Low carbon fuels and state of the bunker industry

Author Argus

Tune in to learn about the progress of the IMO 2020 cap and the impact of Covid-19 from Adrian Tolson, Director, BLUE Insight, and IBIA board member

Join host Nicolas Ganas, Business Development Manager - Oil Products, as he discusses the twists and turns of the global bunker industry with industry veteran Adrian Tolson.


Interviewer: Thank you for joining us for our second "Argus" podcast on marine fuels. Our guest today is Adrian Tolson. Adrian doesn't really need any introduction into bunker industry, over 30 years of experience in the logistic and supply of marine fuels globally. He's now director of the Consultancy Blue Insights and recently appointed board member of the bunker industry body, IBIA. Adrian, thank you very much for joining us. We are nine months into 2020 and the IMO 2020.5%, the sulfur cap has gone well, and experts like yourself starting March, April, May, said so that the transition had gone smoothly. But recently we've seen an increased number of quality claims reported in some actually major ports. Was it too soon to say that it was a success?

Adrian: From an overall point of view of course, I think it was obviously a significant success in the sense that the goal is to reduce the sulfur levels and we've done that, and went through abatement or through low sulfur fuel. So that goal is there and as a stepping stone towards the emissions issues and decarbonisation of shipping, I think it's an important step. From a technical point of view, I think it's probably a little bit early, to get too excited. I've certainly I think we've seen some issues in clearly in the last few months regarding the aging of these new fuels. And some of these may or may not be brought on by the fact that we're dealing with different streams coming into the supply pool that weren't anticipated or weren't there before streams coming as a result of the coronavirus pandemic. So yeah, I think we've seen an increase in number of cuts in more paraffinic fuels, people not having total ideas of how to deal with those fuels in terms of keep maintaining them aboard ship, but certification is one thing but temperatures and like, you maintain the right temperatures, getting above points and things like that.

So I think the challenge has been dealing with these fuels, in the sense of what we've seen come out of the industry and the fear is the other challenges we come out of COVID at some point, probably from a refining point of view, not till next year is to see how the fuels alter in that period of time. So I guess, I would say from a type of a buying point of view, it's time to still be pretty vigilant because the supply pool changes all the time or will continue to change all the time. As you and I know we're dealing here with a global industry a global industry of bunkering marine fuel fuel well trading, that arbitrage is cargoes around the world and ultimately they find the best location the best price relationship location to go to. So I think in this case, you can expect oil to continue to move around the world and you continue to get strange mixes and blends of products being brought together, which may cause problems on a regional basis that we had not expected to see.

Interviewer: Right, well, another headline and a sad one of 2020 so far has been the demise of some large players actually not necessarily downstream one meaning bonkers supplier wants, but also upstream in nature, such as Hin Leong, Zen rock, but that also Co spank, [SP] international Pacific petroleum IPP and more recently, GP global, although again, it doesn't seem that the marine fuel desk was the issue there. And following those stories we saw we read about international banks their trust in I guess the industry in general sort of wavered a bit. Now in your 30 years you've experienced quite intimately the ups and downs of this market. So what are the consequences of what's happening right now meaning banks you know, some of them pulling out completely from the industry. What are the consequences for suppliers traders but maybe buyers alike?

Adrian: Yeah, I mean, obviously I've seen a few crises. A few ups and downs of the oil market, as you say experienced a number myself and generally survived. It's hard to see all the different strands of influence all the changes that are coming over our industry in the Marine fuel industry sort of run together, right? So a lot of this you have to put back in what's happening to us, in fuel industry is this sort of global move towards transparency in our business. And I think if you look at, you know, you take the sample of MFM's coming in Singapore, etc.,last decade, and the build up to that, and the growing realization brought down probably by the work of some very good inspection surveying companies regarding the fact that things weren't quite as kosher as they might be in the bunker industry. And so I think what you're seeing here is this realization that this industry and even to somewhat extent, the commodities industry is not quite as clean as we've all made it out to be. And I'm not saying we, as you and I, but I mean, as we've painted a better picture of ourselves than we probably deserved. So I guess from that perspective what we're seeing is a reaction to this at the same time as this, we're also seeing a lot of changes going on the supply structure, different suppliers coming in, who have different motivations, who are, run in a different way have different internal governance are, "more correct" in the way they operate. And so that's exposing a lot of the entities in the industry that aren't. Yeah, to add to that you have a sanctions regime that's been more aggressive under the U.S. administration for the last few years, perhaps building from previous administrations and building from previous sanctions regimes, but the reality is it's come home to roost, and I think it's impacted a lot of the companies have stayed within Europe or some of the European banks have turned a blind eye to some of these things.

