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South East Asia MISCs Eagle Virginia

Interesting times

As 2020 approaches the big players in South East Asia are preparing for major changes in the regional marine fuel market

Change is inevitable but in South East Asia right now bunker industry insiders could be forgiven for thinking they are getting too much of good thing. And if that is the case now, just wait until 2020 when the global 0.50% sulphur in fuel cap comes into force.

According to IBIA regional manager Asia, Simon Neo, South East Asia is “very interesting at this moment”. One reason for that is Chinese investment that is driving a number of major projects. One example is US$10 billion that has built the Myanmar-China Oil Pipeline, from western Myanmar to Kunming, China. The new pipeline will mean tankers do not need to pass the Straits of Malacca for cargo meant for import to Kunming or the south western part of China. This is expected to shorten the time to move Middle Eastern, West African and Caribbean crude to China by eight days, shaving off around 2,500 nautical miles.


Chinese investment is also supporting projects in Malaysia, including oil terminals and port infrastructures, roads and rails across the west coast to the east coast of Malaysia.


Meanwhile the need to prepare for 2020 is focusing minds, especially in Singapore and Malaysia. Plans for using LNG as

a marine fuel are now well advanced but the reality of the global fleet suddenly switching to low sulphur fuels will require more immediate and generally applicable solutions.


At the same time new commercial and regulatory pressures are at play. Dramatic consolidation in the deep-sea container trades, especially affecting Asian players, has implications for bunker suppliers who now chase fewer bigger carriers. Meanwhile the switch to mass flow meters (MFM) in Singapore is another step change that the industry is having to learn to live with.


Change creates opportunities and one obvious one is the expansion of bunkering on the Indonesian side of the Singapore Strait. Last year it was reported that Indonesian state-owned oil company Pertamina was setting up a new bunkering subsidiary Pertamina International Downstream Services, operating from newly upgraded terminals at Sambu Island, Batam, and Tanjung Uban, Bintan. Pertamina was looking to gain between 5% and 10% of the region’s bunker market, up from an estimated 1% now. However there have been no further announcements about the new subsidiary.

The prospect of much of the world fleet chasing the available stocks of low sulphur fuel has prompted one Malaysian company to enter the bunker business. Straits Inter Logistics, formerly known as Raya International, has until now mainly been involved in the distribution of industrial water filter components and in trading consumer goods. Now however it has acquired two small bunker tankers, the Sturgeon and Straits 1.


In August Malaysian news agency Bernama reported that the company is optimistic of achieving a better performance for 2017 following its plan to diversify its principal activities into oil bunkering services, which is expected to be fully operational
in the early fourth quarter of this year.

Its executive director, Datuk Seri Ho Kam Choy, said that, with its two vessels the company would become “the only premium supplier of low-sulphur MGO in the country”.


He was quoted as saying: “The oil bunkering business is a niche segment in marine logistics. We see strong growth potentials supported by high growth in global trade, driven by the e-economy and an increase in needs for marine transportation, as well as increased activities in the upstream oil and gas (O&G) industry. These are positive signs which complement our strategy to increase capabilities and footprint in the region.”


He said that physical bunkering would make up 90% of the group’s business but it would also be involved in trading and the supply of oil products and services. Ho said the company already secured “a substantial number of clients”, mainly in the offshore support sector. He said the group would initially focus on bunkering operations from Pasir Gudang Port, Johor, and would later expand to Kemaman, Kuantan and Labuan. He said Straits Inter Logistics was likely to acquire further vessels next year.


He also said due to Malaysia’s growing trade activities, the group
would most likely acquire more vessels next year and also venture into the marine fuel oil service in the future.


Meanwhile, on a much larger scale, Royal Vopak and its joint venture partners intend to expand their independent storage terminal, Pengerang Independent Terminals Sdn Bhd (PITSB) in Johor, by 430,000 cubic metres to a total capacity of 1.7 million cubic metres. The expansion, which Vopak says is subject to “final formalities”, is expected to be commissioned progressively from Q1 2019.


PITSB can accommodate VLCCs. It provides storage, blending and distribution services for crude oil and clean petroleum products but the expansion relates to the storage of clean petroleum products. In total, 24 new tanks will be built ranging from 10,000 cubic metres to 25,000 cubic metres. In addition to the extra capacity, one extra berth will be taken into operation, bringing the total number of operating berths to six.


This expansion of PITSB is aligned with Vopak’s strategy to invest in strategic hub locations. It said in a statement: “The growing need for new storage capacity for clean petroleum products is amongst others based on Asia’s growing structural need for gasoline and jet fuel as well as the growing need for low sulphur diesel/gasoil as a result of the global low sulphur requirement for shipping (active by 2020) as set by the International Maritime Organisation (IMO).”


