Friday, May 25, 2018

Vessel Sulfur cap chaos coming - ICS

IMO sets 0.5% sulfur cap

The International Chamber of Shipping (ICS) has warned of ‘chaos and confusion’ unless the IMO urgently resolves some serious issues concerning the implementation of the forthcoming 0.5% sulfur in marine fuel cap.
This was the principal conclusion of ICS’s member national shipowner associations’ AGM held in Hong Kong last week.
Speaking from Hong Kong, ICS chairman, Esben Poulsson, said: “The shipping industry fully supports the IMO global sulfur cap and the positive environmental benefits it will bring, and is ready to accept the significant increase in fuel costs that will result. 
“But unless a number of serious issues are satisfactorily addressed by governments within the next few months, the smooth flow of maritime trade could be dangerously impeded. It is still far from certain that sufficient quantities of compliant fuels will be available in every port worldwide by 1st January, 2020. And in the absence of global standards for many of the new blended fuels that oil refiners have promised, there are some potentially serious safety issues due to the use of incompatible bunkers.
”Governments, oil refiners and charterers of ships responsible for meeting the cost of bunkers all need to understand that ships will need to start purchasing compliant fuels several months in advance of 1st January, 2020. But at the moment no one knows what types of fuel will be available or at what price, specification or in what quantity. 
“Unless everyone gets to grips with this quickly, we could be faced with an unholy mess with ships and cargo being stuck in port,” he stressed.
ICS emphasised that governments will need to make significant progress on these issues at a critical IMO meeting in July regarding the impending global sulfur cap, to which ICS – in co-operation with other international industry associations – will be making a number of detailed technical submissions to assist successful implementation of what ICS describes as a regulatory game changer.
The AGM endorsed its support for the historic IMO agreement adopted in April, 2018 on a comprehensive strategy to phase out international shipping’s CO2 emissions completely. This includes targets to improve the sector’s CO2 efficiency by at least 40% by 2030 and 70% by 2050, and a very ambitious goal to cut the sector’s total GHG emissions by at least 50% by 2050, regardless of growth in demand for maritime transport.
Member associations agreed to contribute constructively to the immediate development of additional IMO regulations that will start to have a direct impact on further reducing international shipping’s CO2 emissions before 2023, in line with the new IMO strategy. 
They agreed that ICS should come forward with detailed proposals before the next round of IMO discussions in October on reducing GHG emissions from shipping.
However, ICS members expressed serious disappointment at the apparent intention of the European Union to press on with the implementation of a regional CO2 reporting system at variance to the global system already agreed by IMO, despite having given an undertaking to align the MRV regulation with the global regime.
”We are still waiting to see the final recommendations from the European Commission following a recent consultation,” said Poulsson. “But the industry has made clear its total opposition to the publication of data about individual ships using abstract operational efficiency metrics that bear no relation to CO2 emissions in real life and which will be used to penalise shipowners unfairly.
”Anything less than a full alignment with the IMO CO2 data collection system will be seen as a sign of bad faith by many non-EU nations who recently agreed to the IMO GHG reduction strategy, precisely to discourage such unilateral measures which risk seriously distorting maritime trade and global shipping markets,” he concluded.
In addition, the ICS AGM, which was hosted by the Hong Kong Shipowners’ Association, re-elected Poulsson (Singapore) as chairman for another two years.

Thursday, May 24, 2018

China's independent refiners embrace old friend fuel oil as taxes, rising crude, bite margins

China’s independent oil refiners are once again using fuel oil to feed their plants as stricter tax enforcement and rising crude oil prices have squeezed their margins. 

These independent refiners, nicknamed teapots, buy nearly one-fifth of China’s crude imports and any reduction in their crude purchases would cap demand in what is now the world’s biggest oil importer. 

Two independent refiners based in the eastern province of Shandong, home to most of China’s teapots, have each bought an 80,000 ton cargo of straight-run fuel oil (SRFO) cargo, together totaling about 1.02 million barrels, for April and May delivery, according to three traders with knowledge of the deals. 

