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Shanghai Futures Exchange outlines plans to develop LSFO futures, bonded bunker market

SHFE will accelerate integration of futures and spot markets for LSFO by providing more price references such as supply price and ex-tank price for China’s bonded bunker fuel market.

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The following article published by Manifold Times on 30 June was sourced from China’s domestic market through a local correspondent. An online translation service was used in the production of the current editorial piece:

The ‘Fuel Oil/ Low Sulphur Fuel Oil Futures Market Development Report 2022’ recently published by Shanghai Futures Exchange (SHFE) and subsidiary Shanghai International Energy Exchange (INE) shared highlights of Shanghai's fuel oil futures market since its launch in 2004.

The report also included SHFE’s next-phase plans, market operations and progress updates of the country’s fuel oil futures and LSFO futures:

With the strong support and active engagement from market participants, both the fuel oil futures and the LSFO futures markets have shown steady trading activities, smooth clearing, settlement and delivery processes, and increasing overseas participation.

(I) Growing market size and capacity to serve the real economy

In response to the implementation of the global sulphur cap on marine fuels in 2020 and other industry trends, the Shanghai Futures Exchange (SHFE) listed the LSFO futures on the Shanghai International Energy Exchange (INE). Both the regular fuel oil futures market and the LSFO futures market have been running smoothly since the listing, with steadily increasing trading volume and open interest. The 2021 data of the Futures Industry Association (FIA) show that by trading volume, the SHFE fuel oil futures and the INE LSFO futures were respectively the 2nd and the 28th largest energy derivatives in the world.

In 2021, a total of 276.9938 million lots of fuel oil futures were traded, a decrease of 41.95% year-on-year (YoY). Year-end open interest was 493,500 lots, up 11.84% YoY. The monthly volume reached a yearly high of 32,697,200 lots in March and a yearly low of 12,061,700 lots in December. The highest month-end open interest of 493,500 lots was recorded in December and the lowest of 256,500 lots occurred in October.

Screenshot 2022 06 30 at 10.55.31 AM

In 2021, a total of 18.5948 million lots of LSFO futures were traded, an increase of 90.47% YoY. Year-end open interest was 75,700 lots, down 46.14% YoY. The monthly volume reached a yearly high of 1,954,300 lots in November and a yearly low of 1,112,100 lots in February. The highest month-end open interest of 143,700 lots was recorded in January and the lowest of 62,700 lots occurred in October.

Screenshot 2022 06 30 at 10.55.43 AM

(II) Effective price discovery functions and widening international application of product price

Whether it’s between the closing price of the most active fuel oil futures contract and the price of spot 380 CST fuel oil in eastern China, or between the closing price of the most active LSFO futures contract and the price of spot LSFO in eastern China, the correlation coefficient has been close to 0.9 since the listing of the two futures products. This shows that the futures markets can effectively reflect the price changes in the spot market.

Screenshot 2022 06 30 at 10.55.51 AM

On June 21, 2021, SHFE and Zhejiang Mercantile Exchange (ZME) jointly launched the Zhoushan LSFO bonded bunker price, which is calculated from the bunker quotes submitted by the major Zhoushan-based bunker fuel suppliers, which quotes are in turn based on the daily settlement price of the LSFO futures contract as adjusted by premiums and discounts. As of the end of 2021, five bunker fuel suppliers— Sinopec Zhejiang Zhoushan Petroleum, Chimbusco, Zhejiang Free Trade Zone PetroChina Fuel Oil, Zhejiang Seaport International Trading, and Zhejiang Petroleum Fuel Oil Sales—were submitting quotes as bunker fuel sellers on ZME. These suppliers together account for 84% of the regional market, which means their quotes can fully and objectively reflect the price trend of the bunker market and are being closely monitored by the market. 

(III) Improving market structure with active participation of institutional clients 

As of end-2021, institutional clients showed an approximately 20% increase YoY in trading volume and an approximately 15% increase in open interest in the fuel oil futures, and an approximately 20% and 15% increase YoY respectively in the trading volume and open interest in the LSFO futures. 

(IV) Stable physical delivery volume that enables effective hedging functions 

In terms of physical delivery, the total delivery volume of SHFE fuel oil futures in 2021 is 40,935 lots (409,350 mt of fuel oil), with total delivery value of RMB 945 million yuan. The highest delivery volume of 14,389 lots (143,890 mt) was achieved in September and the lowest of 70 lots (700 mt) was recorded in December. For the LSFO futures, the total delivery volume in 2021 is 41,089 lots (410,890 mt of LSFO), with total delivery value of RMB 1.340 billion yuan. The delivery volume peaked at 6,220 lots (62,200 mt) in April and reached its lowest point of 206 lots (2,060 mt) in July.

