INDEPENDENT INTELLIGENCE FOR THE GLOBAL BUNKER … · Asia Pacific 18 Africa and Mideast 22. 4 April / May 2011 bunkerspot ... have an ‘endgame’ in mind, and a ‘roadmap’ for

Inside:• After the Earthquake• Mideast Crisis• Shipping and Oil Markets• Bunker Surveying• People and Places• News and Events

INDEPENDENT INTELLIGENCE FOR THE GLOBAL BUNKER INDUSTRY

TAKING STOCK:Strategic oil reserves

www.bunkerspot.com Volume 8 Number 2 April / May 2011

bunkerspot April / May 2011 www.bunkerspot.com 3

FEATURES

MARKET TRENDSChris Thorpe looks at the questions that companies should be asking when they are formulating their hedging strategies 24

Félix Yamasato of Lloyd’s List Intelligence looks at the dry bulk market 26

BUNKERSPOT WORLD MAP

Global prices and news at a glance 30

FOCUS ON OIL RESERVESLesley Bankes-Hughes considers the significance of legislation on national emergency oil reserves in the light of recent global geopolitical and environmental crises 32

ENVIRONMENTAL ISSUESChris Welsh, General Manager of the UK Freight Transport Association, outlines a new FTA/Heriot-Watt initiative which will examine carbon reduction opportunities from the shipper’s perspective 38

REGIONAL SPOTLIGHT: JAPANEnergy price reporting agency Argus believes that the impact of the Japanese crisis on the energy sector will be exacerbated by the already-fragile state of the global oil market 40

Peter Norfolk of FIS considers the long-term consequences that the earthquake and tsunami may have on Japan’s transport and energy sectors and its dry bulk commodity markets 42

REGIONAL SPOTLIGHT: MIDDLE EASTZaineb Al-Assam of Exclusive Analysis considers how the situation in the Middle East may play out, and what the consequences for transport and the supply chain may be 44

GAC Bunker Fuels tells Bunkerspot how its staff in Egypt helped to keep the information – and fuel – flowing during the recent turmoil 48

QUANTITY SURVEYINGMichael Green of Lintec considers whether the bunker industry’s growing interest in flow meters will impact bunker surveyors 50

BUNKER PEOPLEBunkerspot asked Julian Clark whether a day in the life of a lawyer really was all wigs and gowns, heated cross examination and smoking guns? The reality is somewhat different 52

EVENTSLlewellyn Bankes-Hughes previews Maritime Week Americas ahead of its arrival in Latin America 54

NETWORKINGBunker people on the move 58

Contents

0706 bunkerspot v6i6.indd 2 02/12/2009 16:05

Bunkerspot is an integrated news and intelligence service for the international bunker industry. The bi-monthly magazine and 24/7 electronic news service, www.bunkerspot.com, both provide highly-specific information on all aspects of the marine fuels industry. Bunkerspot Magazine (published in February, April, June, August, October and December) annual subscription rate, including unlimited access to the website www.bunkerspot.com, is UK£250/€280/US$400. ISSN 1741-6981. Copyright Petrospot Limited © 2011. All rights reserved. Published by Petrospot Limited, a dynamic independent publishing, training and events organisation, focused on providing information resources for the transportation, energy and maritime industries.

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NEWS Bunker Overview 4Europe 8Americas 14Asia Pacific 18 Africa and Mideast 22

April / May 2011 bunkerspotwww.bunkerspot.com4

Bunker Overview

Earthquakes, tsunamis and the winds of changePredicting where oil prices are heading is a tricky business at the best of times. It requires an intimate acquaintance with two highly complex markets – shipping and oil – and you need to keep a beady eye on all the key indicators: inventories, crack-spreads, freight rates, scrapping rates, etc. But even this is not enough. As the events of the past few months have shown, all your finely-tuned calculations can be blown away by political convulsions in the Middle East or – even more difficult to predict – the terrible aftermath of an earthquake on the Pacific Ring of Fire.

As this issue of Bunkerspot went to press, the price of Brent crude oil had just leapt up to $116 a barrel and analysts were predicting that it could soon go above $120 a barrel. The spur for this particular price hike was the news that military action was being stepped up in Libya. The United Nations (UN) initiative, Operation Odyssey Dawn, began on 19 March with French air strikes on strategic targets in the east of the country. This was followed up by a flurry of cruise missiles launched by US and UK naval forces. On the following day, the

12 month rolling price charts

UN forces launched a night-time strike on Bab al-Aziziya, the Tripoli-based command and control centre of Libya’s beleaguered dictator, Colonel Muammar Gaddafi.

At the time of writing, it was unclear just how far the UN forces were prepared to take the battle to Gaddafi. Regime-change is not a stated aim of the UN Security Council resolution, but many coalition politicians, including the UK Foreign Secretary William Hague, seemed to be taking a hawkish view.

If Libya’s oil industry is off-line for a significant period, there is bound to be some impact on oil supplies and prices. Analysts are already questioning whether the UN partners have an ‘endgame’ in mind, and a ‘roadmap’ for bringing stability back to Libya. Just as importantly, will Libya’s neighbours and other members of the Arab League accept the UN’s intervention?

To help put the Middle East situation in perspective, we invited Zaineb Al-Assam, the Head of Middle East and North Africa Forecasting for the intelligence company Exclusive Analysis, to look at some of the

scenarios that could follow on from the current crisis (see page 44). One of Zaineb’s scenarios – to which she gives a probability rate of 60% – is particularly sobering: ‘In Libya, the most likely scenario is a prolonged civil war in which cargo transit and fuel supply is significantly affected.’

Importantly, Zaineb also believes that it is ‘reasonably likely’ that there may be ‘one or more regional uprisings against the Al Saud’ in Saudi Arabia. The west may support popular movements in Libya, Bahrain or Egypt, but insurrection in Saudi Arabia – which plays such a key role in the global economy – may be another matter.

The earthquake and tsunami that hit Japan on 11 March have also had a huge impact on the world’s shipping and energy markets. On this subject too, we have asked acknowledged experts to give their assessment of the situation in this issue of Bunkerspot.

Writing on page 40, energy price reporting agency Argus notes: ‘The immediate impact on oil demand is certainly negative, but the longer-term effect will be positive, as oil-fired

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Bunker Overview

plants are deployed to replace lost nuclear capacity and damaged infrastructure is rebuilt.’

Peter Norfolk, Research Director with Freight Investor Services (FIS), observes that, even with a terrible tragedy such as this, clouds can have silver linings. While some of Japan’s ports were badly damaged and may take months or even years to come back to full strength, the need for reconstruction will bring a long-term boost for steel demand ‘with a significant increase in raw material imports’. The overall effect, says Peter, ‘should be a boost to iron ore and coking coal imports into the region’. This will, in time, mean more business for Capesize, Panamax and handysize ships – and the industries that supply them.

Concerns over the rising price of oil and supply disruptions in the Middle East have also served to highlight the importance of our governments’ strategic oil reserves. Lesley Bankes-Hughes delves into the subject on page 32. As Lesley points out, the recent upward pressure on prices has prompted some in the US to call on President Barrack Obama to use a draw down of strategic reserves as a price calming mechanism. As Bunkerspot went to press the President was sticking to his policy of non-intervention. HCEnergy’s Chris Thorpe (who also writes his own column on hedging strategies on page 24) told Lesley that Obama was taking the right line, as any draw down would have little, if any, effect on prices and would be ‘a near-sighted solution’.

Interestingly, Lesley points out that while ‘price calming’ is one of the stated objectives of the US Strategic Petroleum Reserve (SPR), a European directive expressly forbids draw down from the European Union (EU) reserves for the purposes of price control. This may come as something as a surprise to many, as the EU is generally pilloried as a nest of interventionist policies, and the US as the land of laissez-faire. But most people would be surprised by a wide range of issues connected to the oil reserves – given their economic and strategic importance, they receive scant media attention. As Lesley points out, recent events have shown just what a ‘critical function’ the reserves perform, and there is a need for more transparency in this area.

380 IFO February March31-04 07-11 14-18 21-25 28-04 07-11 14-18

Rotterdam d 535 542 559 588 604 604 601Gibraltar d 558 562 582 601 618 628 627Piraeus d 550 559 577 596 612 624 619

Suez d 572 590 622 631 655 648 659Fujairah d 593 616 630 637 638 638 635Durban w n/a n/a n/a n/a n/a n/a n/a

Tokyo d 585 619 622 641 681 684 686Busan d 583 604 615 650 661 656 651Hong Kong d 587 609 619 639 655 653 651Singapore d 579 593 613 624 630 636 630

Los Angeles w 578 592 601 620 652 659 645Houston w 536 549 573 611 638 644 616New York w 549 562 576 616 635 646 646

Panama w 556 568 589 623 654 676 662Santos d 579 607 595 610 632 654 646Buenos Aires d 524 536 543 569 579 610 638

180 IFO February March31-04 07-11 14-18 21-25 28-04 07-11 14-18


Suez d 592 627 636 649 670 679 676Fujairah d 633 651 672 681 673 671 661Durban w 617 643 659 680 662 654 653




MDO February March31-04 07-11 14-18 21-25 28-04 07-11 14-18


Suez d 863 885 921 937 981 971 992Fujairah d 923 932 947 971 992 989 974Durban w 902 929 939 955 979 977 991




KEY: d – delivered • w – ex-wharf • n/a – not available • mdo – marine diesel oil

GLANDER

Bunkerspot prices are compiled from the reports of the four brokers whose market reports have consistently proved the most reliable and accurate: Cockett Marine Oil Limited, LQM, Glander International Inc., and KPI Bridge Oil. Bunkerspot welcomes market reports from other sources for inclusion on its website www.bunkerspot.com


Market Trends

Chris Thorpe looks at the questions that companies

should be asking when they are formulating their

hedging strategies

Most business managers are reeling from the latest crude oil price spike. Perhaps ill-

prepared, most have barely recovered from the previous bull market peak and collapse in 2008. With rising food prices and stagnating wages, higher fuel prices have hit consumers and businesses hard.

Just when the transportation industries were managing to see some recovery, they once again have to grapple not only with high prices, but also increased volatility. This time, supply threats seem to have more impact than global demand growth, which sent prices soaring into 2008. And with the threat of Middle East and North Africa tension extremely difficult to estimate, forecasting with any reasonable certainty is a daunting task. However, transportation companies from marine to road continue to use fuel price commitments as a sales tool to edge out competition, regardless of nominal price levels. Most recent experience tells us that the tendency is to use low cost or minimal cash requirement strategies. Are these sales strategies effective or just too risky? It is important to ask the right questions about hedging before we applaud or criticise strategies.

We do know why most transportation companies hedge. For some, it is a function of customer demand for fixed or capped price commitments. For others, hedging simply protects cash flow. Others simply believe that higher prices are inevitable and thus only prepare for that risk similar to those who buy gold as a currency or inflation hedge. In fact, many transportation companies were appropriately hedged going into the last price spike of 2008, covering upside risk. But it is not worth reviewing why they were hedged, as many are, but how they were hedged. The ‘how’ is most important because it exposes the kinds of risks accepted often in exchange for those mitigated by a trade.

The most common consumer hedge strategy using options is known as a ‘zero-cost’ collar. This is second only to a ‘swap’, also known as a contract for differences, where one party assumes floating prices whilst the other accepts fixed prices for some period of time. The collar approach allows the consumer to cap the future maximum price at some level higher than the current market in exchange for a commitment to accept a lower price, or floor, as a minimum. The collar strategy is extremely attractive because it can be structured with zero up front premium, as the purchase of the cap price is offset one for one with the obligation to accept the floor price. These contracts are

most often structured bilaterally in the bank market so that consumers can avoid posting collateral.

