Italian refiner Saras is opening a bunker terminal at the Sardinian port of Cagliari in the second half of this year. The facility will supply very low-sulphur fuel oil (VLSFO) produced at the firm's 300,000 b/d Sarroch refinery. The move comes ahead of changes to International Maritime Organisation (IMO) regulations governing marine fuel specifications in 2020, aimed at cutting emissions. Head of Saras' bunker operations, Giuseppe Gibin, spoke to Argus about the evolving bunker fuel market and its operations at Cagliari. Edited highlights follow:
Do you have any price forecasts for products that comply with the IMO's 0.5pc sulphur cap?
For us, the crack margin is more relevant than the absolute price. According to reports we see in the market, the absolute price of VLSFO is expected to be closer to gasoil than to fuel oil. From our perspective, this is pretty encouraging. In our business plan, we have prudently assumed around $6-7/bl of crack spread. We see some other sources are expecting double digit margins.
What are the specifications of your 0.5pc product ?
We do not expect to produce VLSFO very far from the 991 density maximum and 380cst viscosity. The main component of our VLSFO is a low-sulphur vacuum residue, so it is nothing separate or special from what we are already doing. We just need some due care to logistics and dedicated preparation after that. We implemented internal quality procedure in the production phase of this new specification, in order to track and control all the steps from refinery production through to barge delivery. Physical operations are not just a certificate of quality showing the product is "on spec" — it is a full process properly managed, end to end.
When will your new bunker terminal start operations?
We are targeting June as the month for first deliveries of some molecules. We are pretty confident we will get it done. We have been working on this project for about one year and the start-up is basically 95pc achieved. We are aware we are going to offer a service, not just selling fuel, and we are very excited about this. If you go back in our history, we were a processing refiner in our old days, so being customer-oriented is in our DNA.
Have you made any term contracts to supply 0.5pc fuels or sold any cargoes already?
We have received some sound interest from shipowners, usually ones which are calling into Sarroch and Cagliari. Also enquiries from international shipowners that are looking to 2020 with some concerns over the availability of supplies across the Mediterranean.
We have in place about 150 potential customers, but no term contracts so far. We have been stepping this up in the last 2-3 weeks. We have already provided some indications of price for spot deals. We also see the customers are putting high value in the direct relationship with a refinery. Where possible, I am sure we will get term business relationships in place.
At which ports will you supply the 0.5pc product?
Sarroch and Cagliari. We have worked closely and constructively with the Cagliari port authority. Bunkering is a new business for us and also a new service that Cagliari port can offer.
Also not to be forgotten is that South Sardinia is a very short-haul deviation from the main Mediterranean route between Suez and Gibraltar. So we are confident that we can attract some ships interested in our bunkering service. This is a starting step, because we see opportunities in the market for bunkering supply and trading for the future that we hope will turn into increased business. We can potentially open some doors to other ports in the next 6-12 months.
Do you expect to see any demand for IMO compliant fuels before Q4 this year?
Yes, some trial cargoes will move first. We have already sold 15,000-20,000t a couple of times. Then from the fourth quarter onwards.
When do you expect to see a common standard product for 0.5pc bunker fuels?
If common standard means official ISO specifications-compliant product, I do not see big issues. I am not sure in the first half of 2020 that there will be that much VLSFO around. Availability is likely to get tighter in the second and third quarters, compared with January-March, because then you will be getting some more stable levels of demand and no product coming from inventories.
Do you foresee any storage problems if there is not a common standard product? What are your plans to overcome those issues?
It is no big issue for us. We know what we produce and how we fill our tanks. But if you are referring to big storage facilities, where normally blending is a common practice and collecting various streams from different refineries and origins, well, that is a completely different story. Blending opportunities will be less available, more risky and costly.
How much bunker fuel did you sell in 2018 ?
On the cargo market, about 200,000t of high-sulphur fuel oil (HSFO), some 250,000t of low-sulphur fuel oil (LSFO) and 180,000t of marine gasoil (MGO).
How much demand for 0.5pc fuel oil will be absorbed by MGO/LNG demand/on board sulphur scrubbers – how much HSFO demand is likely to remain post-2020?
We do not know exactly. Out of the current HSFO bunker market demand of approximately 3.4mn b/d, there are predictions that approximately 25-30pc of HSFO will remain, either scrubbed or in non-compliance. MGO will have a substantial increase and be around 20-25pc of the overall marine fuel consumption, and the remaining will be VLSFO. MGO will be lifted in ports where VLSFO will not be available. LNG is still to be developed, it is not yet a solution.
