Balancing Act---Sanctions, Venezuela, Trade War and Demand

Here is a fact about the future of oil prices, sanctions and buyers and sellers.

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The world's biggest oil buyers are being forced to go on the defensive once again.

 

(Bloomberg) -- The world’s biggest oil buyers are being forced to go on the defensive once again.

U.S. President Donald Trump’s sanctions on Iran and Venezuela, the OPEC+ coalition’s output curbs, and disruptions from Nigeria to Libya are all handing crude sellers the upper hand in negotiations. With refiners in Asia left competing with each other for limited global quantities on offer, they are being forced to pay more for their favored oil varieties.

That’s a shift from just a few months ago, when sellers were kept on their toes as they tried to tackle a flood of U.S. shipments coming east. The change is being reflected in prices for Abu Dhabi’s Murban crude, with cargoes loading in June sold at 25 to 45 cents a barrel above the grade’s official selling price. By contrast, the oil fetched discounts during the previous six months as it was weighed down by a glut of comparable supply.

“The strength in the physical market indicates an extremely tight market,” said Virendra Chauhan, a Singapore-based analyst at industry consultant Energy Aspects Ltd., adding that the crunch is likely to last through the third quarter. “With OPEC keen to avoid last year’s mistakes where they pre-emptively raised supply, buyers will need to pay up before producers raise output.”

It wasn’t so over the past several months, when buyers in Asia benefited from a bigger pool of crude selections as American grades increasingly made their way into the region. That added ample supplies that’s pushed spot prices down in the physical market. However, Trump’s decision to end sanctions waivers for Iranian oil buyers and the de-facto ban on Venezuelan supply have turned the tide in the market.

Supply Squeeze

While OPEC and its allies are pumping less to avert a glut, contamination of Russian Urals oil -- of a similar quality to some Iranian blends -- is adding to a shortage as European processors halted shipments of the grade. The region is scrambling for alternative supply, raising the possibility of a tighter market this month, according to traders in Asia.

“If there is a serious supply drop in the market, and it’s not compensated by U.S. crude or Saudi Arabian crude, and Russia doesn’t fill the gap, then you will have some price issue,” said R. Ramachandran, director of refineries at India’s state-run Bharat Petroleum Corp.

In addition to Abu Dhabi’s Murban, higher costs are also being signaled in other corners of the physical market. Oman crude futures surged to $2.93 a barrel over Middle Eastern benchmark Dubai swaps on Monday, compared to a premium of just 51 cents in early March when refiners were coping with lower demand and weaker margins.

Rising Demand

Supply isn’t the only issue that’s pointing to a pricier physical market. Demand is also forecast to be higher in the final two quarters of this year following the refinery maintenance season in Asia that typically peaks by the first half, according to industry consultant IHS Markit Ltd.

In a display of confidence on the expected surge in demand, Saudi Arabian Oil Co. increased the official selling price of its flagship grade for June sales to its Asian customers. The world’s top exporter raised the pricing of Arab Light crude by 70 cents from the previous month. That was higher than the median forecast of a 60-cent gain in a Bloomberg survey of traders and refiners.

Refinery operating rates will be higher due to the ramp-up of new plants including Hengli Petrochemical Co.’s refinery in China, on top of summer seasonal demand in the third quarter, according to Victor Shum, vice president of energy consulting at IHS. The new maritime rule that require ships from Jan. 1 to use cleaner supply will boost plant runs in the final three months, he said.

“Asian refiners will step up crude diversification, albeit with cost implications, as Iranian sanction waivers end amid rising demand,” Shum said. “Heightened competition for crude supply will continue in the coming months.”

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Here's the plane traffic graphic being discussed

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A closer look at the map

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A closer look at the Brazilian Air Force C-130H Hercules plane details.  

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If you don't know what a C-130 Hercules is...

https://www.military.com/equipment/c-130-hercules

The workhorse of the Air Force combat airlift fleet, the C-130 Hercules has been in service for more than half a century. Designed specifically to transport troops and equipment in the combat zone via airdrop or short runways, the Hercules operates throughout the U.S. Air Force serving with Air Mobility Command, Air Force Special Operations Command, Air Combat Command, U.S. Air Forces in Europe, Pacific Air Forces, Air National Guard and the Air Force Reserve Command, fulfilling a wide range of operational missions in both peace and war situations.

 
 
C-130 Hercules, Cargo Plane | Bullet Points
The C-130 Hercules is appropriately named as it is storied as the most reliable military air transport vehicle in US Military history. Check out the video!
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The C-130 Hercules is appropriately named as it is storied as the most reliable military air transport vehicle in US Military history. Check out the video!

Basic and specialized versions of the aircraft perform a range of missions, including airlift support, Antarctic ice resupply, aeromedical missions, weather reconnaissance, aerial spray missions, firefighting duties for the U.S. Forest Service and natural disaster relief missions. The C-130 features a loading ramp and door in the tail that can accomodate palletized loads, vehicles and troops. The aircraft can airdrop up to 42,000 pound loads or land on short, unimproved airstrips in forward combat zones.

The C-130 can be rapidly reconfigured for the various types of cargo such as palletized equipment, floor-loaded material, airdrop platforms, container delivery system bundles, vehicles and personnel or aeromedical evacuation.

...

 

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11 minutes ago, Osama said:

Hope you have recovered well.

 

We have had this discussion many times under different topics but I have always said they will cut down their Iranian barrels to keep in compliance with the sanctions and they will be able to find replacement barrels.

The trade tariffs will make things harder for general Chinese purchases of US energy products but when there is the need and demand there is a way!!!

But KSA will step up and supply as much as possible while others will make up for the missing barrels too.

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10 minutes ago, ceo_energemsier said:

Hope you have recovered well.

 

We have had this discussion many times under different topics but I have always said they will cut down their Iranian barrels to keep in compliance with the sanctions and they will be able to find replacement barrels.

The trade tariffs will make things harder for general Chinese purchases of US energy products but when there is the need and demand there is a way!!!

But KSA will step up and supply as much as possible while others will make up for the missing barrels too.

Thank you so much for asking!! Yes, I have.

 

Regarding China complying to U.S. sanctions---well it can be the case however with the recent trade spat ..there might be other possibilities. Also, I still think that SPV can be put into practices by European countries and China may jump in with them Your thoughts?

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9 hours ago, Osama said:

Thank you so much for asking!! Yes, I have.

 

Regarding China complying to U.S. sanctions---well it can be the case however with the recent trade spat ..there might be other possibilities. Also, I still think that SPV can be put into practices by European countries and China may jump in with them Your thoughts?

I doubt the EU is going to go on a wholesale defying sanctions and setting up SPV's. Trade with US is a very big entity for EU and China. The trade deals will be settled in some ways and trade will go on between the US and China. Dont forget since the trade spat started with the US, China's economy tanked, their lost 5 trillion $ of value in the market and the US gained. I had said this in a previous thread and under a different topic China is energy hungry and China also has a billion people to feed and is not self sufficient, one of the key reliable sources of food and now energy is the US for China. China may show a little more defiance now as winter is ending and their need for heating is not as urgent as it was back during the winter months but still they dont want their folks to starve and or freeze.

I doubt that there will be any exemptions or waivers from the US, but maybe as a token gesture , it may happen, not counting on it though because  a lot is at stake.

Glad you are better!

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Saudi Aramco Said to Give Extra Oil to Crude-Hungry Asian Buyers

Saudi Arabia is set to supply more crude to oil-starved Asian refiners, and extract a heavy price for it.

State-run producer Saudi Aramco will sell additional cargoes to customers in the world’s biggest oil-consuming region for June loading, according to people with knowledge of the matter. The shipments will be on top of those scheduled under long-term crude contracts, they said, asking not to be identified because the information is confidential.

