FEATURE: Bunker Supply Chain Prepares for Life Without Russian Oil

Russia exported 2.72 million mt of fuel oil last month. File Image / Pixabay

The bunker industry is preparing to cope with the once-unimaginable problem of going without Russian oil as the war in Ukraine increasingly prompts the West to shun the Kremlin's energy exports.

Most of the biggest bunkering firms have already stopped doing deals at Russian ports, and the industry is now grappling with how to avoid Russian-produced oil altogether at ports elsewhere in the world. Russia's refineries tend to produce a higher yield of fuel oil than facilities elsewhere -- the country exported 2.72 million mt of fuel oil last month -- and much of this output ends up in bunker blends.

"Surely that's a very difficult thing to do -- especially for an industry that likes to operate quietly," Peter Sand, chief analyst at freight analytics firm Xeneta, told Ship & Bunker on Wednesday.

"All this attention makes it tough.

"So far, it's mainly reputational risk that's at stake -- it we reach a point where it's a breach of sanctions to use fuels of Russian origin, some of the smaller players in the market tracking the origins of oil may be in a super busy time of their lives."

The industry is in the early stages of making its plans around how to handle this issue, and several contacts approached for this story spoke only on condition of anonymity.

P&I Clubs

Two market sources reported to Ship & Bunker this week that avoiding Russian bunkers is becoming a requirement imposed on shipping companies by some P&I clubs.

A large global bunker buyer has also said it is in the process of developing a plan for how to stop buying Russian-origin oil.

"Some P&I clubs have updated clauses to add on 'bunker stems not to include Russian product', similar to the Venezuela/North Korea/Iran clauses," one of the sources said.

"The problem in ARA is the volume of Litasco product.

"The reality is, whether by crude/blends or finished product, a lot of it has Russian material in."

Ship & Bunker has written to the 13 largest P&I clubs to ask for their position. None has yet publicly stated a requirement not to buy bunkers of Russian origin.

"I would be surprised if any P&I would release such a strict statement in this respect," Irene Notias, managing director of brokerage Prime's Bunkerplus Services, told Ship & Bunker on Wednesday.

"Generally clubs take a very prudent approach by inviting their members to carry out any necessary due diligence, should they intend to trade in a sanctioned country, but then leaving any conclusion or decision to the same members."

Beyond Current Sanctions

A representative of Norwegian P&I club Gard said the organisation was following the situation but not going beyond the limits of current sanctions.

"As of today, the only restriction is on the import of oil into the US, bunker fuels are not sanctioned," the representative said on Monday.

"Gard is monitoring the situation closely, and will comply with all current sanctions."

Steve Simms of law firm Simms Showers LLP suggested current US sanctions could be interpreted as blocking the sale of Russian-origin bunkers.

"President Biden's March 8, 2022 executive order prohibits the importation into the US of any 'petroleum fuels' of Russian Federation origin," Simms told Ship & Bunker on Wednesday.

"This doesn't exclude Russian-origin fuels which have been re-sold through a supplier or trader.

"So, if a vessel loads Russian-origin fuels and comes to the US, or a trader sells Russia-origin fuels which then are transported to the US, that could be a violation of present US sanctions.

"Our strong suggestion to all customers, traders, brokers and suppliers is to avoid Russian-origin fuels and avoid questions of sanctions."

Certifying Fuels' Origins

One source in the P&I market told Ship & Bunker it would be 'almost impossible' in practice to block purchases of Russian-origin oil.

"In the procurement of fuel oil it is very rare, if it ever happens at all, that its origin is specified -- only the quality of the fuel," the source said.

A logistics source in Northwest Europe said much would depend on how transparent cargo owners were with their customers.

"The owner of the products in tanks would know where the products originated from," the source said. 

"But I do not know if they will tell this to their buyers."

Global bunker supplier Monjasa was ahead of the curve on this issue, announcing earlier this month that it had halted buying Russian-origin oil as of February 25.

"Monjasa has decided to apply a wide-range response and not only halt all Russian business, but also suspend purchase of Russian oil products for further redistribution across our global logistics comprising 25 tankers," a company representative told Ship & Bunker on Wednesday.

"This practice is straightforward, and entails that Monjasa refrains from buying oil products carrying Russian Certificate of Origin until further notice."

Questions From Bunker Buyers

The issue is becoming more prominent in discussions with customers, Sandra Ennor, president of brokerage Transparensea Fuels, told Ship & Bunker on Monday.

"Whether the request is coming from P&I clubs or from a company's corporate response, we have seen requests from clients when working inquiries to have suppliers advise whether or not their fuels contain any products of Russian origin," Ennor said.

"Sometimes the answer is 'yes' and customers then decide how they would like to proceed.

"I think that it's going to take a while for suppliers to either segment this product out of the barrels they are offering or burn through them.

"Further, we are seeing ships that are carrying Russian cargos that were booked prior to the invasion are being turned away from numerous bunker suppliers.

"Questions about a ship's voyage and cargo history are now the norm when it comes to assessing whether or not a vessel is carrying cargo from Russia."

But one bunker buyer told Ship & Bunker it was not yet committing to avoiding Russian bunkers.

"We are mainly awaiting the suppliers' decision," the source said.

"Hopefully suppliers will find other sources.

"For sure, it will not be easy."