Insight Conversation: Tyler Baron, Minerva Bunkering

Tyler Baron is CEO of Minerva Bunkering, a wholly-owned subsidiary of Mercuria Energy Group, one of the largest privately-owned energy and commodities companies in the world. He talked to Claudia Carpenter and Surabhi Sahu about the prospects for bunker demand, industry consolidation and the future of bunker fuels amid the energy transition.

How do you see bunkers and bunker demand shaping up for 2021?

We're expecting a continued recovery in 2021. Our volume and inquiry flow troughed late last summer and has recovered since.

If we look at 2021 going forward, by line of shipping sector, container demand has had the healthiest recovery from the COVID trough. Industry-wide TEU volume I believe ended the year down less than 2%, and consumer spending on products has continued to be very strong on the back of fiscal stimulus and reduced ability to spend on services and leisure. So we think that remains supportive as we go into 2021.

In dry bulk, we also see positive trends(opens in a new tab). Commodity prices driving the major dry bulk trades have continued to rally, which is supportive of ton mile growth, and trends in iron ore and steel production remain positive so we think that looks like a recovery story in 2021.

On the tanker side, things continue to be depressed. We have seen continued restraint from OPEC production growth(opens in a new tab) but with rising crude prices, naturally that is supportive for production growth in other basins, some of which are bigger drivers of ton mile growth. So on balance we think demand should continue to recover in 2021 as COVID-19 restrictions ease and the impact of what has been massive fiscal stimulus programs continue to trickle through the global economy.

How big is the recovery going to be? Can you indicate a range in bunker fuel volume?

From our statistics, we see global volume declines close to 10% last year. So whether we will get back to 2019 levels in 2021, it remains to be seen. But I think we will recover a good deal of what was lost in 2020.

We do have higher flat prices and a much greater focus on reducing emissions intensity from shipping, so both of those are driving a heightened focus on fuel efficiency. I think the macro recovery is supportive. I think we'll continue to see some headwinds to bunker volume growth in coming years just from a greater focus on fuel efficiency.

Were you surprised by Singapore's bunker sales last year?

We were not surprised to see the strength of Singapore in 2020(opens in a new tab). Singapore is a transparent market and a level playing field such that leveraging economies of scale effectively is key to competing and serving clients well.

With lower deviation costs both due to lower bunker prices and lower freight rates, it makes sense that shipping operators will call Singapore to take bunkers to the greatest extent possible.

What the Maritime & Port Authority of Singapore has done since introducing TR 48 and then SS 648 [regulations on mass flow metering] is they've created a very balanced and transparent market where customers prefer to take bunkers.

Even though it is a more expensive cargo market that requires imports, the total cost of delivered bunkers is attractive to owners given the efficiency and transparency of the market. In an environment where vessels can deviate and take larger stems, it makes sense that a market like Singapore will attract market share. That's what we saw in 2020.

What are your company plans, given it's your one-year anniversary in Singapore?

We like the Singapore market because with that transparency comes the ability to leverage economies of scale and our lower cost structure to serve our customers. We've been pleased with how our volumes have progressed. We made certain projected volume commitments to the Maritime and Port Authority of Singapore as part of obtaining our license and we've exceeded those commitments.

We also own and operate our vessels in Singapore, so our fleet has continued to grow from two barges to four to five. We also have purchased a floating storage unit which will be arriving in the market in the next couple of weeks to further support the growth that we see in Singapore going forward.

How does that outlook compare with Fujairah?

We've introduced the Advanced Delivery Platform [a digital bunker fuel delivery system offering digital documentation on both supplying and receiving vessels] to Fujairah. We think that represents a very significant differentiated service offering in the market.

Fujairah is a sizable market but one in which we have more of a targeted strategy of serving customers focused on service transparency, fuel quality, and maximizing the total value received for their bunkers spend. It was logical for Fujairah to be one of the first markets in which we introduced the ADP.

We own fixed assets in the market so it makes sense for us to leverage those assets to best serve our customers. We expect continued growth in Fujairah but believe it will be on the back of the ADP, offering a very much differentiated service.

Has Fujairah met your expectations? Do you expect to see any benefit or upturn in business because of the introduction of Murban futures(opens in a new tab) for delivery in Fujairah?

It has met our expectations in 2020. Fujairah is a big bunkering market. Our business will be driven more by market share rather than market growth over the next couple years.

Has the Fujairah market fully recovered from the loss of several bunker suppliers last year?

It remains a fairly fragmented market with a number of local independent suppliers. While there was maybe a moderate short-term disruption, I don't think it materially changed the structure of the market.