While the extra supplies will alleviate a squeeze driven by U.S. sanctions on Iran and Venezuela as well as unexpected disruptions from Russia to Nigeria, the refiners face a costly bill. Aramco raised its official selling price for June cargoes of its flagship Arab Light crude to the biggest premium versus Middle East benchmark prices in 11 months. The cost of the Arab Medium variety was set at the highest since December 2013, while Arab Heavy was increased to the most in over six years.

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The higher costs aren’t expected to deter Asian buyers, who had earlier this month asked OPEC’s biggest producer for additional supplies even before the kingdom set its pricing for June cargoes. The scramble for shipments follows the May 2 expiry of U.S. sanctions waivers for buyers of Iranian oil, which the White House decided not to renew as part of its campaign to squeeze Tehran’s finances.

Global benchmark Brent crude rose 0.5 percent to $70.26 a barrel on the London-based ICE Futures Europe exchange at 9:46 a.m. in Singapore on Wednesday, after closing 1.9 percent lower in the previous session. Prices slipped 1.8 percent last week, snapping a five-week rally.

Supply Uncertainty

Refiners in India, where oil demand is growing at the fastest pace in the world, are set to receive as much as 200,000 barrels a day of incremental supplies, the people said. Some refiners in China, the top crude importer, and Japan will also receive additional shipments, they said.

Aramco was willing to supply more volumes to meet the requests of a major Chinese refiner, said a person familiar with the company’s procurement, although details on the type and quality of oil on offer remained unclear. That’s before the official announcement of the kingdom’s monthly allocations for June, which is due later this week.

The press office for Aramco, known officially as Saudi Arabian Oil Co., couldn’t immediately comment.

Prices had seesawed previously on uncertainty over how Saudi Arabia would respond to the tighter U.S. sanctions, as well as other unexpected supply disruptions across the globe. Energy Minister Khalid Al-Falih has said the kingdom will keep the market balanced, but also signaled that the Organization of Petroleum Exporting Countries and its allies including Russia could extend output curbs until the end of this year.
Source: Bloomberg

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On 5/2/2019 at 11:47 AM, William Edwards said:

Thanks for the additional input.

Saudi Aramco Said to Give Extra Oil to Crude-Hungry Asian Buyers

Saudi Arabia is set to supply more crude to oil-starved Asian refiners, and extract a heavy price for it.

State-run producer Saudi Aramco will sell additional cargoes to customers in the world’s biggest oil-consuming region for June loading, according to people with knowledge of the matter. The shipments will be on top of those scheduled under long-term crude contracts, they said, asking not to be identified because the information is confidential.

While the extra supplies will alleviate a squeeze driven by U.S. sanctions on Iran and Venezuela as well as unexpected disruptions from Russia to Nigeria, the refiners face a costly bill. Aramco raised its official selling price for June cargoes of its flagship Arab Light crude to the biggest premium versus Middle East benchmark prices in 11 months. The cost of the Arab Medium variety was set at the highest since December 2013, while Arab Heavy was increased to the most in over six years.

image.png.003bee5ed54c9d9547597169424e3ce6.png

The higher costs aren’t expected to deter Asian buyers, who had earlier this month asked OPEC’s biggest producer for additional supplies even before the kingdom set its pricing for June cargoes. The scramble for shipments follows the May 2 expiry of U.S. sanctions waivers for buyers of Iranian oil, which the White House decided not to renew as part of its campaign to squeeze Tehran’s finances.

Global benchmark Brent crude rose 0.5 percent to $70.26 a barrel on the London-based ICE Futures Europe exchange at 9:46 a.m. in Singapore on Wednesday, after closing 1.9 percent lower in the previous session. Prices slipped 1.8 percent last week, snapping a five-week rally.

Supply Uncertainty

Refiners in India, where oil demand is growing at the fastest pace in the world, are set to receive as much as 200,000 barrels a day of incremental supplies, the people said. Some refiners in China, the top crude importer, and Japan will also receive additional shipments, they said.

Aramco was willing to supply more volumes to meet the requests of a major Chinese refiner, said a person familiar with the company’s procurement, although details on the type and quality of oil on offer remained unclear. That’s before the official announcement of the kingdom’s monthly allocations for June, which is due later this week.

The press office for Aramco, known officially as Saudi Arabian Oil Co., couldn’t immediately comment.

Prices had seesawed previously on uncertainty over how Saudi Arabia would respond to the tighter U.S. sanctions, as well as other unexpected supply disruptions across the globe. Energy Minister Khalid Al-Falih has said the kingdom will keep the market balanced, but also signaled that the Organization of Petroleum Exporting Countries and its allies including Russia could extend output curbs until the end of this year.
Source: Bloomberg

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On the subject of IMO 2020, sulfur in fuels and vessel scrubbers etcs

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Singapore’s Asia Pacific Exchange, or APEX, is planning other oil and fuel contracts after launching its 380 CST high sulfur fuel oil with maximum 3.5% sulfur futures contract in April, a company spokesman said this week.

“The launch of the 380 CST fuel oil is just the start. APEX definitely has plans to launch other oil and fuel oil contracts,” he told S&P Global Platts in a statement.

This comes at a time when the International Maritime Organization’s global sulfur limit rule for marine fuels is inching closer. A majority of shipowners are expected to opt for very low sulfur fuels and marine gasoil, while a rise in new blended fuels is also expected in the market, some industry sources told Platts.

Meanwhile, the APEX spokesman said that in addition to energy products, APEX will also be listing other agricultural and financial derivative products.

“We feel that Asia has huge growth potential, especially with the huge market in China. We aim to provide Asian pricing benchmarks for commodities and to develop a new Asian financial derivatives risk management platform,” he added.

HSFO CONTRACTS

Its HSFO contract size is 10 mt, and the order size can be one contract to 500 contracts per order.

“One of the main characteristics of our contract is that we provide physical delivery as the settlement method,” the spokesman said.

Another feature is the design of small contract size, suitable for small and medium enterprises to participate, he said. Also, it can be used by larger players for more accurate hedging, he added.

On trade date April 30, the total trading volume of its HSFO contract was 20,553 lots; open interest stood at 2,126, while the turnover from these contracts was about $85.78 million, the spokesman said.

The contract size has been kept small to cater to small to large participants in both Singapore and internationally, he said. The contract size is the same as the fuel oil contract from the Shanghai Futures Exchange, allowing some Chinese participants to take part easily, he added.

“We see ourselves complementing the SHFE and ICE [Intercontinental Exchange] markets,” he said.

“For instance, investors may find cross-market arbitrage opportunities between our platform and SHFE and/or ICE. In this sense, we are not competing for the liquidity, but creating new opportunities for investors,” he added.

APEX is an international derivatives exchange approved by the Monetary Authority of Singapore, according to its website.

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On the subject of IMO 2020, sulfur in fuels and vessel scrubbers etcs

 

Clean tanker owners prepare fuel strategies ahead of IMO 2020

Clean tanker owner companies Ardmore Shipping and Scorpio Tankers discussed their bunkering plans ahead of the implementation of IMO 2020 in their Q1 2019 earnings calls Wednesday and Thursday, taking separate stances on the utilization of scrubbers or compliant 0.5% sulfur fuels.

Scorpio Tankers released their fleet’s dry dock schedule for 2019 and 2020 Thursday, having ordered scrubber systems for their full fleet of 45 Medium Range tankers, 12 Long Range 1 tankers, and 38 Long Range 2 tankers. One of Scorpio’s LR2s and one MR tanker were already outfitted with scrubber systems in the first quarter.

President and director of Scorpio Tankers, Robert Bugbee, said in the company’s Q1 earnings call that the company expected the global clean tanker market to see an increase in freight rates and earnings ahead of IMO 2020. Bugbee expected the increased dry docking of tankers for scrubber installations to help bolster rates as tonnage supply leaves the market.

