Minerva Bunkering CEO says oil tankers lag container recovery
The following are comments by Tyler Baron, CEO of Minerva Bunkering, from an interview with S&P Global Platts last month. Minerva is the wholly-owned subsidiary of Mercuria Energy Group, one of the largest privately owned energy and commodities companies in the world.
Where do you see bunkers and bunker demand shaping up for 2021?
We’re expecting a continued recovery in 2021. Our volume and inquiry flow troughed late last summer and has recovered since. If we look at 2021 going forward by line of shipping sector, starting with containers, container demand has had the healthiest recovery from the COVID trough.
Industry wide TEU volume I believe ended the year down less than 2%, and consumer spending on products has continued to be very strong on the back of fiscal stimulus and reduced ability to spend on services and leisure. So we think that remains supportive as we go into 2021. In dry bulk, we also see positive trends. Commodity prices driving the major dry bulk trades have continued to rally which are supportive of ton mile growth and trends in iron ore and steel production remain positive so we think that looks like a recovery story in 2021. On the tanker side, things continue to be depressed. We have seen continued restraint from OPEC production growth but with rising crude prices naturally that is supportive for production growth in other basins, some of which are bigger drivers of ton mile growth. So on balance we think demand should continue to recover in 2021 as COVID restrictions ease and the impact of what has been massive fiscal stimulus programs continue to trickle through the global economy.
Are you planning to do more bunkers in Singapore?
We see continued expansion in Singapore because we think it plays to our strengths in terms of leveraging economies of scale. Whether we grow by continuing to acquire more physical assets, or time chartering, that’s just driven by the relative economic returns to asset ownership.
Do you think bunker fuel quality issues will become more acute because of the oil price recovery?
With higher flat prices there can be more incentive for some to blend with lower value components. So there’s a risk that certain suppliers will end up putting components in their fuel that shouldn’t be there. But on the other hand there’s been a lot of industry learning over the last 12 months with the transition to IMO 2020 in terms of the importance of stability and compatibility. There’s a lot more sophistication in blending from many larger suppliers to ensure that the stability of fuel is not only preserved and on spec at time of delivery but remains stable throughout its remaining life on board customer vessels.
What challenges do you see for the industry in 2021?
We’ll continue to see some constraints on financing capacity for the industry. In 2020, there was a continuation of high profile failures or financial frauds in the bunkering space and even the broader commodity space which has led to a retrenchment of bank financing available. We think that impact has been masked a bit by the fact that flat price declined significantly throughout the year so the recession in credit capacity was somewhat masked by the lower flat price. As flat prices have recovered and as we think volume will continue to return, we think the impact of more scarce credit conditions will be pronounced in the bunker industry which we also think is a driver of ongoing consolidation.
Do you have a range in bunker fuel volumes where this recovery is going in terms of magnitude?
From our statistics, we see global volume declines close to 10% last year. So whether we will get back to 2019 levels in 2021, it remains to be seen. But we will recover a good deal of what was lost in 2020. We do have higher flat prices and a much greater focus on reducing emissions intensity from shipping so both of those are driving a heightened focus on fuel efficiency.
Are you bullish on any particular new alternative low carbon fuel given all the choices, including hydrogen, ammonia, methanol?
It’s too early for us to pick a particular future fuel because there are still too many questions yet to be sorted between economics and infrastructure requirements, etc. But we think that’s the next phase of decarbonization. In the current phase, it’s looking at what’s available now that just requires more infrastructure and market development. It’s leveraging technology that exists today. We recently have introduced a carbon offset offering so we can very efficiently sell carbon neutral fuel to all of our customers using high quality carbon offsets that we source and that we’re able to do that leveraging Mercuria’s extensive experience in emissions trading. Offsets incentivize and stimulate emissions reductions across a broad spectrum of projects that are achievable today, and can be used to complement rather than supplement primary emissions reductions. We also do like LNG as a near-term technology that especially when utilizing lower carbon intensity renewable natural gas we think it has appreciable emissions benefits, and again it’s a technology where the economics work today, it’s available today. We think there is a path for LNG for the foreseeable future.