John W. Stone Oil Distributor is one of the biggest physical suppliers of marine fuel in New Orleans, Louisiana. Anthony Odak, COO of the company, told Argus in an interview that his company will have enough 0.5pc sulphur bunker fuel in time for January 2020, when the International Maritime Organization's global marine fuel regulation goes into effect. John W. Stone Oil will also continue to supply heavy bunker fuel to the shipowners who have chosen to outfit their vessels with exhaust scrubbers. Odak believes that there will be a 0.5pc sulphur marine fuel forward curve developed by the second quarter of 2019, in order to hedge the product. Below is an edited transcript of the interview.
Do you expect to be able to offer to your customers 0.5pc sulfur compliant marine fuel in the months leading up to January 2020?
At this point in time the answer is yes, with many caveats.
Do you expect to offer 0.5pc sulfur marine fuel that is paraffinic in nature, or aromatic in nature, or both? Would you be blending a 0.5pc sulphur compliant fuel?
We are not confident enough to state whether the product will be solely a distillate, residual, or hybrid fuel blend. We have worked with several different products or technologies, and each has its particular benefits or drawbacks.
Regarding distillates, we have a variety of sources for fuel. Our ability to blend the sulfur to the appropriate regulatory content I believe gives Stone Oil a distinct advantage. The sourcing of distillate as well as residual products is very diverse and, given our wholly owned fleet of 47 inland barges, 17 inland boats and three for offshore equipment, as well as rail assets and transload capability, we are able to source from traditional marine based refinery/storage terminals as well as landlocked sources.
Regarding the residual side of the business we are working with several technologies and "feedstock suppliers" to obtain a traditional asphaltene based intermediate fuel oil (IFO). We have had some promising results, chemical and physical, when it comes to blending some traditional components, as well as blending of raw crude stocks.
Regarding the hybrid fuels, we are running test trial with a supplier of vacuum gasoil (VGO) - paraffinic based product. These trials are being tested between our supplier and their direct customer, whereas at this time we are only the blender and delivery agent. We have a lab on site that tests all of our hand blends, before we bring in a third party for sampling and testing.
We are also a current supplier of methanol to the offshore oil market. Finally we have been working in collaboration with US LNG bunker supplier REV LNG Marine in developing various avenues to bring a cost effective marine LNG solution to the inland and offshore marine marketplace. REV LNG Marine's expertise and Stone Oil's distribution model is leveraged to bring LNG to market.
There are different views on what the market would use as an price indexation benchmark to price 0.5pc sulfur bunkers. What do you think the market will gravitate to as a price reference?
We have engaged our hedging partners, and as you are aware the 0.5pc sulphur bunker market forward curves have not developed.
That being said, we have engaged with several refineries and financial institutions, to look at developing a forward curve for the 0.5pc market by the second quarter of 2019, if not earlier. The challenges currently are: what is the 0.5pc sulphur bunker market volume, where is it, and what is it comprised of - residual, distillate, hybrid [fuel]? I do see this forward curve developing well before the 2020 deadline.
Do you expect that shipowners might gravitate to buying mostly MGO in 2020 for bunkering? What percent of the previously 3.5pc sulphur residual fuel oil demand, do you expect to switch to marine gasoil (MGO) and what percent of the market to 0.5pc sulphur bunkers?
We initially expect to see a considerable amount of the business switch to a distillate based fuel, but we have been pleasantly surprised by the number of customers that have contacted us directly regarding supply of 3.5pc sulphur IFO for their vessels that will either have scrubbers or are being modified for scrubbers.
The general thought is that there would be a large initial differential between distillate and residual fuel. Still, after the market gets back to some sort of equilibrium the differential will be substantial enough for installing the scrubbers on many of the vessels transiting our area.
What type of MGO do you currently offer?
We currently offer MGO that is similar to Colonial pipeline grade 62, as well as a Emission Control Area (ECA) distillate that meets the requirements of 0.1pc sulfur. The caveats are that they all meet the minimum requirements of International Organization for Standardization (ISO) 8217 DMA, distillate-type bunker with particular emphasis on sulfur, flash, and lubricity.
From talking to shipowners we hear there is a wide range of expectations around the price differential between MGO and high-sulphur 380cst fuel in 2020. What are your price spread expectations?
Currently the spread is $200-$275/t depending on the location of the product and its availability. Given the added demand as has been forecast for distillate, we have seen forecast models upwards of $450/t spread initially, even before 2020.
What are some of the biggest challenges you anticipate marine fuel suppliers would encounter at the start of the Jan 2020 global marine fuel regulation?
Added pressure on suppliers to take on more risk, while the margins continue to shrink. Absorbing the cost of determining a "good" blend stock component from a "bad" one have been increasingly difficult.
Will you have dedicated inland tank storage capacity and bunker barge capacity to handle the 0.5pc sulfur marine fuel?
We have dedicated storage tanks ashore as well as assets on the water. Currently we have over one million barrels of shore tank capacity in Gretna, Louisiana which will start to be repurposed by content as we draw nearer to 2020.
Are you considering expanding your fleet (of bunker, diesel, cargo, asphalt, offshore barges) or substituting some of your existing barges with newer vessels?
Our fleet of 47 inland barges as well as three multi-purpose offshore units, gives us the capability to easily transition to the 2020 market whatever it may be.
We are able to provide multiple fuels, lubricants, water, and remove spent lubricants all on the same barge. After discussions with several of our customers, we have begun making the appropriate modifications to accommodate urea, remove scrubber effluent, and provide a caustic delivery service, for those [customer] vessels that are fitted with the appropriate scrubbers or selective catalytic reduction (SCR) technology.
