River segment of bunker market

Bunkering of river fleet is a season-depending sector. Vessels going along the Volga-Baltic Waterway (Volga-Balt) consume large volumes of light fuel from April till November. About 10-15% of total bunker consumed by river fleet falls on dark fuel (MDO, IFO- 30).

Volga-Baltic Waterway is one of the key routes for transportation of both export and import cargo going via the port of Saint Petersburg. Functioning of waterways in summer navigation ensures the port’s throughput growth by 4-6 million tons per year. Since railways and motorways used for cargo delivery to the port operate at their maximum output, river route plays an essential role in navigation period. Besides, competitive advantage of river fleet is cost of transportation. It enables one to expect or at least hope that not only shipping companies and cargo owners but the state as well will support river transportation of cargo in our country. Consequently, the market of river fleet bunkering will stay promising as well.

Over 300 fleet units operated at Volga-Balt in summer navigation of 2006. About 80% of the figure falls on dry cargo carriers, about 7% - tankers, while the rest are passenger vessels and auxiliary fleet, PortNews IAA learnt from control department of Volga-Balt State Basin Administration. Compared to navigation of 2005, river fleet deployed for cargo transportation decreased owing to termination of activities of Russia’s largest shipping company Volgotanker OJSC. Claims of tax authorities prevented the company’s fleet (over 380 units including over 200 tankers) participate in navigation.

Dark share is growing

Season-depending transportation determines the demand of river shipping companies for bunker fuel. In winter, volume of bunker, consumed by river shipping companies, decreases considerably owing to termination of activities within large group of vessels designed exclusively for inland water transportation. Considering large difference in prices for light fuel (MGO, MDO) and low-viscosity types of heavy fuel oil as well as economic expediency (efficient for younger vessels), ship owners not being flush with money undertake modernization of fuel equipment. Thus they gain a possibility to fill such vessels with dark fuel with a viscosity level of 30-40 CSt. Part of vessels types Sormovski and Volga as well as Baltijski project vessels (16290) were transferred to this type of bunker.

According to North-West Shipping Company (NWSC OJSC), volume of dark bunker consumed by the company’s fleet and vessels under management of NWSC grew to 14.39 thou tons in 2006, which made 17% of total volume of bunker while in 2005, the company purchased 11.68 thou tons of dark fuel (12% of total bunker volume).

As PortNews IAA learnt from mechanics of one of river shipping companies, heavy fuel oil Ф-5 and diesel fuel have similar characteristics. Major technological difference here is the necessity to heat and separate dark fuel. Of course, a number of spare parts need to be replaced more frequently, though, it has low influence on economic result from modernization of fuel equipment.

Foreign bunker

In case of transportation of a so-called deadweight cargo, (that is selection of draft with excess volume of the vessel’s cargo holds), one should take bunker volume into consideration. Operator develops a kind of an economical model of the voyage. It simple phrase it may be described as follows: considering the necessity of complete loading, ship owners compare lost freight in case of bunkering in Russian port (which does not allow them to take full load) and the difference of prices for bunker in the port of loading and on the way to European port (taking into account higher prices at European ports). Then they take a decision on either taking full load or bunkering.

The largest player at the segment of mixed transportation in the North-West region is North-West Shipping Company OJSC (NWSC). It operates over 120 river-class cargo carriers and sea-and-river-going vessels. As PortNews IAA learnt from the fuel department of the company, the share of bunker purchased abroad makes 34% of total annual bunker consumption and 23% of total volume of bunker purchased throughout summer navigation. Major ports used by NWSC for foreign bunkering of its fleet are Tallinn, Riga, Rotterdam and Copenhagen. “Bunkering of our fleet in foreign ports are carried out by local bunker suppliers under tender for each bunkering operation,” Alexander Ryaboi, head of NWSC fuel department commented on the situation. All bunker bought from foreign companies is acquired on credit with deferment of payment for at least 30 days. The source also told the volume of bunker purchased in Russian ports grew in 2006 owing to more favorable prices in Russia and VAT refund. However, Ryaboi underlined it is impossible to forecast the fleet’s volume of bunkering in Russia since it depends on the type of cargo and on the route.

Volume of bunker consumed by NWSC fleet and vessels under management of NWSC (tons)

Russian service

The vessels operating at inland waterways and carrying cargo between river or estuary ports take bunker in Saint Petersburg, Cherepovets, Yaroslavl, Kazan, Samara, Volgograd, Rostov-on-Don as well as at the ports of the Black Sea.

