Shipping regulation and the EU Emission Trading Scheme

BP was nearing delivery of what was described as its first carbon-offset LNG cargo to Sempra’s Energia Costa Azul receiving terminal on Mexico’s Pacific Coast, the companies said July 15.

The cargo, shipped under an agreement reached between the companies, was expected to arrive July 16, they said in a joint statement. Sempra is building an LNG export facility at the site of the existing regasification terminal.

The delivery is part of a flurry of initiatives energy companies have launched over the last year to quantify or reduce their carbon emissions amid the global transition to greater use of cleaner-burning fuels. While most of the companies will continue to engage in fossil fuel production for decades to come, they hope to preserve existing business relationships and build new ones with climate-conscious customers.

BP and Sempra didn’t name the vessel carrying the carbon-offset LNG cargo; cFlow, Platts trade flow software, showed the partly laden LNG tanker Arwa Spirit and laden LNG tanker BW Helios near the Baja California peninsula.

The estimated carbon dioxide and methane emissions associated with the LNG cargo, from wellhead to discharge terminal, will be offset by retiring a corresponding amount of carbon credits, sourced from a Mexican afforestation project from BP’s portfolio, the companies said. The statement did not make clear whether all of the emissions would be offset, to render the cargo as carbon neutral.

The companies did not immediately respond to messages seeking comment.

It was to be the firstdelivery under BP’s new offering and Sempra’s first carbon offset LNG cargo import to Mexico.

Other energy companies have been pursuing carbon-neutral or carbon-offset cargoes, lifting gas deemed responsibly sourced or considering carbon capture and sequestration projects to curb GHG emissions.

In April, Cheniere delivered to Europe what it described as a carbon neutral LNG cargo that was supplied to Shell, a foundation customer of Cheniere’s Sabine Pass liquefaction facility in Louisiana. More recently, Shell signed a five-year agreement with PetroChina for the supply of carbon-neutral LNG.

BP has said its goal is to be a net-zero company by 2050 or sooner. Sempra has set a target to operate its existing LNG infrastructure at a GHG emissions intensity 20% less than its 2020 baseline. Aside from the BP carbon-offset cargo, the Energia Costa Azul facility will continue to receive multiple LNG cargoes each year pursuant to a long-term sales and purchase agreement involving BP and its partners in Indonesia’s Tangguh LNG.

Besides Energia Costa Azul, Sempra operates the Cameron LNG export facility in Louisiana. It has not yet sanctioned construction of an export facility it has proposed to build near Port Arthur, Texas.

The decline seen at the start of this week in global oil prices will likely guide bunker markets in the Americas after days of uncertainty and mixed behavior in most regions, where local fundamentals prevailed over international influences.

OPEC+ reached an agreement on July 18 to increase its production quotas by 400,000 b/d each month starting in August. The impending higher crude output and concerns about the impact on demand from the Delta variant of the coronavirus have since pressured markets, with ICE Brent falling July 19 to touch $69.59/b, after ending last week 2.2% down, at $73.55/b.

LATIN AMERICA

Spot prices in large-volume ports in Latin America saw declines while other key ports registered increases in the marine fuel 0.5%S segment.

Ex-wharf 0.5%S in Balboa fell $6, or 1.1%, in the week from July 12 to July 16 to $571/mt, with market participants talking about days of high demand up until the middle of the week, and with a reduced number of inquiries by the end.

In Brazil, the fuel retreated $4, or 0.7%, to $546/mt in the port of Santos.

In Callao it fell $4, or 0.6%, to $651/mt. Talk of reduced refiner supply seemed to ease at the end of the week, and the intense swells that affected several Peruvian ports last week spared the port of Callao, as it is located in front of a protective island, a market participant said.

In Argentina, demand for 0.5%S was also heard strong at the beginning of the week but softened as the days progressed. The 0.5%S rose $6, or 1.1%, to $571/mt in Buenos Aires.

