Shipping regulation and the EU Emission Trading Scheme

As London International Shipping Week 2021 begins, Platts Analytics discuss the major shipping fuel alternatives, as the shipping sector seeks to reduce its greenhouse gas emissions ahead of stringent caps in 2030 and 2050. In the final episode of the series, Platts Analytics reviews our outlooks of top line shipping demand by category – while laying out different expectations around turnover of the fleet – and the technologies, fuels and adaptations in play.

The ports of Los Angeles and Long Beach have again delayed their implementation of fines against shipping lines for containers that have remained too long at the terminals, now until Nov. 29, the ports said Nov. 22.

The fines was set to take effect Nov. 15, and were initially delayed until Nov. 22, for unloaded containers slated to leave by the ports truck and remaining for nine or more days and to leave by rail and remaining for six or more days.

“In recent weeks, clearing our docks of imports and empties has been a top priority,” Port of Los Angeles Executive Director Gene Seroka said in a statement. “As a result, we’ve seen a marked improvement of fluidity on our marine terminals, which allows more vessels to be processed.”

Neighboring Los Angeles and Long Beach are the US’ two largest container ports. Since Oct. 25, the ports have seen a decline of 33% in cargo still at the terminals.

“Before the pandemic-induced import surge began in mid-2020, on average, containers for local delivery remained on container terminals under four days, while containers destined for trains dwelled less than two days,” the Port of Long Beach said in the statement.

Major ocean carriers servicing the port complex have already stated than any excess fees would be passed on to shippers.

“It’s more carrot than stick, but there was way too much haste in the implementation,” a US-based freight forwarder said. “The issues are not at the port, but with the infrastructure.”

Platts Container Rate 13 – North Asia-to-West Coast North America – was assessed Nov. 22 at $8,400/FEU on an FAK basis, up 115% against the same date in 2020 as port congestion and equipment imbalances put pressure on capacity while demand firmed.

Canadian Pacific Railway estimated on Nov. 19 that is would restore service on its rail link between Vancouver and the interior of British Columbia around the middle of next week, four days after floods and landslides cut off the port city from the rest of Canada.

British Columbia declared a state of emergency on Nov. 17 after a series of severe storms and record rainfall caused widespread flooding. Canada has deployed troops to help evacuate cities and towns in southern British Columbia to Vancouver.

CP said it was working around the clock to restore around 20 separate sections of track between Kamloops, British Columbia, and Vancouver. Rail outages have prevented most export cargoes of coal, wheat, potash, sulfur and other products from reaching dry bulk and container terminals on the Pacific Coast.

Flooding impacts on highways remain severe and widespread throughout southwestern British Columbia and all highways remain closed to non-essential traffic as work crews continue with reconstruction and repairs, the Port of Vancouver said. One highway route was opened intermittently to allow some traffic to flow out of the impacted areas to Vancouver.

Crude discounts offered as pipeline to Vancouver remained shut

The Trans Mountain pipeline carrying 300,000 b/d of Western Canadian crude and refined products from Alberta to Vancouver was shut down as a precaution and remained closed on Nov. 17.

Prompt prices for November barrels of Western Canadian crudes were heard offered at steep discounts to the WTI benchmark on Nov. 19 as traders searched for alternative outlets amid the shutdown of the Trans Mountain pipeline.

Mixed Sweet crude in Edmonton, Alberta, was heard offered for November at an $11/b discount to the WTI calendar month average. Mixed Sweet’s 30-day rolling average differential to WTI CMA is minus $2.87/b, according to S&P Global Platts data. Western Canadian Select in Hardisty, Alberta, for November was heard offered at WTI CMA minus $24.25/b. WCS Hardisty has averaged a discount of $16.63/b over the past 30 days.

Prompt prices for crude can often reflect real-time market disruptions as traders look to either store or find new buyers for crude that was destined to be transported by a pipeline that has been shut.

Prompt trading of barrels of Canadian crude seemed to be the focus Nov. 19 as active January trading had yet to resume. At least one trader said it was still too soon to know if pricing for January would be impacted by the pipeline outage.

Marine fuel prices from Vancouver counter wider downtrend

Spot marine fuel bunkers markets have been slow to react in Vancouver, with feedback on demand fundamentals mixed from local sources as the focus remains on logistics.

Spot 0.5%S marine fuel bunkers value rose $2 in Vancouver to $615/mt ex-wharf, while the MGO spot price rose $4 to $790/mt ex-wharf.

The gains came as most other North American bunkers assessments trended lower and in line with a weaker US crude complex.

Vancouver spot bunkers pricing has been talked in a wide range since late Nov. 18, with some sources pointing to a lack of demand amid cargo backlogs while citing the lower price levels.

“Demand is non-existent as the port works through issues,” a Vancouver bunkers source said. “Cargo delays will grow over the weekend. Vessels are not able to load and therefore are not requiring fuel at this time.”

Others, however, continue to see spot levels higher than those seen pre-storm, with the late-week declines in crude and diesel futures doing little to mitigate supply outlook concerns.

“Tight there and market moving up because of pipeline shutdown,” a trading and brokering source said.