The pitfall of using swaps and collars is the tendency to underestimate near-term potential for large swings in market prices that may work against the hedger. Since prices today affect all hedges, whether they be current or longer dated, large swings in prices have dramatic effects on the value of those hedges. Consequently, a large swing in price against the hedger can result in sharp changes in value reported on the company’s balance sheet and income statement in the current reporting period. Additionally, many contracts require the posting of collateral in the event of elevated volatility in the value of the contract.

Many have argued against the requirement to report current values of hedges, also known as ‘mark-to-market’ value, since they have a dramatic impact on financial statements and ratios used in the credit and capital markets. Famous investors such as Warren Buffett have argued that mark-to-market rules tend to create unwarranted negative impact on the regulatory capital of banks. Buffett argues that the future exposure of these contracts is unfair to banks having to report to the regulators, which in turn can have negative impact and disastrous results even if the business strategy is sound and correct. Interestingly, Buffett himself has previously stated that mark-to-market accounting causes market aberrations that work in his favour because he can profit from such inefficiencies. This is true in my opinion since non-cleared derivatives of any nature are often incorrectly valued by hedgers.

The most recent regulations, including those included in the Dodd-Frank Wall Street Reform and Consumer Protection Act, indirectly mandate mark-to-market reporting through the use of exchange clearing, which updates values to market daily. For those exempt from clearing requirement, there may be onerous reporting requirements. Either

‘We do know why most transportation companies

hedge. For some, it is a function of customer

demand for fixed or capped price commitments. For others, hedging simply

protects cash flow’

Asking the right questions

Chris Thorpe is a Managing Partner with HCEnergy LLC. HCEnergy is a dealer of commodity options, swaps and futures with offices in New York and Zug, Switzerland. Its energy advisory practice focuses on hedging, trade execution and risk management.

Contact: Chris Thorpe, CFA HCEnergy LLC Tel: +1 212 774 5963 Email: [email protected]


Market Trends

way, it is anticipated that no hedger will be able to avoid the requirement to report derivative values on a mark-to-market basis. Hedging strategies will therefore become more open to scrutiny from this point forward. This is likely to result in a positive outcome for management because problems ought to be discovered sooner than later. However, the weighty choice of which tools to use becomes even more significant to the business given regulatory impositions.

Unrealised gainsFollowing rising fuel prices into 2008, typical consumer hedges like collars and swaps had worked well and gained value to offset physical commodity prices. But many programmes resulted in large unrealised hedge gains that were left untouched, arguably neglected, given managements’ assumption that the value of these hedges would eventually be realised. Positions that were not actively rebalanced were often too long or too short versus their original hedging goals or targets. At least in part, the reason they were not balanced was due to static hedging programmes that have strict rules regarding altering or rebalancing. This is normally the case for public companies that want to avoid management speculation on derivatives. Unfortunately, hedging left unattended and strategies left to become stale can lead to disastrous consequences.

When the petroleum markets sold off sharply lower by the third quarter of 2008, most long hedgers stood firm on past commitments, waiting for price movements to moderate before altering strategies or updating positions. As prices dropped sharply, most buyers believed that owning inventory or buying looked appealing, only for prices to drop even lower the next day. Indeed, very few unwound hedges, facing steep losses by the time crude oil found its bottom. In the same year, Southwest Airlines took its first loss in 17 years due to hedging losses. In October of that year, the New York Times reported the following when referring to Southwest Airlines: ‘It’s like you can’t win,’ said Betsy J. Snyder, an industry analyst with Standard & Poor’s Ratings Services. ‘People bother you when you don’t hedge, and when you do, and prices go down, you get hit.’ Standard & Poor’s failed to note that what mattered was how Southwest was hedging, not if it was hedging. US Airways was in a similar situation in 2008, facing large losses for the year. The company had been so well prepared for rising prices that it had all but ignored the potential for dramatically lower fuel prices. US Airways has since abandoned

its hedging programme, citing that hedging is too expensive for its business. It should be noted that it is one of the few major commercial airlines that do not hedge.

Petroleum markets in the first quarter of 2011 have been anything but predictable. With crude oil prices moving as much as $5 a barrel in a single day, hedges using straightforward swap and collar strategies may have unnecessary exposure to volatility. Fortunately, there are strategies to mitigate this impact, and likely for the better in terms of cash risk.

Many have turned to buying call options requiring an initial premium in exchange for payment if prices go higher. This strategy is the best for those than can pass through the insurance-like costs to customer through margins or fuel surcharges. Another hybrid of this strategy is to commit to a lower price floor with a maximum exposure, so that the maximum potential loss or margin call is limited to some value. Often this kind of strategy is called a ‘participating swap’, which allows the hedger to benefit from higher prices with a limited downside risk through a fixed price mechanism similar to a swap. Another similar strategy is called a ‘three-way’ where the consumer has the ability to pick and choose price levels based on his willingness to pay some premium. Both have similar risk profiles.

Minimising riskThese strategies are not new or modern but they have increasing relevance given the high potential for mark-to-market swings and large losses. Stung from the markets of 2008, consumer hedgers are looking for ways to minimise their risk to sharp drops in commodity prices and have increasingly elected strategies such as the participating swap or three-way previously mentioned. These alternatives have lower risk if markets work opposite to what the hedge is designed to offset. Additionally, more hedgers are willing to rebalance and use a dynamic hedging process versus a static hedging programme that cannot be modified to reflect current market conditions. Hedging still provides transportation companies with valuable risk, cost, and sales management tools, even more so when fuel prices become a larger share of costs. But there is no single hedging strategy that works for everyone at all times. Each risk profile deserves a thorough review of goals, constraints and methods for rebalancing and reporting. As markets become more volatile and prices approach historic highs, fuel hedgers should give as much thought to how as they do why they should hedge.

Asking the right questions‘With crude oil prices moving as much as

$5 a barrel in a single day, hedges using

straightforward swap and collar strategies may have

unnecessary exposure to volatility’


Félix Yamasato of Lloyd’s List Intelligence looks at

the dry bulk marketLloyd’s List Intelligence (LLI)

started to look into potential financial problems amongst tanker

owners in October 2010. Then rates had been so low for more than three months and LLI’s clients were increasingly concerned about possible casualties. This sentiment remained as of January 2011 since rates remained under pressure for the last three months of 2010. However, a prominent global bunker supplier expressed more concern about the state of dry bulk operators.

Except for Capesize rates, dry bulk rates were higher in 2010 than in 2009, ranging from a meagre 11.26% for Supramaxes to 20.26% and 34.01% for handysizes and Panamaxes. However, dry bulk owners and charterers faced a difficult start to 2011. Capesize rates had declined by 21.49% in 2010 only to collapsed by 85.21% year-to-early March 2011. Clarkson’s reported average earnings of $92 in the week ended February 25. On average handysize, Supramax and Panamax rates have declined 13.81%, 32.60%, and 47.86% since the end of 2009.

Dramatic declineMorgan Stanley wrote that ‘recent activity has seen a dramatic decline’ with Panamax and Capesize fixtures dropping by 13% and 21%, respectively, while ‘Supramax vessels continue to outperform larger size ships’. As South America’s grain fixtures remain robust and coal mines recover from recent floods in Australia, Morgan Stanley expects demand for Panamax and Supramax tonnage to ‘keep building up’. However, with 1,490 ships scheduled for delivery in 2011, or 22% of the global fleet, the prognosis for marked improvement in rates is slim. Capesize newbuildings entering the global fleet in 2011 would comprise as much as 26% of the global fleet, so naturally this has been and likely continues to be the hardest hit sub-sector.

Korea Line Corp., which is under rehabilitation in Korea and Chapter 15 in the US, has a large exposure to the Capesize market but also others. It was suggested that the company controlled around 150 bulkers towards the end of January 2011. It is, therefore, of little surprise that it was forced to seek a way to reduce its cost structure, since it was widely known that it was losing money even before the dry bulk plummet in 2011.

However, how likely is it that other dry bulk owners and operators will suffer similar fates? Korea Line Corp. is not paying hire on dozens of ships, which should have some sort

of negative impact across the industry.LLI regularly surveys bunker suppliers

and an interesting finding is that an oil major had seen a sharp increase in accounts within the dry bulk market that are now paying late. There has always been a certain percentage of accounts paying late, even during booming periods, but this source mentioned a 43% increase from 14% to 20%. There are various possible explanations for such a sharp change, but it highlights the effect that sudden and steep drops in rates would have on the cash flow of shipping companies.

Late payersThe same source mentioned that 27% of its tanker customers were already paying late, but the rate has remained fairly stable. Tanker woes started more than six months ago, but rates have generally firmed in the past few weeks. Hence the concern, in the short-term, is now centred on dry bulk companies.

Another interesting comment from another bunker company was that when the credit crunch of late 2008 hit liquidity and rates dropped sharply, ‘a lot of people had cash and traded through’. Our source does not think the markets in 2009 and 2010 have allowed for cash accumulation to provide much cushion this time around.

To test this theory, LLI reviewed six publicly quoted dry bulk companies: Genco Shipping & Trading Ltd, Eagle Bulk Shipping Inc., Navios Maritime Holdings Inc., Paragon Shipping Inc., Excel Maritime Carriers Ltd and Diana Shipping Inc.

LLI calculated that the average margin of cash flow from operating activities (CFO) over reported revenue for all quarters since the third quarter (Q3) of 2008, when rates started to collapse, equalled a very strong 43.95%. This margin was also impressive when using funds from operations (FFO), which is operating cash flow without accounting for changes in working capital – a truer measure of cash profit a company

Bone dryMarket Trends

Félix K. Yamasato is Regional Manager, Americas Analyst Team with Lloyd’s List Intelligence.

Contact: Félix K. Yamasato Lloyd’s List Intelligence Tel: +1 646 957 8971 Mob: +1 203 667 1082 Email: [email protected] Web: www.lloydslistintelligence.com

‘As South America’s grain fixtures remain robust and coal mines recover from

recent floods in Australia, Morgan Stanley expects

demand for Panamax and Supramax tonnage to “keep building up”’


the small players have before they have to sell or scrap assets to avoid mounting losses?

LLI found out in March 2011 from a leading company specialising in buying ships at auction for demolition that scrapping activity was substantially higher in the Q3 2010 to Q1 2011 period, a big improvement over Q4 2008 to Q1 2010. Morgan Stanley estimates that 2011 will see 20.8 million deadweight tonnes (DWT) in dry bulk tonnage scrapped, up from 6.2 million DWT in 2010 but only

earns in the period, at 45.77%. When looking at the average change in CFO from quarter to quarter between Q3 2008 and Q2 2009, the change in CFO was 15.19%. However, the change was strongly negative on an FFO basis at -186.97%.

LLI also looked at the impact that the lower profits had on the interest coverage ratio (using CFO), which measures the company’s ability to cope with its interest burden. The average interest coverage ratio for all quarters since 2008 was 13.42:1, but it declined substantially in the past year from 18.43:1 in 2009 to 9.67:1 in 2010.

Cash flow generationLLI would argue that publicly-quoted dry bulk companies tend to be on a stronger financial footing than privately-held groups and especially small players. If there was deterioration in cash flow generation prior to the afflictions of early 2011, how long would

Market Trends

‘Dry bulk owners and operators do not have unlimited resources

and small privately-held companies will likely

succumb first’


23.91% of the 87 million DWT in dry bulk tonnage expected to enter the world feet during 2011. The tonnage increase will be massive even if 2011 newbuilding slippage equals that of 2010 (36%). In 2011, the Capesize fleet would grow 16%, followed by Panamaxes at 12%, handymaxes at 10% and handysizes at 6%.

LLI wrote about the possibility of tanker asset values declining sharply in 2011, but maybe it is the dry bulk sector that will see a sharp decline before there is a surge in sale and purchase activity. Dry bulk owners and operators do not have unlimited resources and small privately-held companies will likely succumb first, which explains why the recent disclosure that private equity player Blackstone is joining with Dahlman Rose to find ways to restructure or recapitalise shipping companies. There are going to be great bargains should rates not improve meaningfully deeper into 2011.