So I think it's huge. I think what happened within Hin Leong is indicative of all these trends, and it's sort of a passing of an old guard of the industry to a certain degree and not that there aren't many of the old guard left, there are still but as the changing of the industry, the shift in the way we look at things, the impact of it is a huge significant. I mean, I was struck by the fact that not just the bunkering industry or the bunkers companies came out and sort of just explained that they're perfectly sound financially, nobody should be worried and transacting the company XYZ. But also the fact that commodity traders came out too the big commodity houses the week after or two weeks after the Hin Leong collapse, we're all out doing PR activity, the big names the big Switzerland, Swiss based, traders coming out and saying, "We're okay, don't worry." So obviously, the ripple effect of this through the industry is significant. What I think it does, is it makes it harder for people to operate. There is less liquidity in the market, the bigger companies with bigger balance sheets and more assets that vet well will get credit, the smaller companies won't or find it very difficult to get or have to pay significant premium, probably more than they've done in the past. You know, I think that's painful, but it also perhaps indicates to us all what the trend is going to be in the industry in the future, where are we going as an industry and who will be the future players of the industry, so to speak. And I think it's pushing us in a different direction. You're moving away from, that era the '90s and early 2000s where the independence tend to dominate to a different marine fuel market. And so I think that's supported by the financial challenges we face right now.

Interviewer: Right, it's definitely sort of a forced transition, of what has been going on and another one obviously, and we'll talk about it will be, IMO 2030 and 2050. But before this, talking about you mentioned some regulators and so on. Now with your recent appointment as board member of IBIA that comes with responsibilities, and I think, especially now our attention is heightened and regarding of what IBIA can do and deliver and influence, right. Just first of all, just tell us what are the priorities of IBIA for the next 12 months so that we can kind of figure out what's in your agenda?

Adrian: Right, those are the multiple priorities. You know, it's a diverse group of industry, individuals, companies, I mean, make this independence, brokers, traders, etc. So, yeah, I think that as a general goal, I think it's pretty clear that we're very much behind the sort of push for transparency and I mean, by that the efforts of licensing in different ports, MFms those are the things. But I mean, the pain in Singapore is obvious. And we know ex members of IBIA have suffered as a result of having to transition out of the old way of Singapore. But the reality is for the industry to go forward, we need that transparency and IBIA needs to support it. And we need to be encouraging both [inaudible 00:10:25] governments to get involved and to make that happen. So I think that's a primary goal of our business. And I think another side of it. The primary goal of IBIA is business and outside of is to be truly global or representative globally. You know, when I remember getting back in the' 80s and early '90s, I used to joke about IBIA or I would talk to people and I'd say, "It's just a bunch of London brokers and traders who would get around and have few beers." And in some ways that was exactly what was going on. And the global component is what's terribly important. Because you want the physical suppliers, you want the ship owners involved, you want all these people involved, and you want them around the world. So setting up regional boards of IBIA getting membership from across the different continents of the world, very important for IBIA. You know, and then the last goal would clearly be, "the environmental goal," I mean, we all recognize that need that pressure we all recognize what's going on and we need to as a company, be aware or as a group as the board and be aware of that and deal with that and to sort of lead it where we can. So I guess those are the three key things.

Interviewer: Great transition, your last points. IMO 2030, 2050. No need to go into the specifics of it because we've heard extensively about it, and which is a good thing. Now, is a global mandates achievable? And will it be eventually passed on? I think it's 2023 is a date that people have expectations for IMO to really trigger something concrete on this now, Dirk from the CEO of GoodFuels in the first podcast last month said that say a global mandate is a bit of a, I guess, moonshot, at least in the short term, and he foresees more of like, regional, emission schemes regarding GHG and C02. What's your view on this or IBIA view on this?