While the 0.5%S finished the week unmoved, at $712/mt, in Valparaiso, Chile, it rose $4 in Cartagena to $576/mt, with talk of a lull market in that Colombian port.

The marine gasoil segment saw a sharp increase in Santos, where MGO was assessed up $17, or 2.4%, at $716/mt. State-led oil Petrobras raised its wholesale prices for diesel on July 6, continuing its policy to keep up with global oil values. In Guayaquil, a sharp increase in state-led Petroecuador pricing led to a $40, or 5.2%, jump in MGO, to $812/mt.

The steepest movement seen last week in bunker prices in Latin America was in the high sulfur fuel in Balboa. On July 14, high sulfur IFO 380 rose up to $457/mt on a day with high liquidity but by July 19 it had fallen to $409/mt. Several factors were mentioned by market sources, including inventories sales, the entrance of a new player in the market, and lack of demand.

NORTH AMERICA, US GULF COAST

Gulf Coast 0.5%S marine fuel prices dropped over the week July 12-16 as fierce competition drove indications lower and highlighted the split in pricing between small and large volume stems.

Houston 0.5%S fell $12/mt over the week to $509/mt ex-wharf on July 16. One source called the marketplace “a bloodbath,” due to the volatility and competitive offering. Others spoke of their difficulty in fixing stems as certain suppliers pulled prices downward.

Indications were heard as low as $508/mt ex-wharf on July 15. Continued variability in crude markets is expected to exacerbate these conditions in the bunker markets.

Spot bunker prices for marine fuel 0.5%S in North America showed declines last week, moved by the volatile energy complex. Activity was heard late last week in Philadelphia, with New York quiet and moving notionally with Philadelphia. New York fell July 16 to $533/mt, down from $541/mt on July 12, while Philadelphia retreated to $535/mt from $546/mt.

Late last week saw activity in Vancouver and some delivered-by-truck pricing talk in Montreal. Montreal 0.5%S was assessed July 16 at $606/mt ex-wharf, up $1 on the week.

Oil has arrived at Iran’s new exports facility off the Sea of Oman and is ready for loading as scheduled within three days, the National Iranian Oil Co. said July 19.

The Jask Oil Exports Terminal is ready to load the first batch of crude, the company said, adding that President Hassan Rouhani has ordered the operation to start on July 22.

The new terminal, whose construction took six years, walks around the chock point of Strait of Hormuz. Iran’s main exports terminal is on the Kharg island in the Persian Gulf.

It marks the first phase of the Jask terminal project with a loading capacity of 350,000 b/d.

“The oil tanker has been attached to the SPM no. 1 and trial loading is being carried out,” said an NIOC video from Jask port. A 1,000 km pipeline has brought oil from Goureh pump stations and Petro Omid Oil Storage Tanks [in the Bushehr province] to the Jask Terminal in the Hormozgan province.

Container volumes handled by the Port of Oakland in the first six months of 2021 increased by 11.4% over the same period last year on the back of a record wave of imports, the port said on July 16.

Total throughput during January-June 2021 was 1.3 million twenty-foot equivalent units (TEUs), up from 1.17 million TEUs in the first six months of 2020.

“We’ve never seen this level of activity, and based on the outlook, we’re preparing for more,” Port of Oakland Maritime Director Bryan Brandes said. “Our challenge is serving customers who expect us to handle their cargo efficiently.”

The port is on track to handle more than 2.6 million TEUs by the end of the year, which would be a record for the port. This is likely to happen given current fundamentals driving demand for imports, unless port congestion or other operational factors slow the rate of throughput.

The port noted that “the upcoming August-November peak season when retailers and distributors stock up for holiday merchandising,” is still approaching, and it hopes to prepare for the coming surge by adding more dockworkers to its labor force.

“Ports nationwide have reported difficulty keeping up with the unprecedented cargo surge. On average, vessels are loading and unloading 66% more cargo in Oakland than they did last year,” the port said. “One consequence has been cargo delivery delays.”