Lesley Bankes-Hughes considers the significance

of legislation on national emergency oil reserves

in the light of recent global geopolitical and

environmental crises

The global preoccupation with oil price fluctuations is demonstrated countless times

a day via electronic and print media, the sage words of economic analysts, in company boardrooms and parliamentary chambers, and, of course, at the petrol pump. In fact, the mantra of ‘prices up, prices down’ reverberates throughout every sector which has some degree of dependence on oil and its security of supply. However, the subject of national emergency (or strategic) oil stocks is not one which normally generates a similar level of interest and comment. The fact of their existence is probably thought of as ‘a good thing’ by the man in the street, but their location, administration and trigger points for draw down are probably of minimal concern.

The starting point of this feature was the implementation of the European Council Directive 2009/119 /EC on emergency oil reserves. Transposition of this directive into national law is slated for 31 December 2012 and its introduction is intended to improve the transparency of national stockholdings as well as streamlining the administrative burden on European Union (EU) member states by aligning accounting methodology more closely with that used by the International Energy Agency (IEA).

The rationale behind the drafting of a new European regulation and the impact of its introduction within regional and global arenas may well be of interest to players closely involved in the energy sector. However, recent threats and changes to the geopolitical landscape of the Middle East and north Africa and the major economic, energy and environmental challenges now facing a beleaguered Japan have brought the issue of national emergency reserves firmly to the forefront of the global economic consciousness.

Without doubt, events will surely overtake print deadlines, but at the time of writing in mid-March premium crude oil prices had risen by some $16 a barrel within a week in New York trading due to market fears over falling Libyan output (an IEA market update at the time indicated that Libyan crude oil production had been cut by some 1.2 million barrels a day (b/d)). Upward pressure on prices had also created a guessing game in US political circles with calls on President Obama to use a draw down of strategic reserves as a price calming mechanism.

As waves of civil unrest moved inexorably across the Middle East and north Africa, nervous world markets monitored oil

price changes but in the first half of March government-held and commercial oil coffers were brimful and seemed well set to meet demand. At this point, price hikes could be largely attributed to market nervousness rather than any actual rapid shrinkage in supply. However, nothing could prepare commodity markets for the subsequent catastrophic series of events in Japan.

The fate of the stricken Fukushima Daiichi nuclear power station remains in the balance at the time of writing, but there is an absolute certainty that Japan’s appetite for fuel oil and liquefied natural gas (LNG) will be voracious over the coming months, and even years. Sourcing the fuel oil may be more difficult than first appears, because of the Japanese government’s requirement that its conventional power generation plants must use low sulphur fuel. As early as 16 March, shortage of domestic supply had already compelled the country’s government to sanction a draw down from oil reserves held by private Japanese companies and, although the country’s emergency stocks are currently well above the minimum IEA requirement, the sheer scale of the inevitable near-term domestic demand could result in rapid depletion of this oil ‘buffer’.

The IEA established its system of national emergency oil reserves under the 1974 Agreement on an International Energy Program (IEP). This agreement requires IEA member countries to hold oil stocks equivalent to 90 days of net imports in the previous year. Taking closing oil stock levels in December 2010 as an example, the majority of member nations were well within a ‘comfort zone’ of reserves. Most countries’ stocks were significantly over the 100-day level, a few were hovering around the 90-day minimum requirement, and only Australia was slightly short with an 83 day holding.

IEA emergency response measures are triggered when interruption of supply exceeds 7% of IEA or individual country supplies. The organisation’s Coordinated

Focus on Oil Reserves

Taking stock‘Critics of using an SPR

release as a pricing mechanism suggested

that, as inventory levels are high at present, any stock draw would have

little, if any, effect on prices’


Emergency Responses Measures are implemented when faced with an actual or imminent supply disruption. At the time of the Gulf crisis in 1991, for example, the IEA created a 2.5 million barrel a day (b/d) contingency plan, the bulk of which would be tapped from reserves. Subsequently, supply problems in the Gulf of Mexico caused by Hurricanes Katrina and Rita prompted the IEA to make 2 million b/d of crude oil and products available to the market for a 30-day period.

National oil stocks held to meet the IEA 90-day obligation do not include reserves held in support of national armed forces, and countries are also free to hold their IEA reserves in any combination of crude oil and products. The IEA says that an instruction for a stock draw will only be made in the case of a supply disruption, but the agency acknowledges that such interruptions ‘mostly go hand in hand with price spikes’.

The United States meets its IEA obligation through a combination of industry stocks and crude oil held in its Strategic Petroleum Reserve (SPR). If the concept of a national strategic reserve conjures up images of endless lakes of ‘black gold’ then the United States fits the picture perfectly with its SPR held in vast underground salt caverns in Texas and Louisiana. Its current inventory of 726.6 million barrels is at its highest ever level and the Energy Policy Act of 2005 has indicated that the SPR should be raised to 1 billion barrels. As yet, little progress appears to have been made on this front, beyond the issuance of a Department of Energy (DoE) notice of intent in 2008 to put together an environmental impact statement. In mid-March, as the price of Brent crude crept to

$115.75 on the back of volatile world events, and New York-traded light sweet crude sold at just above $102, the average price paid for oil in the US reserve was a somewhat depressing $29.79 per barrel!

In the case of the SPR, a draw down can be triggered by a supply interruption and, perhaps more interestingly, if the US President deems that an emergency situation is causing severe upward pressure on oil product prices. To date, there have been only two presidentially mandated stock draws which, as was the case with the IEA, were intended to alleviate supply problems caused by the Gulf Crisis and the after effects of Hurricanes Katrina and Rita. However, in 1996-1997 three sales of oil were made to cut the federal budget deficit and this netted a total of $674.6 million.

According to the DoE, if a draw down is ordered then oil from the reserves can be released into the market within 13 days, and could be pumped at a maximum rate of 4.4 million b/d for up to 90 days.

In mid-March, President Obama was coming under increasingly pressure to dip into the SPR in a bid to halt spiralling domestic prices. However, the President, whilst not ruling out such ‘corrective’ action if deemed to be necessary, seemed to be holding firm on his policy of non-intervention. Critics of using an SPR release as a pricing mechanism suggested that, as inventory levels are high at present, any stock draw down would have little, if any, effect on prices. Taking this action to depress prices would be ‘a near-sighted solution,’ said Chris Thorpe of HCEnergy.

Thorpe makes the interesting observation that countries are continuing to top up their oil reserves irrespective of how high oil prices


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seem to climb. National ‘comfort levels’ with the level of their individual oil stocks seem to be rising, and Thorpe emphasises that days forward supply is the key data to be monitored. As the global appetite for oil seems to be almost insatiable, countries are having to stockpile greater volumes of oil (or days of supply) simply to stand still in terms of meeting domestic demand.

Increasing the national inventory is not just a US preoccupation. Many countries are bolstering their own stockpiles and several, such as Russia, China and India, have major storage projects at various stages of development.

For some nations, such as China, an ambitious multi-phase project is underway just to bring its reserves up to a 90-day level. Emergency oil stocks will be held within government-controlled and commercially-operated reserves. A three-phase project was announced in 2007 for the construction of government-controlled storage capacity, and the second phase is currently in progress. At the end of this large-scale initiative, state reserves will be around 476,000,000 barrels with commercial entities holding just under 210,000,000 barrels.

India is working on the establishment of a strategic reserve which would be able to meet 14 days of domestic demand. Oil stocks have been supplied by the Indian Oil Corp. (IOC) and they will be controlled by a government agency, Indian Strategic Petroleum Reserves. Similarly, strategic reserve expansion programmes have or are being implemented in countries such as Russia, the Philippines and Thailand.

Japan’s emergency oil stocks are held across state-controlled facilities, and privately


held reserves holding both oil and oil products. At the end of December 2010, national emergency reserves constituted a 169-day supply, with privately-held stocks accounting for 75 days of this total. As energy price reporting agency Argus indicates in its article in this issue of the magazine (see page 40), Japan’s energy sector will be going to the market for significant quantities of fuel oil and LNG for many months to come. The Japanese government has stepped in quickly to meet initial energy demands by cutting industry stockholding obligations by some 25 days, representing some 66.1 million barrels of oil. Japan’s oil refining capacity has been knocked back by some 30%, according to the IEA. Six oil refineries were shuttered at the outset of the crisis, but the IEA says that there are indications that at least three refineries – Chiba, Negishi and Kawasaki – are expected to come back on line in the short term.

How many times the world’s third largest consumer of oil will have to revisit its reserves during this current emergency remains to be seen, as does any future action by the IEA in terms of asking its members to release stocks to alleviate the situation. At present, the agency is stressing that Japan’s stocks are well in excess of its IEA obligation, but clearly the energy situation in Japan will remain at critical levels for the foreseeable future. One point which is also worth highlighting is that New Zealand also holds some of its emergency reserves in Japan.

Recent events in the Middle East, north Africa and Japan perhaps make the dry legalese of the recent European oil stocks directive more interesting and relevant reading. Certainly, the European Commission’s (EC) insistence on a greater transparency in national holdings in order to ensure a more rapid response to supply disruptions would seem to have unquestionable validity in the light of the current economic, political and environmental crises.

A system of mandatory oil stocks has existed in the EU since 1968, with member states holding their reserves across government and industry-held facilities as well as in special stockholding agencies. The EC considered that a new directive should replace the Council Directive 2006/67/EC so as to improve transparency and stockholding reporting and also to bring calculation methodology into line with that required by IEA.

Working documents and the results of structured and informal consultations in advance of drafting the new directive reveal a disparate range of stockholding arrangements across member states. Doubts were raised


over whether all member states could ensure availability of supply in an emergency. For example, it was suggested that some member states counted the operational stocks of commercial enterprises as emergency stocks, while others were seen as ‘free riders’ in that they failed to maintain their individual stocks, relying on more ‘conscientious’ states to bolster supply in the event of disruption.

A number of options were put on the table ranging from ‘no change’ to the earlier directive, to requiring all 90 days of emergency stocks to be state owned and managed by an agency, held separately from commercial stocks and possibly controlled at EU level. A Commission Staff Working Document concluded that the preferable, or most workable, option would be to ask member states to hold some 30 days of emergency stocks in government or agency owned facilities, and the holding should be constituted with products which were related to a member state’s consumption patterns. Given that a number of EU member states also have an IEA obligation, it was also suggested that the relationship and coordination of the respective EU and IEA systems should be clarified in legislation.

In the event, the ensuing directive probably has fewer ‘teeth’ than the EC mandarins may have hoped for, and any notion of European ‘control’ appears to have been ruled out. The 2009 document (which should be transposed into member states’ laws by 31 December 2012) does adopt the IEA’s calculation methodology and also calls for the creation of central stockholding entities (CSEs). Each member state may only establish one CSE and this maybe on its own territory or in another location across the EC.

The directive notes that ‘at this stage’, the volumes owned by the CSEs should be determined independently and voluntarily by each member states. It is clear that the establishment of CSEs is intended to reduce an over-reliance by some member states on industry-owned reserves and should create full transparency of at least a portion of a member state’s EU obligation.

Crude oil calculations must be made on the basis of inland consumption; as in earlier legislation, international marine bunkers and oil in rail tank cars are not included in this calculation. Stock accounting does, however, include oil or products in refinery tanks, intercoastal tankers, oil tankers in ports, and in inland ships’ bunkers.

Interestingly, in the light of the ongoing lobbying across the Atlantic for President Obama to use stock release as a pricing mechanism, the European directive expressly

forbids draw down for purposes of price control; it must only be used to compensate for supply interruption.

Member states also have an obligation to hold at least one third of their stocks in the form of products, and biofuels and additives can be added to the equation once they have been blended.

