Business

INTERVIEW: Price risk management for future marine fuels more complex, forecasts ElbOil

Maritime sector may find it increasingly challenging to manage bunker prices, Dennis Ho, Managing Director at ElbOil Singapore tells Singapore bunkering publication Manifold Times.

Published

4 years ago

March 23, 2021

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The following interview arranged by Conference Connection is part of pre-event coverage for the upcoming 12th International Fujairah Bunkering & Fuel Oil Forum (FUJCON 2021), where Manifold Times is an official media partner. Readers can register for the virtual event by clicking on the link here.

It will be increasingly difficult for the maritime and shipping sectors to manage bunker price risk volatilities when the industry starts adopting cleaner marine fuels, believes the Managing Director of marine fuels trading company ElbOil Singapore Pte Ltd.

“In order to meet the deadlines of IMO 2030 and 2050, a slate of clean fuels such as biofuels, ammonia and methanol will eventually be adopted by ship owners and operators,” Dennis Ho tells Singapore bunkering publication Manifold Times.

“In days priors to 2020, price risk management was straightforward. One will just hedge their physical bunker exposure with cargo indexes such as MOPS 180cst, 380cst, Gasoil, Rotterdam Barges swaps or crude indices like Brent futures which has lot of liquidity while being closely correlated to the respective bunker fuel grades and regions.

“Moving into 2020, the price index for VLSFOs (Very Low Sulphur Fuel Oil) was initially pegged to the more expensive 10ppm gasoil less a discount. Looking at the chart [attached], the 0.5 Marine Fuel Oil vs Gasoil 10ppm (affectionally known at 5go) has seen a lot of volatility of almost USD100 per mt at its peak.

ElbOil graph

“Effectively, this means anyone that used Gasoil 10ppm as a hedge early in 2020 would not have done well as one would had to pay much higher for the physical VLSFO. Conversely, anyone who bought a VLSFO physical delivery basis Gasoil 10ppm index earlier would have benefitted from the wild swing in the spreads.

“It took almost a year for the 0.5 Marine Fuel index to eventually gain a certain level of liquidity for physical contracts to be priced on. It’s liquidity, however, compared to high sulphur indexes before 2020 is still low.”

Similar to the price volatility seen by the VLSFO market in early 2020; a future scenario of new clean bunker fuels facing similar price risk fluctuations due to the market grappling with a proxy index to manage price exposure may exist, forecasts Ho.

“Even today, price determination for LNG (liquefied natural gas) as bunkers in the Asian spot market is a challenge. LNG cargoes in Asia are priced off the JKM index (Japan-Korean marker) which itself has relatively low liquidity,” he explains.

“Going forward, as the type of bunker fuels becomes more diverse, managing price exposures will mean having to use different indices to hedge. Thus losing some levels of economies of scale as players will need to maintain different mark-to-markets and different sets of margin maintenance with different exchanges.

"That is provided if there is an index to hedge on in the first place for the alternative cleaner fuel.”

Ho encouraged shipowners, operators and bunker buyers to actively manage their respective price exposures.

“Having some form of a price risk management program is better than none. And it’s always good to have a conversation with industry experts,” he shares.

“ElbOil, with its team of experienced traders in Europe and Asia, is on hand to face this new challenge. Each risk management solution is unique and we are able to design a custom hedging solution that suits our clients.

“As a licensed entity to trade biofuels and carbon credits, ElbOil is confident to serve the evolving bunker fuel needs of the shipping industry.”

Note: Dennis Ho will be speaking at Session 4A: Risk Management & Oil Storage at FUJCON 2021.

Photo credit: ElbOil
Published: 23 March, 2021

Business

Shell MGO bunker heist: Bunker clerk pleads guilty to helping Sentek acquire misappropriated fuel

Wong Wai Meng, who received more than USD 286,000 from Sentek Marine & Trading for his assistance, pleaded guilty to 12 counts of intentionally helping the firm acquire the misappropriated marine gas.

Published

7 hours ago

December 2, 2024

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A bunker clerk, Wong Wai Meng, who received more than USD 286,000 (SGD 384,681) from Singapore-based Sentek Marine & Trading (Sentek) for his assistance, pleaded guilty to 12 counts of intentionally helping the company acquire misappropriated marine gas oil, The Straits Times reported on Friday (29 November).

The 58-year-old Singaporean was employed at the Sentek when he assisted in acquiring more than 28,000 metric tonnes (mt) of the misappropriated fuel worth USD 13.58 million (SGD 18.26 million).

Wong committed the offences over 46 occasions between August 2014 and December 2017.

Wong is among the three bunker clerks previously employed by Sentek, who were charged for offences under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA) and the Prevention of Corruption Act (PCA).

Another bunker clerk among the three charged, Wong Kuin Wah, 61, was sentenced to seven years and six months’ jail on 18 November for his role in misappropriating more than 27,000 tonnes of gas oil worth around USD 12.8 million (SGD 17.2 million).

The third individual who was charged, Boo Pu Wen, reportedly passed away in July 2023 and had his charges abated following his death, meaning Boo’s court proceedings over his 19 charges at the time came to an end.

Former Shell employees, who were key members of a group who dishonestly misappropriated fuel from Shell Pulau Bukom, were sentenced to jail in court earlier.

Earlier coverage of developments by Manifold Times regarding the Shell MGO bunker heist can be found below:

Photo credit: Katrin Bolovtsova
Published: 2 December, 2024

Biofuel

Singapore: GCMD introduces new technique for FAME bio bunker fuel fingerprinting

Fingerprinting identifies feedstock origins of FAME-based biofuels used in shipping industry; can be used as a potential tool to detect fraud in marine fuel supply chains and ensure biofuel authenticity.