Minds in Malaysia are also being concentrated on the alternatives to either low sulphur fuels or residual fuel oil.

The national oil company Petronas through its subsidiary Petronas LNG Ltd. (PLL) and its shipping affiliate, MISC inked

a non-binding Memorandum of Understanding (MoU) in May with Gas4Sea partners, comprising ENGIE S.A. (ENGIE), Mitsubishi Corporation (MC) and Nippon Yusen Kabushiki Kaisha (NYK) to explore potential collaboration in promoting
LNG as the preferred marine fuel.


Gas4Sea is a partnership created to jointly promote LNG as the cleaner marine fuel, by providing LNG bunkering services in the global market. Commenting on the MoU, PLL Chief Marketing Officer & Chief Executive Officer, Ezhar Yazid Jaafar said that the collaboration is expected to enhance PETRONAS’ strong presence in the integrated LNG value chain and diversified LNG market portfolio. He added: “Petronas is looking at ways to further promote the consumption of LNG beyond the existing markets portfolios, and advocating LNG as marine fuel is a new frontier for the LNG sector.”


In fact Petronas, through MISC and its subsidiary tanker operator AET, is already well on the road to using LNG. In August it said that up to half of its fleet will be equipped with LNG dual-fuel options over the next few years. Four aframax newbuildings currently under construction will be dual fuel.

Asked how the various developments in the region globally would affect Singapore, Neo stressed that the city state is one of Asia’s, and the world’s, major shipping, aviation and financial centres. That is why “ship owners, managers, cargo and oil traders, banks and many others position their companies in Singapore”. He said: “With a free, open and efficient port management, Singapore is the port of call for many vessels going to the East and also to the West. With a stable political environment, it is an ideal place to conduct business, especially for the marine industry. Singapore is the biggest bunker port in the world today and its volume has continued to grow during the first quarter of this year.”


He pointed out that even though the local bunker industry has had to go through the big transition to using mass flow meters (MFM) and the shipping market “is not in a good shape”, bunker volumes still continued to grow by over 5.0% for the first four months of 2017.


Underlining Neo’s view, Singapore has once again taken the top position in Norwegian consultancy firm Menon Economics’ Leading Maritime Capitals of the World Report. This is the third edition of the maritime report which also ranked Singapore first in 2015 and 2012.


Making the use of MFM mandatory when delivering bunkers has generally gone smoothly but the Maritime and Port Authority of Singapore (MPA) recently found it necessary to crack down on a company found to breaking the rules.


Following checks made between January and March this year, the MPA announced in August that it had revoked Panoil Petroleum’s bunker craft operator licence, meaning it will no longer be allowed to operate as a bunker craft operator
in Singapore.


The MPA’s checks revealed that unauthorised alterations were made on board five bunker tankers operated by Panoil Petroleum. The unauthorised alterations were made on the pipelines of the bunker tankers between the Mass Flow Meters (MFM) and the flow boom. Such alterations allow bunker fuel that has been measured by the MFM to be siphoned out and undermine the accuracy of the readings from the MFM system.


Meanwhile Singapore is also getting ready for LNG. MPA’s LNG bunkering pilot programme commenced early this year. In April Singapore LNG Corporation (SLNG) and MPA jointly launched the country’s first LNG Truck Loading Facility. Located within the SLNG Terminal on Jurong Island, the single-bay facility is being seen as an important first step towards developing LNG bunkering infrastructure.


Also in April the first Singapore Technical Reference (TR) 56 for LNG Bunkering was launched by MPA, SPRING Singapore and the Standards Development Organisation @ Singapore Chemical Industry Council (SDO@SCIC). This standard is aimed at providing a safe, efficient, sustainable and transparent technical framework for conducting LNG bunkering operations in Singapore and as a consequence offering greater assurance to local and international LNG bunker buyers and suppliers.


MPA is using TR 56 to guide the implementation of operational protocols by licensed LNG bunkering suppliers. Capt M Segar, MPA’s Assistant Chief Executive (Operations), said, “While it may take time for LNG to take off as a marine fuel globally, we have taken steps to kick-start LNG bunkering in Singapore through our LNG Bunkering Pilot Programme, one of them being the development of TR 56. The document will ensure Pavilion Gas and FueLNG, MPA’s two appointed LNG bunker supplier licensees, conduct LNG bunkering operations of high quality with regards to safety as well as quantity and quality assurance.”


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