For those member states which have IEA obligations, maintaining mandatory stock levels is not an onerous task. However, some non-EC or EC-candidate countries are starting from a low base in terms of creating a stockholding infrastructure. A report on this issue was presented at an oil stocks workshop held by the Energy Community in Vienna at the beginning of March.

Regional approachTaking a regional approach to oil stocks, the review looked at a number of non-EC and EC candidate countries and assessed the steps needed to be taken to meet the 90-day obligation.

Some countries, such as Albania, are close to their obligation, while Croatia has recently become compliant in aligning its stock holding requirements with the new European Directive. It has also established a CSE, known as HANDA, which will form and manage oil stocks. The notification and monitoring of any impending market disruption will also come under the remit of a new commission which will be established by the end of March.

Moldova, however, is a country that needs to develop a complete infrastructure for maintaining oil stocks, and, of course, putting such a framework in place comes at a cost. The report suggests that in order to fund stock holdings, a levy should be charged to consumers at an estimated rate of €0.021 ($0.030) per litre of retailed fuel. In the case of FYR Macedonia, the report suggests that the main challenge is securing storage in other countries which enables compliance with the Directive. Again, this could be effected through the imposition of a levy, or, as the report proposes, by securing soft loans.

What the EC stockholding ‘map’ will look like by the deadline of the end of 2012 remains to be seen, and the EC is already planning a review of the directive in 2015. However, as events currently unfolding around the world all too clearly demonstrate, national emergency stock reserves serve a critical function in the global energy market and they are a frontline mechanism in ensuring oil supply chain security. Keeping up to speed with changes in oil stocks legislation may well be time well spent.


Chris Welsh, General Manager of the UK

Freight Transport Association, outlines a

new FTA/Heriot-Watt initiative which will

examine carbon reduction opportunities from the shipper’s perspective

The Freight Transport Association’s (FTA) Logistics Carbon Reduction Scheme (LCRS) was

launched in July 2010 to measure the carbon footprint of the logistics sector. While this voluntary scheme initially focused on commercial goods vehicles – it already has over 40 participants accounting for over 41,000 goods vehicles – it aims to expand the scheme to other areas of the logistics chain.

The planned extension of the FTA’s LCRS, in particular into the maritime supply chain, has now been accelerated as a result of a major new project being undertaken by Professor Alan McKinnon and his team at Heriot-Watt University. As FTA’s main advisor on climate change, and being responsible for the modelling work underpinning FTA’s LCRS, it was natural that Alan McKinnon would turn to the FTA for support in undertaking the two-year project. What is different about the new research to be undertaken by Heriot-Watt is that it will focus on assessing the contribution shippers can make in decarbonising the maritime supply chain. Up until now, most work in managing carbon emissions and greenhouse gases (GHG) has centred on supply side initiatives by the shipping industry. This, as with LCRS, has tended to look primarily at technical fixes, including new engine technology, ship design and technology, alternative fuels, conservancy and other abatement tools.

This is vitally important work because although shipping is regarded as the most environmentally-sound mode of transport, with relatively low energy consumption per unit of freight moved, it is estimated that maritime carbon emissions are likely to grow by three to four times over current rates by 2050.The shipping industry is therefore likely to come under the spotlight by regulators, and unless the industry can devise voluntary schemes to stabilise and reduce carbon and GHG emissions in the medium to long term, regulators are almost certain to set their targets for emissions reductions, possibly including stinging environmental taxes along with such targets. In that regard, it is notable that the aviation industry, whose environmental record has been subject to both public and political scrutiny, has gained the moral high ground by recently agreeing industry-wide carbon emission reduction targets in conjunction with the International Civil Aviation Organisation (ICAO).

While similar shipping industry level agreements on emission reduction targets seem some way off, leading shipping industry

players have recognised the potential threats and have taken some interesting steps to widen carbon reduction initiatives beyond those solely related to the ship. Two schemes are worthy of mention: the Clean Cargo Working Group (CCWG) and the Clean Shipping Project (CSP). Both recognise the wider interest and involvement of other stakeholders in the supply chain in managing carbon emissions and other GHGs, including shippers. The CCWG, which comprises about 60% of the main global box carriers and some key branded goods shippers including Coca-Cola, Wal-Mart and Nike, is working on developing various measurement tools and has ambitions to create recognised industry standards in measuring carbon emissions. Maersk Line, which is participating in CCWG, has developed a carbon emissions measurement system which is validated by the UK classification society Lloyd’s Register. The CSP has developed a similar scheme to the Maersk initiative to enable shippers to obtain data and benchmark the environmental performance of carriers.

The common theme with both the CCWG and CSP initiatives is not only a recognition that shippers have an interest in understanding the carbon footprint of their carriers, but that there is a broader perspective to shipping emissions and that some shippers wish to audit the amount of carbon emissions across the entire supply chain. This is particularly the case for those pioneer shippers who have assumed a wider responsibility for accounting and auditing Scope 3 supply chain emissions under the Greenhouse Gas Protocol initiative led by the World Resources Institute and the World Business Council for Sustainable Development based in Washington DC.

These broader-based industry supply chain led initiatives have added impetus to shipping industry carbon measurement projects, but it emphasises that decarbonisation of shipping extends well beyond the ship.

Many of the existing carbon mitigation strategies which focus on the supply side of shipping therefore underestimate the extent

Environmental Issues

‘Many of the existing carbon mitigation strategies which focus on the supply side of shipping underestimate the extent of carbon emissions

throughout the whole maritime supply chain’

Counting the carbs

Further details about the Freight Transport Association/Heriot-Watt University joint initiative on the decarbonisation of the maritime supply chain can be obtained from:

Chris Welsh General Manager Global and European Policy UK Freight Transport Association Tel: +44 1892 552308 Email: [email protected]


of carbon emissions throughout the whole maritime supply chain and the contribution that users of maritime transport can make in this area. This has been acknowledged by the World Economic Forum report Supply Chain Decarbonisation which draws attention to the decisions shippers and buyers can make in driving change throughout the supply chain.

The Heriot-Watt/FTA project will therefore examine carbon reduction opportunities from the shipper’s perspective. It will focus on the movement of deep sea containers and its scope will cover the door-to-door activities within the wider maritime supply chain, including port feeder movements, port operations, container loading, supply chain structure, consignment routing, choice of carrier and the scheduling of deliveries. The project methodology will build on Professor McKinnon’s previously developed carbon modelling tools, including

a choice of mode conceptual framework. The choice of mode framework is a

robust model based on research work carried out by the Commission for Integrated Transport and the International Transport Forum, adapted and refined for decarbonisation of the maritime supply chain. Working in conjunction with Heriot-Watt, FTA will assist in establishing a number of sector specific shipper focus groups as well as industry level analysis covering, for example, the food and retail, electrical equipment, waste, clothing and DIY sectors. The aim will also be to involve other key stakeholders in the supply chain, including a mix of shipping lines, freight forwarders, port operators and road and rail transport companies.

This is clearly a very ambitious project, but it will not be our intention to run this project in isolation of the very good work that has been carried out elsewhere, such as the previously mentioned CCWG

Environmental Issues

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initiative. Indeed, the CCWG Clean Cargo benchmarking exercise may well provide an appropriate tool for shippers in measuring carbon emissions relating to the ship, thus assisting shippers to take greater responsibility in decarbonisation of the maritime supply chain through the choices they make.

The intended practical outputs from the project are to provide detailed guidance to shippers on the carbon auditing of the deep sea supply chain and opportunities to support the wider decarbonisation of the maritime supply chain. This will also include wider detailed guidance to other stakeholders in the maritime transport supply chain and a model to understand the sensitivity of shipper-led carbonisation initiatives to shadow future prices for carbon.

The support that was felt at the inception meeting in February shows that there is a will within industry to share best practice and control its own carbon destiny.


‘The Ministry of Energy, Trade and Industry has asked refiners whose plants are still operating to boost throughputs and

divert exports to the domestic market’

Energy price reporting agency Argus believes

that the impact of the Japanese crisis on the

energy sector will be exacerbated by the already-fragile state

of the global oil market

The market had just started to deal with the loss of Libyan supplies when the 11 March earthquake

and tsunami hit Japan, severely damaging ports, power stations, refineries and other energy infrastructure. Over 1.2 million barrels a day (b/d) of Libyan crude exports was lost to the market in March, after the country lurched into civil war following protests that began on 17 February. Saudi Arabia has said it will increase exports in compensation, but the exact amount, quality and timing of these extra supplies is uncertain.

The impact of the Japanese earthquake on oil demand is still being assessed. Economic activity will fall in the short term, causing a reduction in oil use. But severe damage to a number of nuclear power reactors will force utilities to turn to oil and natural gas-fired plants to replace lost generating capacity, boosting demand for fuel oil, low-sulphur (sweet) heavy burning crudes, and liquefied natural gas (LNG).

Short term effects on productsIn the short term, refinery shutdowns have cut product supplies, cutting exports and leading to higher product prices. Japanese exports may continue to be cut as output is diverted to the domestic market. Earthquake and tsunami damage or power shortages shut 1.7 million b/d of Japanese refining capacity (35% of the total) on 11 March.

Several plants had restarted as this issue of Bunkerspot went to press, but about 600,000 b/d remained shut.

This included two refineries that have suffered major damage and will be shut for months, or perhaps permanently, and two that are still undergoing safety checks.

The Ministry of Energy, Trade and Industry (METI) has asked refiners whose plants are still operating to boost throughputs and divert exports to the domestic market.

Product exports were 550,000 b/d in January-February. Most of these went to neighbouring countries or to South America, and these consumers will have to find alternative supplies.

Japan exported 340,000 b/d of diesel and jet fuel last year, mainly to other parts of Asia-Pacific. Large exporters such as South

Korea and India are likely to fill the gap left by Japan, but this could reduce the flow of middle distillates from Asia-Pacific to Europe, where diesel supplies look tight.

Non-Japanese cargoes previously destined for Europe are now likely to be used within Asia-Pacific to offset the slowdown in supplies from Japan. In this way, the loss of Japanese refining capacity to the disaster has tightened product markets globally, but some of this impact will wear off fairly quickly as refineries in Japan come back on stream.

METI has reduced mandatory stockholding by private-sector firms from 70 to 45 days of net imports. The government controls 300 million barrels of mainly crude stocks. METI estimated current oil product needs in earthquake-hit areas to be 240,000 b/d, and it was asking refiners in western Japan to boost runs to supply 130,000 b/d of products to affected areas. The 10 refineries in western Japan, with a combined capacity of 1.7 million b/d, will raise run rates to 95% from 80%.

Bullish for heavy sweet crudeHigher demand for oil for power generation is likely to boost heavy sweet crude, particularly grades used as direct-burning crude in power plants. Japanese firms are already buying heavy sweet crude for power generation with loading dates out to May. Some are offering to swap sour crude for prompt medium and heavy-sweet burning grades, such as Indonesian Minas, Duri, Cinta, Widuri, Vietnamese Sutu Den and Sudanese Nile Blend. And refiners will want heavy sweet crude to produce more low sulphur fuel oil (LSFO).

After the earthquake

Regional Spotlight: Japan

Argus is a provider of price assessments and indexes, business intelligence and market data on the global crude and products, natural gas, coal, electricity, emissions and transportation industries.Argus has set up a web page with free news alerts about the impact of the Japanese earthquake on energy markets at www.argusmedia.com/japan.

Contact: Argus Media Tel: +65 6496 9966 Email: [email protected] Web: www.argusmedia.com

‘The immediate impact on oil demand is certainly

negative, but the longer-term effect will be positive,

as oil-fired plants are deployed to replace lost

nuclear capacity and damaged infrastructure

is rebuilt’


Oil prices initially fell on news of refinery shutdowns and damage to nuclear power stations. The immediate impact on oil demand is certainly negative, but the longer-term effect will be positive, as oil-fired plants are deployed to replace lost nuclear capacity and damaged infrastructure is rebuilt. A rise in Japanese demand for oil for use in power generation comes at the same time as growing concern over supply, as unrest spreads in north Africa and the Middle East.