Adrian: Well, I think I'm not sure I would tally on behalf of the IBIA board because there's differing opinions on it. But I think my view is that I believe I mean, I will come out with a global mandate in 2023. And I think it'll probably be ultimately more stringent than the one that we've seen put out for discussion. Look at the fourth the greenhouse gas to the fourth greenhouse gas study that was just released. That was pretty damning. You can argue that it was, you know, people can argue it was unfair in certain ways and not representative blah, blah, blah. But the point is, it's pretty damning. And I think given the state of the world, the state of play in the world, I cannot possibly see that 2023 not going ahead and the mandate 2023 and a probably more stringent one than we've anticipated so far. And that's all good from my perspective. So, we're gonna create challenges, but I think the industry is "ready" for that challenge.

Good and Blue Insights, just published, I think last month or the month before, the low carbon shipping fuels and energy guides for 2020 excellent, by the way. So you've got 11 fuels and energy systems basically and that's why it's great because the go to guide per fuel and with experts in each field and companies backing each one of them now, you're agnostic about each one of those with the pros and cons. But I just wanna put you on the spot here. What are the top runners here for 2030, 2050? Is it ammonia, methanol, bio LNG or just tell me?

Adrian: Well, if I could tell perfectly I'd be already investing definitely right. I mean, part of the problem is you got to know which companies to back because there were so many developments. But if you look at the world right now, and you look at where we stand, I mean, you would be crazy not to see what's going on in the world. And yes, we're talking ammonia, we're talking hydrogen, we're talking methanol, but the reality is most of what makes sense in a shipping world that has no money at all right effectively and not to mention the global economies that don't have an awful lot of money to spend on developing those sort of infrastructure around is the low hanging fruit the low hanging fruit. And the low hanging fruit there's a combination of bio and LNG and that to be honest is where I would see it at the moment. So if that's my 2030 path that's what my 2030 path is, right? I would guess that will see more and more buyer coming into the industry, and I think it was Exxon yesterday they announced they're gonna start supplying bio in Rotterdam right?

Interviewer: Mm-hmm, instead of bulk, yeah. Thank you.

Adrian: Yeah. And then the LNG infrastructure is to a certain degree already there. I mean, there are in major ports there are LNG supplies, they're not huge. They don't have perfect infrastructure. But the reality is, if you had a vessel the trunk going around the world, you could with this certain exception in certain areas, you can find LNG. So, that to me, well, it's not the perfect solution clearly, it is, a solution that does reduce carbon in the short term. And it's sort of variable. But the easiest one, of course, is we're gonna go back to the GoodFuels right? The drop in bio, whether it's 100%, blended or whatever it is, is a very easy solution to get us to that level. Now, there's gonna be competition for that right?

And so that challenge is...go forward 2015 I think that's a very difficult question, because a lot depends on how the technology is developed and what comes along. But naturally we see that the less dense fuels in terms of energy density, being used for short sea shipping, right? We're not expecting to run a VLCC on a battery, for example. That's probably not gonna happen. Components of that VLCC may be but not that ship itself, not the main propulsion. But we do expect to run ferry boats running across New York Harbor or wherever it might be, right, that way. So those are real solutions. Hydrogen is somewhat similar solution needs a lot of space to store. So all these other technologies come in, and they could fulfill ultimately, sections of shipping. So shipping, the bunker market is no longer homogeneous in its structure. It's not IFO 380, as in the good old days, it's lots of different types of products and lots of different types of solutions for the types of ships you have. That's a bit of a cop out for a 2050 solution. And it's not like I'm gonna say instead of ammonia, it obviously has to be something that commits significantly less carbon because in order to get there, get to these, even the current levels, the current levels of decarbonisation, you're gonna have to have a significant drop in carbon emissions from individual ships. So ultimately, the fuels gonna have to produce no carbon or indeed has a negative carbon footprint. So that has to happen and there has to happen to a certain degree of shipping. So, if that's my answer when I'm hedging myself a bit, that's good, but I think that's kind of where I see it too early to really pick that winner to be honest with you.

Interviewer: Fair enough. I'm gonna now quote a passage actually in your Blue Insights, Low Carbon Shipping Fuels Energy Guide, you're saying the traditional marine fuel landscape in which bunker suppliers traders and brokers exists today will likely not exist or be completely transformed in the future. So what's, I mean, the managers and directors of world fuels bunker holding kocot, Penninsula, Monjasa, NSI, and so on, just to name the largest international ones. How should they position themselves in view of 2030 and 2050. I mean, it is a long term goal of course. But you're saying those are strong words right will not exist or be completely transformed. So how should they change?

