Analysis: Singapore storage market adjusts to IMO 2020

Interest in storing low-sulphur residual fuels in Singapore is increasing in the run-up to new IMO marine fuel sulphur limits taking effect, as rising costs of floating storage boost demand for onshore tank capacity.

Consumption of low-sulphur bunker fuels in Asia-Pacific lags well short of demand for the more commonly used high-sulphur grades. This has limited demand from cargo suppliers to book onshore capacity for blending, despite moves by China and other northeast Asian countries to impose 0.5pc sulphur caps in recent years.

But the approach of the International Maritime Organisation 2020 regulations — which will impose a global 0.5pc sulphur cap from 1 January next year — has prompted several cargo blenders to secure onshore storage capacity for low-sulphur residual fuels in Singapore to ensure they can comply with the new standards. Others are still in discussions, with offers to store low-sulphur fuel oil (LSFO) in Singapore at S$5/m³ ($3.65/m³) and higher for long-term leases, although rates vary depending on a terminal's ability to handle multiple grades of fuel oil at berths. Storage space for high-sulphur fuel oil (HSFO) was last booked at S$5.50-5.75/m³ for shorter leases.

The IMO rules are also driving infrastructure changes. Storage operators have started cleaning their tanks and reallocating pipelines in preparation for the change in sulphur specifications, while at least one Singapore-based storage company — Horizon — will not store any HSFO from the second half of this year onwards, market participants said.

Netherlands-based tank storage company Vopak is planning maintenance at its onshore storage terminal in Singapore from the third quarter onwards to prepare for the IMO 2020 rules, traders said. This means companies that currently lease HSFO tanks might have to vacate their capacity while the tanks are cleaned.

Horizon and Vopak declined to comment on their Singapore storage activities.

Many blenders have turned to floating storage near Singapore because of lower costs compared to onshore tanks. At least 10 very large crude carriers (VLCCs) are currently holding low-sulphur residual fuels, heavy sweet crude and distillates, according to market estimates. Offshore and onshore low-sulphur inventories in Singapore and southern Malaysia have increased to 3.3mn t from 1.75mn t in March.

But the costs of floating storage have been creeping higher because of strong competition between blenders, prompting some to look at onshore capacity instead. Floating storage costs are around S$2-4/m³, traders estimate, which is still cheaper than onshore storage but comes with some limitations. Leasing onshore storage for low-sulphur fuels allows for more sophisticated blending than on a vessel used as floating storage.

Singapore's onshore stocks of residual fuels are rising. Stocks of fuel oil feedstocks, HSFO and low-sulphur residuals were at 23.8mn bl as of 13 June, up by 3.7mn bl or 18pc from a year earlier, when most of the inventory was HSFO. The Singapore government does not provide a breakdown of residual fuel stocks by product. But the rise in stocks likely encompasses both low- and high-sulphur grades, which — combined with a fall in high-sulphur marine fuel demand once the IMO rules take effect on 1 January — is likely to boost demand for offshore storage in the straits of Malacca.

Singapore is the world's biggest bunkering port, with sales at around 4mn t/month. The 380cst HSFO grade accounted for 2.8mn t or 70pc of total sales in May, with low-sulphur marine gasoil and LSFO grades making up just 270,000t.