Crude runs in other Asia-Pacific countries may rise even further to compensate for some of Japan’s lost output. Throughputs in China, India, South Korea and Singapore are at record highs and 1.5 million b/d up on this time last year, driven by strong regional demand growth. Oil sales in India and South Korea grew by 5% in January. And China’s appetite for diesel is showing no signs of flagging – apparent demand (refinery output plus net imports) rose by over 15% in December and January.

Crude prices are already high, particularly in Europe, which normally buys at least four-

fifths of Libyan crude. Libya’s light sweet crudes produce high yields of jet and low-sulphur diesel, and refiners are struggling to find similar quality alternatives.

And Libyan crude produces LSFO when processed, especially in simpler refineries without upgrading capacity. European LSFO markets have tightened since February because the loss of 1.5mn b/d of Libyan light sweet crude output has cut yields of the product.

The loss of LSFO supply from refined Libyan crude could hardly come at a worse time for Japan. It is LSFO that forms the most significant alternative feedstock for power generation in Japan, along with sweet crudes used for burning, LNG and coal.

A lull in fuel oil imports from Europe and potential demand from Japanese utilities following the earthquake have already strengthened Asia-Pacific fuel oil prices relative to crude.

Japan’s ability to import its preferred grade of fuel oil – low sulphur waxy residue (LSWR) – as well as burning crudes, such as

Minas, has been hampered by falling supply. Indonesia exported only five cargoes of LSWR in March, and shipments are likely to fall in April. Pertamina was scheduled to shut 200,000 b/d of crude capacity at its 260,000 b/d Balikpapan refinery for 40 days of maintenance from 1 April, reducing LSWR supply further.

Demand forecastsThe earthquake and tsunami have knocked nuclear reactors with 8.9 gigawatts (GW) of generating capacity off line at four power plants. And 3.5 GW of capacity at the plants was shut for maintenance at the time, leaving a quarter of Japan’s nuclear generation capacity shut after the disaster.

Another 19 thermal power units were shut after the quake, although at least five had since restarted at the time of writing. Oil-fired power stations will have to be brought back on stream to replace output from the damaged nuclear plants.

When the 8.2 GW Kashiwazaki-Kariwa plant closed because of earthquake damage in 2007-08, utility consumption of fuel oil and burning crudes rose to 750,000 b/d in the two winter quarters, 220,000 b/d up from a year earlier.

Demand for oil for electricity generation could be far greater this time, as more nuclear capacity is off line.

Some extra power will come from gas and coal-fired plants, but most of Japan’s spare capacity is oil fired. Argus calculates that 300,000 b/d of fuel oil and burning crudes will be required to generate the power lost from closed nuclear capacity.

Japan will rely more on oil for power generation at least until the end of this year. But extra oil demand will be tempered by damage to Japan’s economy.

Argus suggests that GDP shrinkage will reduce oil demand by 400,000 b/d in the second quarter, meaning a net loss of demand of 100,000 b/d, compared with a year earlier, once the impact of higher oil imports for the power sector is factored in.

But reconstruction efforts would then kick in, limiting the loss of oil demand caused by economic problems to zero by the fourth quarter, so that net oil demand rises by over 250,000 b/d in the second half of 2011.

This unexpected rise in oil demand in Japan comes on top of forecast world oil demand growth of 2%, at a time of concern over supply from the Middle East and north Africa. The combination of rising demand and supply constraints is bound to keep oil prices higher than consumers had expected at the end of last year.


‘Crude runs in other Asia-Pacific countries

may rise even further to compensate for some of Japan’s lost output. Throughputs in China, India, South Korea and Singapore are at record highs and 1.5 million b/d up on this time last year, driven by strong regional

demand growth’

‘The combination of rising demand and supply

constraints is bound to keep oil prices higher than consumers had expected

at the end of last year’


In the aftermath of the devastating earthquake that hit Japan on 11 March, fears are growing over the potential

for radiation leaks from damaged nuclear plants. Equity markets have been hit while freight forward agreement (FFA) prices have also sustained significant losses. With the situation still unfolding, the longer term impact of the disaster on commodity markets is unclear, although some initial conclusions can be drawn.

Japan is a key demand centre for dry bulk commodities. According to Australian financial institution Macquarie, the country accounts for around 7% of global steel consumption, 12% of seaborne iron ore, 22% of seaborne coking coal and 16% of seaborne steam coal.

Shipping disruptedIn the short term, shipping has been disrupted with 13 ports reported by Reuters to have closed in the immediate aftermath of the earthquake, with some of these unlikely to be operational for several months or even years. Initial assessments by Macquarie and the Steel Index put production at five large steel mills in the worst-affected region at risk, accounting for between 15 million and 18 million metric tonnes (mt) of annualised steel production capacity. That could potentially remove between 20 million and 25 million mt of iron ore and 9 million to 10 million mt of coking coal demand. Japan produced 110 million mt of crude steel in 2010 and exported 43 million mt. The top three

Peter Norfolk of FIS considers the long-term consequences that the

earthquake and tsunami may have on Japan’s transport and energy

sectors and its dry bulk commodity markets

destinations for Japan’s steel exports in 2010 were South Korea (11 million mt), China (7.5 million mt) and Thailand (4.8 million mt). Any reduction in Japanese exports this year could lead to increased export demand from other leading producers including China and South Korea.

In the longer term, reconstruction should boost demand for steel, with potential for significant increases in raw material imports. Whether the additional steel demand is met entirely by Japanese production or partially by China, Korea and/or Taiwan, the overall effect should be a boost to iron ore and coking coal imports into the region. Capesize vessel demand would therefore be the biggest beneficiary, with the Panamax sector boosted by extra coking coal demand alongside additional handysize and Supramax employment on steel products, timber and


Peter Norfolk is Research Director with Freight Investor Services (FIS). He has previously been Editor of the International Bulk Journal and a Director with the international shipbroker Simpson Spence & Young, specialising in analysis of the dry bulk freight market.FIS offers full brokerage services, in-depth market intelligence and trade execution for dry cargo freight forward freight agreements and freight options, iron ore swaps, steel swaps, fertiliser swaps and physical ship and cargo services.

Contact: Peter Norfolk Tel: +44 20 7090 1124 Email: [email protected] Web: www.freightinvestor.com

‘In the short term, shipping has been disrupted with

13 ports reported by Reuters to have closed in the immediate aftermath of the earthquake, with

some of these unlikely to be operational for several

months or even years’

Disaster recovery

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2003 2004 2005 2006 2007 2008 2009 2010

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Japan's Iron Ore & Coal Imports

Iron Ore Steam Coal Coking Coal


Disaster recoverygrain trades. Should additional cargoes be required into China, this would entail more spot market chartering activity, in contrast to Japan’s traditional reliance on longer term freight contracts.

Meanwhile, the nuclear crisis has led to rolling blackouts. Out of Japan’s 54 nuclear reactors, 11 were reported to have been closed almost immediately. The Fukushima Daiichi nuclear plant suffered explosions at three of its reactors and it will almost certainly be decommissioned once the crisis is over. Japan depends on nuclear power for almost a third of its total energy needs. Recent parallels can be drawn with the closure of the Kashiwazaki-Kariwa nuclear plant for 21 months after the 2007 earthquake in Niigata prefecture and, perhaps more significantly, the temporary shutdown in 2003 of 17 nuclear power stations for emergency safety inspections after it was revealed that inspection reports had been falsified.

The 2003 closures led to an increased reliance on both oil and coal-fired power generation. There was an unexpected spike in Japan’s steam coal imports (including anthracite) in July and August 2003 to more than 15 million mt per month compared to an average of 14 million mt per month during the first half of 2003. This was a key factor in causing the chronic shortage of dry bulk tonnage at that time that led to the record-breaking surge in freight rates.

Nuclear plantsThe rolling programme of emergency inspections in the months that followed led to a very gradual reopening of nuclear plants, which helped to ensure that Japan’s steam coal demand grew strongly. Combined steam coal and anthracite imports jumped from 112 million mt in 2003 to 123.6 million mt in 2004. Improved economic conditions in 2010 resulted in the annual import total


rising by 14.1 million mt over 2009 to 131.2 million mt. Beyond the inevitable short-term disruptions, there is potential for further strong rises in steam coal demand. This would most likely benefit Panamax coal trades from Indonesia and Australia. The leading supplier of steam coal to Japan in 2010 was Australia (77.0 million mt), followed by Indonesia (33.8 million mt) and Russia (8.7 million mt).

The main limiting factor to this upside potential for steam coal demand is the amount of extra coal-fired capacity that can be brought into service. In addition, any strategic shift towards coal burn may require a rethink of environmental policy. Nevertheless, the prospect of greater steam coal demand could be particularly significant in the longer term if the latest tragic developments cause a rethink in Japan of the viability of nuclear generation as a key part of the country’s energy mix.

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attacking vehicles in Shia villages and suburbs around Manama including Karrana, Meqsha, Karbabad, Nuwaidrat, Daih, Sanabis, Sitra, Jedhafs and Ma’amer.

In the second scenario, negotiations between mainstream opposition groups and the monarchy collapse. The Al Khalifa, under pressure and with military support from Saudi Arabia, move to violently repress the Shia-led protests. Tear gas, batons and live ammunition are used against protesters, and participants and bystanders suffer heavy casualties. There is some substantial collateral property damage near Pearl Roundabout and government buildings, and rioting spreads to the commercial districts where protesters use Molotov cocktails and arson to inflict modest property damage. Roads leading to Manama and the airport are temporarily blocked, but within three or four days Bahraini (and likely Saudi) security forces suppress protests to an extent that prevents their re-emergence on a significant scale in Manama.

In Iran, while the most disruptive scenario is the fall of the Islamic Republic, this is not as likely as internal political reform. EA assesses the likelihood of these scenarios as 15% and 40% respectively. In the unlikely event of a toppling of the Islamic Republic, cargo and oil supplies would be disrupted. Strikes would likely take place at Bandar Abbas, and disrupt the inward flow of goods over a one-month time period. Airports would also likely be closed for one month after the toppling, unless a civil war ensues.

In Jordan, the most likely scenario is a Palestinian uprising that provokes a crackdown by Bedouin-dominated security forces (40%). Protests would substantially disrupt ground transport in main population centres. Security forces and pro-monarchy Bedouin will likely block roads leading out of Amman including the road to Queen Alia Airport for 3-4 weeks at least. The port in Aqaba is unlikely to be substantially affected.

A less likely scenario is a Bedouin rebellion against the monarchy, leading to fighting between rival tribes (25%). Bedouin are very likely to block key roads around Amman including the road to Queen Alia Airport. Pro-Hashemite security forces would deploy checkpoints across all areas under their control, and anti-Hashemite Bedouin would block roads. Ground transport would be severely disrupted across the country.

In Libya, the most likely scenario is a prolonged civil war in which cargo transit and fuel supply is significantly affected (60%). In this scenario, the state has collapsed following the removal of Gaddafi and the armed forces are seriously fragmented.

In order to keep clients up to date with the fast moving situation in the Middle East, Exclusive Analysis

(EA) has mapped out a range of future scenarios for seven key Middle Eastern countries – Algeria, Bahrain, Iran, Jordan, Libya, Saudi Arabia and Yemen – and outlined the high-level consequences for transport and the supply chain.

In the most probable scenario for each of the countries, during the one year outlook, Bahrain, Iran, Jordan, Libya, Saudi Arabia and Yemen are forecast to experience significantly increased risk to the aviation sector and Iran and Libya are forecast to experience significantly increased risk to the marine sector.

