World Bunkering Magazine Feature : Middle East - Challenging times

Autumn 2011

Political instability has affected several parts of the Middle East but the region's bunker industry carries on.

Recent political turmoil in parts of the Middle East may have captured the headlines but it was clear at the Seventh International Fujairah Bunkering and Fuel Oil Forum (Fujcon 2011) that the bunkering industry has so far been largely unaffected.

There are immediate and also long-term challenges ahead, but largely of a technical and commercial nature. At Fujcon, Fereidun Fesharaki sketched out the fundamental market changes that will affect the East of Suez market. Dr Fesharaki said that additional conversion and treating capacity coming on stream should provide support to fuel oil prices but that the fuel oil market is expected to tighten in the East of Suez.

He observed that Asia Pacific net imports are projected to increase by 34% from the current level to 1.3 million b/d by 2015. In contrast, net exports from the Middle East are projected to decline by over 80% to 50 kb/d over the same period due to growing domestic demand. There will be some inter-regional movements of fuel oil to correct some of the imbalances in the East of Suez.

This will be happening against a background of global shipping adjusting to increasingly strict sulphur limits. This raises some interesting questions as to where fuel, and particularly low-sulphur bunkers, will be sourced in the Middle East.

In the meantime, however, business carries on and it emerged during Fujcon that Fujairah is handling much higher volumes than previously thought. The bunker hub’s harbour master Tamer Masoud told Platts that bunker sales reached 24 million tonnes in 2010. Capt Masoud added that demand for bunkering was expected to grow by about 4% a year. Fujcon’s chairman, and Fujairah’s former Minister of Environment and Water, Mohammed Saeed Al Kindi, ran through the Emirate of Fujairah’s commitment to continued progress, to build on sustained investment “based on realistic forecasts and expectations”.

He noted that ship calls had grown from 5,000 in 2000 to just under 12,000 calls in 2010. He did not mention actual figures but said: “Fujairah rightly ranks, alongside Singapore and Rotterdam, as one of the Top Three International Bunkering locations.” As a maritime logistics hub, underpinned by the efforts of a variety of professional and independently-owned companies, our abilities, experience and levels of service are second to none. While Fujairah has developed so far almost entirely as a bunkering hub, this is beginning to change. Dr Al Kindi pointed out that the government of Abu Dhabi was about to complete and make operational the Abu Dhabi Crude Oil Pipeline Project (ADCOP). The project involves building a 360 km pipeline from the Habsham Fields to Fujairah, constructing 12 million barrels of storage and three single point mooring buoys for deep-water loading. He said: “It is estimated that somewhere in the region of a third of the UAE’s crude exports will use this route, neatly relieving congestion at the Straits of Hormuz and providing a viable alternative to entering the Gulf. The implementation of plans for the logical development of a refinery facility to complement this project is now taking place.”

Private investment is also adding to the port’s storage facilities. Public and privately funded projects are together expected to increase the number of storage tanks from 121 at the beginning of this year, capable of holding about 3 million cu m oil, to 262 tanks, representing a total storage capacity of over 7 million cu m by the end of 2012.

Fujairah is first and foremost an anchorage port but it has greatly increased the number of alongside berths in the past decade. In 2000 there were only 1,500 metres of main quay. It now has just fewer than 4,820 metres of quay of which 2,340 metres are dedicated oil berths. Contracts are soon to be awarded for a minimum of 1,000 metres of additional oil berths while a master plan has been drawn up for an additional 11 berths to be implemented in stages as required.

The big story though is the continuing transformation of Fujairah into an increasingly mature and diverse maritime hub Fujairah is not the only bunker port in the region, far from it, and for many containerships Jebel Ali Port in Dubai, and the largest container port in the Middle East, is the obvious place to take on fuel. Recently, Shell Marine Products began supplying at Jebel Ali. The company said in a statement that the move further reinforced Shell’s “selective growth strategy” by extending its network of ports in the Arabian Gulf region.

