Japan’s IMO Compliant 0.5% Sulfur Bunker Premium Hits Record High

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  • IMO-compliant bunker fuels available at Japan’s 3 top refineries.
  • MLIT trial concludes normal navigation with IMO-compliant fuels.
  • JXTG, Cosmo suspend 1% sulfur A-fuel oil supply, while Idemitsu Kosan continues.
  • Singapore marine fuel 0.5% FOB cargo assessment spiked to $119.68/mt at the Asian close Tuesday, the highest to-date.
  • The delivered premium widened by $25.70/mt or 27.4% from Monday due to growing demand for the IMO-compliant bunker fuel.
  • LSFO demand is mainly from major Japanese shipowners.

Japan’s top three refiners started supplying 0.5% sulfur bunker fuel oil that complies with the International Maritime Organization’s global sulfur limit for marine fuels from their refineries, reports Platts.

Smooth trials

It follows a conclusion by Japan’s Ministry of Land, Infrastructure, Transport and Tourism in September that its series of trials using IMO-compliant bunker fuel oil from the three refiners all went smoothly on coastal vessels.

Stringent IMO regulation

  • The IMO will cap global sulfur content in marine fuels at 0.5% on January 1, down from 3.5% now. 
  • This applies outside the designated emission control areas where the limit is already 0.1%. 
  • Shipowners will have to either burn cleaner, more expensive fuels or install scrubbers if they continue to burn high sulfur fuel oil, to comply with the rule.

Big Three

JXTG Nippon Oil & Energy

JXTG Nippon Oil & Energy, the largest Japanese refiner, started supplying 0.5% sulfur bunker fuel oil from its six refineries in Japan as well as at an oil terminal in Niigata in the country’s northwest as of Tuesday, a company spokesman said.

JXTG’s supply of 0.5% sulfur IMO-compliant bunker fuel oil is now available from its 

  • 145,000 b/d Sendai refinery in the northeast, 
  • 270,000 b/d Negishi refinery in Tokyo Bay, 
  • 135,000 b/d Sakai refinery, 
  • 320,200 b/d Mizushima refinery, 
  • 120,000 b/d Marifu refinery in the west and 
  • 136,000 b/d Oita refinery in the south west.

The refiner also plans to start supplying IMO-compliant bunker fuel oil from its 197,100 b/d Kashima refinery in the east coast and its 129,000 b/d Chiba refinery in Tokyo Bay, the spokesman said.

JXTG also plans to start supplying IMO-compliant bunker fuel oil at its five other oil terminals in 

  1. Muroran in the north, 
  2. Sakaiminato in the west, 
  3. Kitakyushu, 
  4. Nagasaki and 
  5. Kagoshima in the southwest.

But it was declined to elaborate on scheduled starts of the supplies at the refineries and the oil terminals to be used.

The spokesman said that JXTG’s 0.5% sulfur bunker fuel oil supply is only available for ocean liners at its Sendai and Marifu refineries, with Kashima, Chiba, Negishi, Sakai, Mizushima and Oita refineries supplying IMO compliant fuel oil for both ocean liners and coastal vessels. 

He added that all of its IMO-compliant bunker fuel supply is available only for coastal vessels at the six oil terminals.

The spokesman added that JXTG’s 0.5% sulfur bunker fuel oil supply is only available for ocean liners at its Sendai and Marifu refineries, with all of its IMO-compliant bunker fuel supply available only for coastal vessels at the six oil terminals.

Cosmo Oil

Cosmo Oil, the country’s third largest refiner, also confirmed the start of its 0.5% sulfur bunker fuel oil supply as of Tuesday at its 

  • 177,000 b/d Chiba refinery in Tokyo Bay, 
  • 86,000 b/d Yokkaichi refinery in central Japan and 
  • 100,000 b/d Sakai refinery in western Japan.

Idemitsu Kosan 

Japan’s second largest refiner Idemitsu Kosan also confirmed its start of the IMO-compliant bunker fuel oil at a part of its six refineries across the country, said a company spokesman, declining to elaborate. Idemitsu also has a 6.57% stake in Fuji Oil, the operator of the 143,000 b/d Sodegaura refinery in Tokyo Bay.

Suspended supply due to shift

JXTG and Cosmo Oil also confirmed Tuesday that the refiners had suspended the supply of 1.0% sulfur A-fuel oil in the domestic rack and waterborne markets as of Monday in return for shifting their focus to IMO-compliant bunker fuel supply.