One cargo is arriving from Abu Dhabi and the other from Singapore, said one of the sources, an executive with a western trader involved in the supply talks. 

The independents had primarily used straight-run fuel oil, the residue left after crude oil has been initially distilled in a refinery, as a feedstock for their plants since it cost less than crude oil and was taxed less. However, in 2014, the Chinese government raised taxes on fuel oil imports. But, that was followed in 2015 by teapots winning licenses to import crude. 

Straight-run fuel oil consumption slumped as the refiners bought crude oil, which yielded a higher volume of higher-value products such as gasoline and diesel than the SRFO when processed and boosted profit margins for the teapots. China remained a large buyer of so-called cracked fuel oil as fuel for ships. [O/CHINA3] 

However, starting on March 1, Beijing enacted new tax rules that more rigidly enforced on the teapots the collection of a $38 per barrel gasoline consumption tax and $29 per barrel tax on diesel. 

Combined with a recent surge in crude oil prices to their highest since 2014, the higher tax collection has crushed the independent’s margins. That has prompted the renewed interest in lower-priced fuel oil. 

To view a graphic on China's crude oil imports, click:
Reuters Graphic
“Buying SRFO may not necessarily save tax cost as the buyer needs to pay up-front the (fuel oil) consumption tax, but obviously plants are exploring the old trade as the government’s tax stick is really a hard one this time,” said the oil trading executive. 

Processing the SRFO does have an added tax benefit, however. The independents can deduct the tax of about $31 per barrel paid on their fuel oil imports from the consumption tax they are required to collect on their gasoline and diesel sales, said an official with an independent plant seeking fuel oil.
“Processing fuel oil gives better margins than (refining) crude oil as plants can get tax deducted (when selling refined fuel) later,” the official said. 

The source, who declined to be named as he is not authorized to talk to press, added that his plant expected margins to be negative if they only processed crude oil. 

The lower margins have resulted in the teapots cutting their run rates. 

In early May, the independent refiners operated at only 63 percent of their processing capacity, the lowest since February during the Lunar New Year break, according to a weekly survey of 38 plants by Shandong-based consultancy Sublime China Information. Planned maintenance was also a factor, said Gao Lei, an analyst with Sublime. 

“We’ve seen less impact (from the tax measures) on import volumes as state-run plants increase runs, but more on teapot margins,” said Seng-Yick Tee, of consultancy SIA Energy, 

“They are definitely making less money now than before.” 

To view a graphic on China’s teapot refinery runs rate, click:
Reuters Graphic
Additional reporting by Roslan Khasawaneh and Florence Tan in Singapore; Editing by Christian Schmollinger

Wednesday, May 23, 2018

Americans face high gas prices, crowded roads this Memorial Day weekend

  • A record number of Americans are planning to travel this Memorial Day weekend, despite high gas prices.
  • Gas prices currently average $2.93 per gallon nationally and could climb this weekend.
  • There are certain days and times you may want to avoid the roads and airports in major U.S. cities. 
If you plan to hit the roads this Memorial Day weekend, get ready to pay more at the pump.
Gas prices are poised to be the highest for the holiday weekend since 2014, according to travel organization AAA. Those prices averaged $2.93 nationally per gallon as of Tuesday.

"Gas prices are nearly 60 cents more expensive than last year and will likely jump a few more pennies heading into Memorial Day weekend," said AAA spokeswoman Jeanette Casselano. "As nearly 37 million Americans travel by car this weekend, motorists will find gas for $3 or more at 25 percent of all gas stations across the country."

Those costs are not likely to deter many travelers, Casselano said, many of whom booked their trips months in advance.

A record number of Americans — more than 41.5 million — are expected to take to the roads, tarmacs and water on the weekend that kicks off summer, according to research released by AAA earlier this month.

That's the highest number of travelers in more than 12 years and about a 5 percent increase from last year.

The good news for travelers is that airfares have fallen 7 percent from last Memorial Day to an average of $168 for a round-trip flight for popular domestic routes, AAA said.
A daily car rental will cost an average of $59, about 11 percent cheaper than last year and the lowest rate in the past four years.