In Algeria, the most likely scenario (55%) is that the senior military officers who dominate the state (‘le pouvoir’) retain their power and influence, despite widespread protests. Protests lead to the closing of some key roads into Algiers, but not the coastal highways. Airports would likely be affected by strikes, but would remain open. Dock workers would go on strike or be unable to reach their workplaces, leading to delays. Central Algiers, where many foreign firms are based, would be inaccessible due to protests and/or heavy security presence.

A less likely scenario (10%) involves lower ranking officers staging a coup, leading to heavy disruption of air, land and maritime transport. Factions of the armed forces would target runways and ports controlled by rivals. Ground transport would be at risk from opportunistic banditry and from attacks by militant groups taking advantage of strain on security forces. Long queues could be expected at borders such as the Nefta crossing into Tunisia. Ports would be disrupted due to manpower shortages combined with overcrowding, and are also likely to be targeted due to their military value.

In Bahrain, two equally likely scenarios are identified: partial concessions by Al Khalifa (30%) and the violent suppression of opposition (30%).

In the first scenario, the ruling Sunni monarchy grants significant political concessions to the Shia-led opposition, but retains its overall dominance of the state. This implies meeting the demands of mainstream opposition groups such as the al-Wefaq, which have thus far centred on the dismissal of the long-serving prime minister and the implementation of electoral reforms. Access to and assets at airports and ports would be unaffected, though risks to ground transport would be at pre-crisis levels, indicating a high probability of protesters blocking roads and

Zaineb Al-Assam of Exclusive Analysis considers how the

situation in the Middle East may play out, and

what the consequences for transport and the supply chain may be

Chain reactionRegional Spotlight: Middle East

Zaineb Al-Assam is Head of Middle East & North Africa Forecasting for Exclusive Analysis.Exclusive Analysis is a specialist intelligence company that forecasts commercially relevant political and violent risks worldwide.

Contact: Zaineb Al-Assam Exclusive Analysis Tel: +44 845 676 9226 Fax: + 44 20 7900 2341 Email: [email protected] Web: www.exclusive-analysis.com

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Popular militia and factions of the security forces take control over different areas of Libya and prolonged civil war for control of hydrocarbons resources, infrastructure and population centres ensues. Fighting around Zawiya, Mersa al-Brega and Ras Lannuf would pose high risks of substantial damage to nearby hydrocarbons infrastructure. As most fighting would take place on the coast, the risk of damage to ports would be high. All airports and air bases would be affected by fighting, particularly Tripoli airport.

In Saudi Arabia, a reasonably likely scenario (40%), which is also very high impact, is of one or more regional uprisings against the Al Saud. This would most likely start in Eastern Province, where it would probably disrupt oil exports and threaten expatriates. Ground transport including access to airports would be very substantially disrupted in Eastern Province and Najran by both opposition forces and/or security

checkpoints. Ground transport in Jeddah and Medina would be less likely to be affected, whilst disruptions in Riyadh would be moderate. A further scenario, which is rated at 40%, involves the rejection of the ruling of the Allegiance Council, which was created to endorse the appointment of the Crown Prince but is as yet an untested institution, by one or more influential members and/or factions of the Al Saud family. Significant infighting ensues. Risks to transport would be at pre-crisis levels. Risks to ground, air and marine transport are moderate, though there is an elevated risk of on-board bombings of aircraft by jihadists with al-Qaeda in the Arabian Peninsula (AQAP) in Yemen.

In Yemen, there is a significant likelihood that a tribal coup succeeds (70%), resulting in the granting of concessions to southern separatists. In this scenario, heavy military deployments involving tanks and helicopters are used to put down protests in the south,

Regional Spotlight: Middle East

possibly on the pretext of attacking terrorist positions or protecting strategic facilities, whilst pro-Saleh tribesmen and soldiers open fire on anti-Saleh protesters in San’a. Civilian deaths are taken up as a cause celebre across the country, including in San’a, and further convince key Hashidi tribes to defect to the opposition. Rejecting Saleh’s offer of concessions, the opposition coalesces around Hussein al-Ahmar and senior military officers from these opposition tribes force through the installation of an alternative leader, such as Hamid al-Ahmar, and Saleh is forced out of power.

During the coup, access to airports in San’a and Aden would be temporarily disrupted but not likely for longer than 3-4 days. Risks to ground transport in Ma’rib and Shabwa would be at pre-crisis levels, meaning vehicles and their occupants would be at high risk from hijackings and kidnappings for ransom.

To register: www.lng-fuelledshipping.com l Email: [email protected]: +44 (0)20 3141 8700 l Fax: +44 (0)207 222 2685

Plus insights from:Guus Vogels, Business Development, LNG Terminals Royal VopakGeir Høibye, Manager Business Sector’s NOx Fund, NorwaySauvir Sarkar, President of Design Bharati Shipyard LimitedPeter Blomberg, Managing DirectorNordic LNG

Practical and interactive workshops: 30 May 2011

A: Overcoming the commercial and regulatory challenges delaying the introduction of LNG bunkering around Europe Facilitated by: Johan Algell, CEO,

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with the contractual side of small scale bunkeringFacilitated by: Rudolf Huber, Head of Business

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Dr. Henrik Ringbom Head of Unit, Marine Environment Training & Statistics EMSA

Kidong Kim Principal Researcher KOGAS

Pieterjan Renier Key Account Manager, Business Development & LNG Fluxys SA

Mogens Schrøde BechDirector Danish Maritime Authority

Capt. Jörg Sträussler DirectorBaltic Energy Forum

Aksel SkjervheimHead of Fuel MarketsGasnor AS

Yves Bui Merchant Business Development Director Wärtsilä Ship Power

Robert LøsethSenior Vice President, Propulsion and Engines, MerchantRolls-Royce Marine AS Norway

Bengt Ramne Managing DirectorScandiNAOS AB

Koos Blaazer CEO LNG EuropeCHAIRMAN

Per Marzelius Ship Manager DFDS Seaways AB

Manuel LageGeneral ManagerNGVA Europe

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Rudolf Huber Head of Business Development EconGas

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GAC Bunker Fuels tells Bunkerspot how its staff in Egypt helped to keep

the information – and fuel – flowing during the

recent turmoil

The first two months of 2011 were a turbulent time for Egypt. The popular uprising that culminated

in the resignation of President Hosni Mubarak on 11 February brought a wave of disruption to everyday life in the country. But against that backdrop of unrest, GAC continued ‘business as usual’ as much as conditions would allow.

The political turmoil presented the shipping sector with many challenges related to security concerns at Egyptian ports, fears about the impact on vessels transiting the all-important Suez Canal, a sudden hike in oil prices, reduced demand and availability of fuels, and disruption to the usual channels of communication.

Smart responseCommunications proved to be one of the biggest challenges, with Internet and mobile access blocked in the first days of the uprising. Vessel owners and operators looked to local service providers to guide them and protect their interests amid the upheaval.

GAC responded with a smart blend of local expertise and international resources. Special arrangements were made with banks to ensure that essential fund transfers were effected, despite banking systems being offline, and client emails to GAC Egypt were re-routed to colleagues working abroad who coordinated with their colleagues locally by landline telephone or fax.

No delivery disruptedOne of those on the frontline was Thanaa Abdel Karim, Manager of GAC Bunker Fuels’ Cairo office. She helped maintain the flow of information and operations throughout by working closely with Anthony Mollet, Director of GAC Bunker Fuels, in London.

‘Thanks to our efforts to maintain clear, streamlined and uniform communications, often using fax and phone lines at our homes when we could not get to the office, the GAC Egypt team was able to ensure no that delivery of bunker fuels was cancelled or disrupted,’ she says.

‘Despite the turmoil around us, we had major contracts that still had to be monitored and fulfilled. Clients like cruise lines relied on GAC Egypt for accurate information about the situation at each port of call and to what extent operations were continuing as normal. Where necessary to satisfy the changing needs of some customers, alternative supply ports were identified.’

Canal concernsMuch of the international community’s attention focused on concerns about the possible impact of the unrest on the Suez Canal and the key ports of Suez and Port Said. Disruption to transits, or a worst-case scenario of complete closure of the Canal, would have a far-reaching effect on global shipping and the world’s energy markets.

Careful planningLast year, just under 18,000 vessels passed through the Suez Canal – many of them plying the vital trade routes between the Middle East and Europe – so safe passage, clear communication and careful planning is required at all times.

Fortunately, the waterway was well-protected and transits continued throughout the period of uncertainty without any disruption.

Daily curfewEgyptian ports felt the impact of strikes, demonstrations and the imposition of a daily curfew to varying degrees, though basic operations did continue in most cases. Thanks to its national network of offices, GAC Egypt was able to provide the latest information about the status of ports from reliable local sources.

Passing the testAnthony Mollet says those trying times in Egypt were a test of the efficacy of the Group’s global resources – a test that it passed with flying colours.

‘It is one thing to talk about our global reach and connections, but it is something else entirely to see it working in action,’ continues Mollet. ‘It is at times of uncertainty and concern that we really see what our team is capable of in the best interests of our customers.’

Regional Spotlight: Middle East

Eye of the storm‘Last year, just under

18,000 vessels passed through the Suez Canal – many of them plying the

vital trade routes between the Middle East and

Europe – so safe passage, clear communication

and careful planning is required at all times’

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As a consumer, everyone has a set idea of exactly what they expect to gain from any physical

transaction. Every consumer demands a high quality product at a fair price, but most importantly they ultimately expect to get what they pay for.

This is particularly relevant in a global marketplace where the financial climate is still in the early stages of recovery. The world of shipping is no different.

Low charter rates, increased levels of competition and high running costs mean that the art of balancing the books is paramount should any shipping company wish to stay in business.

In balancing the books, certain business requirements take precedence. In the case of the shipping industry, the purchase of bunker fuels is at the front of the queue. It may be fairly obvious to state that without the availability of the correct grade and quantity of fuels, vessel transit will cease. However, issues relating to both the quality and quantity of fuels supplied are commonplace throughout the industry.

Quality issues, although common, are regulated by the International Organization for Standardization’s ISO 8217 marine fuel standard which monitors the quality of all grades of fuel. In the majority of cases, issues relating to quality have little effect on the overall operation of the vessel and only very serious quality related issues result in severe operational difficulties, de-bunkerings and additional cost.

Short supply on the other hand can have very severe financial implications, not only relating to the purchase of additional fuel but also in relating to the vessel’s ability to reach its ultimate destination. Isolated instances of short delivery are often viewed as an occupational hazard but repeated short delivery, even if it is only in very small quantities, soon mounts up and becomes exceptionally costly. This, coupled with the prospect of deviations from timetables by slow steaming in an attempt to conserve fuel, can result in sizable financial losses.

In an attempt to prevent short supply, shipowners / operators have relied upon the traditional bunker quantity survey to determine the precise amount of fuel transferred. The physical transfer of fuel from one party to another has always raised questions regarding methods of transfer and, most importantly, whether or not the required quantity has been provided. Additional issues such as risk of contamination and the possible introduction of air into fuel to increase volume have made quantity surveys a pre-

Michael Green of Lintec considers whether the

bunker industry’s growing interest in flow meters will impact bunker surveyors

requisite for many buyers.Bunker surveyors are often considered

to be the eyes and ears of the purchaser; and their physical presence provides reassurance to owners / operators during the actual exchange of fuel. However, in an industry where change is constant, the idea of a traditional bunker quantity survey conducted by a bunker surveyor may now be redundant.

The introduction of flow meter technology begs the question – are bunker surveyors still needed?

On paper, the idea of a fast and accurate means for measuring transferred quantities of fuel does ultimately spell the end for attending surveyors.

Many individuals would seek to question the need for a physical presence if the application of a meter would guarantee a hassle free bunkering, but is the argument really this cut and dried?

Based on our own experiences we would suggest that it may not be this simple.

Whilst the merits of flow meter technology cannot be denied, we would seek to pose some questions regarding its specific applications and how it could be enhanced further.

