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Interview: Freepoint expands Asia LSFO footprint by supplying maiden cargo to Pertamina terminal

Highlights

Sambu terminal received first LSFO cargo from Freepoint in December

Terminal expected to ramp up to optimal LSFO utilization in 2021

Freepoint eying more spot, term LSFO deals in other Asian markets

Singapore — Freepoint Commodities has supplied the maiden low sulfur fuel oil cargo to Pertamina's Pulau Sambu Fuel Terminal in Indonesia, expanding its footprint in the LSFO segment as Asia's appetite for cleaner shipping fuels grows, its chief executive officer for Asia told S&P Global Platts in an interview.

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Ouyang Xiuzhang, an investment banker-turned commodities trader who has been heading Connecticut-based Freepoint's Asia business since 2016, said the move of collaborating with Pertamina would help both companies to spread their wings in the region and establish themselves as trusted suppliers of LSFO cargoes, demand for which is set to grow exponentially over the coming years.

"Freepoint views Pertamina as a strategic partner, and Indonesia as a country with many opportunities. We look forward to exploring more investment opportunities together with Pertamina. This first shipment will open a window of opportunity to work together to support their expansion into the international LSFO markets," Ouyang said.

The terminal, located on an island between Indonesia's Batam and Singapore, received its first LSFO cargo from Freepoint in December as part of a heads of agreement for the cooperation and utilization of Pertamina's Pulau Sambu Fuel Terminal signed between the two companies in Jakarta last year.

"This first international LSFO cargo into Sambu forms part of Pertamina's efforts to optimize company assets and establish a trading hub in Indonesia," Ouyang said.

Pertamina's Pulau Sambu Fuel Terminal has 320,000 kiloliters of storage capacity and is strategically located in the Malacca Strait, giving it an edge to participate in one of the busiest trading and shipping economies.

Ouyang said that since late last year, Freepoint has been supporting Pertamina's efforts in upgrading and refurbishing Pulau Sambu's fuel oil tanks to international standards.

"The on-track handover of the first batch of tanks for operational use before the year-end is a testament to a successful collaboration by the two companies," Ouyang said. "As Singapore's land availability gets limited and storage terminal gets congested, Indonesia's Sambu Island is strategically located to help to alleviate that limitation," Ouyang said.

He added that this is the first time Pertamina has collaborated with an international trading company to transform one of its many terminals spanning across Indonesia into an international trading hub.

Low sulfur fuel oil demand outlook - Asia

OPTIMAL UTILIZATION

Pulau Sambu Fuel Terminal is expected to ramp up to optimal LSFO utilization in 2021, with trading operations supported by Freepoint and by Pertamina's international marketing and distribution arm to provide environmentally friendly, low emission fuel supply to the international and regional shipping industries.

A joint press release quoted Mulyono, Pertamina's Logistics & Infrastructure director, as saying: "The utilization of Pertamina's Fuel Terminal in Pulau Sambu with Freepoint is pivotal to ensure our Fuel Terminals fulfill all international standards and reinforce Pertamina's ambition to further expand its footprint in the global energy market."

Ouyang said that upgrading of the tanks would continue through early 2021 as the terminal prepares for full integration into the international trading network and becomes a reliable LSFO supply point for the shipping market in the region.

Freepoint was launched in 2011 with capital from its management team and private equity backing from Stone Point Capital, a private equity firm and manager of the Trident Funds, with aggregate committed capital of more than $25 billion.

To make a push in Asia, in 2016, Freepoint brought onboard Ouyang, who had previously headed oil and metals businesses for JP Morgan, Goldman Sachs and Noble Group.

Late in 2019, the company launched low sulfur fuel oil sales in Asia, initially by supplying LSFO from their floating VLCCs in Malaysia. The company has also been supplying LSFO to end-users in north Asia on a delivered basis.

STRATEGIC PRESENCE

Freepoint is looking out for more opportunities to sign both term and spot LSFO deals in Asia, as it has secured a stable sourcing plan with recent business tie-ups, Ouyang said.

In 2019, Freepoint and Rigby Refining formed a joint venture to develop facilities around the world to meet the growing demand for IMO compliant marine fuel. The first project will be to design and build a 10,000 b/d fuel oil processing facility in the US Gulf Coast. Freepoint will provide the feedstock and sell the facility's production.

"The Pertamina deal has strengthened our ability to provide consistent and secure LSFO supplies to our customers for both spot and term cargoes," Ouyang said. "We are hoping to sell multi-million metric tons of LSFO annually from next year onwards. A lot of buyers are looking for long-term contracts."

Freepoint also provides physical supply services and related structured solutions for counter parties. "As banks reduce exposure to commodities amid pressure from regulators, Freepoint has established its position to provide customized solutions to customers, from cargoes to risk management," Ouyang said.

He added: "Freepoint's oil liquids business is showing robust growth in Asia since the company has successfully built relationships with Asian national oil companies in key importing countries in the region."