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Australia's bunker demand falls sharply as cruise tourism sails in choppy waters

Energia | Petróleo

Platts Global Alert - Oil

Australia's bunker demand falls sharply as cruise tourism sails in choppy waters

Destaques

VLSFO bunker demand drop likely 30%-50%

Clear pathway for cruise industry recovery needed: CLIA

Australian refiners seek reprieve from federal government aid

Australia, a country with one of the highest penetration of any cruise market globally outside the US, has seen its bunker fuel consumption plummet due to restrictions on entry and sailings of cruise ships, pressuring the country's refiners further as they grapple with demand constraints for other oil products due to the global coronavirus pandemic.

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VLSFO sales have dropped between 30% and 50% since the global coronavirus pandemic forced cruises to cease operations there from March last year, market sources told S&P Global Platts.

The demand for HSFO bunker fuel has also "evaporated" after cruise ships fitted with scrubbers suspended operations, an Australia-based bunker trader said.

The slump in demand was also reflected in the country's lackluster fuel oil sales. According to the latest data published by the Australian Petroleum Statistics, fuel oil sales in Australia totaled 47.8 megaliters in March 2021, down 34.1% year on year.

Following the global pause in cruise operations in mid-March 2020, cruises resumed sailing in parts of Europe, Asia and the South Pacific beginning in July 2020.

From early July through mid-December 2020, globally there were more than 200 sailings, the Cruise Lines International Association, or CLIA, said in its recent report, 2021 State of the Cruise Industry Outlook.

However, Australia has alluded this opportunity, with the government first imposing a restriction on the entry of foreign-flagged cruises from March 27, 2020. This has stretched to Sept. 17, 2021, from June 17, 2021, originally, with a review imminent later to assess the situation, industry sources said separately.

Meanwhile, CLIA Managing Director for Australasia Joel Katz in a statement on May 12 said the Government's estimate that international tourism would not resume until mid-2022 was devastating for the entire Australian tourism industry.

The industry also needed a clear pathway for the revival of over 18,000 Australian jobs that rely on cruise tourism, he said.

"Tourism leaders are rightly calling for clarity from the Federal Government and backing for the thousands of Australian workers who depend on the visitor economy," Katz said.

"This is especially true in the cruise sector where more than $5 billion has been wiped from the Australian economy over the past year and no commitment made for our industry's revival," he added.

Refiners' plight

The restrictions on cruises in Australia has hurt local refineries as they also face other headwinds, such as sagging demand for other oil products, industry sources said.

"The ban on entry of foreign-flagged cruises and the suspension of domestic cruise operations, like P&O Cruises' extended pause, put local refineries and barge owners under pressure," an Australia-based bunker supplier said.

However, this is a preventive measure against a resurgence of the coronavirus, an issue that must be addressed, he said.

The bunker supplier noted that Australia was mostly a "top-up destination" for other ships and sustaining on small parcels from non-cruise ships' bunker demand, had proved challenging for local suppliers and refineries.

The country is now left with Ampol's Lytton plant in Brisbane and a unit at Geelong that is owned by Viva Energy – its only two operational refineries following closures of the Altona plant earlier this year, and the Kwinana plant in 2020.

Refinery operations were heavily impacted by the unprecedented impact of COVID-19 on both global and local fuel demand, Viva Energy said in its Annual General Meeting 2021 announcement on May 26.

"As a result, we took the decision to bring forward major maintenance and operate the [Geelong] refinery in a hydro-skimming mode with the residual catalytic cracking unit shut down between May and November 2020," it said.

In February, Ampol in its results announcement for the financial year ended December 31, said that "current regional refining margins remain weak, but Lytton has the ability to produce about 6 billion liters [6 million mt] in 2021, subject to market conditions."

Given the continued impact of COVID-19 on demand, Ampol's current Australian volume expectations for 2021 are 13.5 billion–14 billion liters, with this forecast assuming a delayed recovery in jet fuel demand and the continued impact of domestic travel restrictions, it said.

As refiners struggle with tough market conditions, the federal government is taking steps to maintain fuel security by backing its refiners.

Australian Prime Minister Scott Morrison on May 17 said that the financial year 2021-22 (July-June) budget initiatives include, among other measures, a variable Fuel Security Service Payment to the refineries, funded by the government, which recognizes the fuel security benefits refineries provide to all Australians. The variable FSSP has been costed up to A$2.047 billion ($1.59 billion) to 2030 in a worst-case scenario, it said.