After posting two consecutive years of record bunker sales, Singapore, the world’s top bunkering port, might see a moderation in growth rate in 2017 amid expectations that sales from Russia could rebound following the near-completion of its refinery modernization spree.
The city-port saw its bunker sales surging 7.7% year on year to a record 48.6 million mt in 2016, surpassing the previous year’s record sales of 45.2 million mt, according to data from the Maritime and Port Authority of Singapore (MPAS).
Analysts and sources are of the view that growth levels would moderate in 2017. While some analysts said sales growth could be as low as 2%, a few traders believed that Singapore was still in a strong position to deliver much higher growth in 2017. But they doubted if the country would be able to repeat the stellar rise in sales witnessed in the past two years.
“We expect Singapore’s bunker sales to grow by 2% year on year in 2017,” Facts Global Energy said in a research note on the bunker market.
“We also expect to see further displacement of demand from Russian Far East ports, albeit at a lower level than in 2016. Although the bulk of the refinery modernization program is behind us, four key upgrading projects are expected to come onstream in Russia in Q2 and Q3 2017,” FGE added.
As a result, the anticipated drop in surplus from Russia in 2017 would be far lower than what was seen in 2016, meaning more volumes would be available for exports. “We forecast a reduction in Russia’s fuel oil surplus of 40,000-50,000 b/d, compared to the 260,000 b/d year on year drop in 2016,” FGE added.
Russia’s fuel oil surplus fell sharply in 2016 because of refinery upgrades, changes in tax policies and elevated demand from the power generation sector.
But as part of the tax reforms, also dubbed the tax maneuver, Russia raised the export duty on fuel oil in January to the level of the export duty on crude oil. Bunker sales, which are exempt from the export tax, have therefore subsequently grown in attractiveness, especially in the Far East.
Back in 2013 and early-2014 Russia’s Far East ports proved to be an attractive point for bunkering, as they could offer significant discounts and demand was drawn away from other ports in the region.
“When oil prices were high before 2014, this saving allowed Russian bunker producers to give discounts. In a low-price environment over the past two years, the discount vanished. Therefore, Singapore benefited. But this will now be again reversed in the rising oil price environment,” said Nevyn Nah, refined products analyst at Energy Aspects.
RUSSIA’s FUEL OIL DEMAND
Singapore has benefited from the displacement of bunker volumes from Russia’s Far East ports, as the price advantage that ports such as Vladivostok, situated on north-west of Russia’s Golden Horn Bay, offered compared with Singapore has disappeared in the past few years.
Sales volumes at Vladivostok in 2016, for example, were 2.4 times lower than in 2015 at 384,800 mt, FGE said in its report.
However, prices have seen some reversal in recent days. According to S&P Global Platts data examined between January 23 and February 23, the price differential of IFO 380 in Vladivostok and in Singapore reached as high as $16.5/mt on February 23, with Vladivostok IFO 380 being substantially lower than the latter.
Russia’s export duty coefficient — determined as a percentage of the export duty on crude oil — on fuel oil was increased to 82% in 2016, from 76% in 2015. This put pressure on some refiners, resulting in lesser fuel oil production, a source said.
New tax changes, effective as of January 1, 2017, foresee a fuel oil export duty hike to 100% for crude from 82% in 2016, but a cut in marginal export duty for crude to 30% from 42% in 2016, Platts reported in December.
THE SINGAPORE EDGE
Market participants are of the view that some strong policy measures by the Singapore government would help the bunker industry retain its edge.
Singapore has undertaken various measures in the past and continues to do so to strengthen its position as a bunkering hub. It is already making a foray to promote LNG use as a marine fuel, with the MPAS having awarded supply licenses to Pavilion Gas and to the joint team of BG Group and Keppel Offshore & Marine in January 2016.
MPAS will work with the two license holders to develop the necessary infrastructure for supplying LNG bunker to vessels by early-2017, the shipping authority had said last year. It is also working with stakeholders to develop LNG bunkering standards and procedures at both national and international levels.
Singapore is also strengthening its port infrastructure. In April 2016, MPAS said the Phase 1 construction of its new deep-water Tuas Terminal had begun and that upon completion, deep-water berths in Phase 1 of the terminal would be able to handle about 20 million twenty-foot equivalent units, or TEUs, per year.
Singapore is also the world’s first port to make the use of mass flow meters, or MFMs, for marine fuel oil deliveries compulsory.
The MFM mandate kicked off on January 1, 2017. MFMs measure the flow rate in the pipe, gauging the quantity as well as the mass and density of the bunker fuel passing through.
“We’re still in the trial-and-error period as the MFM has been implemented only recently. But if the January figures are anything to go by, Singapore should see another good year,” a trader said.
Market participants had anticipated that prices in Singapore would rise on higher operating costs.
In January, however, both ex-wharf and delivered 380 CST bunker differential to the Mean of Platts Singapore 380 CST high sulfur fuel oil assessments and the 380 CST delivered to ex-wharf bunker spread showed no signs of an upswing.
Spot daily 380 CST ex-wharf bunker premium to the MOPS 380 CST HSFO assessments averaged at $4.30/mt in January, down from $4.44/mt in December 2016 and $7.14/mt in January 2016, Platts data showed.
“It’s not surprising that the January sales volume didn’t dip. I think, February will be another strong month,” another trader said.
Singapore’s January bunker fuel sales rose 7.1% from a year earlier to touch a record monthly high volume of 4.46 million mt, according to preliminary data released by MPAS on February 13.