Screenshot 2022 06 30 at 10.55.59 AM

(V) High-level opening up for high-quality development of the industry 

  1. The first cross-border take-delivery of LSFO futures completed to lead the two-way opening-up of China’s futures market

A new delivery model of “domestic delivery + overseas take-delivery” has been introduced to the LSFO futures, made possible through group factory warehouses. The first overseas take-delivery transaction involved three companies from Singapore: Trafigura Group (Singapore), Freepoint Commodities Singapore, and China-Base Resource Singapore. This is a milestone for China’s futures market in taking delivery activities internationally, which further improves the accessibility of China’s futures products and market connectivity under the Belt and Road Initiative. This new delivery model expanded trading channels for industrial enterprises, improved the efficiency of resource allocation, and allowed for multi-dimensional risk management covering domestic and international markets, futures and physicals, and online and offline tools. It helps the industry develop a more sophisticated pricing mechanism and improve China’s pricing power in the major commodities. 

  1. The first use of RMB price for overseas trades in the bonded bunker fuel industry 

Freepoint Singapore, Chimbusco International Petroleum (Singapore), China Merchants Energy Trading (Singapore), and COFCO International Freight inked bunker supply contracts which reference the prices of INE LSFO futures as the pricing benchmark. This was the first time that China’s fuel oil futures prices served as a pricing benchmark in overseas trades. It has raised the influence of RMB in the global pricing of fuel oil, contributed valuable experience to the high-level opening-up of China’s futures market, and supported China’s new development paradigm under the “Dual Circulation” strategy. 

  1. Helping form low-sulphur bunker fuel quotations to build an integrated futures-physical market for oil and gas in the Yangtze River Delta region 

SHFE and ZME jointly launched the Zhoushan LSFO bonded bunker price, which is calculated from the quotes submitted by bunker fuel suppliers based on the settlement price of the LSFO futures contract. This is the first RMB-denominated quotation mechanism in China based on futures prices, providing a new, proven, and reliable pathway for transmitting the LSFO futures price to the spot suppliers. This quotation mechanism was strengthened in June 2022 with the publication of bid prices, submitted by five international shipping companies, for bunker fuel at anchorages in Zhoushan, thus creating a bid-ask quotation model. 

  1. Futures-physical market integration to promote functional innovations for the futures market 

SHFE and INE began to publish the monthly average settlement prices of the LSFO futures (“mean of settlement”, MOS), to complement the monthly average prices in the spot market of the corresponding product. This futures price information offers enterprises a more relevant price reference for their ongoing production and operating activities, and can better meet their trade pricing and risk management needs.

Conclusion

In 2021, the fuel oil futures market has been running stable overall with the risks well under control. The products have been functioning well, as the futures and spot markets show a high correlation factor and a symbiotic relationship. Major innovations with the fuel oil futures prices were made, greatly contributing to the two-way opening-up of China’s futures market and the creation of an integrated futures-physicals market for gas and oil in the Yangtze River Delta region. 

SHFE’s next-phase plan relates to the following three areas: 

  1. SHFE will continue to improve the operations of the futures market, find new applications for futures prices—such as by promoting their use to domestic refineries, traders, bunker fuel suppliers, and other players within the bonded bunker fuel industry—and expand the breadth and depth of the functions of futures products. 
  2. SHFE will accelerate the integration of the futures and spot markets for LSFO, by providing more price references, such as supply price and ex-tank price, for China’s bonded bunker fuel market; and promote product innovation to introduce more hedging tools, such as LSFO mean of settlement futures contract, that address the pricing needs of the bonded bunker fuel supply industry. 
  3. SHFE will continue to promote the high-level and institutional opening-up of the market, strengthen engagement with international organisations, and vigorously encourage the application of “Shanghai Oil” prices in the international financial market to enhance the global influence of China’s fuel oil futures and boost the high-quality development of the real economy. We look forward to working with all market participants to build a more prosperous market for high and low sulphur fuel oil derivatives.

 

Photo credit: Dimitry Anikin on Unsplash, Shanghai Futures Exchange
Published: 30 June, 2022 

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Biofuel

SMW 2024: Ken Energy and Green COP partner to advance bio bunker fuels in Singapore

Through partnership between its two members, CSA said SGD 10 million will be invested into development and production of biofuel blends and aims to launch commercial-scale production by 2026.