According to the dry dock schedule, eight MRs, three LR1s, and six LR2s are scheduled for scrubber installations in Q2. In Q3, six MRs, three LR1s, and 10 LR2s are scheduled to install scrubbers; while in Q4, nine MRs, one LR1, and eight LR2s are scheduled to go to try dock for scrubber installations.

The remainder of Scorpio’s fleet, including 22 MRs, 12 LR1s, and eight LR2s are scheduled to be outfitted with scrubber systems in 2020.

Bugbee said that tankers without scrubbers would likely begin bunkering compliant 0.5% fuel as early as October, nodding to Ardmore Shipping’s decision to do the same, as stated in Ardmore’s Q1 earnings call.

We will tackle the critical questions surrounding the rapidly approaching International Maritime Organization’s sulfur cap, examine how the industry has prepared, and what the outlook is past January, 1, 2020.

Ardmore Shipping CEO Anthony Gurnee stated in Wednesday’s call that the company would use new compliant 0.5% bunkers ahead of IMO 2020 as early as October, and said that Ardmore Shipping was not unique in that regard. Gurnee expected there would be a demand for those LSFO fuels early on, as larger ships with longer voyages would have to load early.

The availability of LSFO before and immediately after January 1, 2020, has been a concern of the shipping industry, and Gurnee said in the earnings call that a huge number of outports that have to provide bunkering services would have to switch to compliant fuels, with gasoil likely to be the predominant choice early on.

Gurnee said Ardmore Shipping was not yet sure what kind of fuel it would use for bunkering, whether gasoil or compliant LSFO, but that the company has been indirectly involved in testing new compliant fuels. Ardmore tankers will likely burn both gasoil and LSFO, but that, like other owners, the company would err on the side of caution, sticking to quality 0.5% blends or burning gasoil at the beginning of 2020. Gurnee said the company was still not considering investing in scrubber systems for their fleet.

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On the subject of IMO 2020, sulfur in fuels and vessel scrubbers etcs

 

“Prepare crews for PSC spot sampling of ships’ fuel”. This may seem like pretty minor advice at a time when shipowners are in the midst of preparing their fleets and crews for compliance with the 2020 global sulphur cap. Onboard spot sampling of ships’ fuel is nothing new. Since the 0.10% sulphur cap entered into force in EU ports and the designated ECAs, spot sampling and analysis of ships’ fuel have been common as a means for port state control (PSC) to verify the actual sulphur content of the fuel in use.

The ECAs are still relatively limited in terms of geographical scope whilst compliance with the global 0.50% sulphur cap involves much larger quantities and different types of fuels. Hence, it is anticipated that the frequency of PSC requests to take spot samples of ships’ fuel oil will increase significantly after 1 January 2020 and shipowners should prepare their ships and crew accordingly. The IMO’s adoption of a prohibition on the carriage of non-compliant fuel oil from 1 March 2020, the so called ‘carriage ban’, is also expected to drive the requirements for further sampling by PSC.

Even PSC inspectors make mistakes

There is no doubt that PSC will play an important role in the enforcement of the 2020 global 0.50% sulphur cap. However, while many PSC regimes are investing heavily in training and education of their inspectors ahead of the regulatory changes, others may not be equally well prepared for their new inspection tasks come 1 January 2020. The cases reported below demonstrate that even PSC inspectors make mistakes from time to time. And when such mistakes are the reason for ships being penalised – proper onboard procedures and a well prepared and attentive crew can make a big difference in changing the outcome of a case.

Case 1 – read the ‘small print’ before you sign

A ship entered with Gard was recently fined in an EU port for “using marine fuel with a content of sulphur higher than the restriction established by law (0.10%) in port”. A sample had been drawn from the fuel oil system while the ship was at berth and testing established that the sulphur content of the sampled fuel exceeded the 0.10% limit. The test results came as a complete surprise to the ship’s crew. According to the Chief Engineer, the ship’s auxiliary engines had been running on compliant marine gas oil (MGO) at the time of the inspection. This statement was supported by entries in the ship’s log-books, which showed that a successful change-over to MGO had been completed in line with the port’s requirements, as well as the bunker delivery note for the MGO, which showed that its sulphur content was well below the required 0.10% limit.

Further investigations revealed that the ship’s fuel oil supply unit for the main engines had also been running at the time of the PSC inspection, but only in re-circulation mode as part of the procedures for securing the main engines after stopping. The shipowner therefore concluded that it was very likely that the inspector had sampled fuel from the ‘wrong system’ and that the sample did not represent the fuel burned while the ship was at berth. Additional testing of the ship’s duplicate fuel sample supported this conclusion, the fuel in the bottle was HFO, not MGO. It appears in this instance that our Member may have been penalised because of a mistake made by the PSC inspector.

Following further investigations, the shipowner found that the PSC inspector’s sampling report was incomplete and could not be directly linked to the ship’s duplicate fuel sample that had been tested. The report did not specify the quality of the fuel sampled, the location where the sample was taken, nor did it list the seal number on the sample bottle. However, when it also turned out that the ship’s Master and Chief Engineer had signed the inspector’s report, with no notification of protest, it became very difficult for the shipowner to argue his case.

Case 2 – a picture is worth a thousand words

In another case, also in a port in the EU, a routine port state control inspection of a ship included the taking of a fuel sample. And, like the previous case, when the sample was tested, the sulphur content of the sampled oil was above 0.10%, and a fine was levied on the ship. In this case our Member was able to document that the ship had bunkered and burned only compliant ultra-low sulphur fuel oil (ULSFO) for the previous two years. From the shipowner’s perspective, it was therefore quite clear that the ship’s fuel oil could not possibly contain the stated sulphur levels.

Since the crew had taken pictures whilst the PSC inspection was ongoing, the correct seal number on the relevant sample bottle was easily identifiable and the duplicate sample that was kept onboard could quickly be located. It turned out that the duplicate sample bottle contained a thick brownish oil that did not resemble the ship’s ULSFO. When the duplicate sample was tested, and found to contain hydraulic oil, the fine was cancelled. Thanks to attentive crew and good routines on board, the shipowner was in this instance able to prove the PSC inspector had made a mistake.

Sulphur inspections – issues to be aware of

A ship may be targeted for a sulphur inspection for various reasons, e.g. the existence of a previous non-compliance or warning received concerning its fuel, the ship is scheduled to bunker at a specific port, or as part of a maritime safety administration’s enhanced verification programme – or just randomly in order to reach an overall percentage inspection rate set by the PSC.

Methods of verifying compliance

For the vast majority of ships that plan to meet the 2020 requirement by burning low sulphur fuel, PSC has essentially two methods of establishing whether a ship is compliant:

1) Verify the sulphur content of the ship’s fuel, e.g. by reviewing procedures, bunker delivery notes (BDN), log book recordings, analyse the MARPOL delivered sample, and taking additional samples at different locations of the fuel oil system.

2) Measure the sulphur content in the ship’s exhaust gas, e.g. by use of remote sensing equipment such as sulphur-sniffing drones or similar monitoring equipment placed at strategic locations on shore.

Document review

Much of the compliance with MARPOL Annex VI is documented by recordkeeping. It will therefore be important to ensure that that all MARPOL Annex VI documentation is complete and up-to-date prior to a port entry. Results from Tokyo MOUs concentrated inspection campaign in 2018 show that missing BDNs was one of the most notable deficiencies found during the campaign. Regulation 18.6 of MARPOL Annex VI requires BDNs to be retained onboard for a period of three years after the fuel has been delivered onboard.

In the shorter term, PSC may also consider ship implementations plans (SIP) when verifying compliance with the 0.50% sulphur limit requirement. A ship with a suitably developed SIP, and a clear record of the actions taken in order to be compliant, should be in a better position to demonstrate to PSC that the ship’s crew and managers have acted in good faith and done everything that could be reasonably expected to achieve full compliance. A SIP is, however, not mandatory and therefore, the absence of such or incorrect entries etc. should not form the basis for a PSC deficiency.

