Rocketing natural gas prices could reverse bunker market decline

Bringing some relief to shipowners and operators the bunker price has seen a continuous downwards trend for very low sulphur fuel oil (VLSFO) at the major refueling hubs of Rotterdam and Houston since mid-June, and Singapore and Fujairah following from mid-July.

A report by Integr8fuels Research and Advisory Division dated 24 August noted that VLSFO prices in the world’s largest bunkering port of Singapore had come down even further to around $750 per metric tonne (pmt) in line with other ports such as Rotterdam. This compares to a high of $1,149 pmt on 10 June according to prices from Ship & Bunker.

Singapore prices have moved up again in recent days but softened slightly to $791 pmt on 26 August, and overall, the trend has been a downwards one.

The report from Integr8fuels, however, highlighted concerns over natural gas prices a huge focus for consumers, governments, and industry.

“To put this in context, current Brent crude oil prices are around 45% higher than 18 months ago; Singapore VLSFO is slightly higher, at 50% more, but the benchmark European natural gas price (TTF) is 1,500% more! We have seen what we believe as huge volatility in bunker prices, but this is nothing compared to what is happening in natural gas markets,” the report said.

Related:Scrubber demand surges on $400 plus bunker price spread

This, where industrial and power companies are able to, something that was noted to be limited in scope, would switch from natural gas to fuel oil. “…at the margin this does have an impact, and in winter the developments are likely to be even more pronounced,” Integr8fuels said.

“Some European industries are already moving towards heating oil as a replacement for natural gas and in the northern hemisphere winter we can expect higher demand for fuel oil into the power generation sector, especially in some Asian countries.”

The impact can been seen in the IEA (International Energy Agency) having raised its forecast demand for fuel oil this year by 150,000 barrels per day (bpd) and gas/diesel oil by 160,000 bpd since their March outlook.

“Extra oil demand from this switching is split around 50:50 between heating oil and fuel oil and so likely to prop up bunker prices; additional heating oil demand will have an indirect impact on VLSFO availabilities and pricing, and additional fuel oil into power generation will have a direct impact on the HFO (high sulphur fuel oil) market,” the report stated.

Currently vessels fitted with scrubbers continued to offer significant reduction in operating cost with  HFO trading at $516.5 pmt in Singapore, a $274.5 pmt discount to VLSFO, according to Ship & Bunker prices.

Related:Bunker price crosses $1,000 per tonne in Singapore

For vessels using LNG as fuel the price in Rotterdam on 19 August was quoted at a staggering $3,518 pmt compared to $1,466 pmt on 17 June.