Growth & Challenges in Sri Lanka's Bunker Market
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Growth & Challenges in Sri Lanka's Bunker Market By Channa Abeyagunewardena Director - Interocean Energy (Pvt) Ltd 1 Silk Trade Route 2 Ancient Maritime Silk Route 3 Today and the Future CLOSET POINT TO MAIN SHIPPING ROUTE LOCATE AT THE CENTRE OF SUBCONTINENT NO CONSTRAINS IN ACCESS CHANNEL 4 World Statistics World GDP USA Europe Japan Asia ME/Africa 2000 25% 23% 8% 18% 9% 2008 19% 15% 5% 24% 9% World India Pakistan Bangladesh SL World pc Population 2000 1.15bn 172mln 153mn 20mn 23% Container 2002 2015 growth East – West route 35mn 70mn 5 Growth of Sri Lanka’s Bunker Market Growth can be measured and expressed in many ways. – Bunker volumes, – Infrastructure, – Ports, – Trade, – Hub status, – Regional growth, – Support services, – Efficiency, – Ease of doing business, – Offshore exploration for oil and gas, – New opportunities with changes in the Geo Political situation (Piracy, Sea Marshalls, bunkers, crew changes, replenishment), – Calls of Naval vessels etc. 6 Bunker Volumes 7 35000 30000 25000 20000 Monthly Volumes 26293 30320 15000 32002 10000 27328 31687 5000 28810 0 30521 June Aug Oct Dec Feb Apr Jun24071 30072 8 24935 29764 28226 29375 28793 IFO 180 IFO 380 MGO Total Average Bunker Volumes Inside port OPL Anchorage Total Total Vessel 81 34 21 136 Calls on average Bunker Volumes 25% 15% 60% 75% of the volume - bunker only calls MGO (mt) 180cst (mt) 380cst (mt) Average (mt) Total 38917 33456 129313 28812 Monthly Avg 5560 4779 18473 28812 Product % 19% 17% 64% 9 Product Diversification IFO 180cst IFO 380cst MGO IFO blends All Major Marine Lubricants Fresh Water 10 • Market Overview -The Colombo Oil bank storage was at 30k. -The market grew from 22k in 2008 to 29k in 2011. - With the commissioning of the new tank of 5000mt in July, we anticipate the volumes to increase to about 33-35,000mt per month - However due to limited land area in Colombo, the expansion of the tank farm will be limited to about 100,000mt - So the requirement for facilities with larger storage volumes becomes even more evident 11 Growth - Infrastructure • Colombo Oil Bank (JCT Storage) 12 Storage, Tanks and Facilities at JCT Oil Bank Colombo IFO 180cst: 02 Tanks, Storage 6,500mt IFO 380cst: 04 Tanks, Storage 19,240mt MGO: 06 Tanks, Storage 9,400mt Present Total storage: 35,140mt Pipeline Facility: 1.5km (approx.) Heating: To 45c Tanker Berths: 03 nos 13 Colombo Harbour 14 Colombo South Harbour Development Project 15 HAMBANTOTA PORT 16 Project Features Port Layout Plan – Phase 1 Depth of Basin - 17m Depth of Channel - 16m Turning Circle - 600m Cargo Quay - 600 m Oil & Gas Quay - 310 m Service Terminal -105 m Break Water - 1450 m Dredging/Excavation - 12 Mn Cum Contractor - China Harbour Engineering Co & Sinohydro Corporation (JV) 171 Hambantota Oil Terminal The construction of a fuel terminal under phase 1 will be completed later this year with the bunkering terminal in full operation. It will have 14 tanks with a capacity of 80,000 m3. Among them, 08 tanks will be dedicated for ships fuel while 03 for aircraft fuel and another three for L.P.Gas. There is sufficient land and facilities to increase it to 2mn cum. Refinery is another project in the pipeline 18 Proposed Services BUNKERING Cement Grinding & Bagging plant Fertilizer bagging plants Warehousing Operation of LP Gas Terminal RO-RO Operation Ship repair facilities Off Shore Services 19 Galle Harbour 20 Trincomalee 21 KKS Harbour The Port of Kankesanthurai will be developed to serve the Jaffna Peninsula and the Northern Province. The port that was rendered unusable due to the volatile situation that prevailed in the past is now being developed and it will be the first such deep water facility that is rebuilt in the northern peninsular. The port is a key in connecting the Jaffna peninsula with the regional destinations, particularly India. KKS will give the Northern peninsular a window to the world and restore both regional and domestic connectivity. The Port will significantly lower the transit time of goods from and to India, Bangladesh, and the neighbouring countries and propel economic activity in the northern region that is now trying to find its feet after three decades of terror. 