The first question to ask would be – ‘Whose meter do we use?’

This is probably the most important question as it will serve to polarise opinion.

Many parties would suggest that the flow meter should be positioned on the supply side as this will accurately measure the quantity of fuel that has been transferred to the vessel.

However, in the event of any discrepancy or suspected short delivery, a potential response from the delivery vessel side may be that the supplier’s meter was not trustworthy and the quoted figures were incorrect. By that same rationale, any discrepancy noted when using a flow meter located on the receiving vessel may provide a similar response from the supplier.

Man and machine

Quantity Surveying

Michael Green is the Technical Manager with Lintec Testing Services Ltd.

Contact: Michael Green Lintec Testing Services Ltd Tel: +44 1325 390 184 Fax: +44 1325 460 055 Email: [email protected] Web: www.lintec-group.com

‘As a company that provides survey operations

in a number of countries worldwide, we view the

combination of flow meter technology with

the physical presence of a bunker surveyor as the

ideal solution’


the local port authority be responsible for regulating the use of the ‘independent meter’ and monitoring maintenance and calibration?

Having considered the points raised, we would seek to re-examine our original question regarding the need for the physical presence of a bunker surveyor.

As a company that provides survey operations in a number of countries worldwide, we view the combination of flow meter technology with the physical presence of a bunker surveyor as the ideal solution. The surveyor would be in a position to check all relevant logs, calibrations and maintenance had been performed and, ultimately, witness the whole operation.

This being the case, it seems that the application of both surveyor and meter will not only provide a fast and accurate measure of transfer but will provide the assurance shipowners require.

Other questions pertaining to such a situation may be: ‘Who is responsible for the maintenance and calibration of the flow meter, how often is maintenance carried out and is there a log of the maintenance procedure that can be audited to ensure it has been carried out correctly?’

So, if the application of a flow meter on either side could potentially cause such disagreement the next question may be: ‘Could an independent meter be employed?’

In theory, this would stand as a viable solution as no individual party would have a vested interest in the overall transaction. However, we would still be left with the issue of liability in case of suspected short supply.

Further issues to be considered may be whether the ‘independent meter’ would be looked after by a third party and whether it would be provided for survey operations at a cost that would be shared by the purchaser and supplier. If this were the case, would

Quantity Surveying

‘In balancing the books, certain business

requirements take precedence. In the case of the shipping industry, the

purchase of bunker fuels is at the front of the queue’

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A day in the life of… a maritime lawyerBunkerspot asked Julian

Clark whether a day in the life of a lawyer really was all wigs and gowns,

heated cross examination and smoking guns?

The reality is somewhat different

It’s 4.30 a.m. on a Monday morning. It’s dark. Lawyers, especially those involved in the maritime field, tend

to work extremely long hours. Not only is the work very demanding but the nature of the international practice means that often you are operating matters which cover various international time zones. Lawyers have to find ways in which to manage their busy practices while maintaining a degree of sanity and, if they are lucky, a happy home life. In the case of Julian Clark, this is achieved largely by living five hours outside London in rural Cornwall, equally distant from the North and South coasts. Five hours away from London by car but a million miles away in terms of the comparison between a life in the City and a life in the English countryside.

Taking the Blackberry out of the bedroom into the corridor so as not to disturb his wife, the first job of the day is to check the email. Although it is 4.30 a.m. in the UK, there may well have been developments on cases, urgent requests from clients or even a new instruction. This is something that constantly has to be checked. The competition in the area is extremely keen and the instantaneous nature of modern communications means that clients require personal service and swift turnaround whether it be a simple question or the need for assistance in relation to a major casualty incident. By 6.20 a.m. Julian is at Newquay airport waiting for the departure of his flight to London. This affords the time for an airport coffee and croissant (the toasted bacon sandwich machine having broken down at the local airport six months before and yet to be replaced). There is no Blackberry reception at the airport – bliss!

The 50 minute flight from London is followed by a 30 minute train journey and 20 minute taxi or tube journey across London to the offices of Campbell Johnston Clark LLP (CJC). Once again, time is spent catching up on the emails on the Blackberry and taking any urgent phone calls. Although by the time Julian has boarded his plane in Newquay his inbox is empty, by the time he walks in the office there are 27 new messages waiting to be dealt with.

The first job of the day is working through a series of spreadsheets provided by a client currently engaged in an oil major’s dispute, checking their voyage reports and figures in order to present the statements within claim documents being presented before a London arbitration tribunal. Next on the agenda is the review of an expert’s report in relation to the refusal to carry a nickel ore cargo where

the transportable moisture limit has been exceeded. This is then followed by emails and telephone calls both to the clients, the ship and the experts involved, giving immediate legal and practical advice on how best to deal with the situation, protect the owner’s interests and also do whatever is needed to minimise the loss and ensure that the vessel can regain commercial trading capability as quickly as possible.

Lunchtime is spent meeting with the other two founding partners, Alistair Johnston and Jonathan Campbell, discussing various issues in relation to the company. Everything from the future hiring of lawyers, compliance with regulatory aspects of running a legal practice and whether to change suppliers for the firm’s stationery. All this takes place on the way to a restaurant and while waiting for the firm’s bankers to arrive for an update as to the operation, as well as giving some practical legal advice during the discussions concerning the current state of the shipping markets.

Upon returning to the office, it is straight into an interview with a young lawyer looking for a training contract with the firm in 2013. The pressure on young qualified lawyers to find places with good firms is extremely high. Many of the firms are now recruiting lawyers in their first or second years of legal study, or even during general degree courses where the candidates have not even started to study law. In the case of CJC, the team have already recruited their contingent of trainees for 2011 and have shortlisted their trainees for 2012.

It is now 3.00 p.m. and there follows a long telephone conference with one of the firm’s two specialist marine investigators currently attending a casualty in South

Bunker People

Julian Clark is a co-founding partner of London shipping practice Campbell Johnston Clark LLP.

Contact: Julian Clark Campbell Johnston Clark LLP Tel: +44 207 855 9669 Fax: +44 207 855 9666

‘The first job of the day is working through a

series of spreadsheets provided by a client

currently engaged in an oil major’s dispute, checking their voyage reports and

figures in order to present the statements within

claim documents being presented before a London

arbitration tribunal’


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America. Whilst engaged on this conference call important developments mean that the client is contacted on a separate line. Maritime lawyers have to be able to multi task. Perhaps that is why women make such good lawyers.

By this time the email traffic has built up to over 100 emails in the inbox. In fact, on an average day there can be anything between 100-300 emails in and out for each of the fee-earners and assistants. Everyone one of these emails needs to be read, considered and a proper response provided normally within the same day.

By this time in the day a number of the other lawyers have issues they need to discuss both in relation to on-going cases and general developments in the law. This is in addition to planning for future trips to visit clients. One of the difficult functions of becoming a successful senior lawyer is that unlike in other industries where one may start out at the

A day in the life of… a maritime lawyersharp end manufacturing a product, to later on move into sales, and then subsequently, all going well, obtain a position on the board, a successful lawyer never manages to leave behind any of the tasks and duties that they gathered on the way. A successful lawyer will still have to manufacture the goods (i.e. provide the legal advice required), be a good salesman (bringing in new work), while at the same time be a good manager and businessman, managing and developing the practice. CJC is a firm that operates without artificial chargeable hour or other targets and therefore continues to focus on quality advice and requirements of the client as the first priority. The firm is also constantly looking for ways to improve the working lives of lawyers so that they do have the essential down time to allow them to recuperate and provide the service required. However, even with this basis, the reality is it is a job where the hours are long.

Bunker People

It is now 8.30 in the evening and the email traffic has quietened down. There are, however, another 60 emails on the system that will have to be dealt with this evening before Julian returns to the London flat to get a few hours sleep until the next morning. Even then the phone and the Blackberry will be at the bedside as it truly is a 24/7 business.

Is it worth it? Of course it is. No two days are the same. It is always a combination of client communication, training staff, advising and researching and attending at short notice in what can sometimes be extremely stressful and even dangerous situations. The partners of the firm have been heavily involved in a large number of the piracy incidents in the Gulf of Aden which require out-of-the-box thinking and the ability to give sound commercial advice as well as accurate and detailed legal advice. The Cornish getaway seems more and more an essential requirement to sanity.


Minister of Mines and Energy, and Juan Pablo Ospina, representing the country’s national oil company, Ecopetrol.

With much of the world currently in turmoil, the session on global issues will examine political risk and the state of oil and shipping markets – and in particular the impact on shipping patterns of the expanded Panama Canal.

A technical session will investigate fuel quality issues and look at the latest developments in bunker metering and bunker blending.

The second day of the main conference will be dedicated to individual markets within different regions of the Americas, with local suppliers and buyers outlining changes to their specific areas of activity. This is the only conference where delegates can count on learning about developments within so many individual ports and countries direct from the key players involved. For bunker buyers, this information is vital. For the suppliers, it offers an opportunity to demonstrate areas of competitive advantage. And it allows the delegates to learn from the experience of their peers. Three sessions will, in turn, cover Central America and the Caribbean, South America and North America.

Maritime Week Americas is noted for its networking, and this will be particularly colourful in Cartagena. An opening poolside reception, sponsored by Ecopetrol, will be followed by a pirate party onboard a Spanish galleon sailing through the port, sponsored by C.I. International Fuels, and a spectacular gala dinner, hosted by this year’s platinum sponsor, Bunkers International Corp.

Also available during MWA is a two-day advanced bunker course and one-day basic bunkering course, hosted by the International Bunker Industry Association (IBIA), Petrospot’s Managing Credit Risk seminar, and a visit to the thriving port of Cartagena.

The excitement has been palpable for months in the run-up to this year’s Maritime Week

Americas (MWA) which, for the first time, takes place in Latin America in Colombia’s historic Cartagena de Indias. Support for this year’s event in May is unparalleled, particularly among those companies operating locally, but also among international firms who now consider this the most popular gathering on the bunkering calendar within the Americas.

Entitled Bunkering in the Americas: A Fresh Perspective, MWA offers delegates the opportunity to view the bunker markets in the Americas from a different angle. Colombia is fast shaking off its image as a bunkering backwater and its ports, and bunker industry, are thriving. The magical realism imagery represented in One Hundred Years of Solitude – a book that brought fame to Colombia and its author, Nobel laureate Gabriel Garcia Marquez, who once worked in Cartagena – may still be felt in the sleepy plazas and narrow streets of the old city, but Cartagena, and Colombia in general, are now in throes of a great transformation.

Significant oil discoveries and rising levels of trade resulting from the improving political situation are translating into a growing demand for shipping and a steady increase in bunker sales. A surge in tourist numbers, most evident in the increasingly frequent arrivals of huge cruise ships from the United States, underline the transformation that started a decade ago, changing Colombia from one of the world’s major no-go areas into a much-lauded business and tourist destination.

A growing bunker market and burgeoning exports are spurring major developments at Colombia’s main ports, even before the latest Colombian-Chinese idea to create a Pacific-Atlantic rail link to rival the Panama Canal make it onto the drawing board. A session devoted to Colombia will cover the local bunker market and the jostling between the suppliers eager to take advantage of the expansion, but it will also look at each of the four main ports – Santa Marta, Barranquilla, Cartagena and Buenaventura – through the eyes of their respective presidents and port captains to demonstrate what this means for the country and for those using the ports.

While nothing can be taken for granted when organising an event such as this for the first time in a new and rapidly-changing environment, Maritime Week Americas is scheduled to be opened by a high level trio comprising Judith Pinedo, the Mayoress of Cartagena, Carlos Rodado, Colombia’s

Llewellyn Bankes-Hughes previews Maritime Week

Americas ahead of its arrival in Latin America

Events

The annual Maritime Week Americas event is organised by Petrospot Ltd. It includes a major marine fuels conference and a range of training courses and seminars. This year the event takes place at the Hilton Cartagena, Cartagena de Indias, Colombia, on 23-27 May 2011.