Initial check

The use of remote sensing equipment and portable handheld fuel analysers is likely to become increasingly common during initial inspections by PSC. As an example, the Danish Maritime Authorities recently announced that a sulphur-sniffing drone is already in use to check emissions from ships in Danish waters. When the drone enters a ship’s exhaust gas plume, it can register the amount of sulphur in the fuel and make the data immediately available to Danish authorities, who can follow up if a ship does not comply with the applicable requirements. Results from a campaign carried out in the Danish Port of Aarhus in 2018 is available HERE.

The ship’s crew should, however, be aware that the results from such equipment may be of an indicative nature only and should not necessarily be accepted as the sole evidence of non-compliance. PSC inspectors are, however, likely to consider such results to be ‘clear grounds’ for further inspection.

More detailed inspection

Given ‘clear grounds’ to conduct a more detailed inspection, PSC may require samples of fuel oils to be analysed at a fuel testing laboratory. This could be either the representative samples provided with the BDN, or spot samples of fuel oil drawn from a ship’s fuel oil lines and/or tanks.

Where the MARPOL delivered sample required under Regulation 18.8.1 is taken from the ship, a receipt should be provided to the ship. Where spot samples are drawn from the ship’s fuel oil lines or tanks during the inspection, the Chief Engineer should be present at all times to verify that samples are drawn at the right location and in the correct way. The Chief Engineer should also inspect the immediate quality of the sample, verify that each sampling bottle is properly labelled and make sure the ship’s own samples are retained onboard. It is important that the PSC inspector reports information such as the sampling point location where the sample was drawn, date and port of sampling, name and IMO number of the ship, and details of seal identification.

Designated sampling points become mandatory under MARPOL Annex VI

A new retroactive requirement in MARPOL Annex VI to designate, or if necessary fit, sampling points to facilitate the taking of spot samples onboard ships was agreed during the sixth session of the IMO sub-committee on Pollution Prevention and Response (PPR 6) in February 2019. Subject to approval by the MEPC 74 in May 2019, ships will be required to designate, and clearly mark, sampling points no later than the first IAPP renewal survey that occurs 12 months or more after the entry into force of the amended regulation.

When designating the sampling points shipowners should consider the “2019 Guidelines for onboard sampling for the verification of the sulphur content of the fuel oil used on board ships”, also agreed at PPR 6. Although the guidelines are a recommendation only, they set out an acceptable sampling method for inspectors to determine the sulphur content of fuel oils, both with respect to location of sampling points and handling of the samples.

In order to distinguish between onboard spot samples and samples taken when fuel oil is delivered onboard, currently known as the ‘MARPOL sample’, the PPR 6 agreed to introduce two new terms in MARRPOL Annex VI: the ‘in-use sample’ to describe a sample drawn from a ship’s fuel oil system and the ‘onboard sample’ to describe a sample drawn from a ship’s bunker tank. The latter was introduced as a means of verifying compliance with the new ‘carriage ban’ and the PPR 6 further agreed that additional new guidelines are needed to support the safe taking of samples from ships’ bunker tanks.

Summary and recommendations

Despite ongoing preparatory work within the IMO and the publication of numerous guidances by classification societies and other industry stakeholders, shipowners still face a range of uncertainties and potential operational risks post-2020. Fuel prices in 2020 are a big unknown. Understandably, most shipowners worry about an increase in costs in an already difficult economic environment. Equally high on shipowners’ agenda are issues related to the availability of low sulphur fuels and the quality of new fuel blends. Compatibility between fuel batches is a serious safety concern, and so is the long-term stability of some of these new fuels. For those that have invested in exhaust gas cleaning systems (scrubbers), it will be particularly important to keep a close eye on the local regulation of wash water discharges from open-loop scrubbers.

Shipowners can, however, be fairly certain of one thing: PSC will start enforcing the cap from 1 January 2020, whether the industry is ready or not! Hence, when preparing fleets and crews for compliance with the 2020 global sulphur cap:

  • Do not forget to revisit ships’ procedures for fuel sampling.
  • Make sure the procedures describe acceptable and safe sampling methods for a ship’s fuel oil system, both with respect to location of sampling points, handling of the samples, and record keeping.
  • Train the relevant members of the engine crew and emphasise the importance of escorting the attending sulphur inspector at all times while onboard.
  • Consider if the recommendations contained in existing, as well as coming IMO sampling guidelines should be implemented in a ship’s procedures. The European Maritime Safety Agency’s (EMSA) “Sulphur Inspection Guidance” provides useful advice and information on the PSC’s approach to the inspection of ships and how they ascertain a vessel’s compliance with applicable sulphur in fuel requirements. Section 2.7 of the EMSA guidance addresses sample collection and analysis

Remember, without proper evidence, the chances of the shipowner losing the claim in a disputed case are high.
Source: Gard (http://www.gard.no/web/updates/content/27554374/prepare-crews-for-psc-spot-sampling-of-ships-fuel)

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On the subject of IMO 2020, sulfur in fuels and vessel scrubbers etcs

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Product Tanker Could Soon Be Used for Storage

 

Product tankers could soon be used for floating storage units, as the market is starting to exhibit certain undeniable trends supporting the case for using ships for storage of fuel oils. In its latest weekly report, shipbroker Gibson said that “much of the current market focus is on crude supply, with sanctions, outages and unplanned disruptions impacting on supply. But with IMO2020 just around the corner, fundamental changes in the products market are afoot, with the market dynamics set to drastically shift as we move closer to the end of the year. The market for middle distillates (primarily gasoil, diesel and jet fuel) could be set for a seismic shock – in stark contrast to current market fundamentals”.

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According to Gibson, “at present the forward structure for ICE gasoil shows backwardation until July, with a contango setting in from August onwards. The shape of the curve can be explained by short term fundamentals. Continued refinery turnarounds are likely to constrain short term supplies, with notably lower exports from the Baltic expected for May. European refinery runs may also see some impact from crude supply issues, owing to contamination of Russian crude, whilst colder than usual weather could support prompt demand. However, the conclusion of European maintenance season will soon see supplies boosted, whilst higher inflows from the United States can also be expected, depressing forward pricing. Beyond this, the focus shifts to positioning for firmer demand emerging towards the end of the year, justifying the contango structure which emerges in the third quarter”.

 

Gibson added that “of course, when talking about contango, the shipping market tends to focus on the prospects for floating storage. Given that the market structure of ICE gasoil is backwardated for the new few months, floating storage is unlikely to be a feature of the market over the next quarter. However, looking further ahead, the ICE gasoil spread between July and October shows a contango of $5/tonne. Whilst forward storage rates are uncertain, and Q3 typically sees LR2 rates firm, even at a conservative estimate, such a contango is unlikely to support storage economics at this stage. Simple calculations suggest that at a daily rate of $18,000/day, a contango of at least $11/tonnes over three months would be needed to justify such a play, considerably short of where the curve currently sits. However, the current structure is unlikely to be preserved. As refineries exit maintenance over the current quarter and runs increase into Q3, the current contango in gasoil prices may steepen as increased supply depresses prompt prices, whilst increased focus on end of year demand supports the back end of the forward curve. Whether or not the futures structure becomes steep enough to justify storage remains to be seen, with freight costs also expected to firm over the same period. LR2s will always be the obvious candidate for this; however more favourable economics may emerge for newbuild crude tankers (VLCCs and Suezmaxes), where improved economies of scale may be achievable, depending on the level of demand for fuel oil storage and crude tanker fundamentals at the time”.

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Gibson concluded that “outside of Europe, forward pricing in the key trading hubs of Singapore and New York Harbour show a modest contango all the way to the end of the year, although the scale is unlikely to justify significant floating storage play in the short term. However, just as in Europe, product supplies will increase post turnaround season, putting downwards pressure on prompt prices. With Singapore being the world’s largest bunkering port, demand in the region is expected to change significantly towards the end of the year, perhaps creating storage opportunities for product tankers to capitalise on, even if the window of opportunity proves to be short”.

