INTERVIEW: Red Sea crisis could boost marine fuel demand in Singapore: bunker expert

Singapore is poised to see a surge in bunker fuel demand while some other Asian ports are also witnessing increased inquiries as shippers reroute ships via the Cape of Good Hope to avoid the Red Sea amid escalating tensions, Simon Neo, bunker industry expert and executive director of Singapore-based marine fuel consultancy firm SDE International said.

The impact of the rerouting was already reflected in Singapore's higher bunker fuel sales in December, when the severity of the Red Sea crisis started unfolding, Neo told S&P Global Commodity Insights.

According to the data from the Maritime and Port Authority of Singapore, the port's total marine fuel sales in December 2023 stood at 5.05 million mt, up 18.4% month on month.

The total number of ship arrivals at the Port of Singapore in December also rose by 6.55% on the month to hit 10,741, MPA data showed.

Retaliatory strikes by the US and the UK on Houthi targets have led to an escalation of tensions. If the Israel-Palestine conflict is not resolved soon, the Red Sea attacks will drag on, causing more disruptions to the global trade, Neo said.

Around 12% of global trade passes through the Suez Canal, representing 30% of all global container traffic and over $1 trillion worth of goods annually. Some of the world's biggest container shippers, Mediterranean Shipping Company (MSC), CMA CGM, Maersk, Hapag-Lloyd AG, and Evergreen, have already suspended shipping via the chokepoint.

Diverted ships have usually taken the longer Cape of Good Hope route, which can add about 14-20 days to voyage times, industry sources said separately.

Continued shipping unrest in the Red Sea will bring about further increases in shipping expenses and add to the costs of the product being shipped, which will ultimately be borne by the consumers, Neo noted.

Depending on the destination, most shipowners will likely opt to top up their bunker fuel requirements at the Port of Singapore because of efficient services, competitive fuel prices, as well as provision of other ancillary activities including crew change, Neo said.

Singapore's ability to provide reliable and high-quality bunkers will also favor the choice to bunker here, Neo added.

Other bunkering options

Among the other Asian ports, shipowners will also consider refueling at some Sri Lankan and Indian ports, Neo said. However, consumption of bunkers in both these countries will likely be limited, he opined.

"India has its own challenges for bunkering including ample availability of low sulfur fuel oil to meet the spurt in demand. Meanwhile, if ships are to refuel at Sri Lanka or the Middle Eastern port of Fujairah, they will have to deviate a bit if they are going from the US to Europe," Neo said.

A report by S&P Global recently noted that India was already witnessing a sharp rise in bunker inquiries. However, since the crude intake of most refineries is of high sulfur in nature, the availability of VLSFO was becoming a bottleneck to meet the sudden spurt in demand, it said.

The Red Sea tension will support fuel oil demand for bunkering in the first quarter, which accounts for around 70% of total Asian fuel oil consumption in a year.

"Moving forward, S&P Global estimates fuel oil demand in Asia will likely increase by at least 5% on the quarter in the first quarter if Red Sea tension continues to escalate with a ripple effect gradually being felt in the region, although the upside remains uncertain," it said.

Fuel choice amid escalating costs

"There is so much uncertainty in the world today and shipping is coping with many complexities," Neo said.

Shipping costs are not only being pushed up by the current geopolitics but also due to the need to meet net zero targets, forcing shipowners to sift through a myriad of zero-carbon fuels, Neo shared.

Among the various alternatives, biofuels will play a prominent role, particularly for existing ships as they are a "drop-in" fuel and readily available, Neo said.

Their consumption will "stretch all the way" to meet the International Maritime Organization's 2030 and 2050 targets, Neo said, adding that Singapore's dramatic rise in biofuel bunkering also shows the fuel's growing popularity.

Bunker sales of biofuel blends in the world's largest bunkering port more than tripled year on year to reach 520,000 mt in 2023, MPA data showed. This compares to LNG bunker sales, which rose from 16,000 mt in 2022 to 110,000 mt in 2023, according to MPA data.

Meanwhile, LNG and methanol will likely continue to find favor globally among newbuilds as is evidenced by the growing order book, Neo said. However, there is some skepticism around how much green methanol and bio-LNG will be available for shipping's decarbonization needs, he shared.

Widespread adoption of ammonia is still farther away, Neo noted.

That said, pricing economics will continue to weigh on a shipowner's fuel choice while selecting a zero-carbon fuel, he added.