S&B VIEWPOINT: Can Russia Cling on to Its Bunker Market Share in the IMO 2020 Era?

Russia's Baltic ports may suffer from a lack of bunker demand from the cruise industry this year. File Image / Pixabay

Russia, historically at the heart of the bunker market with its cheap supply of high sulfur fuel oil, is struggling to hang onto its market share this year with the advent of IMO 2020 and the COVID-19 pandemic.

On Monday Russian state-owned energy company Rosneft said it had sold just 112,000 mt of its new very low sulfur fuel oil (VLSFO) blend in the first quarter.

That compares with total bunker sales of 2.8 million mt last year, down from 3.1 million mt the previous year.

Gazprom Neft sold 3 million mt of bunker fuel last year, of which just 261,000 mt were of VLSFO or ultra low sulfur fuel oil; while its VLSFO sales only launched at the end of the year, they will need to grow rapidly to take over from HSFO.

Historically Russian bunker demand has totalled around 10-12 million mt/year.

HSFO Decline

The main problem facing Russia's suppliers is that the majority of that total was made up of high sulfur fuel oil, and those sales will be likely to have dropped by at least 80% this year as the International Maritime Organization (IMO) imposed its new 0.50% sulfur limit on bunkers for ships without scrubbers.

In the past Russian fuel oil was one of the key products in the bunker market, getting sent over to Rotterdam in large quantities either for sale in Northwest Europe or to build up VLCC cargoes to send on to Singapore.

None of these VLCC cargoes have left Rotterdam in the past six months, according to the authorities there, where in the past 1-2 cargoes were sent per month.

Russia has been slower than other parts of the world to upgrade its refineries to cut high sulfur residue output and maximise middle distillate production, meaning ii historically had large stocks of high sulfur fuel oil to export.

The ample supplies from Russia made prices at Russia's Baltic ports some of the lowest in the world for anyone operating in the region and able to take advantage of them.

But while Russia has reduced its high sulfur fuel oil output significantly in recent years and started to produce the lower-sulfur fuels that the shipping industry now needs, it is unlikely to reclaim its former position.

Cruise Collapse

The other problem facing Russian suppliers this year is the effect of the COVID-19 pandemic on demand.

Bunker demand typically starts to rise at Russia's Baltic ports towards the end of the spring with the arrival of the cruise season, and prices can rise to come close to Rotterdam's levels as demand increases. 

But with the cruise season almost at a standstill this year because of measures to avoid the spread of the coronavirus, suppliers in Russia have another reason to be worried about where their next sale will come from.