Japan's stable bonded bunker supply may face challenges in the near future because of unexpected technical problems and longer turnarounds at domestic refineries.
Very low-sulphur fuel oil (VLSFO) deliveries for ocean-going vessels, which accounts for around 70pc of Japan's total bunker demand, have fallen especially since December 2023 because of supply cuts from domestic refiners, according to market participants. Firms have struggled with unexpected unit issues and longer-than-planned scheduled maintenances, resulting in unstable supply with tight domestic VLSFO availability.
Even Japanese shipping firms are currently forced to divert some of their fleet to ports outside of Japan to bunker there instead, owing to domestic supply tightness. Shipowners have the option to bunker at unplanned ports if required, with ocean-going vessels usually securing extra fuel.
This could prompt Japanese refiners to cut bonded bunker supply as they prioritise meeting domestic oil product demand, including that from coastal ships which cannot make voyages outside Japan. Refiners also found it hard to cut bonded jet fuel deliveries, because international flights usually only have sufficient fuel for a one-way trip and have to refuel at destination airports. This is different from ocean-going vessels which can bunker at unplanned ports.
The tight availability boosted Tokyo bunker prices. Tokyo VLSFO prices averaged $653/t during 1 December-18 January, higher by $53/t from prices in Singapore, by $35/t in Zhoushan, China and by $21/t in South Korea. Shipowners purchasing marine fuels in the spot market lost buying interests in Japan because of the high prices. This weighed further on domestic marine fuel sales, in addition to the limited supply.
Japan sold around 3.6mn kilolitres of bonded bunkers in January-November 2023, according to the Petroleum Association of Japan. This was down by 6.3pc from the same period in 2022, when sales volumes dropped from 2021 because of refinery shutdowns owing to earthquakes. January-November 2023 sales also fell by around 11pc from 4.1mn kl in January-November 2021.
Ageing refineries, understaffed operations
Japan currently has 20 refineries, which were built during 1943-75. Technical issues often occur at old plants, and they require lengthier turnarounds. The shortage of experienced engineers at the site has also been a serious problem, which makes unexpected shutdowns difficult to avoid. Refinery troubles are expected to keep increasing, a source said.
Ageing refineries could prompt further consolidations in Japan, as domestic oil firms are exploring future fuel businesses — such as biofuels, hydrogen and ammonia — because of shrinking domestic oil product demand and decarbonisation efforts. This could cut bunkering capacity in the country. Current refining capacity is 3.23mn b/d in Japan, while the country had 6mn b/d of capacity in the early 1980s.
The domestic marine sector is also struggling with a manpower shortage for bunkering barges. Japan's land and infrastructure ministry implemented a new regulation that limited working hours for barge crews in 2022, which has also weighed on marine fuel delivery operations in the country.
Japan is accelerating alternative marine fuel discussions, especially ammonia. Domestic firms plan to launch an ammonia-powered tugboat at the port of Yokohama in June as an initial step towards launching an ammonia-fuelled ocean-going vessel,with the latter vessel targeting a April 2026-March 2027 launch.
More barge crews will be needed once alternative fuel bunkering start, which will be another challenge for the marine sector, according to bunker traders.