There were eight container vessels at anchor in the San Francisco Bay waiting to berth at the port of Oakland on July 16, and at least seven more waiting in the queue while drifting outside the Bay, according to cFlow, Platts trade-flow software.

That compares with 22 in queue at anchor near the Los Angeles-Long Beach port complex on July 16, while the Ports of Vancouver and Seattle-Tacoma had four and two containerships waiting at anchor, respectively.

Ocean carriers took a raft of freight all-kind (FAK) and premium service increases on July 15, which pushed all-inclusive freight rates to new highs as shippers continued to compete for heavily constrained equipment and space.

“Going forward through September, [we’re seeing] increases of $500 to $1,000 every two weeks,” a US-based freight forwarder source said. “More importantly, ocean carriers are increasing premiums in their contracts.”

The source added that while carriers may offer a premium booking at a certain rate, shippers will bid one another higher until the final booking level is significantly above the initially quoted rate.

During the week, S&P Global Platts heard all-inclusive premium booking at $17,200/forty-foot equivalent unit (FEU) from China to USEC, finalized before July 15 increases.

A USWC Interior-Point-Intermodal (IPI) booking into Chicago was heard at $15,000/FEU.

Sources said that Aug. 1 rate hikes could make booking rates from Southern China ports increase above those in North China as exporting hubs in the Pearl River Delta grapple with renewed congestion.

“Four to six more weeks of catching up with backlog [at South China ports],” consultant Jon Monroe said July 15. “Expect major equipment problems.”

One freight forwarder expects ex-Shenzhen cargo to be at a $3,000/FEU premium to boxes leaving other China base ports from Aug. 1.

Short-haul and intra-Asia premiums more common

For Southeast Asia to North America trade lane, there was little change in the premium rates, which were heard at $18,000-$25,000 per FEU for East Coast North America and $17,000-$20,000 per FEU for West Coast. However, on the short-haul ex-Asia and intra-Asia routes, the premium rates became more widespread than before.

“Now there is a premium almost everywhere in Asia…the carriers are reluctant to take bookings for any destination except the US and Europe and everyone else is just struggling,” an India-based logistics provider said.

For India to US, the premium rates were as high as $2,000-$3,000 per FEU over and above the FAK rates and the total cost is around $14,000 per FEU for West Coast, a source based in Hong Kong said.

The rates for India to Australia were around $4,000 per TEU, including the premium of $1,250, a freight forwarder said, adding that even after paying the premium there is no certainty around bookings.

“I had a customer who had a shipment coming to Indonesia from Italy, he had paid the premium, but it was still stuck in Malaysia for three weeks,” a Singapore-based freight forwarder said. “The carrier said they could not find any connecting vessel … They have a lot of vessels, but they don’t want to enter the port due to congestion.”

Port congestion is a common sight even outside China and major ports in Southeast Asia and South Asia continued to struggle with omissions, booking cancellations and rollovers.

“It is a global phenomenon; the cascade effect can be seen at all ports. In the US, the congestion started with the West Coast, spread to East Coast and now even Vancouver port in Canada is facing challenges,” the Singapore-based source said.

Asia-Europe trade still operating on FAK basis

Limited movement was seen in the Asia-to-Europe container freight market over the course of the week, with rates remaining high and the same issues continuing to dog the market.

Expectations remained, however, that rates will increase in the short term as the market moves into typical peak season, and logistical constraints across East Asia have yet to ease following the coronavirus outbreak at the Port of Yantian.

Despite the expectation of further increases, carriers appeared unperturbed with increasing rates from their current all-time highs, with no General Rate Increases (GRIs) on the horizon for freight rates from Asia to Europe at this stage.

Even though bullish sentiment was prevailing in the market, and there were no GRIs, carriers were still opting to charge firmer FAK rates, rather than adopting wide-scale premiums as they are in other markets around the world.