker Port (GLBP), a joint-venture between Seapath Group, one of the maritime subsidiaries of the Libra Group, and Pilot LNG, LLC (Pilot), a Houston-based clean energy solutions company, has joined SEA-LNG, according to the latter on Wednesday (21 February). 

SEA-LNG said the move will further enhance its LNG supply infrastructure expertise and global reach, while giving GLBP access to the latest LNG pathway research and networking opportunities.

GLBP was announced in September 2023 and will develop, construct and operate the US Gulf Coast’s first dedicated facility supporting the fuelling of LNG-powered vessels, expected to be operational late-2026.

The shore-based LNG liquefaction facility will be located on Shoal Point in Texas City, part of the greater Houston-Galveston port complex, one of the busiest ports in the USA. This is a strategic location for cruise ship LNG bunkering in US waters, as well as for international ship-to-ship bunkering and cool-down services. GLBP will offer cost-effective turn-key LNG supply solutions to meet growing demand for the cleaner fuel in the USA and Gulf of Mexico.

Jonathan Cook, Pilot CEO, said: “With an initial investment of approximately $180 million, our LNG bunkering facility will supply a vital global and U.S. trade corridor with cleaner marine fuel. We recognise that SEA-LNG is a leading partner and a key piece of the LNG bunkering sector, and will give us access to insights and expertise across the entire LNG supply chain.

“LNG supports environmental goals and human health by offering ship operators immediate reductions in CO2 emissions and virtually eliminating harmful local emissions of sulphur oxides (SOx), nitrogen oxides (NOx) and particulate matter.”

President of Seapath, Joshua Lubarsky, said: “We are very pleased to be supporting the decarbonization of the maritime industry through strategic, and much needed, investments into the supply of alternative fuels.  We are also happy to be a part of SEA-LNG which has done a wonderful job in advocating for advancements in technology in this vital sector.”

Chairman of SEA-LNG Peter Keller, said: “We’re proud to welcome another leading LNG supplier to the coalition and are looking forward to a mutually beneficial relationship. With every investment in supply infrastructure in the US and worldwide, the LNG pathway’s head start increases. Global availability, alongside bio-LNG and e-LNG development, makes LNG the practical and realistic route to maritime decarbonisation.

“All alternative fuels exist on a pathway from grey, fossil-based fuels to green, bio or renewable fuels. Green fuels represent a scarce resource and many have scalability issues, so we must start our net-zero journey today with grey fuels. LNG is the only grey fuel that reduces greenhouse gas emissions, well-to-wake, so you need less green fuel than alternatives to improve emissions performance.”

 

Photo credit: SEA-LNG
Published: 23 February, 2024

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