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SMW 2024: Ken Energy and Green COP partner to advance bio bunker fuels in Singapore

The Coastal Sustainability Alliance (CSA), an industry collaborative effort led by Kuok Maritime Group (KMG), on Tuesday 916 April) announced its plans to advance the maritime biofuel ecosystem in Singapore with up to SGD 10 million (USD 7.33 million) in investments. 

The partnership will be spearheaded by two of its Alliance members – Green COP and Ken Energy – which formalised a Memorandum of Understanding (MOU) today at the Tech Stage (EXPO @SMW) at Singapore Maritime Week 2024.

Over the next two years, the CSA aims to develop stable B30, B40 and B50 biofuel blends and achieve production and commercial adoption of up to 50% (B50), derived from 50% agri-waste to Biobutanol – a blend poised to significantly reduce carbon emissions in maritime operations.

This process includes biofuel certification, commencing sea trials, building a production plant by 2025, and launching commercial-scale production by 2026. An initial SGD 500,000 angel investment has been secured for establishing a pilot plant for processing agri-waste, and over SGD 10 million is expected to be invested in scaling production capabilities.

These efforts in decarbonising the maritime sector will contribute to the CSA’s efforts to build the next generation of Singapore’s coastal ecosystem and are timely to address the potential surge in demand for sustainable biofuels.

Mr Tan Thai Yong, Managing Director, Strategic Projects and Technology, Kuok Maritime Group and Chairperson, CSA Council, said: “The formation of biofuel ecosystem under the Coastal Sustainability Alliance demonstrates our commitment to foster partnerships and deliver innovative sustainable maritime solutions for our conventional fleet owners as they progressively switch to lower emissions vessels.

“In bringing together Green COP and Ken Energy, we are laying the groundwork for a new biofuel supply chain and providing a viable alternative in the energy transition for the maritime sector. This initiative is more than an advancement in fuel technology as it exemplifies the power of collaboration, underscoring the CSA’s role as a steward and catalyst for positive change in the maritime industry.”

The CSA is actively driving maritime biofuel development to provide a viable biofuel alternative for vessels to reduce carbon emissions. The ecosystem will secure a ready supply of biofuel for local coastal demand and ensure the quality and stability of the biofuels with supply chain track and trace. This initiative also seeks to bolster Singapore’s standing in the Global Biofuels Alliance over the long term by building new R&D and innovation tracks in line with the nation’s environmental commitments.

Through this partnership, Ken Energy will play a pivotal role in strengthening the market and commercial utilisation of Biobutanol in maritime operations. This comprises vital aspects such as operational feasibility, life cycle assessment, and carbon emission reduction strategies. Ken Energy’s expertise and resources will be instrumental in optimising the practical implementation of Biobutanol for a B30-B50 blend and subsequent market integration in providing B50 to its customer fleet of bunker barges and CSA members.

Desmond Chong, Managing Director of Ken Energy, said: “We believe in the green transition that the maritime industry is embarking on. This conviction underscores our strategic collaboration with Green COP. Leveraging our proficiency in marine transportation logistics alongside Green COP's commendable sustainable biofuel production, we aim to spur the industry's widespread adoption of biofuels."

Green COP, with its proprietary technology, specialises in the efficient conversion of plant-based biowaste into sustainable biofuels through a patented pre-treatment and fermentation process. This innovative, cost-effective approach maximises resource utilisation and minimises waste generation, contributing to the circular economy and environmental sustainability.

Dr Hanson Lee, CEO of Green COP, said, “Green COP presents existing fleet owners with a coherent biofuel solution to achieve their net-zero targets in a progressive manner. We envision a future where Sustainable Marine Fuels (SMF), alongside coastal electrification, become the norm. The CSA has provided us access to market insights, industry collaborations and the necessary incubation for our growth. We look forward to working with more like-minded partners to spur biofuels research and adoption.”

Earlier in March 2024, Green COP signed an MOU agreement with 3Y Energy to develop and optimise green biofuel blends for the maritime and transportation sectors. Through this collaboration, Green COP will set up a pilot plant capable of processing a ton of biomass daily to produce sustainable fuels, while 3Y Energy will provide the innovative solutions in green fuel utilisation including biofuel blends. 

Introducing the B50 blend represents a significant advancement in reducing carbon emissions within the maritime industry. For every metric ton (mt) of B50 fuel burned, carbon emissions are reduced to 1.5 mt, a substantial improvement over the B30 blend, which reduces CO2 emissions to 2.1 mt per metric ton of fuel burned. Additionally, the production of Biobutanol, a key component of the B50 blend, is more energy-efficient and yields a higher volume of fuel compared to traditional methods used for producing Fatty Acid Methyl Ester (FAME). This enhances the sustainability of the fuel production process and supports the maritime sector’s transition to greener energy sources.