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On the subject of IMO 2020, sulfur in fuels and vessel scrubbers , LNG fuel and bunkering:

 

________________________________________________________

 

Big ambitions for small-scale LNG bunkering

 

Limited LNG bunkering infrastructure has long been blamed for holding back the shipping industry’s adoption of LNG as a fuel. It’s a textbook chicken-and-egg problem: Fleet operators won’t switch to gas if they cannot be confident of supply, while suppliers won’t invest if they don’t see sufficient demand. Avenir LNG – a spin-off of Stolt-Nielsen Gas – thinks it has found a way to crack the problem and make small-scale LNG distribution to ports not served by pipelines a reality.

Closing the LNG supply gap

As a long-standing chemical logistics business Stolt-Nielsen has established an integrated network of ships, terminals and distribution channels for transporting chemicals to every corner of the globe. However, there are virtually no such integrated networks established for the distribution of LNG, which makes it difficult to transport gas cost effectively between suppliers and customers – particularly when relatively small volumes and remote or unfrequented locations are involved.

Alongside land-based energy customers and industrial concerns such as power generation, smelters and chemical plants, these cases of stranded demand include a steadily growing number of ship operators that would use LNG as a fuel if only they could be sure about availability of supply. Stolt-Nielsen saw this situation as a challenge waiting to be solved and a commercial opportunity.

Adapting existing sources

In 2017, Stolt-Nielsen formed Avenir – a separate entity dedicated to providing LNG to markets lacking ready access to pipelines. Andrew Pickering, CEO Avenir LNG Ltd, explained the rationale: “The business of large-scale LNG distribution is sewn up. There are well-established trades linking major suppliers and major customers, and the market incumbents have little appetite to complicate their operations extending their reach and catering for smaller customers.

“When we examined the dynamics of the small-scale market, we discovered it closely replicated what we were already doing. We saw a way of transferring our existing infrastructure, integration and expertise to get up and running pretty quickly, without needing to recreate any core competencies.”

A plan takes shape

The plan, says Pickering, is to place vessels where there is a secure base load so that ships and terminals can be financially underwritten. Once that’s in place, peripheral opportunities can be explored and developed to support incremental growth.

Avenir is constructing an LNG terminal and distribution facility in the Italian port of Oristano, Sardinia, which is due to come online in mid-2020. The company is close to a final investment decision for a project to ship LNG from the south of England up to Scotland, which is expected to come online in autumn 2021. The latter, says Pickering, is a classic example of stranded demand: “Gas was coming into Kent and then being trucked up the length of the country to customers in Scotland. How can that be efficient?” Avenir is also on the shortlist for a government-backed project in Quebec, Canada.

Stranded demand is only half the picture, the flipside of which could be described as stranded supply. Most large terminals are not set up to cater for smaller LNG carriers, says Pickering. Instead, an answer was found in underutilized FSRU vessels. Initially Stolt-Nielsen leveraged its strong relationship with Golar LNG, which, as it turned out, had FSRUs with spare capacity situated close to areas of stranded demand. Later, it approached Hoegh LNG, another large FSRU operator, which had eyed the small-scale distribution market as ripe for development but was yet to step in.

“Everything was coming together. Having both Golar and Hoegh on board would provide global coverage, which we could sew together into a seamless offering.” The conversation culminated in October 2018, when the three companies announced a combined investment commitment of $182 million in Avenir. Stolt-Nielsen will consolidate all its LNG activities into Avenir, including an additional two 7,500m3 gas carriers plus two already on order at Keppel Singmarine in Nantong, China, two 20,000m3 gas carriers also being built in Nantong by Sinopacific Offshore & Engineering and the joint-venture LNG terminal and distribution facility in Sardinia.

T1_Gas_139_Stolt_Avenir_vessel_side_view

The 7,500m3 LNG Carrier and bunkering vessel “Future Sardinia“ is expected to enter service in 2019. (Photo: Avenir LNG)

LNG carrier design inverted

In the design of its ships, Avenir turned conventional wisdom on its head. Pickering elaborates: “We took the opposite approach to our competitors. We consider them first and foremost as transport vessels – not bunkering ships – and that’s what drove the design. The optimization of the hull form, the dual-fuel engine and propulsion arrangement, the fuel system and auxiliaries were all optimized with the transport function in mind.”

During their design, particular attention was paid to the gas containment and fuel system, as the goal was to match boil-off gas with consumption and to get both low. In addition to sophisticated boil-off gas management, bunkering functionality is bestowed through increased pumping capabilities, ship-to-ship transfer equipment and enhanced manoeuvrability for approaching receiving ships and accessing smaller customer sites.

The collaboration with DNV GL was a key enabler in the design of the vessels. Pickering elaborates: “They immediately grasped the broader picture of what Avenir wants to achieve – rather than approach the project as a simplistic compliance exercise. With an ambition to create a sustainable small-scale LNG supply chain that will one day operate globally, understanding both the operational and business implications of that vision must go hand-in-hand with technical ingenuity as we encounter challenges during that journey. The ships themselves are individual components in a bigger machine.”

While Avenir’s business model is currently centred around serving power and industrial customers, it anticipates growth in marine bunkering. “The appetite for LNG as a fuel for ships is picking up. We envisage the market in a few years will look very different from today, with more local import and storage facilities making LNG increasingly accessible and therefore appealing to shipping.”

MF_Gas_139_Stolt_Avenir_vessel_operation

Low-sulphur trigger

The forthcoming IMO 2020 regulations on fuel sulphur are one of many driving factors for increased small-scale LNG consumption. “With less than a year to go, there’s still considerable uncertainty. Some owners are investing in scrubbers while others are waiting to see how the supply situation for low-sulphur products develops,” observes Pickering.

Low-sulphur fuel oil (LSFO) is currently around 40% more expensive than conventional HFO, while LNG is 20% less expensive. “If these differentials hold, then gas suddenly becomes a lot more attractive,” comments Pickering.

With more owners ordering and taking delivery of vessels that are specified as LNG-ready, the major obstacle, he contends, isn’t so much technical preparation but the patchiness of supporting infrastructure. “Conversions are being stalled due to a lack of options for LNG bunkering. What owners require more than anything else is confidence that they can obtain fuel when they need it – and today that isn’t there. This reality is reflected in the behaviour of the band of highly committed – mostly north European – owners who have set up individual supply chains. But that adds cost.”

In short, he concludes, the system isn’t working. “Greater standardization and globalization would bring economies of scale that cannot be realized with the present ad-hoc approach. This is what Avenir wants to achieve. We want to remove the ‘leap-of-faith’ element from decisions owners have to make when weighing up whether or not to go ahead with a conversion.”

T2_Gas_139_Stolt_Avenir_vessel_at_LNG_te

Avenir LNG will build an LNG terminal and distribution facility in Sardinia (Photo: Avenir LNG)

LNG turning point

There are signs the industry is edging closer to an inflection point. In the same week as Golar and Hoegh put their money behind Avenir, Hapag-Lloyd announced its intention to convert a 15,000-teu ship, the Safir, to run on LNG, citing more favourable economics than burning LSFO after 2020. If the retrofit of the engine from HFO to LNG/LSFO dual-fuel operation is deemed a success, the Hamburg-based container line may go on to convert up to sixteen other large LNG-ready box-ships in its fleet.

Naturally, Pickering is enthused. Firstly, it sets an important precedent as the economics of conversion are generally more challenging than newbuilds. A major player like Hapag-Lloyd making this move could precipitate a wider change of thinking across the industry, he says.

