World Bunkering > News > Summer 2009 > Scandinavia and The Baltic - Looking offshore

The bunker market in the Scandinavian region has fallen slightly from levels in previous years, but sales remain healthy. According to Henrik Johnsen, sales manager at OW Bunker: “Volume last year was OK up to mid- Autumn, about the same as we have seen in previous years. It started to decline in late 2008, and has continued to do so into 2009. I think there just isn’t enough cargo to move, and there’s no other reason for the decline than that.”

Prices in the region have followed international trends, says Jan Jacobsen, of Denmark-based trader Monjasa, which means that anyone with a vessel passing through the area will compare Baltic and Scandinavian prices, so they have to be in line with general developments. He believes that the long-term development of the Scandinavian market is under increasing pressure from ports in the Baltic. Potential competitors include established players such as St Petersburg, but also Talinn, Klaipeda, Kaliningrad, Gdansk, Stettin and Rostock. As a result, says Jacobsen, vessels which choose to take bunkers in Denmark are increasingly doing so only because they are working cargo, or because draft restrictions mean they cannot take on both cargo and a full load of bunkers in Baltic ports. Reliability was at one time an issue, but this has long since been overcome.

By contrast, Johnsen says that: “It is not my feeling that the Baltic has been on the rise. If anything, we’ve seen the opposite. Volumes in both Klaipeda and Riga have dropped quite a bit.” In addition, he says:, “While there is inevitably increased competition, it is not a concern. While there is cheaper product, they have volume and barge capacity issues, and there is also a reputation for quality issue.”

Storage issues

Storage is plentiful in the region, due to a sell-off of government storage facilities some years ago. As in other European countries, there is increasing political pressure to encourage and subsidise the use of biofuel. This means that biofuel contractors can afford to offer higher prices for storage facilities than bunkering companies but there is sufficient storage space that capacity is unlikely to become an issue. However, says Jacobsen, Denmark and Sweden are increasingly seen as viable areas for storage of Russian crude for the export market during the winter months as they are ice-free throughout the year. This could potentially put pressure on the storage space available.

Offshore opportunities

One area which is set to increase rapidly in the near future is the development of the Norwegian offshore sector. This also offers considerable opportunity for bunker suppliers, says Johnsen: “The growth in the rapidly expanding offshore market has provided real opportunities for companies with the experience of operation in this area. We’re looking in particular at [bunkering] seismic vessels and supply vessels. Some of these are very expensive vessels to operate, and going into port would add further costs, so we go out to the vessels.“

Getting large quantities of fuel oil off the coast of Norway is not easy, as the coastline is so long, and there is no central location for storage facilities, Johnsen points out. OW barges generally go up the coastline once or twice a month to supply vessels. In addition to seismic vessels, they may also be called on to supply tankers that have gone to lift cargo, then been redeployed to the Far East, and do not have the fuel onboard for a voyage of this length, Johnsen says. “Deliveries of this kind are made by one of OW’s five Denmark-based barges, although if the service continues to expand, the company can add another 7,000 tonne capacity barge to the fleet of vessels providing the service. The barges can provide up to 1,200 cu m of gasoil and 6,000 cu m of fuel oil, and have a pumping rate of 1,000 cu m, although most vessels cannot in fact receive at this rate.”

An ongoing newbuilding programme will see OW take delivery of two barges to be deployed in the Scandinavian market this year, one of which will be used in the offshore market. The new vessel may also be used in the cargo transfer market, which is another area OW is looking to develop.

Consolidation looms

There are now two main groups of physical suppliers operating within the Scandinavian market. On the Danish side of the market, one of the biggest players is OW, which owns its own fleet and distribution network, including storage facilities. OW has agreements with a number of companies that themselves form part of the Dan-bunkering group, and members of the Bunker Holding Group, including Topoil and Trumf. The main competitor is Swedish company Stenaoil. While the company mainly operates out of Gothenburg, it has a range that extends to the southern Norwegian ports and to the Danish coast.

While there are two major ‘groups’ of physical suppliers, these are surrounded by a crowd of traders and brokers. Jacobsen reckons that some 40% of business in the Scandinavian bunker market is done directly with the physical suppliers, while a further 60% is done through intermediaries.

Coming to the crunch

However, further consolidation of the market is possible as funding dries up in the wake of the credit crunch. OW says that: “We expect to see continued consolidation in the market, as smaller companies without the financial strength and access to credit lines fall into difficulties.” According to Johnsen: “It is difficult for everybody to get credit at the moment, but we have the size to get through this.”

Jacobsen also predicts a contraction in the market, but considers this should be seen as an opportunity for well-managed trading and broking firms, who can benefit either by acquiring existing companies, or by taking on employees. The market was over capacity, he says, and this consolidation should ease the competition between brokers and traders.

While there is also the possibility of further supplier consolidation in the short term, Jacobsen does not think that this will last, and that new companies are likely to emerge as the market settles. For the moment, any change is being driven by the oil majors who “currently have a tendency to be more conservative and pick out only certain traders and shipowners to deal with, who are good firms with a good reputation”.