22 Olluvil Harbour Project Profile Commercial Harbour Stage I 5000 DWT Breakwater Length 1320 M Quay wall Length 330 M Draft 8 M Total Water Area 10Ha Fisheries Harbour Quay Wall Length 220 M Draft 3 M Total Water Area 06 Ha 23 Growth – Container trade 24 Expected Growth Rates of Container Volume 2011 2012 2013 2014 2015 North America 5.6% 4.9% 4.3% 4.1% 4.1% West Europe 4.9% 4.6% 4.5% 4.2% 3.3% Far East 10.0% 9.1% 9.0% 8.9% 9.5% South East Asia 8.5% 7.2% 7.1% 6.7% 7.0% South Asia 11.1% 8.9% 8.8% 8.7% 8.4% Middle East 7.3% 6.8% 6.5% 6.5% 7.2% Africa 7.4% 6.0% 4.9% 4.7% 6.3% Latin America 6.0% 5.4% 5.0% 6.2% 9.7% Oceania 6.1% 4.3% 4.1% 4.2% 4.1% Eastern Europe 11.5% 8.8% 9.0% 7.7% 7.8% World Total 8.0% 7.2% 7.0% 6.9% 7.5% 25 Growth – Sri Lanka’s Exports, 1H 26 Growth - Regional Activities Sri Lanka hosted the 13th conference of the International Network of Affiliated Ports (INAP) in Colombo in August 2011 under the theme “Bridging Global Regions through Affiliated Ports for Mutual Corporation”. International Association of Ports and harbors (IAPH), the apex international body for ports and harbours will hold the 12th Asia/Oceania regional meeting at Colombo In March 2012, hosted by SLPA. 27 Growth – Indian Sub Continent Having one of the worlds largest and fastest developing countries as neighbor is a prime advantage to Sri Lanka Sri Lanka will be a gateway to the Indian subcontinent with the rapid development of its ports especially with the deep draft ports and the close proximity to the East-West sea lane which will be better suited to act as a feeder port to the huge Indian market. Deep economic integration with a fast-moving economy like India could contribute to stimulate growth rates in Sri Lanka Sri Lanka views the Indian Sub continent as an opportunity and stands to benefit from the rapid growth that’s taking place It will propel a tremendous growth in the bunker market of Sri Lanka. 28 Growth – Tax incentives and duty wavers Foreign investment is an important element in Sri Lanka's economic growth and is therefore actively encouraged. Board of Investment (BOI) is an autonomous agency, government body overlooking the establishment of foreign business ventures in Sri Lanka and grants concessions to Investors with preferential tax rates, constitutional guarantees on investment agreements, exemptions from exchange control and 100% repatriation of profits & capital. Most of the Bunkering companies in Sri Lanka are BOI ventures. There are no import or export taxes imposed on bunkers Under the new Strategic Development Project act, projects which are likely to bring economic and social benefit to the country, which are also likely to change the landscape of the country primarily through the strategic importance are also given tax concession and duty waivers. Cairn Lanka (Oil exploration off Mannar basin) was the first such project approved and classified under this Act whilst the Colombo South Harbour project and Globally-renowned hotel chain Shangri La are a few examples. 29 Growth – New opportunities for Bunkering 30 Piracy 31 Piracy in the East coast of Africa 32 Increasing in calls of Naval vessels 33 Patrolling Naval Crafts Increase in Naval vessel calls to Colombo which has increased the MGO requirement 34 Sea Marshall Operation Latest statistics indicate that there are over 300 vessels per month calling in Galle and Colombo. 35 Fishing Trawlers Trawler Calls at Mutwal harbour has increased from 18 to 30 in the last 4 months Bunkers (MGO) supplies has increased in the corresponding period 36 Offshore Oil Exploration Presently the rig ‘Chikyu’ with its supportive Tugs and Boats has increased demands of MGO 37 Refinery Upgrade Sri Lanka is presently negotiating with Russia and South Korea to increase the capacity of the present refinery at Sapugaskanda and another at Hambantota. Russia too is becoming one of Sri Lanka’s strong trading partners and discussions are being held for Oil exploration with Gazprom. South Korea's Hyundai Engineering and Construction Co is already in Sri Lanka, involved in the port expansion, 38 38 Challenges in Bunkering The main challenge would be to successfully market Sri Lanka as a Hub for bunkering. Though prices of Bunker Fuels in Sri Lanka will be attractive for Vessels which are not calling Singapore and the AG, the challenge would be to break into the main liners and other vessels which are not calling Sri Lankan ports. Sourcing Storage Distribution Pricing strategy (the most critical element) Price Discrimination – Colombo Port vs Hambantota Monsoons 39 Challenges In the process of making Sri Lanka a “bunker hub” of South Asia, Sri Lanka needs to design an effective bunker market which is in line with global best practices. In this aspect appointment of a regulator with a comprehensive bunkering management covering the entire bunker supply chain is of paramount importance. 40 Challenges COST EFFECTIVENESS A good analogy for the different costs faced by the bunker operator is an iceberg. Above the line costs, or the visible part of the iceberg, are usually the most obvious and easiest to manage.