The CSA will continue to broaden the scope of the pioneering biofuel ecosystem and seek additional collaborations from stakeholders across the maritime and energy sectors to enhance technological, adoption and logistical capabilities.

This development follows closely on the heels of the Coastal Sustainability Alliance PXO Electric Fleet Signing and MoU Ceremony, held on 12 April.

Related: Alliance commences building of electric tug and supply boat for Singapore waters
Related: SMW 2024: Singapore is preparing port for multi-fuel future, says Transport Minister
Related: SMW 2024: MPA partners with S&P Global and Bunkerchain in digital ship identity
Related: SMW2024: 18th Singapore Maritime Week opens with ‘Actions meet Ambition’ theme
Related: SMW 2024: MPA to set up facility for maritime workforce to train in handling new bunker fuels
Related: SMW 2024: Singapore-Rotterdam Green and Digital Shipping Corridor partners to implement first-mover pilot projects

 

Photo credit: Coastal Sustainability Alliance
Published: 17 April 2024

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Alternative Fuels

SMW 2024: Pacific Environment, Ulsan Port Authority to accelerate zero-emission shipping and ports

Both signed a MoU to develop zero-emission shipping and ports in South Korea, within Asia, across transpacific and global corridors including possibility of supporting Korea Ports to transition to green bunker fuels.

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SMW 2024: Pacific Environment, Ulsan Port Authority mulls transition to green bunker fuels in South Korea

Pacific Environment on Tuesday (16 April) said it signed a Memorandum of Understanding (MoU) with Ulsan Port Authority outlining a vision of multi-year collaboration to accelerate zero-emission shipping and ports in the Republic of Korea, within Asia, across transpacific and global corridors. 

The MOU Signing Ceremony occurred during a joint reception co-hosted by Pacific Environment and Ulsan Port Authority with more than 50 participants during the Singapore Maritime Week 2024.

The MOU includes areas of possible cooperation: 

  • Supporting the Republic of Korea to decarbonise both its domestic shipping and harbour craft industry to align all Republic of Korea ports with the United Nations Framework Convention on Climate Change 1.5 degree Celsius trajectory
  • Support the Uslan Port to design and implement green shipping corridors across Asia, the transpacific and global corridors
  • Support the Ulsan Port and Republic of Korea Ports to transition to green fuels and provide electric power and zero-emission lifecycle fuels to help marine vessels meet zero-emissions prior to 2050 
  • Provide the Ulsan Port with an action plan to achieve the International Maritime Organization’s 2023 Greenhouse Gas Strategy 
  • Support the Ulsan Port to address additional marine and climate policy issues, such as ending ocean plastic pollution, fossil fuel shipping pollution, among others
  • Support improvement of the Ulsan Port and Republic of Korea Port’s system to prompt the use of green fuels, develop workforce safety standards and train workers.

This is the second MOU that Pacific Environment has signed with Republic of Korea maritime leaders. Last May 2023, Pacific Environment and Korean Maritime Institute signed a multiyear MOU to accelerate zero-emission shipping and ports. 

Soonyo Jeong, Vice President, Ulsan Port Authority, said: “We are excited about our partnership with Pacific Environment and look forward to the support the organisation can provide on-the-ground to move our port and our country to a zero-emission future.”

“As the largest bunkering port in the Republic of Korea, we hope to do our part to address climate change and move shipping to a 1.5 degree Celsius future.”

Shannon Wright, Executive Director, Pacific Environment, said: “Pacific Environment is proud to partner with the Port of Ulsan. Today’s signing of the Memorandum of Agreement between the Port of Ulsan and Pacific Environment is an exciting start to a multiyear partnership. 

“Ulsan Port has been designated as the only green ship fuel supply port in the Republic of Korea, and aims to become an green energy logistics hub.”

“We look forward to supporting the port with strategic policy and planning assistance to support the efforts towards zero-emission shipping and ports.”

Related: SMW 2024: Singapore is preparing port for multi-fuel future, says Transport Minister
Related: SMW 2024: MPA partners with S&P Global and Bunkerchain in digital ship identity
Related: SMW2024: 18th Singapore Maritime Week opens with ‘Actions meet Ambition’ theme
Related: SMW 2024: MPA to set up facility for maritime workforce to train in handling new bunker fuels
Related: SMW 2024: Singapore-Rotterdam Green and Digital Shipping Corridor partners to implement first-mover pilot projects

 

Photo credit: Pacific Environment
Published: 17 April 2024

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MoU

SMW 2024: Seatrium, A*STAR to explore new energies and AI for offshore and marine uses

Both organisations will focus on establishing a sustainable ammonia supply chain and addressing bunkering, transportation, and storage challenges, amongst others.