Do you see consolidation being a continued theme in the industry, and as a company are you looking to acquire smaller players, or are you focused on organic growth and simply barge feed expansion on the physical supplier side?

We think customers are continuing to demand more from their suppliers and we think bunker markets are continuing to evolve such that economies of scale matter. We think both of those are long term trends, secular trends that are supportive of ongoing consolidation.

We're agnostic as to whether we grow organically or inorganically. If we look over the last year, we opened up new markets organically, we also made an acquisition of a bunkering business in Panama which was an efficient way for us to get into that market. We're opportunistic, but we're agnostic as to organic vs inorganic.

Are you planning to do more bunkers in Singapore?

We see continued expansion in Singapore because we think it plays to our strengths in terms of leveraging economies of scale. Whether we grow by continuing to acquire more physical assets, or time chartering, that's just driven by the relative economic returns to asset ownership.

Are all five of your bunker tankers in Singapore owned by Minerva or chartered?

Four are owned by Minerva. We have a fleet management division which is called MM Marine.

Are you bullish on any particular alternative low-carbon fuel, given all the choices, including hydrogen, ammonia, methanol…? What is your fuel of choice to meet GHG emissions targets?

We think in terms of phases on the path toward decarbonization. I think it's too early for us to pick a particular future fuel because there are still too many questions yet to be sorted between economics and infrastructure requirements, etc. But we think that's the next phase of decarbonization.

In the current phase, it's looking at what's available now that just requires more infrastructure and market development. It's leveraging technology that exists today. We recently have introduced a carbon offset offering so we can very efficiently sell carbon-neutral fuel to all of our customers using high-quality carbon offsets that we source, and we're able to do that leveraging Mercuria's extensive experience in emissions trading.

Offsets incentivize and stimulate emissions reductions across a broad spectrum of projects that are achievable today and can be used to complement rather than supplement primary emissions reductions. So that's an example of a way to something that's readily available globally right now.

We also do like LNG as a near-term technology which, especially when utilizing lower-carbon-intensity renewable natural gas, we think has appreciable emissions benefits, and again it's a technology where the economics work today, it's available today. We think there is a path for LNG for the foreseeable future.

Going to the next phase, whether it's hydrogen, or ammonia or methanol, that's where there's less visibility. We are committed to supporting and driving the industry toward decarbonization, but it's too early for us to pick a winner at this point in terms of future fuel.

Go deeper: Special report—Shipping regulation and the EU Emission Trading Scheme(opens in a new tab)

Do you think bunker fuel quality issues will become more acute because of the oil price recovery?

With higher flat prices that there can be more incentive for some to blend with lower value components. So I think there's a risk that certain suppliers will end up putting components in their fuel that shouldn't be there. But on the other hand I think there's been a lot of industry learning over the last 12 months with the transition to IMO 2020 in terms of the importance of stability and compatibility.

I think there's a lot more sophistication in blending from many larger suppliers to ensure that the stability of fuel is not only preserved and on spec at time of delivery, but it remains stable throughout its remaining life on board customer vessels.

Are there new geographies you're willing to explore for the company?

We have a very healthy pipeline of business development activities in new markets, with live projects in the Far East, the Middle East and the Americas.

How is ADP coming along and is the industry supportive of this initiative?

The ADP is a solution to some of the biggest challenges our customers have when it comes to maximizing the total cost efficiency of their bunkers spend. The ADP not only offers ship operators complete transparency over the quality and quantity of fuel they purchase but it also streamlines and digitizes the entire operation resulting in significant time savings during bunkering. Two to three hours are saved on the average delivery time when using the platform.

We've been very pleased with the response of our customer base. We think of ourselves as a solution provider not just a marketer and supplier of fuel so ADP really came out of our efforts and initiatives to address some of the problems that our customers were repeatedly telling us that they have when it came to economically procuring fuel for their fleets. From a transparency perspective, it's an offering without parallel.

What challenges do you see for the industry in 2021?

I think we'll continue to see some constraints on financing capacity for the industry. In 2020, there was a continuation of high-profile failures or financial frauds in the bunkering space and even the broader commodity space which has led to a retrenchment of bank financing available.

We think that impact has been masked a bit by the fact that flat price declined significantly throughout the year so the recession in credit capacity was somewhat masked by the lower flat price. As flat prices have recovered and as we think volume will continue to return, we think the impact of more scarce credit conditions will be pronounced in the bunker industry, which we also think is a driver of ongoing consolidation.

Tyler Baron was interviewed by Claudia Carpenter and Surabhi Sahu on March 16