Published

7 hours ago

December 2, 2024

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Singapore: GCMD introduces new technique for FAME bio bunker fuel fingerprinting

The Global Centre for Maritime Decarbonisation (GCMD) on Monday (2 December) released its latest report, presenting a new technique that creates a fingerprint for Fatty Acid Methyl Esters(FAME) bio bunker fuels.

This fingerprint identifies the feedstock origins of the FAME-based biofuels used in the shipping industry.

GCMD said FAME fingerprinting is needed as the shipping sector is increasingly using biofuels, such as FAME, to reduce its GHG emissions. With that, concerns have arisen regarding the legitimacy of biofuels and whether they are truly sustainable.

Industry bodies are seeing a rising number of cases mislabelling biofuels purported to be made from recycled oils and fats, while suspicions persist that they might be produced from cheaper and less sustainable virgin oils.

“To address these concerns, FAME fingerprinting can be used as a potential tool to detect fraud in marine fuel supply chains and ensure biofuel authenticity. By providing a physical validation method that complements existing certification schemes, FAME fingerprinting can help justify the green premium with genuine environmental benefits and safeguard the integrity of marine fuels supply chain,” GCMD said.

FAME fingerprinting is based on the principle that the fatty acid profile of FAME is unique to its feedstock and can be preserved during feedstock transesterification to produce FAME. The "fingerprint" can then be compared against a database of known fatty acid profiles to identify the feedstock origin.

GCMD worked with VPS who modified existing fuel testing methods to carry out sample analyses using a gas chromatograph with flame-ionisation detection, an instrument commonly found in fuel test laboratories.

The analysis takes about an hour, comparable to the turnaround time for current marine fuel quality testing in the supply chain.

“We have tested this method on a variety of FAME samples from different suppliers, including virgin oils, used cooking oils, palm oil mill effluent, beef tallow and food waste and were able to identify the feedstock origins for each sample,” GCMD added.

Manifold Times previously reported Captain Rahul Choudhuri, President, Strategic Partnerships at marine fuels testing company VPS, forecasting the use of finger printing technology today will likely establish a blueprint of how future alternative bunker fuels’ feedstocks are authenticated.

Captain Choudhuri said this when he gave an update of VPS’ biofuels finger printing trials with GCMD.

Note: The full report, titled ‘Rapid forensic analysis of FAME-based biofuels: Potential use of its fingerprint as a fraud detection tool’, can be downloaded here.

Photo credit: Global Centre for Maritime Decarbonisation
Published: 2 December, 2024

Methanol

PLAGEN to produce and supply green methanol bunker fuel with Latvia plant

Korean firm’s MoU with AE Risinājumi will see construction of Latvia’s first commercial-scale green methanol production plant, which will supply green methanol to ships in EU’s maritime fleet.

Published

7 hours ago

December 2, 2024

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PLAGEN to produce and supply green methanol bunker fuel with Latvia plant

South Korean clean energy firm PLAGEN on Friday (29 November) signed an MOU with Latvian company, AE Risinājumi, for the production of green methanol in Latvia at the “2024 Latvia-Korea Business Forum” hosted by the President of Latvia.

The agreement will result in the construction of Latvia's first commercial-scale green methanol production plant, which will supply green methanol to ships in the EU's maritime fleet, contributing to the reduction of greenhouse gas emissions from maritime transportation.

PLAGEN's MoU aims to produce 20,000 metric tonnes (mt) of green methanol per year and will begin feasibility studies in the first half of 2025, and full-scale production will begin in 2028.

With 53% of Latvia's land area covered by forests, timber production and wood processing make a significant contribution to Latvia’s economic production, which generates a large amount of forest residues and wood wastes. In addition, Latvia also has an abundance and low price of renewable electricity from wind power.

Latvia is one of the most competitive countries in the European Union, as it can produce clean methanol at a competitive price by using abundant wood waste as a raw material and renewable electricity from cheap wind power.

The use of abundant forest residues and wood wastes as a feedstock and cheap renewable electricity from wind power makes it possible to produce green methanol with a competitive price, making Latvia is one of the most competitive countries in the EU.

In the European Union, the European Emissions Trading Scheme (EU-ETS) will come into effect in 2025, requiring shipping companies to purchase carbon credits for their greenhouse gas emissions.

In addition, the EU is implementing FuelEU Maritime, which aims to reduce greenhouse gas emissions by 2% below the 2020 average by 2025 and 80% by 2050. This is expected to result in an energy transition to green methanol.

In July 2023, the International Maritime Organization (IMO) adopted a revised strategy that calls for reducing greenhouse gas (GHG) emissions from ships to net-zero by or around 2050, and plans to introduce full-scale regulations from 2027, and shipping companies have begun ordering methanol-powered ships fueled by green methanol, a carbon-neutral fuel.

“We expect to start producing green methanol in Latvia in 2028, which will reduce greenhouse gas emissions from EU maritime transport vessels and contribute significantly to the revitalization of the Latvian economy and national energy security,” said John Kyung, CEO of PLAGEN.

In November 2024, PLAGEN completed the purchase of an industrial complex and received a government permit for the construction of the country's first green methanol plant in Dongjeom Industrial Complex in Taebaek City, Gangwon-do.

The project, which will produce 10,000 mt per year, is scheduled to begin construction in the first half of 2025 and begin production in the second half of 2027.

Photo credit: PLAGEN
Published: 2 December, 2024