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Gulf Petrochem: Opportunity abounds despite low price challenges

Gulf Petrochem: Opportunity abounds despite low price challenges

Sep 26, 2016
6 min read
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Pipeline Magazine spoke with Neil Lamerton, Global Head of Bunkering at Gulf Petrochem Group, to discuss the challenges and opportunities for companies operating in the Middle East’s oil storage market.

What trends are you noticing in the global bunkering sector?

The shipping markets are going through a period of pressure, with the likes of Danish shipping and oil group Maersk reporting losses and others facing similar constraints. Low freight rates, brought about by an overcapacity in the market, means pressure is put on the bunker market. Many owners are experiencing cash flow issues, meaning there are inevitable delays in payment.

We are still seeing the repercussions of the OW saga, where many major owners prefer to deal directly with suppliers, rather than through traders. With the judgment quite recent, the market has yet to establish a new order and we are maybe yet to see how the market settles in the long-term.

In terms of the crude oil market, it remains volatile, making it difficult for buyers to assess when to buy and how much, at any one time. The recent rise in crude prices may well continue, but there remains oversupply in the market, and much depends on the prospective production freeze and whether an agreement can be reached with all parties. Currently, the bunker prices can change by $5-7 in one day, which is a big change when their vessels are not seeing a positive return.

Looking at the quality, generally it is of a high level, and the return of Iranian fuel back in the market is a welcome one.

 

How has the low price of oil affected bunkering operations across the globe?

Due to the current market conditions, we have seen reduced investment into new bunkering projects. Many investors are waiting in the hope that the market will start to offer some sort of consistency, but we do expect this trend to continue until there are decisions made on production.

Less profitable companies are being kept in business for longer due to the reduced credit risk on sales, and we are seeing that trend continue well into the second half of 2016.

The low oil price has resulted in difficulties for some in renewing bunker vessels. Investment for MFM for Singapore has also been made more difficult, as all barges have to be MFM by January 2017.

Which geographical areas are of particular interest to Gulf Petrochem? Are there any ‘bunkering hotspots’ cropping up?

We are always on the look-out for new areas of interest, especially for bunker trading. UAE (Fujairah), Singapore, Rotterdam (ARA), India, Sri Lanka are areas of particular interest to us currently, but in the current market we are seeing lower rates of investment and consequently, fewer hotspots.  Due to the success of our Fujairah operations, we remain confident in identifying areas of interest to us. The knowledge and experience we have gained from our expansion here means we would not hesitate if a new opportunity presented itself.

 

How are your operations in the UAE progressing? How important is the UAE to GP?

Bunkering at Fujairah has always been important to Gulf Petrochem and is our main market. It is ranked the third largest oil storage and products trading centre, after Rotterdam and Singapore and the second largest bunkering port in the world, with over 400 ships passing annually to and from the Gulf. We have not become complacent as we know the size of the market and how the market can change from week to week.

Bunkering on the west coast of the UAE has always been more difficult and more expensive than Fujairah. Truck supply is still an important area for us, which after a reduction in volume is expanding again.

 

What predictions do you have for the bunkering sector over the next 18 months or so?

With MFM coming into Singapore in 2017 for all suppliers, many will have to adapt to these conditions. There will be a change in some of the supplying companies, with larger companies prepared and equipped to enter the market, which could have a big impact. We would expect expansion in other ports close by, as suppliers will try and keep their non-MFM business going, but this could open up the Singapore market with the non-MFM barges leaving.

If crude prices continue to rise, we will see prices in the bunkering sector rise too, meaning many ship owners or charterers will file for liquidation, due to the credit exposure predicament many will face.

There will be more amalgamation throughout the bunkering industry with traders looking for ways to continue their operations without suffering from price rises. Smaller traders will again find business difficult with higher prices, and more risk entailed with owners who work with traders.

There is a very real possibility of more liquidations following the OW collapse, so the next few months could be crucial. Legal avenues seem to be closing in many jurisdictions, so potential losses will have to be taken into company accounts, which could mean the end for many operators.

We would expect the bunker market to remain extremely wary in the coming months, as a result of container owners struggling. Maersk, Evergreen, Hanjin and Hyundai are all experiencing onerous market conditions, and although demand for bunkers is high, there will be pressure on payments. We are, as always, assessing the market in great detail, and we are in a great position to react as and when we need to.

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