A-fuel oil — a blend of gasoil and fuel oil in a 90:10 ratio — is one of the key products supplied by Japanese refiners used by industrial plants and coastal vessels, as well as for construction and agricultural machinery in the country.

Rack oil products are those that are transported by refiners and other independent suppliers over land by truck, loaded from either refinery tanks or secondary tanks outside the refinery. Waterborne oil products are primarily supplied by local refiners and major trading houses in Japan.

Market sources attributed Cosmo’s move to difficulties facing a lack of storage facilities for A-fuel oils with different sulfur content — 0.1%, 1.0% and 0.5%.

Idemitsu Kosan, however, has maintained its 1% sulfur A-fuel oil supply and will continue its supply, the spokesman said Tuesday.

MLIT report

After running a series of trials using IMO-compliant bunker fuel from the Japanese refiners from the end of June, MLIT said in September 

  • that there was no issue in using bunker fuel on various types of coastal vessels with sulfur levels of less than 0.5%, a kinematic viscosity of 17-42 CST and pour points between minus 22.5 C to 12.5 C.
  • It has confirmed smooth switching of bunker fuels as well as normal navigation without any on a total of 12 coastal vessels, including steel materials, cement, LPG carriers, roll-on/roll-off ships as well as ferry and passenger-cargo vessels.
  • Its trial was aimed at ensuring the domestic shipping industry’s preparations and readiness for strict sulfur regulations on marine fuels, ahead of the country’s “expected full-scale start of the [IMO-] compliant fuels supply for ships from around the autumn.”

Surplus HSFO 

Japan’s first trial of bunker fuel complying with the IMO’s new 2020 rules went off smoothly on domestic coastal vessels, the transport ministry said in July.

Research conducted by the Petroleum Association of Japan showed that Japanese refiners could be burdened with surplus HSFO amounting to around 4.80 million kl/year (30.19 million barrels/year) if they blend export-grade gasoil with HSFO to make the IMO-compliant fuel.

FOB Cargo Spike

The premium which delivered Marine Fuel 0.5% bunker commands over the Mean of Platts Singapore marine fuel 0.5% FOB cargo assessment spiked to $119.68/mt at the Asian close Tuesday, the highest to-date since Platts started assessing IMO-compliant Marine Fuel 0.5% bunker assessments at key global ports on July 1, 2019, S&P Global Platts data showed.

The delivered premium widened by $25.70/mt or 27.4% from Monday on the back of growing demand for the IMO-compliant bunker fuel as the industry speeds towards the January 1, 2020 start date to the changes in the IMO regulations.

The premium was last highest at $93.98/mt on Monday and was first assessed at $40.78/mt on July 1, Platts data showed.

LSFO demand to strengthen

Demand for low sulfur marine fuel is expected to further strengthen across key Asian ports starting this quarter as IMO 2020 nears, market sources said.

During the Platts Market on Close assessment process on Tuesday, Japanese fuel oil and bunker trader Mitsui and Co. Petroleum had bid for 1,300-1,500 mt of Marine Fuel 0.5% for delivery over October 6-8 at $573/mt.

The bid remained standing at the close of the MOC process. Platts had assessed the delivered 0.5% bunker grade at Japan at $573.25/mt Tuesday, up $13/mt day on day, Platts data showed.

Market activity in low sulfur marine fuel has been gradually emerging in recent weeks in Japan.

Other LSFO suppliers 

Mitsui and Co. Petroleum 

Mitsui and Co. Petroleum will start supplying 0.5% sulfur bunker fuels this month as demand for cleaner fuels accelerates, Platts had earlier reported.

“Our first LSFO delivery will be this week, latest on October 5. It will be delivered at Osaka/Kobe, West Japan. The volume is 300-400 mt,” a company source at Mitsui told Platts this week.

Toyota Tsusho 

Toyota Tsusho will also be supplying 0.5% sulfur bunker fuels at Japan from mid-October onwards.

LSFO demand from Japanese shipowners 

While current demand for LSFO is mainly from major Japanese shipowners who had secured term contracts, spot market fundamentals were likely to remain robust, the sources said.

Platts began publishing Marine Fuel 0.5% bunker prices globally on July 1, 2019. This comes ahead of the planned introduction of new sulfur limits in marine fuels by the International Maritime Organization from January 1, 2020.

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Source:  Platts

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