The busiest days for travel over the holiday weekend are expected to be this Thursday and Friday.
Here are the worst days and times to travel, according to global analytics company INRIX, which partnered with AAA for the study.

Worst times to travel

Metro area Worst day for travel Worst time for travel Delay multiplier of normal trip
Atlanta Thursday, May 24 3:30 - 5:30 p.m. 1.6x
Houston Thursday, May 24 4:30 - 6:00 p.m. 1.5x
Boston Thursday, May 24 4:30 - 6:30 p.m. 1.8x
Washington, D.C. Thursday, May 24 4:30 - 7:00 p.m. 2.3x
San Francisco Friday, May 25 3:00 - 5:30 p.m. 1.7x
Los Angeles Friday, May 25 3:30 - 5:30 p.m. 1.9x
New York Friday, May 25 3:30 - 6:30 p.m. 2.7x
Detroit Friday, May 25 4:00 - 5:30 p.m. 1.5x
Chicago Friday, May 25 4:00 - 6:00 p.m. 2.1x
Seattle Friday, May 25 4:00 - 6:00 p.m. 1.8x 

The report also looked at the top Memorial Day destinations based on advance travel bookings made through AAA.

Here are the cities that will get more crowded over the four-day weekend.

Top Memorial Day destinations

Rank City
1 Orlando, Florida
2 Seattle, Washington
3 Honolulu, Hawaii
4 Las Vegas, Nevada
5 Anchorage, Alaska
6 Phoenix, Arizona
7 Anaheim, California
8 Boston, Massachusetts
9 Denver, Colorado
10 New York, New York
The popularity of Seattle and Anchorage as destinations point to the popularity of Alaskan cruises, Johnson said.

Tuesday, May 22, 2018

Forget About Oil at $80. The Big Rally Is in Forward Prices

opec oil ministers discuss caps

Iraq Prime Minister Haider al-Abadi left, listens to Oil Minister Jabar Ali al-Luaibi, right, during the Iraq Energy Forum in Baghdad, Iraq, Wednesday, March 28, 2018. Iraq says OPEC will decide by the end of this year whether to extend production cuts and by how long.
AP/Karim Kadim

  • Brent five-year forward prices outpace gains in spot prices
  • Investors question the ‘lower for longer’ oil price mantra

Brent crude oil grabbed all the attention after spot prices hit $80 a barrel last week. And yet, almost unnoticed, a perhaps more important rally has occurred in the obscure world of forward prices, with some investors betting the "lower for longer" price mantra is all but over.

The five-year Brent forward price, which has been largely anchored in a tight $55-to-$60 a barrel range for the past year and a half, has jumped over the last month, outpacing the gains in spot prices. It closed at $63.50 on Friday.

"For the first time since December 2015, the back end of the curve has been leading the complex higher," said Yasser Elguindi, a market strategist at Energy Aspects Ltd. in New York. "It seems that the investor community is finally calling into question the ‘lower for longer’ thesis."

Bob Dudley, the chief executive of oil giant BP Plc, coined the "lower for longer" mantra in early 2015, warning of a protracted period of cheap crude. He later clarified that he meant "lower for longer, but not forever."

More to Run

While spot prices fluctuate wildly, often driven by geopolitics such as U.S. sanctions on Iran, the five-year forward usually trades in a narrower range, anchored by longer views about future supply and demand.

Over the past three years, long-dated prices had been weighed down by the belief the growth in U.S. shale production, combined with the adoption of electric vehicles, would keep prices under control.

Investors are now questioning that hypothesis, pushing up forward prices. Over the past month, Brent five-year forward futures gained 11 percent, compared with a 6.8 percent increase in futures for immediate delivery.

"We think there is more to go for the longer date contracts,” SEB chief commodities analyst Bjarne Schieldrop said. “This will send very positive price signals into the whole oil space with higher confidence, optimism and evaluations as a likely consequence."