Shell said that it was the only global integrated energy company that has set up operations at Jebel Ali Port. “The strategic location of Jebel Ali Port, a fast-growing container port, puts Shell in an excellent position to support liners operating in the Middle East,” said Richard Jory, General Manager, Shell Markets Middle East Limited in Dubai. Shell acquired several storage oil tanks adjacent to one of the main terminals at Jebel Ali Port, and also set up a high-capacity bunker barge to deliver fuels and services that meet international barging standards to customers. The 8,000-tonne barge, which was previously deployed in Singapore, is one of the first vessels to use mass flow meters in the Middle East. Through the introduction of the latest flow meter technology, Shell says that it aims to provide increased transparency in the quantity measurement of marine fuels delivery.

Koh Chaik-Ming, general manager, Asia Pacific and Middle East, Shell Marine Products, said: “We are confident that Shell’s expertise and operational excellence will boost our presence as one of the leading marine fuel and lubricants providers in the Middle East. On top of the assurance that our products are always vetted according to rigorous standards, the use of mass flow meter technology now brings improved accuracy and transparency to the fuel delivery process.” Hinting of further moves in the region, Shell said: “The Middle East remains one of the key growth markets for Shell’s marine fuels and lubricants business, and Shell will continue to assess the feasibility of expanding bunker operations at other locations in the Gulf region.”

Despite political uncertainty in some places and, currently, intense pressure on margins, the mood among players in the market is generally optimistic, at least for the long term. At Fujcon, Dr Al Kindi told delegates: “Despite the ongoing global economic crisis, I can assure you that the United Arab Emirates, as a well established leading commercial centre in the Middle East, will continue to play an important role as a major financial link between the East and the West. Our structural policies are put into place for maintaining the stability of the real economy.”

Zain Jamal, senior trader and chief operating officer at UAE based trader Asean International told World Bunkering: “Since the turmoil following the Egyptian uprising and the ongoing Libyan coup, starting March this year, crude prices have drastically fluctuated, causing historic surges. Consequently, this has left many suppliers, traders and buyers still hoping for a clear understanding of the bunker price trends.”

However, Mr Jamal noted that, given the sky rocketing prices and plummeting confidence of industry players, the demand side did not change as much. What has happened though is that payment issues shave arisen as pressure mounts on some shipping companies. “In time,” says Mr Jamal, “this can be seen as factor changing the bunkering industry and the direction in which organizations choose to develop their client base further.”

“Nevertheless,” he says, “considering the key factors that influence the economics of the bunker industry, it does indeed carry on. In fact now, due to the very recently declining global oil prices, trade and the consumer economy on the whole is slowly picking up. This is particularly visible in the UAE. The proof is a growing container terminal in the heart of the UAE and the steady rise of 380 cSt consumption in the port of Jebel Ali.”

Asked about the widely reported pressure on margins, the CEO of Fujairah-based trader FNSA Fuels, SK Bhasin, told World Bunkering margins are very much an individual matter for each company. He added: “There is no doubt that competition has increased but the margin for us as a trader is still the same as in previous years.” Referring to price competition from Singapore, Capt Bhasin commented that Singapore competed with Fujairah when a vessel had enough bunkers to reach the South East Asian bunker but added: “What choice will the vessel have if it is not heading in that direction?”

As for the effect of the European Emission Control Areas, Capt Bhasin said that so far there has only been limited demand for low-sulphur fuel oil and gas oil. He added that FNSA had had 2010 and looked forward positively to the remainder of this year.

Mehran Ghobadian, sales and marketing director for UAE-based BGK Bunkers, said there had been few changes to the market over the past few months, with fierce price competition still prevailing. He did though pick out one factor that had boosted Singapore compared to the Middle East. He said that, because of intense competition in the tanker market, many tankers sailing west from Asia do not have a charter fixed until they have passed Singapore. Many bunker at Singapore in case they are chartered to load in Africa.

Added 04 October 2011 in the category: Autumn 2011
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