Secondly, it suggests Avenir has chosen its moment well. “Success in small-scale LNG distribution hinges on timing. You’ve got to get it right – move too early and you won’t have the customers; move too late and your customers will have found alternative suppliers or set up other arrangements, perhaps pivoting away LNG altogether.”

The short to medium outlook certainly seems bright for Avenir but 2020 isn’t the only momentous year for shipping. IMO’s roadmap for decarbonization means the industry is now setting course for another deadline in 2050. “It will transform the industry completely and in ways we cannot easily predict. There is a lot of excitement surrounding hydrogen, for example. But until production processes mature and can be scaled to commercial volumes, it is hard to work out the economics as a marine fuel. In the meantime, there will be a growing requirement for interim solutions based on known clean alternatives like LNG.”

 

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IMO 2020

________________________

 

IMO 2020 to raise shipping costs for iron ore: Wood Mackenzie

The IMO 2020 regulation on shipping fuel oil is set to increase iron ore freight rates, consultancy Wood Mackenzie said.

The introduction of a lower maximum content for sulfur in fuel oil for shipping may lead to higher shipping rates between iron ore producers Brazil, Australia and Indonesia, to the largest importer China, Wood Mac analyst Rohan Kendall said in a statement.

Ships switching to lower sulfur fuels such as diesel, and to LNG from typical bunker fuel oil may raise costs in hauling the commodity, with higher impact on longer voyages from Brazil to Asia, Wood Mac said.

“Brazilian iron ore shipments to China will see largest increases, due to distance travelled, potentially rising by over US$6/mt (more than 40%),” Kendall said.

The S&P Global Platts Brazil to Qingdao, China, Capesize assessment averaged at $13.098/wet mt for April, up from $11.82/wmt in March.

“Freight from Australia and Indonesia to North Asia will increase by between $1.7/mt and $2.9/mt.”

The International Maritime Organization’s directive to lower the maximum permitted sulfur content in fuel oil for shipping has led analysts to warn of higher costs and difficulties in meeting demand from the specification change due to refinery infrastructure.

Implementation of a reduced sulfur cap on fuel oil to 0.5% maximum sulfur from January 2020, from 3.5% sulfur at present, may lead to higher diesel consumption, as refiners stretch to produce sufficient very low sulfur fuel oil (VLSFO).

The iron ore market in China, the largest buyer, evaluates seaborne iron ore prices on a delivered basis across grades and with domestic supplies.

Spot iron ore prices delivered into China are a global benchmark, and higher shipping costs may lead to changes in netback prices and costs absorbed by counterparties.

The changes may impact regional netback pricing and contract terms.

The impact for IMO on ocean freight markets means higher costs for bulk commodities, including met coal and thermal coal, Wood Mac said.

“Ocean freight is where the largest impact from IMO 2020 regulations lie for bulk commodities. Limited uptake of scrubber installation so far and a limited availability of VLSFO will mean most bulk carriers switch to higher priced diesel for compliance,” Wood Mac said.

Demand for LNG vessels may increase, with Wood Mac expecting global LNG bunkering demand to reach 9 million mt/year by 2025.

With demand for sour crude oil falling compared to sweeter crudes on fuel product configurations favouring lower sulphur grades, the Japanese crude cocktail formula used for around 40% of LNG contracts may see its value fall relative to Brent, the global benchmark, the consultancy said.

This may shave LNG pricing by $2.5 billion in 2020, Wood Mac said.

In mining operations, increased demand for diesel for shipping my lead to a small impact on operating costs, Wood Mac added.

“Diesel price increases will only lead to a 27 cents/mt (1.3%) increase in average FOB costs for iron ore mines,” Wood Mac said.

“However, the impact will not be evenly spread. Mines that use trucking for long-distance transport, have diesel-fired power generation, or have a high ratio of material moved to marketable production will be affected most.”

Australian coal mines have a higher proportion of electrified mining equipment and conveyors, and may see reduced impact on fuel consumption compared to other producers, Wood Mac added.

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IMO 2020 & scrubbers!

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ESPO supports EU proposal to discuss a harmonized approach on scrubbers at IMO level

 

 

IMO Marine Environment Protection Committee (MEPC 74), which is commencing next week in London, will discuss an EU proposal on the exhaust gas cleaning systems (scrubbers). The proposal, which has been submitted by the EU 28 Member States and the European Commission, aims to start the discussion at international level on the discharges from scrubbers into the water, especially in sensitive areas such as ports.

To protect the water quality and to respect the EU standards imposed by the Water Framework Directive, some EU Member States have taken initiatives to limit liquid discharges from scrubbers in port areas.

 

European ports support the European plea for prompt and harmonized action on the basis of scientific evidence available with regard to the impact of liquid discharges from scrubbers on water quality. ESPO therefore supports the EU proposal to bring the issue to the IMO.

“Water quality is a great priority for European ports being continuously in the annual Top 10 of European ports’ environmental priorities. The scrubber discharges into the water is currently triggering different approaches and measures in the EU Member States. It is important to start the discussion at international level on the possible impact of these discharges as soon as possible in an open and transparent way, using the evidence available. This must lead to a more coordinated global approach to the issue, if possible. With the upcoming IMO 2020 sulphur cap, the issue is becoming a priority,” says ESPO’s Secretary General, Isabelle Ryckbost.

 

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2020 IMO!

______________________________________

 

D’Amico Says Tanker Market Fundamentals Point to A Strong Market Recovery, With the Additional Boost of the IMO 2020 Effect

 

The Board of Directors of d’Amico International Shipping S.A. (Borsa Italiana: DIS) (the Company, d’Amico International Shipping or the Group), a leading international marine transportation company operating in the product tanker market, today examined and approved the first quarter 2019 financial results.

MANAGEMENT COMMENTARY
Paolo d’Amico, Chairman and Chief Executive Officer of d’Amico International Shipping S.A. commented: ‘In the first quarter of the year, DIS posted a Net result of US$ (5.5) million vs. US$ (3.6) million achieved in the first quarter of 2018. However, excluding some non-recurring effects and the application of IFRS 16, DIS’ results would have been US$ 2.4 million better than in the same period of last year. DIS realized a daily average spot rate of US$ 13,583 in Q1 2019, which is US$ 858/day higher than the level achieved in Q1 2018 and US$ 2,785/day better than the full-year average of 2018. This result reflects the improving fundamentals of the product tanker market. During the first quarter, we also benefited from 46.4% time-charter coverage at an average daily rate of US$ 14,604. We have noticed a growing interest from oil-majors and trading houses for time-charter contracts at increasing levels and this demonstrates leading charterers’ strong belief in the market’s recovery prospects.

Our total blended daily TCE (spot and time-charter) was US$ 14,057 in Q1 2019 vs. US$ 13,446 of Q1 2018 and US$ 12,184 for the full-year 2018. We maintain a very positive outlook on the product tanker market, a view supported almost unanimously by industry analysts and key players. Demand for seaborne trade of refined oil products is expected to be strong in 2019, driven by a substantial increase in refinery capacity and by the new IMO regulations, which limit the sulphur content in bunker fuels to 0.5% from January 2020, further stimulating demand for our vessels, already from the second half of 2019. In addition, the forecasts are positive also on the supply side, with limited annual net fleet growth (below 2%) in the segments we operate in (MRs and LR1s), over the next two years.

Following the execution of our important feet renewal program, which entailed investments of around US$755 million and which is almost finalised, as well as the weak markets of the last few years, to fully benefit from the upcoming market recovery, we believed it was important to strengthen our financial structure and liquidity position. With this objective, in Q1 2019 we launched a share capital increase, which was fully subscribed; we are pleased with this result and confident that the investors that participated in the offering will be rewarded’.

