Analysis: Singapore's new bunker suppliers set to quell delivery fears after Hin Leong crisis

The entry of Minerva Bunkering and TFG Marine as physical bunker suppliers in the Port of Singapore will likely help allay fears over tightening barge supply after Hin Leong's debacle in the last few weeks, industry sources told S&P Global Platts.

The new suppliers will also satisfy Singapore's thirst for cleaner marine fuels even though competition was set to intensify in the coming months

"The MPA [Maritime and Port Authority of Singapore] decision to grant licenses now is no coincidence," a Singapore-based bunker trader said, adding that while the MPA has been evaluating applications since December 2019, its decision was a timely one.

"They were concerned about the market's ability to cover OBS' [Ocean Bunkering Services'] demand. They just needed the right conditions in the market to justify, or so it seems," he added.

Ocean Bunkering Services' parent company Hin Leong Trading has been embroiled in a financial crisis recently due to trading losses as its lenders withdrew credit lines and oil prices plummeted, S&P Global Platts reported recently. The lack of appropriate hedging policies and existing losses on its books also contributed, Platts reported.

OBS, which was Singapore's third-biggest accredited bunker supplier by volume in 2019, and the biggest in 2018, according to MPA data, was also heard to have canceled all fuel deliveries from April 18 onwards, with as many as 14 barges operated by OBS heard to have been taken off service.

"Looking at the companies MPA awarded the bunkering licenses to, there seems to be a trend that MPA is more inclined to award to companies with international reach. I think this is mainly because of financial stability given the current credit risk situation and to some extent, compliance," a second Singapore-based bunker trader said.

Minerva Bunkering and TFG Marine are related entities by shareholding to Mercuria Group and Trafigura, respectively, both of which are among the world's largest independent energy trading companies with significant presence in Singapore.

The entry of these players brings the total number of MPA-licensed bunker suppliers to 45 in the Port of Singapore. Their admission comes after two companies -- Brightoil Petroleum (Singapore) Pte and Seven Seas Trading -- recently dropped off MPA's accredited bunker suppliers list.

LSFO DEMAND HOLDS UP

Despite the challenging market conditions created by the global coronavirus pandemic, which in turn led to significant lull in demand, marine fuel sales in Singapore, the world's largest bunkering port, grew 5.4% year on year to 12.72 million mt in the first quarter.

This comes on the back of strong LSFO sales, reflecting the impact of the International Maritime Organization's global sulfur mandate for marine fuels, which started January 1, 2020.

Given that both Trafigura and Mercuria have been ex-wharf LSFO and LSFO cargo players for a long time in Singapore, they will likely be ready to supply delivered bunkers in the coming weeks, industry sources said, adding that this would cater to strong LSFO demand, particularly at a time when many shipowners are mulling over canceling or have already canceled scrubbers installations as the HSFO-VLSFO price spread has shrunk drastically.

Moreover, the MPA has also said that Minerva Bunkering and TFG Marine will also be required to each operate at least two clean energy dual-fueled bunker barges.

This will also boost Singapore's ability to supply sustainable fuels, they said.

HEATED COMPETITION

"This is a difficult time for small traders. They are going to bear the brunt as competition intensifies," an industry source said, adding that the coronavirus pandemic has already hurt their prospects.

Banks and financial institutions are also likely scrutinizing the credit worthiness of many such players after the Hin Leong situation emerged, adding to their woes, sources said.

The Hongkong and Shanghai Banking Corp Ltd, or HSBC, has the largest exposure to Hin Leong at $600 million, followed by ABN AMRO with $300 million and Societe Generale with $200 million. Singapore's main banks with exposure are DBS with $300 million, OCBC with $250 million and UOB with $120 million, sources said.

More exits were likely to take place, which might create room for the next round of entrants, another source said.