World Bunkering > News > Autumn 2010 > Margins evaporate

The attention grabbing headline was that Emirates National Oil Company (Enoc) stopped supplying at Fujairah at the beginning of July. After market rumours had been circulating for several days, a brief statement from the company’s brand and marketing manager Khalid Hadi said: “We have stopped operations since July 1.”

Subsequently, an ENOC source confirmed that it had transferred all afloat bunkering resources to other projects but that its other activities in Fujairah, including ex-pipe supply to vessels, would continue.

The decision would appear to be connected with ENOC’s barge chartering arrangements, which apparently came to an end in June, but it was also clear that the company was operating unprofitably. Gulf News reported that traders believed the company has lost around $20 million from its bunkering operations there.

While ENOC is believed to have been supplying about 250,000 tonnes a month in 2008, its recent monthly volumes are thought to have been more like 30,000 tonnes. ENOC has left and returned to the Fujairah market before, in 2007/2008.

ENOC’s pull-out from the Fujairah anchorage market is, however, only a sign of the huge downward pressure on profit margins in the Fujairah region.

Negative margins

Shiraz Babrawalla, bunker sales manager for major player in the region, FAL Energy, says: “Due to the current economic crisis and other related problems, margins have been very much affected, to the extent that certain suppliers have reduced their sales and some have even stopped their operations.”

He notes that ENOC pulled out of offshore bunkering at Fujairah because of “cut-throat competition and negative margins”. He adds: “I will not be surprised if others too decide to reduce their operations. This did happen in the first half of 2009 when bunkers were sold below cargo prices and all of sudden a few suppliers decided to reduce their volumes, including ourselves, just to minimise losses.

“Until May 2010,” says Mr Babrawalla, “we saw a certain percentage of business shift to Iranian ports and offshore bunkering points as they had been quoting competitive prices compared to Fujairah. However, we have seen some shipowners have again returned to Fujairah / UAE ports, as some of the bunker suppliers either did not have availability or due to other reasons.”

Generally, Khorfakkan / Fujairah has been cheaper than Singapore, according to Mr Babrawalla, unless there has been a quality problem or delayed replenishment with a few bunker suppliers “which is normal in all key bunkering ports. However,” he says, “this doesn’t last very long.”

LS demand remains low

Despite the implementation of the 1% sulphur cap in the European ECAs, Mr Brabawalla says demand for ECA-compliant low-sulphur fuel hasn’t picked up in the region. He says: “We have always had low to medium-sulphur fuel oil, as our Trading Department actively traded in this product and arranged supplies as and when shipowners enquired. I must admit that so far there haven’t been enough regular enquiries to keep stocks for a fully fledged supply operation.”

Despite the fierce competition, FAL Energy hasn’t changed its activities significantly in the past year. It is still active in supplying bunkers at Khorfakkan and Fujairah – in the port as well as at anchorage. Mr Brabawalla says: “We operate 11 barges at these places and use our floating storage VLCC for replenishing our bunker barges in addition to leased storage tanks at Vopak Terminal, Fujairah. This year the FAL Group took delivery of four new aframax tankers that are now either bringing fuel oil cargoes from various refineries in the region for Fal Energy or transporting cargoes for FAL’s trading arm, FAL Oil Co.”

FAL also supplies at Sharjah, Dubai and Jebel Ali Port and anchorage where it operates three barges. All FAL’s bunker grade fuel oil is stored either at its new 70,000 cu m Jebel Ali Terminal or at Al Hamriyah, Sharjah Terminal.

One of FAL’s barges in operation

FNSA thinks positive

Interestingly, but perhaps not surprisingly, not all players have identical views of the market. The chief executive officer of Fujairah based FNSA Fuel, SK Bhasin, says there are “more and more” enquiries for low-sulphur fuel and that “the demand is there”. He believes the main suppliers will definitely be able to source low-sulphur fuel as well as distillates.

Capt Bhasin says: “I personally see the regional market as being at least stable, possibly with volumes increasing, certainly not going down.”

He confirms that there is increased competition in the region, “obviously cutting margins”. While he does not expect to see any additional physical suppliers entering the market, he does predict an increase in terminal capacity. He notes that many vessels are now picking up bunkers in Iranian waters “through five, maybe six, suppliers” while the two major Iranian shipping companies use in-house bunker operations.

Is Iran a player?

BGK Bunkers is one of the main players in the Iranian market, supplying from offshore stations near the entrance to the Middle East Gulf. The company’s sales and marketing director Mehran Ghobadian agrees that “low margins are affecting everyone”. He feels that “very low prices” at Singapore may be among the causes for this.

He says: “As for volumes, we are still keeping at the same level, 200,000 tonnes, despite strong competition in the area.” He says that one of the competitive advantages of Iranian fuel oil is that it is unblended and has a low density, with a high calorific value of 42.5. He says: “That is a very important factor for many buyers. They are well aware that they are purchasing energy, not just bunkers by the tonne.”