Singapore — Very low sulfur fuel oil is set to be the chief marine fuel choice as the International Maritime Organization's global sulfur limit rule for marine fuels inches closer, Cockett Group CEO Cem Saral told S&P Global Platts in an interview last week.
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"Until recently, marine fuel industry had limited access and clarity on the quality aspects of 2020-compliant fuels. However, the announcements by oil majors this week over the specification, quality, and geographical availability of 0.5%-S fuels they will provide, may have helped dispelled some of the uncertainty and concerns around the quality of such fuels," Saral said on the sidelines of the 20th Singapore International Bunkering Conference and Exhibition 2018 last week.
"We expect to have further visibility over the last few months of 2018 and during the first half of next year about these fuels and that will also help address further concerns around their quality, pricing, availability and compatibility, Saral said.
"It is impossible to think that IMO 2020 transition would be smooth or easy for anyone. However, we believe Cockett Group will benefit more from the opportunities and suffer less from challenges as the rule is implemented," Saral said.
"Cockett Group is an asset-light company with a global presence in 15 countries. We supply and/or arrange delivery over 800-service locations globally. Consequently, we stand to have a superior potential to adapt to the new supply/demand landscape quickly and economically in terms of geography, product mix while preserving trading volumes relative to various participants in the supply and value chain," Saral said.
One of the biggest challenges, however, will be to deliver know-how on the quality, pricing and availability of new compliant fuels efficiently and timely, Saral said.
"As a value-added reseller, Cockett Group actively engages with a number of vendors, some of whom are presently ready to provide a number of 2020-compliant solutions. Therefore, we see this global collaboration as an opportunity to pass over the knowledge to our client base as well as provide valuable feedback to our vendors," Saral said.
CHANGING INDUSTRY DYNAMICS
"Liquidity will be a challenge for many players in the bunker industry come 2020, as the industry typically runs on unsecured credit terms and on extended payment days", Saral said.
The new compliant-product pool is expected to price significantly higher than the current price of HSFO, meaning there will be an additional need for significant working capital, credit or marine insurance, he said.
"For a market participant with obstacles in having access to commensurate working capital and liquidity, we see many challenges," Saral said.
One outcome may be that some proportion of demand or certain customers may have to opt for additional liquidity that may involve increased use of bunker resellers, Saral said.
"Cockett Group applies rigorous KYC, governance, risk management and compliance on its day-to-day activities hence the Group will remain selective in addressing the increased liquidity need that may likely arise," Saral said.
The bunker industry is also ripe for consolidation, partly due to the 2020 rule, Saral said.
"For those who are not able to adapt to or add meaningful value to the 'new' supply chain, we expect to see that they will probably face stronger headwinds," Saral said.
"0.5% compliant product pool replacing 3 million b/d of HSFO appear to be very fragmented with no "one" uniform fuel quality or "one" compliant solution.This means that even though the net demand is the same, the industry would be serving the new demand profile with far more fragmented supply optionality."
"I think this also brings advantages for some players, including Cockett Group," Saral added.
While exits are likely for some bunker companies, new players are also expected to enter the industry in certain geographies as they bring with them new product lines and know-how, Saral said.
The viability of alternative fuels -- LNG, biofuels, methanol-- means that many companies who have never existed in the bunkering industry could become more relevant and visible now in that segment, he said.
"As far as Cockett Marine is concerned, I see no change in how we engage the market or our business model. We will continue operating as a global reseller, transfer our local knowledge to the global supply chain, add value, provide liquidity and optionality to our customers and vendors," Saral said.
--Surabhi Sahu, firstname.lastname@example.org
--Edited by Elizabeth Thang, email@example.com