Euronav announced details on its approach towards the new Sulphur fuel regulations coming in as part of IMO 2020.
Hugo De Stoop, CEO of Euronav said: “The introduction of new Sulphur emissions regulations as part of “IMO 2020” is one of the most progressive and significant developments for all shipping segments over the past fifty years. Reducing shipping’s Sulphur footprint is a critical step forward for all seaborne transportation and Euronav wholeheartedly welcomes the new regulations and looks forward to fully complying with them.
In summary, Euronav has purchased the equivalent of 420,000 metric ton of compliant fuel and Marine Gasoil at what we believe to be a competitive price. This volume can provide a substantial coverage of our fuel requirements during the initial period of the regulation. Leveraging our balance sheet strength and operational capability to purchase and secure supply of tested compliant product that should provide a natural hedge for Euronav against any lack of fuel oil availability, poor quality compliant fuel or unwanted price spikes and help establish strong, direct B2B relationships for future fuel sourcing.”
1. DEDICATED RESOURCE AND INVESTMENT IN IMO 2020
Euronav has invested heavily in preparing for the new regulations in physical infrastructure coupled with investments in both financial and human capital. The company has hired a dedicated fuel oils specialist team to procure, thoroughly test and store new compliant fuels for our own use. The ULCC Oceania (2003 – 441,585 dwt) has been used to store this inventory because of its unique size and related economies of scale.
In doing so, Euronav has gained considerable experience in managing a range of new fuel oils, financing their procurement and inventory management. Euronav has also invested in the necessary accounting and financial tools required to assist in the management and procurement of all of its fuel oil needs. This investment in inventory and infrastructure is part of a larger, long term and consolidated approach toward bunker procurement.
2. PROCUREMENT OF COMPLIANT FUEL
Euronav has bought a range of fuels progressively during calendar 2019 at various prices. In aggregate the purchase value of Very Low Sulphur Fuel Oil (VLSFO) has been at $447 per metric ton compared to a bunker price (HFO-3.5% Sulphur content) of $400 per metric ton over the same procurement period.
It is important to stress that the majority of our procurement activity so far and going forward has been on a new compliant fuel of 0.5% Sulphur content and not a blended product. We believe that after a period where the markets will adapt to the new regulations, there will be ample and sufficient compliant fuel available to the shipping industry.
3. OPERATIONAL STRUCTURE
Today Euronav owns the only two operational ULCC vessels (3m barrel capacity): the Europe (2002 – 442,470 dwt) and the Oceania (2003 – 441,585 dwt). Both ULCC are unique movable storage units for use of crude or fuel oil given their size and age. The Oceania has been used to store the compliant fuel we have purchased and is repositioning to Singapore area later this month. The Europe is currently under commercial time charter with a third party until the end of 2019.
4. FINANCING OF STRATEGY
In line with Euronav’s strategy to retain a strong balance sheet to navigate the tanker cycle, a new $100 million revolving loan facility has been secured with a club of banks in order to assist funding of this compliant fuel inventory on the Oceania. The terms of this financing are attractive and in line with our other commercial bank funding regarding terms and rates. The fuel purchased will be accounted for in line with inventory management accounting rules.
5. KEY BENEFITS OF STRATEGY
Euronav has taken this proactive approach to fuel oil procurement primarily in order to protect our business in terms of the availability of compliant fuel in sufficient quantity, adequate quality and compatibility with our fleet and operations from Q1 2020 onwards.
The core benefits are:
Quality – all ISO 8217:2017 standards have been fully met and any blending undertaken has been third party tested to ensure product compatibility
Provenance – critical that Euronav knows the fuel origin and production
Reliability & Safety – the action taken so far substantially reduces the operational risk within the fleet and ensures future ratable supply
Lower emissions – Using VLSFO will have lower particulate and Nitrogen emissions and will reduce sulphur emissions from the Euronav fleet – proven when tested against fuel samples for HSFO currently supplied to ships
Security of Supply – Euronav has protection against any lack of compliant fuel availability, uncertain quality and potential price spikes as a result.
Direct relationships – established key B2B relationships with refiners and suppliers of compliant fuel ahead of implementation of IMO 2020
Leverage – Separate financing scheme in place to ensure balance sheet liquidity remains strong
6. INVESTMENT IN SCRUBBERS
The board and management of Euronav continue to assess the potential retrofitting of part of its fleet and specifically the non-eco VLCCs whereas the majority of Euronav VLCC are eco-type VLCC. Euronav continues to study and assess all forms of scrubber technology.
Euronav believes that it can still fully capture the potential benefits of an investment in scrubbers after the start of the regulation. At that time, the derivatives market of LSFO should have developed in size and in volume which allow Euronav to fully lock in the benefits of the spread at the time of making the investment. This should even provide Euronav with a “second mover advantage” in learning the flaws of the first round of installations and take a decision based on facts without having to speculate.
Euronav over 2019 has made a proactive investment in building a dedicated team and infrastructure to manage the challenges of implementing and complying with IMO 2020. We believe this proactive approach will deliver security of supply of quality tested fuels in sufficient quantity for the initial 6-9 months of 2020 and we are working on additional fuel saving and procurement initiatives based on the experience built up over the past nine months. Euronav will continue to constantly evaluate the merits and opportunity from retrofitting scrubber technology particularly when a full LSFO fuel market is in place.