- Hafnia's fuel procurement, strategies lead to smooth IMO 2020 transition: executive
Hafnia, part of the BW Group and among the world's largest oil product tanker owners and operators, was able to transition smoothly to the International Maritime Organization's global low sulfur marine fuel mandate, with the company choosing low sulfur fuel oil and marine gas oil for its fleet, bunker manager Kasper Sorensen, said on Oct. 6.
"We didn't choose the scrubber route for various reasons...Our fleet and bunker pattern didn't justify the use of scrubbers and accompanying high sulfur fuel oil," Sorensen said during a panel discussion at the 21st Singapore International Bunkering Conference and Exhibition, or SIBCON.
This comes as the COVID-19 pandemic caused a sharp drop in crude oil prices, pushing it into a contango, which resulted in the demand destruction for oil and oil products.
"The price difference between HSFO and LSFO was huge for a few weeks [at the start of this year] but as somewhat expected they have come down since. The only surprise was how fast the spread narrowed," Sorensen said.
In January, the price differential between HSFO and LSFO averaged $298.90/mt as the market transitioned to LSFO to comply with the IMO 2020 mandate. The price differential has since narrowed to an average of $60.32/mt in September, Platts data showed.
The narrowing spread has in turn altered the economics of installing/retrofitting scrubbers on ships with some industry sources saying that the payback has been extended from the initial estimate of two to three years to as much as five to seven years.
Undoubtedly, IMO 2020 brought to the market a range of different types of bunker fuels and blends, Sorensen said, but Hafnia was able to successfully maneuver around potential bunker fuel quality issues.
"For us, the decision to use LSFO has proven beneficial significantly quicker than we expected. There's been plenty of availability in the major hubs, but also in the smaller ports where we are less frequently," Sorensen said.
"Our strategy going into 2020 was to secure term contacts [with bunker suppliers] partly to ensure the stability and availability of the quality that we were getting. Economically, it also paid dividend to have pricing mechanisms locked in," he said.
"We put some risk mitigation measures in place so that we weren't putting all our eggs in one basket...for example setting a maximum batch of [bunker fuel] volume per ship or a minimum viscosity [for the fuel used]," he said.
The company also monitored bunker suppliers' performance and regions where the fuel delivered was off-specification -- mitigating problems on both fronts, Sorensen said.
"We have experienced some bad quality, but overall we are quite satisfied with the transition," he said.
Moreover, the fact that Hafnia's bunker services segment purchases fuel not only for its own fleet but also for others, helped it draw more synergies and reap cost benefits, while procuring bunker fuel.
For tankers, the first two quarters of 2020 have been quite extraordinary for the industry as a whole.
On the operational side, the COVID-19 pandemic has unleashed many challenges, including the humanitarian aspect, particularly relating to crew changes.
In the current situation, for example, surveyors need to be segregated for the barge and the receiving ship, adding to costs, Sorensen said.
Some ports such as Hong Kong have also imposed stringent quarantine regulations for bunker-only calls.
"As a result, we have shifted bunker volume to other surrounding ports, such as Singapore and China, where we have seen increased tightness in availability," he said.
The current environment and corresponding challenges necessitate a more "informed and collaborative approach" so that these hurdles can be overcome more smoothly, he added.