Demand Surprise

There are several reasons for the sudden surge in forward prices. Oil consumption is expanding much faster than anticipated, adding growth in two years that would normally take three. At the same, oil investment has dropped significantly over the past three years, particularly in projects that take longer to develop such as ultra-deep water offshore, raising doubts about future supply growth despite the gains in Texas, North Dakota and other U.S. shale regions.

Moreover, a change in marine fuel oil specifications by 2020, which should increase significantly the demand for diesel-like refined products, is further reinforcing the belief among some investors that the oil market will be tighter than expected in the future.

The buying has sparked a rally in later-dated contracts in the past week-and-a-half that traders say is even more impressive than Brent’s march past $80. The grade for delivery in December 2022 has surged 10 percent since to beginning of the month to nearly $64 a barrel. The December 2023 has risen above $63 a barrel.

The higher forward prices are also catching the attention of some equity investors as they usually use longer-dated prices to value energy companies.

Despite the rally in forward prices, oil exploration and production companies, which typically hedge their production further out in the curve, have remained reticent to buy in, according to John Saucer, vice president of research and analysis at Mobius Risk Group in Houston. Oil producer selling typically puts pressure on the back of the curve.

Investors aren’t just buying outright long-dated futures, but also betting through the options market on much higher prices in the early part of next decade by buying call options. The contracts, which give investors the right to buy at a predetermined price, are popular among commodities hedge funds.
Call options that would profit from Brent rising to $130 a barrel by the end of 2020 traded 2,000 times on Friday. That follows a similar amount of $100 contracts for the same period trading over the past two weeks.

“The war premium at the front of the market masked the fact that future significant demand increases and questions over supply levels equate to higher prices down the line,” said Richard Fullarton, founder of commodity focused hedge fund, Matilda Capital Management Ltd.

— With assistance by Jessica Summers, and Sheela Tobben

Monday, May 21, 2018

Conoco Aims To Seize Oil Cargoes Near Citgo's Aruba Terminal

Image may contain: cloud, sky and outdoor

U.S. oil company ConocoPhillips has brought new court actions to seize two cargoes of crude and fuel near a terminal operated by PDVSA subsidiary Citgo Petroleum in Aruba, the Aruban government confirmed on Tuesday.

Conoco is moving aggressively to enforce a $2 billion arbitration award over the 2007 expropriation of two oil projects in Venezuela, creating unease in the Caribbean, where many islands depend on fuel produced by state-run PDVSA.

The Aruba refinery has said that an embargo on two Citgo oil cargoes was introduced last night. Citgo is claiming the crude as its own, and is fighting at court to demonstrate the product is not PDVSA’s,” said Prime Minister Evelyn Wever-Croes in a statement. “Independent of any outcome, this is not going to affect Aruba,” she said.

The cargoes seized included 500,000 barrels of crude oil on the Grimstad and about 300,000 barrels of jet fuel, gasoline and diesel on the Atlantic Lily, according to a source at the Aruba terminal and Thomson Reuters vessel tracking data.

Citgo, the U.S. refining unit of PDVSA, has leased the 209,000 barrel-per-day (bpd) Aruba refinery and its 13 million-barrel terminal from the government since 2016 to store Venezuelan and other crudes for supplying its U.S. refineries.

As the refinery remains idled since 2012 while a major refurbish project is underway, Citgo regularly supplies the island with imported fuel.

Wever-Croes told journalists government officials and the management of the refinery were organizing a contingency plan to avoid a situation similar to Curacao and Bonaire, where inventories were blocked by Conoco’s legal actions.

No fuel shortages have been reported in the Caribbean but officials are trying to import from other sources.

Conoco in recent days seized the 10-million-barrel BOPEC oil terminal owned by PDVSA in Bonaire and fuel inventories at the 335,000-bpd Isla refinery operated by the Venezuelan firm in Curacao. Both islands are in talks with Conoco to free fuel for domestic consumption.

What belongs to Citgo belongs to PDVSA, but a judge has to rule on it,” Wever-Croes said.

Daren Beaudo, a Conoco spokesman, said on Tuesday that the company sent representatives to the Caribbean this week to meet with local officials and address their concerns over Conoco’s efforts to enforce the arbitration award by the International Chamber of Commerce (ICC).