Port congestion worsens but outlook for recovery remains positive

The Canadian wheat market had a positive tone to end the day Nov. 19 after CP announced it could its railway to the Port of Vancouver cleared as early as the middle of next week.

“Pretty crazy if they can get repaired that quickly,” said a source when hearing the announcement.

German shipping firm Hapag-Lloyd said on Nov. 18 that CP and Canadian National Railway were not accepting containers for imports moving though Vancouver or containerized export cargoes moving through their networks bound for Vancouver.

“Import truck pick up is still available at all marine terminals, however delays can be expected, depending on final destination of the cargo,” Hapag-Lloyd said in a notice to customers. “There is no clear timeline for when the province’s highway network will be functional again.”

Danish shipping firm A.P. Moller-Maersk said the regular flow of containers in and out of the Port of Vancouver could be impacted for weeks with increased congestion at terminals and vessel delays. Waiting times for container ships to berth were estimated at five to seven days, the company said.

There were 10 container ships, 37 dry bulk carriers and two tankers at anchor waiting to berth at Port of Vancouver terminals on Nov. 19, according to Platts cFlow trade analytics software.

Strong winds around Japan and high waves in South Korean waters are likely to hurt bunker demand, as buyers defer bunker inquiries and suppliers postpone existing nominations to the following week, traders said Nov. 19.

Bunkering ports around Eastern Japan and Kyushu region are experiencing gale force winds that are forecast to stretch into the weekend, according to a warning issued by the Japan Meteorological Agency Nov. 19.

“Some of the bunker delivery nominations for November have already been cancelled altogether, due to the bad weather conditions,” a bunker supplier based in Tokyo Bay said. “Meanwhile, shipowners are holding back on fresh nominations at least until the strong wind subsides.”

A Japan-based trader said that market players have been “very busy” rescheduling bunker deliveries, which also have been potentially impacted by worsening barge congestions.

“Some suppliers have also ceased accepting fresh offers due to tight bunker fuel availability anyway,” the bunker supplier said. “This [severe weather condition] especially implicates the existing nominations, as delays are to be expected over the ensuing days.”

The premium of Japan-delivered marine fuel 0.5%S against the benchmark Singapore Marine Fuel 0.5%S cargo assessments surged to a near 20-month high of $50.82/mt Nov. 17, due to depleting inventories. The premium was last higher $62.49/mt March 27, 2020, and stood at $49.92/mt Nov. 18, S&P Global Platts data showed.

High waves of up to 4 meters are expected on the western and southern ports of South Korea over the weekend and early part of the week starting Nov. 22, according to a Nov. 19 maritime forecast by the Korea Meteorological Administration.

Bunkering operations are ideally performed at wave heights of 2-2 1/2 meters, while warnings are typically issued due to safety concerns if waves exceed 3 meters, sources said.

Shipowners are holding back on bunker inquiries, as bunkering activity is expected to be suspended around Nov. 21, traders said.

The UAE’s Abu Dhabi National Oil Co., or ADNOC, and AD Ports plan to jointly develop a liquids terminal and logistics facilities in the industrial hub of Ruwais to serve the $6 billion TA’ZIZ petrochemical projects due for startup from 2025.

ADNOC Logistics & Services and AD Ports Group will build facilities that support tenants of TA’ZIZ Industrial Chemicals Zone in Ruwais, ADNOC said in a Nov. 18 statement. TA’ZIZ, a joint venture between ADNOC and Abu Dhabi sovereign wealth fund ADQ, comprises seven petrochemical projects that will have an investment value of about $6 billion.

“The facility will be a critical part of the supply chain for feedstocks and will store and load final products for export,” ADNOC said. “The partners will select an international operator to enter into a new joint venture and contribute to the development of the new port.”

Three large-scale berths and associated infrastructure in addition to loading and unloading facilities will make up the foundation of the new port, ADNOC said. The two liquid berths measure 640 meters in length with the dry bulk berth measuring 320 meters. A tank farm with ten product tanks and one feedstock storage tank will be included.

Seven projects

TA’ZIZ is made up of three zones; an Industrial Chemicals Zone that will host chemicals production with seven projects in the design phase, a Light Industrial Zone that will convert the outputs of the Chemicals Zone into consumable products, and an Industrial Services Zone that will house companies who provide services required by the other zones.

Since TA’ZIZ was launched in November 2020, ADNOC has awarded contracts for the initial Front-End Engineering and Design (pre-fEED) for the seven chemicals projects. Partnership announcements have been made for blue ammonia, ethylene dichloride (EDC), chlor-alkali (CA) and polyvinyl chloride (PVC). Abu Dhabi utility firm TAQA and ADNOC have also signed an agreement to develop a utilities facility for chemicals projects.

ADNOC L&S has a fleet of over 240 owned and chartered vessels and has signed a 25-year exclusive agreement to service all petroleum ports in the emirate of Abu Dhabi.

AD Ports, the operator of Khalifa Port in Abu Dhabi, operates 11 ports and terminals mainly in the UAE and Guinea. It recorded a 68% year-on-year growth in cargo volumes in the first nine months of 2021 while container throughput grew slightly.