Germany’s Uniper aims to boost LSFO spot sales as traders eye storage play

German commodities trader and refiner Uniper says it expects to sell more volumes of low sulfur fuel oil on the spot market during 2019 amid favorable market conditions.

“We see demand increasing significantly, both in the 0.1% market, and now we are having active conversations on the 0.5% market for delivery through the end of the year,” Chris Wood, managing director of Uniper Energy DMCC in Dubai, told Platts in an interview. “The market is in a bit of contango through the end of the year, so there’s a storage play that some of the traders and bunker companies are looking at [to] buy now and save until the end of the year.”

So far, Uniper has sold around 1.2 million mt of LSFO in 2019, increasing volumes as the world gears up to implement new shipping regulations from the International Maritime Organization next year. The new regulations will necessitate that fuel oil for maritime use has a sulfur content of 0.5% or less, down from 3.5% currently.

“Clearly this year we may take a slightly different ratio on contracted versus spot, because the uncertainties in the market will provide opportunities in the spot market,” Wood said.

The news comes as Uniper sells the largest shipment of LSFO in history, with 152,000 mt of the fuel on its way to Singapore and scheduled to arrive on May 16. The Minerva Symphony’s 0.2% low sulfur fuel is being sold to multiple buyers, both on contract and some on the spot market, Wood added.

As interest in the LSFO market grows, Wood said Uniper was receiving around 10 new inquiries per week for the fuel, with all of its capacity of 3 million mt/year still up for sale for next year.

“Right now, both sides are a bit nervous about trying to lock in a contract just yet for next year, for various reasons such as quality specifications, but also pricing,” Wood said. “There’s no clear new price reference with liquidity in the market, so everything?s priced against gasoil.”

Wood said that, once there is more liquidity in new price references, there will be increased comfort levels for both buyers and sellers to do long-term deals and hedge their exposure.

Uniper sources its crude to make LSFO from South Sudan and Chad, buying volumes on a monthly auction basis to meet company demand. But the company is in talks with buyers about securing long-term crude supply.

“One of the projects we are looking at is changing our crude diet to take in a wider range of crude oil into our system,” Wood told Platts.

At the moment, Uniper?s LSFO has a viscosity of around 100 CST, but the viscosity composition may change once the company decides to take on new crude grades.

Uniper’s refinery is located in Fujairah, one of the biggest bunkering hubs in the world. As IMO 2020 is implemented, demand for LSFO at the port will skyrocket, and Uniper’s refinery is set to undergo a debottlenecking process which will increase capacity and flexibility at the facility ahead of the new regulations.

The company is reviewing two plans: one which will carry out the works in a phased operation, carrying out efficiency works in parts and shutting down units only for days at a time. The other plan would carry out all the works at the same time, meaning the refinery could be offline for longer periods at a time, but the work may be shorter in duration.

FEED work on the refinery expansion has already started and will take a total of six weeks to complete, according to Wood. Platts previously reported that the debottlenecking process was scheduled to take place in August, but Wood told Platts the project start-date may be brought forward earlier if possible.
Source: Platts