Industry Insight: Head of Risk at Certas Energy Is Predicting a Year of Big Change for the Bunker Industry

By Varun Chhabria, Head of Risk and Marine at Certas Energy
Friday March 9, 2018

Varun Chhabria, Head of Risk and Marine at Certas Energy, shares his thoughts on the year ahead and talks more about life at Certas Energy as the company continues to establish itself as a leading player in the marine fuel world.

An industry still feeling the effects of 2017?

It's not an exaggeration to say 2017 was a tumultuous year for marine fuel. From politics to the media and environmental changes to new legislation, it was a year of uncertainty for many. Especially those of us who hedge and determine pricing for a living. 

Across the whole of the oil industry, 2017 was a year of limited highs, scattered with a greater number of lows. Credit was a huge issue, as was the sharp rise in oil prices at the end of the year. The marine market in particular saw some significant dips, which the off-shore market still hasn't quite recovered from.

For many within the sector, the unsettled market led to some noticeable down scaling, as companies struggled to maintain healthy-looking P&L sheets.

The consequence of this down scaling is that there's now lots of competition between businesses, who are looking to price each other out of the market.

Low sulphur fuels set to make a big impact

In 2017, the market had backwardation in it and that led to lots of short term purchases within the industry as the cost of capital is so high. This, coupled with the business costs of storing oil, will continue to be a cause for concern in the eyes of many marine fuel companies and their customers in 2018.

At Certas Energy, we have a deep appreciation of this context and want to reassure our customers that we'll do all we can to provide them with fuel at a competitive price, with quality guaranteed. We're working hard to keep our customers up to date on the latest possible developments too, with alternative fuels becoming an increasingly hot topic.

This includes Shell GTL - a completely sulphur free fuel, which over the next few years with the introduction of the Sulphur 2020 legislation, could become a fuel of choice within the industry. It's still early to be thinking about 2020 but planning ahead will hopefully ensure a more stable market with less price fluctuation by the time we get there.

We currently supply MGO (Marine Gas Oil) which meets the legislation requirements – both Class D with a maximum sulphur content of 1000ppm (0.1%) and Class A2, also known as ULSGO (ultra-low sulphur gas oil) with a maximum content of 10ppm (0.001%) – and we're looking to offer low sulphur fuels (alongside additives - as a supplement to ensure optimum vessel performance) which is an approach that has been well received by a select few customers who have told us they want to be well prepared.

Inevitably these types of fuel can come at a higher cost, but when it becomes compulsory in 2020 under the new legislation they're likely to perform incredibly well in the market. We're pleased to be ahead of the curve when it comes to adapting and pricing for these products, so we're looking forward to seeing how that progresses throughout the course of this year.

The influence of Brexit uncertainty

There continues to be a lot of uncertainty around the impact of Brexit and it looks like that's going to roll on throughout 2018. The business community in general has been enduring a tough climate already with general global economic and political uncertainty over the past few years – so I see little change on that front.

For the marine fuel sector specifically, duty and the 20% VAT charge will likely be impacted by Brexit - negatively or positively, we can't yet say – but we do know it won't happen until the UK makes the decision on what the separation from Europe will look like.

There will also be some exposure to working capital, but as the government isn't focusing on oil at the minute, again we can't accurately begin to predict the impact this will have on the industry. It should also be said that whilst the government isn't currently focusing on the Brexit impact on oil, the industry equally isn't looking for answers. With the narrative around the UK's exit from the EU constantly changing, we're likely to go through so much further change before Brexit actually happens that seeking conclusive answers just isn't at the top of the priority list right now.

Looking ahead in 2018

As we continue to head into 2018, Certas Energy certainly looking to become a key player in the industry. We have spent a lot of time evaluating our offering and current position in the market place and as a result have focused on introducing more synergy to business processes and partnerships to strengthen our position.

We have been looking at innovation and creating new strategies around providing value add to our customers and we continue to do that in 2018 as coupled with our efforts towards expansion and development.

Our Thames bunkering facility will continue to improve our standing – especially in the south of England and we're currently looking at further sites for new bunkering facilities. It's an exciting pipeline to have and will certainly help us turn our vision into a reality.

At the heart of it though, for 2018 we'll continue to focus on doing the same things we've carved out a reputation for, which is providing outstanding quality, a high standard of service and unrivalled customer satisfaction. We want to build on the reputation we've established and become known as the best in the business. And we're certainly on our way.