PDVSA did not immediately respond to a request for comment.

Last week, Curacao officials said the Isla refinery would have to halt refining operations once its available inventories were exhausted.

It is PDVSA that has failed to honor our award by ignoring the judgement of the ICC tribunal and other local court orders,” Beaudo said in a statement.

Conoco Chief Executive Ryan Lance on Tuesday said the firm is far from recovering all of the $2 billion ICC award. He said legal actions have been brought in Hong Kong and London to have the ruling recognized following a similar move last month in a New York court.

Friday, May 18, 2018

Tanker Markets - VLCC recycling continues

Image result for vlcc ship breaking pakistan

Following the official reopening of the Pakistani market for tankers, the offloading of the plethora of unsold tanker/VLCC tonnage continued at pace last week, as interested Pakistani Buyers eagerly filled their plots. 
There were further VLCC sales concluded, gradually bringing the total number of units sold through 2018 towards the 30 mark, a figure which looks likely to be reached before the end of May - not even halfway through the year - GMS said in its weekly report.

There is a noteworthy dissimilarity in pricing a VLCC versus MR/Aframax/Suezmax types, as very few end buyers in the Indian sub-continent are capable of opening such large US dollar value Letters of Credit (LC).

Under the current market conditions, this can easily amount to an around $18 mill LC on roughly 40,000 ldt unit, GMS said.

Given the limited number of capable end buyers who are able to do this (translating into a lower demand), VLCCs are discounted far more than the average tanker for which, a greater number of buyers are open/available to negotiate.

Moreover, VLCCs usually take between six to eight months to fully recycle, resulting in a significant exposure for the respective buyer who will likely endure multiple market peaks & troughs over this period. Only a recycler with a strong financial standing is generally willing/able to withstand these fluctuations.

Pakistan and Bangladesh - both of which have reached saturation point - tend to be the main buyers for large ldt tonnage, while Indian recyclers prefer smaller vessels that can be quickly dismantled, thus minimising there market exposure, due to the generally volatile nature of steel plate prices and currency fluctuations.

Finally, those owners who opt to sell their large ldt ships into India for Hong Kong Convention green recycling, such as Ridgebury Tankers last week, there is normally a large discount to contend with, compared to conventional recycling, GMS said.

The sale of the 1999-built VLCC ‘Ridgebury Pioneer’ for a reported $408 per ldt on the basis of ‘as is’ Khor Fakkan, gas free and with 300 tonnes of bunkers ROB was said to have been concluded at a $500,000 discount.

Other deals reported by brokers included the 2000-built VLCC ‘Greek Warrior’ sold to undisclosed interests for $430 per ldt, ‘as is’ Singapore, gas free for man entry and with 480 tonnes of bunkers ROB and the 2001-built VLCC ‘Silver Glory’ for $436.5 per ldt with delivery Indian sub/cont.

The 1997-built Aframax ‘Oil Runner’ was said to be sold to undisclosed interests for $470 per ldt, ‘as is’ Khor Fakkan with 70 tonnes of bunkers ROB and with various equipment, including two propellers.

In addition, the 1999-built LR1 ‘Amazon Guardian’ was reported committed for $455 per ldt to Pakistan recyclers, ‘as is’ Khor Fakkan, gas free for hot works and with 400 tonnes of bunkers ROB.
Finally, the 1991-built MR ‘Divine Mercy’ was reported sold to Pakistan interests for an undisclosed price.

GMS has supported the publication of a booklet entitled - ‘The Recycling of Ships’  - written by consultant Nikos Mikelis.

It contains a list of the world’s recycling facilities and chapters on the economic drivers behind the decision to recycle, sale & purchase with end-of-life ships, the Hong Kong Convention, EU Ship Recycling Regulation and standard improvements within the ship recycling industry.