 

 

Carlos Balestra di Mottola, Chief Financial Officer of d’Amico International Shipping S.A. commented:
‘In Q1 2019, we continued to improve our liquidity position through sale and sale-and-lease-back deals. In detail: i) we finalized the sale and lease back of one of our LR1 vessels, generating net cash proceeds of US$ 10.2 million in January, relative to financing the vessel though the previously committed loan facility; ii) we agreed the sale of one MR vessel owned by DM Shipping (a JV in which DIS has an indirect interest of 51%), generating approximately US$ 12.3 million in net cash for the JV company at the beginning of April; iii) we finalized the sale and lease back of one of our MR ships, generating an additional US$ 9.6 million in net cash as at the end of April.

In addition, in the month of April DIS successfully concluded its equity capital increase, amounting to around US$49.8 million. The rights issue was initially 97.3% subscribed, with the remaining shares sold through a private placement a few days later, resulting in a fully subscribed offering and allowing the Company to strengthen substantially its equity and liquidity position. DIS is now almost at the end of its long-term investment plan with the last vessel expected to be delivered in Q3 2019, entailing a residual CAPEX of approximately US$ 31.6 million, of which only US$ 11.1 million should be financed with own funds and the rest with committed bank debt.

This, coupled with lower debt repayment starting from 2020, should contribute to a significant improvement in our free cash-flow generation, as well as to a rapid deleveraging of our balance sheet. The various activities we have undertaken, aimed at achieving a more robust capital structure, will position our Company favourably to fully benefit from the next positive cycle and create value for our shareholders.’

FINANCIAL
REVIEW SUMMARY OF THE RESULTS IN THE FIRST QUARTER 2019
Product tanker market conditions remained healthy in January 2019 following strong improvements in late 2018. According to Clarksons, average clean MR spot earnings fell 10% m-o-m to average around the mid teens in January, but were still up significantly from the full year 2018 average. The opening of some arbitrage trades in late 2018 to January 2019 (particularly West to East naphtha flows) has provided support, along with firm growth in US product exports. The product tanker market eased back in February. Average clean MR spot earnings fell, with Chinese New year contributing to a lull in earnings in the East in the first part of the month. However, overall earnings in the first two months of the year were up by significantly compared to the 2018 average. In March, product demand was supported by strong flows into West Africa. Planned and unplanned refinery outage in the US Atlantic coast reduced domestic production, limiting exports, but contributing to an increase in imports of gasoline. In March, the Asian and Middle Eastern markets also experienced some improvement, with demand for Indian coastal business opening up to non-Indian flag ships and healthy demand into East Africa. The one-year time-charter rate is always the best indicator of spot market expectations.

The improved sentiment in Q4 raised the rate at the end of the year to around US$ 13,500 per day for conventional
(non-Eco) MRs and to around US$15,000 per day for Eco MRs. In Q1 2019 this trend continued with the one-year rates rising further and settling at the end of the period at around US$ 14,000 per day and US$ 15,500 per day for conventional and Eco MRs, respectively. DIS’

Net Result was negative for US$ (5.5) million in Q1 2019 vs. a Net Loss of US$ (3.6) million posted in the same quarter of 2018. Excluding results on disposal and non-recurring financial items from Q1 2019 and Q1 2018, as well as the effects of IFRS 16 from Q1 2019, DIS’ Net result would have been US$ (4.4) million in the first quarter of the current year compared with US$ (6.8) million recorded in the same period of 2018. Therefore, excluding the effects of the application of IFRS 16 and such non-recurring effects, DIS’ Q1 2019 Net result would have been US$ 2.4 million higher than in the same quarter of last year.

In fact, in terms of spot performance, DIS achieved a daily spot rate of US$ 13,583 in Q1 2019, 7% better than US$ 12,726 achieved in Q1 2018 and 26% higher than the overall spot average of last year. In addition, the Q1 2019 spot result was affected by an approximately US$ 0.7 million negative adjustment on prior year voyages, which corresponds to about US$ 330/day on DIS’ daily average for its spot vessels. At the same time, 46.4% of DIS’ total employment days in Q1 2019, were covered through ‘time-charter’ contracts at an average daily rate of US$ 14,604 (Q1 2018: 31.7% coverage at an average daily rate of US$ 15,001).

Such good levels of time charter coverage is one of the pillars of DIS’ commercial strategy and allows it to mitigate the effects of the spot market volatility, securing a certain level of earnings and cash generation even throughout the negative cycles. DIS’ total daily average rate (which includes both spot and time-charter contracts) was US$ 14,057 in the first quarter of 2019 compared with US$ 13,446 achieved in the same quarter of the previous year. In Q1 2019, DIS ‘gross capital expenditures’ amounted to US$ 30.6 million, in relation to the delivery of 1 newbuilding LR1 vessel.

Since 2012, DIS has ordered a total of 22 ‘Eco-design’ product tankers1 (10 MR, 6 Handy-size and 6 LR1 vessels), of which 21 vessels have been already delivered as at the end of Q1 2019. This corresponds to an overall investment plan of approximately US$ 755.0 million and is in line with the Group’s strategy to modernize its fleet through new-buildings with an eco-desig

 

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Scrubbers, scrubbers IMO 2020

______________________________________________________

 

Global debate on open-loop scrubbers adds to uncertainty ahead of IMO 2020

 

The global debate on the potential ban of open-loop scrubbers continues to add to uncertainty in the shipping industry ahead of the implementation of the lower-sulfur cap in 2020 mandated by the International Maritime Organization.

Scrubbers — exhaust gas cleaning systems — have seen increasing uptake as the industry prepares for the IMO’s new sulfur cap, which requires vessels sailing on the high seas to burn fuel with a sulfur content of no more than 0.5%, from the current level of 3.5%, unless they are fitted with a scrubber.

Open-loop scrubbers send water used to clean emissions back into the sea while closed-loop scrubbers retain the emissions for disposal at port.

THE GLOBAL DIVIDE

However, countries remain divided over open-loop scrubbers due to environmental concerns over the discharge of polluted washwater into the sea.

As a result, countries have started banning the use of open-loop scrubbers in their port waters, necessitating either the use of closed-loop scrubbers or lower sulfur marine fuels.

In January, the Port of Fujairah said it was banning the use of open-loop scrubbers in its port waters while Singapore is set to implement a ban from January 1, 2020.

China has already banned their use within its emission control areas covering inland waters and most of its coastline.

Other countries with bans or restrictions are India, Belgium, Germany, Lithuania, Latvia, Ireland, Norway and parts of the US.

However, according to the Clean Shipping Alliance 2020, several port authorities indicated they had no intention of banning the use of open-loop scrubbers in their waters, including Japan and more than 20 ports covering Europe, the Americas, Asia and Australasia.

Furthermore, in a statement published Monday, Christopher Fee, member of the CSA 2020 executive committee, said some ports were even considering “revoking their earlier decisions to restrict open-loop scrubber use now that more academic studies have been made publicly available.”

UNCERTAINTY FOR SHIPPING INDUSTRY

According to the latest data from DNV GL, the Norwegian accredited registrar and classification society, the total number of ships in operation and on order with scrubbers fitted rose to 3,275 in May.

Of those 3,275 ships, 2,412 are retrofits and 863 newbuilds, according to DNV GL data. Some 80% of scrubbers fitted or to be fitted to ships are open-loop scrubbers while 16% are hybrid scrubbers enabling ships to operate in both open and closed loop.

Many believe scrubbers will split the shipping time-charter market into two tiers.

Under time-charter terms, the charterer hires the vessel for a specified period of time, paying the shipowner a daily hire rate. The charterer also becomes responsible for the commercial expenses of the hired vessel, including bunker and port costs.

As a result charterers may be inclined to hire vessels with scrubbers that would allow them to burn cheaper fuel, cutting their operational costs.

Hence, the potential ramifications of a ban on the most widespread type of scrubber are numerous.

The appeal of scrubbers is that they will allow shipowners to avoid paying higher prices for compliant fuel and continue to buy high sulfur fuel oil, which is expected to price considerably below very low sulfur fuel oil.

