Russian Far East Bunker Demand Collapses on Evaporating Price Advantage

Busan's premium over Nakhodka has collapsed to a discount since VLSFO became the dominant marine fuel. Image Credit: Ship & Bunker

Bunker demand in the Russian Far East, once one of the fastest-growing marine fuel hubs in the world, has collapsed since IMO 2020 took away its price advantage over other ports in the region.

Bunker demand in Primorsky Krai is heading for a total of about 1-1.5 million mt this year if current trends continue, down from about 3 million mt/year in previous years, a source in the region told Ship & Bunker this week.

Bunker demand in the Russian Far East grew rapidly in the middle of the 2010s, reaching beyond 5 million mt/year some years. The location of Primorsky Krai just a short diversion away from major trade routes allowed it to use its access to cheap Russian fuel oil to take market share from ports as far away as the west coast of the US, particularly in the dry bulk sector.

HSFO Advantage

The abundant supplies of high sulfur fuel oil (HSFO) from Russia's refineries left its ports with the lowest bunker prices in the world historically -- but with the advent of IMO 2020 and very low sulfur fuel oil becoming the dominant fuel oil, they no longer have this advantage.

"Since the 2020 rules, the volume has dropped 2-3 times down," the Russian Far East source said this week.

"The reason is reduced number of transit calls in local ports due to severe competition from South Korea and China."

The chart attached to this story shows how the region has lost its price advantage versus South Korea. 

HSFO at Nakhodka in Primorsky Krai was at a $70-100/mt discount to nearby Busan in the fourth quarter of last year, according to Ship & Bunker pricing, but in 2020 its VLSFO has mostly been more expensive, rising to a $27.52/mt premium to Busan on average last month.

Chinese Growth

The growth in VLSFO supply from China this year may also be a threat to the Russian Far East.

China has applied a long-awaited rebate on value added tax on fuel oil from February this year, incentivising domestic refiners to produce VLSFO in large quantities.

Exports in the form of bunker sales at Chinese ports have already begun, and prices at Zhoushan dropped to a discount to Singapore's levels last month as supplies increased. 

VLSFO at Nakhodka was at a $12.50/mt premium to Zhoushan on Tuesday, compared with a $26/mt discount for HSFO at this time last year.