The booklet is available to download as a pdf at

Thursday, May 17, 2018

More Pain May Come for Nigeria's Loss-Making Oil Behemoth

  • Abuja-based NNPC made operating losses of $246 million in 2017
  • Financial woes contrast with state firms from Norway to Saudi
It’s meant to be a cash cow, but the state oil company of Africa’s biggest producer is bleeding money.

Nigerian National Petroleum Corp., the Abuja-based behemoth that dominates the OPEC member’s energy industry, has made losses for at least the last three years, statements on its website show. It will probably register another in 2018, according to Ecobank Transnational Inc., as its refineries and fuel-retailing arm fail to generate profit.

The pain for NNPC, which produces oil and natural gas in partnership with Royal Dutch Shell Plc, Exxon Mobil Corp. and Chevron Corp., comes even as national energy firms from Norway to Saudi Arabia thrive with crude prices recovering from their crash in 2014. And it lays bare President Muhammadu Buhari’s difficulty in fulfilling his pledge to modernize a company that’s been a byword for inefficiency and opacity since its creation in the 1970s.

With oil accounting for more than half of government revenue and 90 percent of export income, the company is a primary target of those seeking access to state funds and is vulnerable to political interference.

Tensions erupted last year between Emmanuel Kachikwu, the chairman of NNPC, and Maikanti Baru, the managing director, over how more than $20 billion of contracts were agreed.

“The very public power tussle shows the difficulties in reforming the organization,” Malte Liewerscheidt, an analyst at Teneo Intelligence, said in an email from Abuja. Until a pending but long-delayed law designed to overhaul the petroleum sector and split up parts of NNPC comes into effect, “political considerations will continue to interfere with vital business needs,” he said.

The state oil company doesn’t publish full financial results, though it releases limited numbers on its operating performance. These include earnings for core units, but exclude items such as taxes and dividends from a 49 percent shareholding in Nigeria LNG Ltd., one of the world’s biggest exporters of liquefied natural gas.

Those numbers show that NNPC made an 82 billion naira ($246 million) operating loss in 2017. That was an improvement from 2015 and 2016, but still far from the operating income it budgeted for of 600 billion naira. In each of the past three years, NNPC forecast a profit and finished in the red.

Higher oil prices have boosted exploration and production, the most profitable part of NNPC and which earned almost $600 million in 2017. But its ill-maintained refineries, which operate at a fraction of their combined capacity of 445,000 barrels a day, lost about $100 million. Even bigger shortfalls came in the fuel-retailing business, which has to contend with the government’s cap on gasoline prices, and the corporate headquarters unit, which lost almost $400 million, more than any other part of the company.

While NNPC’s extraction business will probably improve this year, the refineries and retailing subsidiaries will continue to be a drag, especially if the government maintains the ceiling of $0.40 a liter for gasoline, according to Ecobank. The bank predicts that NNPC will make an operating loss of as much as 80 billion naira in 2018.

Ndu Ughamadu, a spokesman for NNPC, said that while the refineries are struggling to make money, the company’s overall performance will probably be better this year. He declined to say if NNPC was forecasting a return to profit. It made a loss of 1.6 billion naira in January, the latest month for which results have been released.

The problems at NNPC offset the benefits to Nigeria’s struggling economy of Brent crude’s more than 50 percent rise in the past year to almost $80 a barrel. Still, there have been improvements within the company and the country’s overall oil sector, according to Moody’s Investors Service.
NNPC’s reduction of debts owed to joint-venture partners may help increase Nigerian oil production to around 2.5 million barrels a day by 2020 from 2 million today, said Aurelien Mali, an analyst at Moody’s.

“The clearing of arrears is a huge step forward that will unleash extra investment from international oil companies,” Mali said in an interview in Lagos, the commercial capital, on May 9. “NNPC is key for the government. It’s going in the right direction.”

It has some catching up to do. Its financial position contrasts with those of state oil firms in other major producers. Saudi Aramco is gushing cash, making net income of $34 billion in the first half of 2017 alone, according to numbers seen by Bloomberg. Brazil’s Petrobras, Mexico’s Pemex and Norway’s Statoil all improved their results in 2017 and made operating profits. So did Angola’s Sonangol in 2016, when it last published data.