IBIA in Africa Forum explores bunkering trends and potential

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The bunker market in Africa is evolving, moving toward offering better quality of service in a more regulated environment, but the region’s potential for growth continues to face significant challenges. There are, however, opportunities for those with a vision to build an attractive offering, providing they are prepared to invest time and resources to overcome obstacles. That, in a nutshell, was the takeaway message from the IBIA in Africa Forum in Cape Town on September 15 and 16.

Regional overview: Shifting trends, new developments

A major trend for bunkering in Africa is that illicit activities and poor practices are in decline and the industry is becoming more regulated, the Forum heard from Jon Hughes, Managing Director of South Africa-based bunker trading company SABT.

This has translated into law and order being imposed across the region, both to help reduce the piracy threat that has plagued the West African bunker market, tightening customs checks, and an increasing trend toward imposing bunkering license requirements in individual countries. The latter has tended to reduce the number of suppliers in some areas, which may now be better regulated, but it has reduced competitiveness and thereby restricted market growth, Hughes observed.

West Africa is a case in point, where restrictive licensing means the anchorage at Pointe Noire is now dominated by one player, while in Angola, a customs crackdown appears to have put an end to sales of competitively priced marine gas oil (MGO.)

The West Africa bunker market has also suffered from the general decline in the offshore and seismic vessel market since the drop in oil prices reduced activity. Military vessels remain a steady clientele, as do container ships, though demand from the latter has declined slightly.

Piracy, though in decline, is still a consideration in the region, and there are some supply vessels that are not MARPOL compliant. Fuel here can be expensive, delivery is not always timely and delivery infrastructure remains underdeveloped, according to Hughes.

On the plus side, some of the European operators that were active offshore West Africa before they were put off by operational challenges in the area, were providing “European standards of service” which more local countries and operators have seen and begun to adopt.

East Africa’s bunker market, meanwhile, is much less developed with limited supply options, even less developed supply infrastructure, limited product offerings and higher prices, according to Hughes. Both he and the consultant Steve Hillary, who spoke at the forum, noted that local suppliers there, such as in Mombasa, have challenges with bureaucracy and taxes leading to high import costs. Additionally, suppliers cannot risk holding stock due to price fluctuations, and hedging against it is too costly for the smaller operators, Hillary says.

One exception from this in East Africa is Port Louis, Mauritius, which is more developed and competitive, Hughes said. The reason for this became clear when Rajanah Dhaliah, CEO of the State Trading Corporation (STC) in Mauritius, described the drive in Mauritius to promote and develop the country’s bunkering sector and turn it into a petroleum hub.

“We are not here to survive, we’re here to thrive,” is the motto for the bunker industry in Mauritius. This is supported by the government’s policies both with regards to licensing, encouraging good practices and economic incentives for ships to call for bunkers, such as a 50% reduction on port dues and anchorage fees.

STC is the main importer of marine fuels into Mauritius for resale to local oil companies that are licensed to supply, currently four. The government envisions sales of 1 million metric tonnes (mt) annually, to cater for some 30,000 vessels plying the region.  Currently only 30% of that target has been achieved, meaning there is ample room for new operators to join, Dhaliah told the forum.

Among the plans in Mauritius is to build additional tank capacity for storing petroleum products, including more space for storing marine fuels. Current capacity is 43,000 mt for fuel oil and 23,000 mt for MGO.

Mauritius also aims to improve the supply infrastructure to improve the quality and speed of service, and envisages introducing the latest ISO 8217 fuel quality specifications as standard. At the same time, the capability for oil spill response should be improved.

South Africa: Frustrations and opportunities

Bunker sales in South Africa have been shrinking significantly in recent years, even as shipping volumes and hence potential demand has increased. The bunker market potential here has been frustrated by multiple local factors. These include high port calling costs making it unattractive for ‘bunker only’ callers, product sources being restricted to three local refineries which at times has played havoc with product availability, limited range of fuel types on offer and a reduction in available supply options in Durban and Cape Town.

The decline in bunkering calls was documented by Capt Rufus Lekala, Chief Harbour Master in Cape Town, with figures from the Transnet National Port Authority (TNPA).

Between 2011 and 2015, the number of ships lifting bunkers in Durban has fallen from a high of 872 to 687 in 2015, though that was an improvement from the lows of 2013 and 2014. Richards Bay, which has just one bunker barge and occasional product outages, supplied 25 vessels in 2015 compared to 37 in 2011, according to Lekala’s presentation.