For more information, visit www.maritimeweekamericas.com.

Llewellyn Bankes-Hughes is Managing Director of Petrospot and Chairman of Maritime Week Americas.

Contact: Tel: +44 1295 814455 Fax: +44 1295 814466 Email: [email protected]

Magical realismENVIRONMENTAL FRIENDLY BUNKERING

Typical:

Vanadium 20 ppm

Sulfur 0.7%



Tel: +44 20 7017 4394 E-mail: [email protected] Web: www.tocevents.com

SEPTEMBER

NETHERLANDS: ARACON 2011September, RotterdamARACON 2011 is the one bunkering event serving the Amsterdam-Rotterdam-Antwerp region that serious maritime professionals should not miss!Contact: Elena Melis Tel: +44 1295 814455 Fax: +44 1295 814466 Email: [email protected]

UNITED KINGDOM: The Oxford Bunker Course12-16 September, OxfordContact: Elena Melis Tel: +44 1295 814455 Fax: +44 1295 814466 Email: [email protected] Web: www.petrospot.com/oxford

UNITED ARAB EMIRATES: TOC Middle East 201125-27 September, DubaiTOC Middle East is partnering with DP World for this year’s event.Contact: Paul Holloway, TOC Events Tel: +44 20 7017 4394 E-mail: [email protected] Web: www.tocevents.com

OCTOBER

UNITED ARAB EMIRATES: Middle East Workboats3-5 October, Abu DhabiContact: Emma Hamilton, Seatrade Tel: +44 1206 545121 Email: [email protected] Web: www.middleeastworkboats.com

NOVEMBER

AFRICA: Oil & Shipping Africa 2011November, AfricaAfter two highly successful forays into West Africa, Petrospot returns to Africa for the third annual Oil & Shipping Africa. The conference and training course programmes now attract many African delegates, in addition to a growing number of foreign companies eager to learn about bunkering opportunities in this part of the world.Contact: Osei Mitchell Tel: +44 1295 814455 Fax: +44 1295 814466 Email: [email protected]

Events

Events Diary APRIL

DENMARK: The 32nd International Bunker Conference (IBC)

6-8 April, Copenhagen

Contact: BI Norwegian School of Management Tel: +47 4641 0187 Email: [email protected] Web: www.bunkerconference.com

SINGAPORE: The Oxford Bunker Course (Advanced)

12-14 April, Singapore

This new three-day training programme is designed as a progression from the well-established introductory Oxford Bunker Course. It integrates every aspect of bunkering (operations, technical, commercial, environmental and legal) and will include detailed syndicate work. It is intended for those with at least two years’ experience of bunkering.

Contact: Osei Mitchell Tel: +44 1295 814455 Fax: +44 1295 814466 Email: [email protected]

SINGAPORE: LNG – The Future Fuel for Shipping?

13 April, Singapore

As LNG is increasingly seen as a viable – and green – option as a marine fuel, this highly-focused seminar investigates what the industry now needs to do to take this idea forward, examining the supply chain requirements and market preparedness for this exciting ‘new’ bunker fuel.


SINGAPORE: Managing Credit Risk

13 April, Singapore

This seminar will give delegates the key information they need to manage their company’s vulnerability to credit issues. The seminar is delivered by some of the world’s leading authorities on bunker credit, finance and law, and will help delegates protect their business by recognising the risks involved.


CHINA: China Oil Traders’ Conference

18-20 April, Shanghai

Contact: Alisa Zeng, CBI China Tel: +86 21 5155 1640 Email: [email protected] Web: http://cotc.cbichina.com

MAY

UNITED KINGDOM: The Oxford Bunker Course9-13 May, OxfordThe Oxford Bunker Course is a highly intensive five-day residential training course covering technical, operational, commercial, financial and legal aspects of bunkering. Designed for newcomers to the business and for those who may already have some experience, it is widely acknowledged as the best bunker course in the world.Contact: Elena Melis Tel: +44 1295 814455 Fax: +44 1295 814466 Email: [email protected] Web: www.petrospot.com/oxford

NETHERLANDS: BunkerExperience 20119-13 May, Rotterdam-VlaardingenAll inclusive, intensive bunker course, with a mix of theory in the morning and real practice in the afternoon.Contact: Goris Vermeulen Tel: +32 484 168 780 Email: [email protected]

COLOMBIA: Maritime Week Americas 201123-27 May, Cartagena de IndiasThe most popular bunkering event in the Americas is coming to South America! Organised by Petrospot, Maritime Week Americas takes place at the Hotel Hilton Cartagena.Contact: Louise McKee Tel: +44 1295 814455 Fax: +44 1295 814466 Email: [email protected] Web: www.maritimeweekamericas.com

NORWAY: Nor-Shipping Exhibition 201124-27 May, OsloMore than 1,000 exhibitors from around 50 countries are expected to take part in the exhibition, the conferences and the social activities that take place during Nor-Shipping week.Contact: Tollef Schiander, Norges Varemesse Tel: +47 6693 9134 Email: [email protected] Web: www.nor-shipping.com

GERMANY: Commercialising LNG Fuelled Shipping 201130 May - 1 June, HamburgContact: Hanson Wade Tel: +44 20 3141 8700 Email: [email protected] Web: www.lng-fuelledshipping.com

JUNE

TURKEY: Istanbul Bunker Conference1-3 June, IstanbulContact: The Turkish Bunker Association Web: www.istanbulbunkerconference.com

BELGIUM: TOC Europe 20117-9 June, AntwerpContact: Paul Holloway, TOC Events

To list details of industry events, email: [email protected]

Organised bySponsorsPrincipal sponsors

3-5 October 2011Abu Dhabi National Exhibition Centre,United Arab Emirates

The De�nitive Workboat Eventfor the Middle East

Under the patronage of His Highness Sheikh Hamdan bin Mubarak Al Nahyan, Minister for Public Works and Chairman of the National Transport Authority

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Networking

On the move... EuropeEugenia Benavides, Paul Dyke and John Stirling have been elected to the Board of Directors of the International Bunker Industry Association (IBIA) and will each serve for a period of three years. Tel: +44 2380 226 555.

Bunkers International UK Ltd is relocating to the North Wales Business Park, Suite 5420, Abergele, North Wales, LL22 8LJ. Tel: +44 1745 828 710. Marc Noakes is currently working in the UK office. Mob: +44 782 787 0818.

A/S Dan Bunkering has appointed Arjun Sundar as a bunker trader at its Middelfart, Denmark office. Tel: +45 6441 5401; Direct: +45 6421 5427;Mob: +45 6018 0715; Fax: +45 6441 5301; Email: [email protected].

Michael Poulsen has joined Global Risk Management as Oil Risk Manager in Copenhagen, Denmark. Tel: +45 8838 0014; Email: [email protected].

KPI Bridge Oil has made several appointments at its London office. Anette Mantell is now Team Leader. Tel: +44 20 7799 4420; Mob: +44 770 109 9895; Fax: +44 20 7799 4421; Email: [email protected]. Jesper Rasmussen is appointed as Senior Key Account Manager. Mob: +44 780 879 4484; Email: [email protected]. Victoria Nektheden is appointed as a bunker trader. Mob: +44 771 311 0577; Email: [email protected].

Andrew Simmons has joined Lloyd’s List Intelligence (LLI) as Head of Credit Reports, based in LLI’s head office in London. Tel: +44 20 701 77360; Email: [email protected].

Karen Saddler has joined the Addax and Oryx Group Ltd in Geneva, Switzerland as Chief Communication Officer. Tel: +41 50 702 9000.

Aegean Marine Petroleum SA has relocated to

10 Akti Kondili, 18545 Piraeus, Greece. Phone numbers are unchanged.

Sotiris Delidimitriou has joined Termoil S.A. in Greece as a trader. Tel: +30 210 429 2992; Mob: +30 6985 161 500; Fax: +30 210 429 2995; Email: [email protected]. Trine Kollner has left the company.

Yannis Filios has joined Island Oil (Hellas) as a marine fuels and lubricants trader. Tel: +30 21041 80550;Mob: +30 6936 931332; Fax: +30 21041 80585; Email: [email protected].

Bunkers International is opening an office in Piraeus, Greece, managed by Katerina Kontou. Tel: +30 6947 202 511; Email: [email protected].

A/S Dan-Bunkering Ltd has opened its new Monaco operation, Dan-Bunkering (Monaco) S.A.M. at 4 Avenue des Citronniers. ‘Le Mirabel’, 6th floor, No. 605, 98000 Monaco. Tel: +377 9777 5401; Fax: +377 97 77 5301; Email: [email protected]. Contact: Jesper Møller Christensen, Managing Director – Direct: +377 9777 6320; Mob: +377 6 8086 9922; Email: [email protected]. Olga Balaban, Senior Bunker Trader & Sales Manager – Direct: +377 9777 6333;Mob: +377 6 7863 4064; Email: [email protected].

Mideast & AfricaBunkers International has relocated its South African office to 408, 4th Floor, Commerce House, 55 Shortmarket Street, Cape Town 8001. Contact: Mark Wild: +27 21 424 6200; Brian Turnbull: +27 21 424 6600; Fax: +27 21 424 7100.

AsiaBunkers International Corp. has opened a sales office in Hong Kong, Bunkers International Hong Kong Ltd. Wing Li, formerly of OW Bunker, has joined as a trader. Tel: +852 3602 3078;Mob: +852 9384 6483; Email: [email protected].

Din Hamzah and Khalid Hamzah have left Bunkers International Singapore. Jacaryn Ng has been appointed Director. Tel: +65 6848

7020; Email: [email protected].

KPI Bridge Oil has made new appointments in its Singapore office. Amy Choo joins as a bunker trader. Tel: +65 6220 8655; Mob: +65 9725 7648; Fax: +65 6220 8155; Email: [email protected]. Raj Kumar also joins as a bunker trader. Mob: +65 9726 3334;Email: [email protected]. Fion Chia joins as Administration Executive. Email: [email protected].

AmericasFernanda Silva, previously with Asamar, has joined Harbor-Plaza Consolidated as Sales and Marketing Manager. Tel: +1 732 223 7000; Mob: +1 201 207 0770;Email: [email protected].

KPI Bridge Oil has opened a new office in Florida, managed by Nils Mortensen. Contact: KPI Bridge Oil, Inc., 206 S Victoria Park Street, Fort Lauderdale, FL 33301, United States. Tel: +1 954 294 1973;E-mail: [email protected].

KPI Bridge Oil has relocated its New York office to 21 East Front Street, Red Bank, NJ 07701. Tel: +1 732 219 7900; Fax: +1 732 219 7919. Nick Fuca, 27-year veteran of Sumitomo Corp. of America and Asamar / Fratelli Cosulich, has joined as a bunker broker and trader. Mob: +1 732 556 8227; Email: [email protected]. George Belekos has been appointed as a marine fuel and lubricants trader. Mob: +1 973 727 1929; Email: [email protected].

Jerry Lorenzo and Keith Richardson have parted company with Chemoil which has undergone substantial management changes (see page 20).

Gabriel Pacheco and Tiago Falcão have joined Bominflot do Brasil Comércio Ltda at Avenida Almirante Barroso, 63 /1809, Rio de Janeiro, RJ CEP 20031-003, Brazil. Tel: +55 21 2220 4773; Fax: +55 21 2262 2651; Pacheco – Mob: +55 21 8105 5382; Email: [email protected]. Falcão – Mob: +55 21 8197 2800; Email: [email protected].

Documents

INDEPENDENT INTELLIGENCE FOR THE GLOBAL BUNKER … · Asia Pacific 18 Africa and Mideast 22. 4 April / May 2011 bunkerspot ... have an ‘endgame’ in mind, and a ‘roadmap’ for