The spike in bunker prices will not ebb anytime soon, reducing shipowners’ flexibility to reposition tonnage.[ds_preview]Meanwhile interest in scrubber-fitted vessels keeps growing due to the increased price spread between HFO and VLSFO, explains Harro Booth, managing director of bunker trader Elboil.
Bunker prices hit record levels, so did freight rates in some sectors. Is fuel cost a major issue again for operators?
Harro Booth: There are reports of dry bulk owners refraining from sending empty vessels to the more attractive Atlantic market (soybean export) because of the high cost of repositioning. Instead they opt to stay in the Pacific. Ourselves we haven’t had any indications across our portfolio of operators switching to slow steaming or making similar operational changes. Don’t forget: for operators in certain trades it is impossible to slow down to save fuel as schedule reliability is already at a record low.
What about price risk? Given the current backwardation of crude (and bunker) prices, is this the time to hedge bunker exposure or should operators wait for further price declines?
Booth: Price risk is always an issue and therefore hedging is something we generally advise and offer to our clients. Whether or not »now is the time« is difficult to predict. A large American financial institution forecast 100 $/b (Brent) by Q3/22. We expect further volatility and another rise in the short term which will also send bunker prices skywards.
The scrubber spread has widened significantly again with corresponding benefits for scrubber-fitted tonnage. Will it remain that way?
Booth: Spreads have generally increased but with significant regional differences: 165 $/mt in the ARA region versus 222 $/mt in Fujairah where VLSFO supplies have diminished as cargo traders prefer to send VLSFO to Asia where profit margins are higher. Whether or not these spreads will remain, is yet to be seen. But for sure, interest in scrubber-fitted vessels is going up. The total number of scrubber-fitted ships grew from 2,609 to over 3,580 since January 2021.
More and more ships are designed for LNG operation despite the surge in gas prices and marine LNG. What’s the outlook?
Booth: The fact is that presently marine LNG is not competitive compared with other fuel options. Notwithstanding, the fleet under LNG operation keeps expanding considerably. Last year 240 LNG dual-fuel units were contracted as per DNV. Clearly, many industry players consider it to be a transitional fuel towards zero carbon as green fuels will unlikely be available at scale by 2030. Many of our own customers are still cautious, though, due to lack of LNG bunkering infrastructure and availability of more cost-effective fuels such as VLSFO or biofuel blends.