Cape Town has taken the worst hit, with the number of vessels taking bunkers down from 820 in 2011 to 367 in 2015.

The sharp fall in Cape Town’s bunkering volumes is chiefly due to a drop in fishing vessels taking fuel there. That, in turn, is due to the port’s supply infrastructure having changed with deliveries now chiefly being undertaken by one bunker barge, while previously fishing vessels used a series of pipelines bringing product directly from the Caltex refinery to the port quay side.

For those who attended the port tour on the second day of the forum, the reason was clear: the pipelines were old and had fallen into disrepair and would need renovation to make them to make them safe to use. However, the refulleing activity hampered other port operations and the port saw a better commercial opportunity in using that quay space to increase cargo handling capacity, according to Coen Birkenstock, Manager: Corporate Affairs at Transnet National Ports Authority (TNPA.)

There are some positives in the South African bunker market that are undersold, according to Hughes of SABT. This is a market where you get what you pay for and the product is “on spec”, because of reliable barge operators and steady product quality from the three refineries producing fuels for the country’s bunker market. Despite reduced competitiveness in recent years, this makes Durban and Cape Town competitive in terms of value according to Hughes. He also said the “feast or famine” pattern in fuel availability was now a thing of the past, though that could be due to the fact that demand has shrunk, making the refineries better able to control stocks to meet demand on a continual basis.

The biggest positive for South Africa, however, is its strategic location on international trade routes. According to Lekala, TNPA and national authorities do want to promote bunkering, by opening for new players and remove trade barriers, while also wanting to ensure that bunker supply and trade benefits the local economy.

As such, there is huge interest in the arrival on the South African bunkering scene of Aegean Marine Petroleum, which launched the country’s first ever offshore bunkering at anchorage in Algoa Bay in April this year. The fact that a foreign company has been given the first offshore operating license has caused a lot of local criticism and upset, but the local bunker traders think it is interesting and has given the industry an injection of energy and incentive to be more competitive

“We saw opportunity to develop something completely new,” Jean-Jose Metey, Executive Director, Aegean Group, told the Forum.  He noted that the South African bunker market was restricted by port restrictions on delivery, limited product capacity during refinery maintenance and that the supply of heavy fuel oi in the country is limited to 180 cSt, when most demand from ships globally is for 380 cSt bunkers.

Aegean has done things differently, not only by supplying at anchorage rather than inside port, meaning significantly reduced calling costs, but also choosing to import product rather than rely on local sources, and to offer 380 cSt. As no local storage is available for 380 cSt , the company is using a 70,0000 dwt Aframax for product storage and has just added a third 6,500 dwt bunker supply tanker to its operation in Algoa Bay.

The company chose Algoa Bay because it was best suited for safe offshore supply and strategically located, in particular for ships sailing between Cape Town and Singapore. The anchorage is close to shipping lanes with minimal deviation.

According to Metey, the operation is not competing with existing bunkering services in South African ports. Rather, it is attracting more ships to the area and benefits the local economy by bringing in new demand for auxiliary services. Aegean also supplies by barge in into Port Elizabeth Port and Coega Port which have, until now, not had any supply available by barge.

It took around three years for Aegean to set up the new operation, including securing all the permits and licenses from the relevant authorities. That included anti-pollution measures approved by the South African Maritime Safety Administration (SAMSA). Supply licenses in the country’s ports are controlled by Transnet (TNPA), while SAMSA is the authority for approving offshore licenses.

If the Algoa Bay operation continues to be a success – so far it has generated monthly sales of about 700,000 mt and merited putting in a third bunker barge – Aegean may build a storage facility in Port Elisabeth.

“The floating storage is a transitional measure,” Metey told the Forum.

The Forum heard from SAMSA that it had seen 70-80 applications for providing bunker services offshore in South Africa. There are hints that other operators may succeed in the future, providing they can meet the standards required.

What is also clear, from the Transnet (TNPA) talk by Birkenstock on Friday, is that Transnet is investing heavily in upgrading and expanding the country’s port infrastructure and that it believes the country is ideally located to boost its role as a hub for trade by sea.

For Cape Town, there are plans to build a cruise terminal that could be open for business already in 2017. The port’s container and liquid bulk throughput capacity is currently underutilized, but there are nevertheless plans to invest in a major expansion of the port’s container handling capacity over the coming decade.

If that translates into more shipping activity in South African ports, there should be opportunities to grow marine fuel sales too.