River tankers carry export oil products (heavy fuel oil) from the refineries located along the Volga and Kama rivers to the port of Saint Petersburg. Then they discharge either to storage tankers at the off-harbor transshipment complexes of specialized terminals – Petersburg Oil Terminal CJSC and DTC Vysotsk LUKOIL-II (the port of Vysotsk, Leningrad Region). Part of heavy fuel oil produced at Volga and Kama refineries is carried to the Southern ports of Azov-and-Don Basin. Off-harbor transshipment complexes for accumulation of export volumes of heavy fuel oil are located at the ports of Taman.

Bunkering of river tankers is also carried at the same points as bunkering of dry cargo carriers of inland transportation. In 2006, the largest tanker operator in the North-West region of Russia was Vision Fleet LLC, which operated about 40 own and attracted tankers. Throughout last navigation Vision Fleet purchased 18.48 thou tons of bunker for its vessels. The volume of bunker consumed grew by 37%, year-on-year. Major ports of bunkering were Yaroslavl – 56.5% of all bunker volume, Kazan – 21%, Volgograd - 9%. As PortNews IAA learnt from Vision Fleet LLC, bunkering in the port of Saint Petersburg is not attractive owing to noncompetitiveness of prices for fuel provided by the bunker suppliers.

Arrangement of bunkering

Large river shipping companies interviewed by PortNews IAA told they prefer purchasing of oil products from oil companies providing delivery to the ports with the most reasonable and economically efficient conditions of bunkering. The highest volumes are purchased in winter enabling the companies save 10-15% of the fuel cost. In particular, over 90% of all bunker consumed in summer navigation by NWSC was purchased from the refineries. The rest of this volume (about 10%) was bought at the markets of bunker fuel in the ports of Kaliningrad, Saint Petersburg and Arkhangelsk. Shipping company don’t usually operate any facilities for storage of oil products so fuel purchased from the suppliers in advance is kept at the suppliers’ facilities, which needs extra payment. Volume of one-time supply varies in the rage of 100 tons to 5,000 tons.

The highest volume of river bunker purchased at the bunker market of Saint Petersburg falls on North-West Shipping Company. A source in the company says 40% of total bunker volume is purchase in this region. The vessels accept the fuel within the territory of the harbor waters of the port of Saint Petersburg and in Utkina Zavod at the Neva-river. The majority of deals are executed via Volga-Baltic Company OJSC. Besides, NWSC’s partners at the regional market are LUKOIL-Neva LLC, Baltic Bunker Company LLC, Transles LLS and Petroprom LLC.

According to the rules of technical maintenance of vessels at inland waterways of RF, heavy fuel oil should not be used when operating on maneuvers or moving at varying speed. According to the shipping practice, the vessels moving along the Volga-Baltic waterway may transfer to dark fuel only at Ladoga Lake (8 hours) and at Onega Lake (4 hours). Thus, bunkering with heavy fuel oil is reasonable only for sea-and-river going vessels, the route of which partly crosses marine harbor waters.

Comment:

Victor Olerski, Chairman of the Board of Directors of North-West Shipping Company:

- Every day we monitor prices for bunker fuel in the key ports of Russia and Europe along the route of our vessels. Ship-owners always have to weigh what is more reasonable for them – to take more cargo or refuel in Russian ports, which usually provide bunker for minimum prices.

Decrease in volume of fuel purchased for our fleet in 2006 should be attributed to decommissioning of our old fleet, decrease in number of sea days, time-charter delivery of some of the vessels (caused by a market situation), introduction of voyages with a high norm of loading/unloading (ex. Varandei), and, at last, economy of fuel by crewmembers of our fleet. Increase in purchase of dark fuel should be attributed to modernization of fuel systems at a number of vessels. This type of fuel is cheaper, thus, the increase is to continue.

Petr Razumov, Director General of Vision Fleet LLC:

- Extensive navigation area of our company does not enable us to carry out bunkering of all our vessels in the same port. Thus, the vessels deployed for operation in the Southern region are refueled at the ports of Volgograd and Rostov-on-Don, while the tankers operating in the Northern region get bunker in Yaroslavl and Kazan. Arrangement of two bunker bases (Northern and Southern) are not economically reasonable for us today. Even considering large volumes of bunker needed for our fleet it is more reasonable for us to apply to other companies.

Vision Fleet LLC carries out permanent monitoring of the situation at the market of bunkering services, which enables the company to be flexible considering all changes of the market situation, thus avoiding problems with both supervisory authorities and unfair partners.

The majority of bunker used by our company throughout last four years was purchased directly from oil companies, which enabled us to decrease considerably our expenses for fuel and lubricants, ensure high quality of fuel and lubricants supplied to vessels and avoid negative situations related to lack of fuel or lubes.