Adrian: Well, they're intermediaries and the intermediary role is still available I think the biggest change is who's going to be the supplier we've already seen a transition with IMO, 2020 and VLSFO out of certain suppliers being significant simply because they didn't have an angle on point five or etc. And you're starting to see other suppliers like some major oil companies, larger finders even commodity traders entering the space because they see the positive crack on point five was an interesting play or from a trading point of view, right. So that is the first movement I guess into that that I see going on. So that will tend to push out some of the smaller companies. Now as far as positioning themselves as an intermediary. I think it's very important to be aware of where it's going worries me and I don't know why it was me and perhaps it's because I'm a bit old school myself and remember the old school industry, that a lot of the existing industry will look at the point five transition. Because all of that is great. We got through that sort of thought that's like we started out that conversation, right? Oh, that's great. We got through that. And now we don't do anything for a while. You know, there's 2050 things along the way in the future, let's not worry about it. Let's just carry on supplying point five and slowly but surely, the existing names that we know house sold, or shipping company names or shipping chartering destinations just start to disappear from the supply structure. In other words, it becomes less important. You know that the current data moves have become is less important because they've not adapted to the change in the industry. They're not adapted to the fact that there's multiple fields out there that shift owners need real relationships, real long term commitment, long term relationships with suppliers in order to build a new technology or create a new technology.

And let's face it, you don't see a lot of that right now. I'm not saying that I have heard that, many of the names you talked about are engaging already trying to engage in new fields and new technologies, but it's a challenging space for them because I don't think they're no better at picking the winners etc. So, other than keeping people informed, we have to wait and see I mean, this also comes along at the same time is the industry sort of a bit worried about credit right. So, how does that play? You know, clearly, a lot of these new suppliers will need middlemen, they will need intermediaries to not only to help find a market but they will also need them to provide credit to facilitate the credit transaction so that provides a door open. I mean, triggers there's two or three websites now that claim to be for example, a place you can source LNG from right? It's kind of like, they're kind of opened up recently and I'm intrigued that these have come on and these are not run by traditional brokers they're not run by oil fuels, one is run by classification scientific for goodness sake which is very interesting. So when you see that you start to realize that that's a field you've got to be aware of what's going on you got to adapt. So I think my message to the intermediaries is keep an eye on it be aware put some of your brightest and smartest people in there because this requires intellectual firepower and be aware of what's going on. I think from the supplier point of view, it's just an altogether more challenging right. If you are a traditional bunker supplier used to supplying a liquid fossil fuel in the port. Not a very large port, how the heck do you go from buying a barge load over a barge load to suddenly becoming an expert in hydrogen supply? It's a huge transition. So I don't know if that's achievable. And so we will lose people. But we will also gain a lot of very good names and good companies too.

Interviewer: Right. Some new names out there for sure to look out to. Listen. It's probably time to wrap it up. Do you have anything else that we haven't touched upon, or or any last thought for our listeners?

Adrian: Yeah. I mean, I think it's a lot we haven't touched on, but I think the key thing here is adaptability right not to be afraid of the change to try and embrace it. I think it follows on a little bit from that last discussion we had about intermediaries. I think there is huge opportunities to come along and those of us who are currently in the existing buggers, we have an expertise in the industry, that that we know the customer base, we understand the port's operations, we understand the way things work. These are all these new providers and new sellers don't have that. So if you look at a lot of guys who are starting up in the business and providing new fields and technology, they got a lot of people who used to work in the old bunker industries in other words, they're bringing in people with experience to help them operate. So I think, from an industry point of view is be adaptable to what's changed, don't resist it. And also, I think from another point of view is make sure you don't... How can I say? Make sure you don't just ignore what's going on and pretend that it's unimportant. For some it might be unimportant you know? Life moves on. They may want to retire and sell their business to another person but I think it's that. So I think the industry is highly adaptable, capable of adjusting to this as long as we remain open minded and I'd like to think that 20 years down the road, a lot of people who are still in the industry now will still be in the industry. That is my positive side of it.

Interviewer: Well, I think it's a positive outlook and I agree with you. It's a very resilient infrastructure. Thank you very much Adrian, for joining us.

Adrian: Thanks again appreciate it.