The African bunker fuel markets could struggle with the implementation of the International Maritime Organizations’ 0.5% sulfur cap on marine fuels in 2020 due to extensive competition from Mediterranean ports and the question of marine fuel quality, according to analysts and trading sources.
The western and southern African bunker industry which is centered in the key ports of Durban, Dakar and Lome face fierce rivalry from adjacent ports such as Las Palmas in the Canary Islands, Gibraltar and Algeciras in Spain.
The European ports typically offer more competitive prices and better services.
Durban, Dakar and Lome need to incentivize more shipowners to pick up product here and increase services but there are hopes that with increased investment and a rise in trading activity expected in the region, and the story might change.
West Africa particularly is primed for a surge in oil trade flows which should result in a rise in demand for marine fuels, which bodes well for such ports.
The African port with the most strategic advantage is Durban, which is a popular port for ships to purchase bunker fuel from for both economic and geographical reasons.
Durban also remains an attractive port for vessels transiting around the Cape of Good Hope from Asia to Europe and vice versa, making it a convenient bunkering port as well as having refineries to produce bunker fuel.
Durban fuel oil availability has been under pressure due to the on-going maintenance at the 120,000 b/d Engen refinery. The last 180 cst fuel oil indication heard was at $430/mt, $1 off the high of 2018 so far at $431/mt in early February.
The maintenance is expected to conclude at the end of March and until then the refinery has not been offering spot material, leaving those in need of spot cargoes turning to other ports in the region such as Richards Bay for fuel oil.
The ports of Las Palmas, Gibraltar and Durban typically carry a hefty discount to bunkers at Dakar and Lome, and this will be the biggest challenge for the West African ports, traders said.
At a time when daily earnings are low, bunker buyers are consistently hunting for the most economical port.
Additionally WAF bunker prices tend to be volatile, and a trader estimated that volumes have diminished by 20% over the last few years.
The price of marine gasoil at Lome has ranged between $640-$663/mt delivered this week, despite reports of tight availability. In contrast, MGO at Gibraltar remained stable day-on-day. Gibraltar gasoil was last heard at $595/mt Friday, after ranging between $595-$600/mt earlier this week.
Lome in Togo is the largest and busiest oil trading base in West Africa and the port has emerged as an ideal location in the Gulf of Guinea for bunkering facilities and for trading crude and refined products.
Dakar in Senegal is the main port for bunker fuel oil in the region, while Lome in Togo is the most active refined product import location in West Africa.
The question of stability and compatibility of the bunker fuel also reduces the appeal of the African bunker market.
“Post 2020 there will be greater concern about the quality of the product, rather than just the price…so shipowners will be nervous about where they buy their bunkers and this counts against Africa,” David Bleasdale, Executive Director of CITAC Africa, said.
To avoid engine failures, the two key properties to watch are stability — whether a fuel will separate over time or under particular conditions — and compatibility — whether two fuels brought into contact with each other will separate.
Consequently some refiners and suppliers are encouraging customers to act on a contract basis to ensure the supply of a consistent bunker fuel. However, this is not a viable option for companies that operate their vessels on a spot basis and need to have the flexibility to bunker at various ports, bunker buyers said.
However, there could be light at the end of the tunnel as some bunker traders expect activity in West Africa to pick up in 2020 as the global appetite for sweet crudes will be greater, particularly for crude grades out of Nigeria and Angola.
The IMO regulation will drive demand for lower sulfur products, and consequently a stronger demand for sweeter crude feedstocks around the world, and this could work in West Africa’s favor.
Secondly, in about five years there could be around 500,000-1 million b/d of new refining capacity coming online in West Africa and the bulk of these refineries will be processing low sulfur crudes which make for good quality low sulfur marine fuels.
Exports of very low sulfur fuels from West and North Africa will then be absorbed into the Mediterranean to meet the 0.5% sulfur cap requirements for marine fuels.