S&P Global Platts assessed FOB Rotterdam 0.5% marine fuel for Cal20 on the swaps forward curve at $512.75/mt Tuesday, compared with $317.75/mt for FOB Rotterdam for 3.5% fuel oil barges.

The uptake of scrubbers has had a very marked impact on the container industry, which currently has its own ways of dealing with increasing fuel costs.

Bunker costs in most freight deals are handled using a mechanism commonly referred to as the BAF, or Bunker Adjustment Factor.

In theory, it allows carriers to recoup the fuel expenses they incur when transporting containers. These formulas take into account numerous factors, including, but not limited to: size and fuel consumption of a typical vessel on that route, capacity utilization, distance and perhaps most importantly, the type of fuel used during the voyage.

The use of scrubbers would significantly reduce strain during the negotiation period for annual freight contracts, as the BAF system would not have to be employed, casting some already agreed annual contracts into question.

Should open-loop scrubbers be banned in a majority of ports, however, there would be a significant increase in strain between container carriers and BCOs (Beneficial Cargo Owners) during the negotiation period for annual freight contracts, as a BAF system would have to be employed in these negotiations.

With a wide and diverse range of calculations and persistent uncertainty over the pricing of 0.5% marine fuels, the confusion over the methods to mitigate increasing bunker costs will only be exacerbated by banning the majority of scrubbers in the shipping markets.

 

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(edited)

The Overlooked Factor That Could Send Oil To $50---https://oilprice.com/Energy/Energy-General/The-Overlooked-Factor-That-Could-Send-Oil-To-50.html

"Too early to call?

While it’s premature to make a forecast where global oil prices could end up amid a downturn in global economic growth, but without healthy demand, particularly in emerging markets, and within China itself, that tepid demand, even if OPEC+ tried to intervene, will put considerable downward pressure on prices. Prices could drop precipitously to the $50 price point. While Saudi Arabia still has one of the lowers oil production break-even points, the problem for Riyadh is that its fiscal break-even point is north of $75 per barrel. The IMF, for its part, said recently that the Kingdom needs oil at around at least $80-$85 per barrel to balance its books."

 

@Tom Kirkman, @ceo_energemsier, @William Edwards---too early to call?

@Marina Schwarz---For barrel's sake...let's sell some contracts.

Edited by Osama
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3 hours ago, Osama said:

---too early to call?

Last week in a different thread I already provided a quick thumbnail summary of my opinion for 2018 and 2019 Brent. 

None of the Brent oil price in my comment below should sound surprising, as I have been commenting repeatedly about the basics that I see, over and over, again and again. 

But this time I also blasted away with both barrels at Canadian oil & gas politics:

https://community.oilprice.com/topic/6067-canadas-uncivil-oil-war-78-of-voters-cite-energy-as-the-top-issue/?tab=comments#comment-52319

The oil crash in 2016 was a bloodbath, extreme price rollercoastering.

From the 40,000 foot view, 2018 and 2019 have so far been overall pretty good.  Canada is left behind though, by deliberate anti-oil & gas policies by Trudeau and his incompetent, economy-killing ilk.

I can see quite clearly that Trudeau and his Climate Change Cult + Carbon Taxes ilk will get decimated in Canada's October 2019 Federal Elections, in much the same way the Australia voters got rid of the Climate Change Cult politicians in last week's federal elections.

 

● In 2018, Brent averaged $71.  (My ad nauseum predictions last year for 2018 were for $65 Brent.  Better than I predicted.)

● In 2019, Brent so far seems to be averaging in the vicinity of $70 again, although the year is only half over so far. 

My ad nauseum predictions this year for 2019 are for $70 Brent, and so far oil prices are generally following the price arc I predicted months ago: sub-$70 Brent in the beginning of this year, then oil prices overheating to around $80 Brent by this Summer, and then Brent dropping back down in the Fall, to end up with a net annual average of $70 Brent this year.

 

If my Brent Oil price arc prediction for this year is correct, about the same time that Canada will be having their federal elections in October will be around the same time that overheated oil prices from this Summer ($80+ Brent) will start dropping back down, and Canadians in general will likely be furious that they missed out on this Summer's oil price boom due to Trudeau and his oil & gas hating, Climate Change Scaremongering + Carbon Taxing political ilk.

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Too busy being sick with a cold to care, really. Heard Saudi A in for a very hot summer so that means they'll need more barrels domestically. And Russians want to start pumping more. Basically, the usual.

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1 hour ago, Tom Kirkman said:

Last week in a different thread I already provided a quick thumbnail summary of my opinion for 2018 and 2019 Brent.  

None of the Brent oil price in my comment below should sound surprising, as I have been commenting repeatedly about the basics that I see, over and over, again and again. 

But this time I also blastes away with both barrels at Canadian oil & gas politics:

https://community.oilprice.com/topic/6067-canadas-uncivil-oil-war-78-of-voters-cite-energy-as-the-top-issue/?tab=comments#comment-52319

The oil crash in 2016 was a bloodbath, extreme price rollercoastering.

From the 40,000 foot view, 2018 and 2019 have so far been overall pretty good.  Canada is left behind though, by deliberate anti-oil & gas policies by Trudeau and his incompetent, economy-killing ilk.

I can see quite clearly that Trudeau and his Climate Change Cult + Carbon Taxes ilk will get decimated in Canada's October 2019 Federal Elections, in much the same way the Australia voters got rid of the Climate Change Cult politicians in last week's federal elections.

 

● In 2018, Brent averaged $71.  (My ad nauseum predictions last year for 2018 were for $65 Brent.  Better than I predicted.)

● In 2019, Brent so far seems to be averaging in the vicinity of $70 again, although the year is only half over so far. 

My ad nauseum predictions this year for 2019 are for $70 Brent, and so far oil prices are generally following the price arc I predicted months ago: sub-$70 Brent in the beginning of this year, then oil prices overheating to around $80 Brent by this Summer, and then Brent dropping back down in the Fall, to end up with a net annual average of $70 Brent this year.

 

If my Brent Oil price arc prediction for this year is correct, about the same time that Canada will be having their federal elections in October will be around the same time that overheated oil prices from this Summer ($80+ Brent) will start dropping back down, and Canadians in general will likely be furious that they missed out on this Summer's oil price boom due to Trudeau and his oil & gas hating, Climate Change Scaremongering + Carbon Taxing political ilk.

Very interesting analysis Mr. Kirkman!!!!

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1 hour ago, Marina Schwarz said:

Too busy being sick with a cold to care, really. Heard Saudi A in for a very hot summer so that means they'll need more barrels domestically. And Russians want to start pumping more. Basically, the usual.

I wish you quick recovery!!

This was an interesting point...also KSA would not repeat the mistake (higher prices but losing market share) so I'd agree and have this feeling that they will increase production. However, Khalid Al Falih has said that production cuts will continue. WAIT FOR TRUMP'S TWEET.

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Thanks!

49 minutes ago, Osama said:

also KSA would not repeat the mistake (higher prices but losing market share)

I don't know, it's not like they are full of options.

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Putin’s $40 Oil Lie--- https://oilprice.com/Energy/Energy-General/Putins-40-Oil-Lie.html

 

From the article < But Russia is not as bulletproof to another oil price crash as Putin claims, especially when one considers his geopolitical ambitions for the country. The Kremlin may be able to balance its government budget with $40 per barrel oil, but it’s highly unlikely it can do the same for its current account. The country’s foreign exchange reserves increased just $36 billion to $468 billion last year with Brent crude averaging $71 per barrel, and this is despite $8.8 billion of foreign direct investment on a net basis. As Cyril Widdershoven wrote in The Bearish Threat Within OPEC, “Putin’s dream of a Pax Russia cannot be built on $40 per barrel, not even on $60-65 per barrel.” >

 

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