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SMW 2024: Seatrium, A*STAR to explore new energies and AI for offshore and marine uses

Singapore-headquartered marine engineering firm Seatrium and Singapore’s Agency for Science, Technology and Research (A*STAR) on Tuesday (16 April) inked a Memorandum of Understanding (MoU) to explore research opportunities in new energies and artificial intelligence (AI) to develop innovative products and engineering solutions for the Offshore and Marine (O&M) Sector. 

The MoU signing took place during the Singapore Maritime Week and was witnessed by the event’s Guest of Honour, Dr Amy Khor, Senior Minister of State, Ministry of Transport and Ministry of Sustainability and the Environment.

The collaboration combines Seatrium’s insights into trends and opportunities within the O&M sector with the research capabilities of A*STAR and its National Platforms such as the Technology Centre for Offshore and Marine, Singapore (TCOMS). The parties aim to boost the O&M sector’s pivot to new energies efficiently and reliably, and support the global transition to a low-carbon economy. Through machine learning, manufacturing process technologies and digital solutions, the collaboration will also streamline product development and manufacturing processes, and promote innovation and sustainability in Seatrium’s operations.

The focus areas of the MoU include the co-development of:

New Energies

This includes the exploration of new energies such as hydrogen and ammonia solutions, specifically tailored for offshore and marine applications. A*STAR and Seatrium were part of Singapore’s first ammonia fuel trial on the Fortescue Green Pioneer. 

A*STAR contributed to the development of an ammonia plume model for safety and environmental impact assessment, while Seatrium was responsible for the installation of the vessel’s fuel system and safety features.

Both organisations will now focus on establishing a sustainable ammonia supply chain and addressing bunkering, transportation, and storage challenges. Coupled with carbon capture technologies, Seatrium's suite of product solutions aims to provide sustainable energy solutions for the offshore and marine sector.

Artificial Intelligence (AI)

The partnership leverages AI to explore innovative solutions in engineering processes, operational efficiency, and decision-making across project lifecycles. 

This includes the planned development of Large Language Models (LLMs) to improve vessel design and validation turnaround by automating and streamlining parts of the process. AI will be used to automate work site inspection and surveillance for improved operational efficiency.

Since 2008, Seatrium’s predecessor entities and A*STAR have worked on research projects such as green shipping, digital design, automation, Internet of Things (IoT) and advanced manufacturing. 

The outcomes have culminated in the development of new capabilities, including co-designing the world’s first made-in-Singapore Low Ultraviolet (LUV) Ballast Water Treatment System. 

This eco-friendly system employs energy-efficient ultra-violet rays and proprietary ultra-low frequency bio-fouling control for chemical-free treatment of ballast water.

Mr Chris Ong, CEO of Seatrium, said: “The collaborative efforts between Seatrium and A*STAR are geared towards accelerating the energy transition and maritime decarbonisation.”

“By combining our knowledge and pushing boundaries, we aim to develop advanced energy solutions that will help the industry adopt renewable sources more quickly.”

“Through innovation, research, and sustainable practices, we are focused on minimising carbon emissions, improving operational efficiency, and promoting cleaner energy.”

“We are committed to making a positive impact and playing a vital role in Singapore's sustainable O&M sector with the support of our partners, stakeholders, and customers.”

Mr Frederick Chew, CEO of A*STAR, said: “Building on our previous successful collaboration programmes in green shipping, digital design and advanced manufacturing, this latest collaboration in new energies and AI furthers Seatrium and A*STAR’s shared vision of developing more smart and sustainable solutions for the O&M sector.”

“I look forward to programme outcomes that will contribute substantively to Seatrium’s and Singapore’s economic and sustainability goals.”

Related: Fortescue successfully conducts world’s first ammonia bunker fuel trial in Singapore
Related: SMW 2024: Singapore is preparing port for multi-fuel future, says Transport Minister
Related: SMW 2024: MPA partners with S&P Global and Bunkerchain in digital ship identity
Related: SMW2024: 18th Singapore Maritime Week opens with ‘Actions meet Ambition’ theme
Related: SMW 2024: MPA to set up facility for maritime workforce to train in handling new bunker fuels
Related: SMW 2024: Singapore-Rotterdam Green and Digital Shipping Corridor partners to implement first-mover pilot projects

 

Photo credit: Seatrium and A*STAR
Published: 17 April 2024

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