Gazprom Neft PR service:
Interview with Gazpromneft Marine Bunker LLC CEO Andrei Vasiliev
Gazpromneft Marine Bunker LLC CEO Andrei Vasiliev answers our questions
—Andrei Petrovich, how has your company changed in recent years?
— The business has grown. Total volumes have doubled over the last three years. Year-end results for 2013 show retail sales exceeding two million tonnes, and total sales at 3.2 million tonnes; and 2014 year-end figures show we beat these by about another million tonnes. That is — retail sales reached almost three million tonnes, with total sales volumes of marine fuels throughout Russia close to four million.
— Have you updated your strategy?
—Yes, our strategy to 2025 was updated in 2014. We now making the transition to updating strategy every year. We plan to increase sales volumes in Russia. We’re growing in line with the market (beating it, to an extent) — and the market itself is growing faster than forecast. The Russian Far East and Black Sea regions, in particular, are growing fast. In terms of actual volumes, this means that the Black Sea region has grown from 1.75 million tonnes in 2012 to 3.4 million tonnes last year, 2014; and the Russian Far East — to eight million. The North is growing fast, thanks to offshore projects and the North East Passage. The total market, throughout Russia, stands at almost 17.7 million tonnes. We currently have a market share of about 18.6 percent of that.
—What is the reason for the growth in the Russian Far East?
—The increase in the number of container ships now covering the Russian Far East as part of their routes. Plus the emergence of new terminals, handling cargo.
—Do you operate at the Prirazlomnaya offshore platform?
— Of course. The Prirazlomnaya project includes not just the offshore platform, but also its service fleet. Refuelling (“bunkering”) is undertaken at a base in Murmansk. Total bunkering volumes amount to around 7,000 tonnes per month (diesel fuels, marine fuels, and heavy oil (mazut)).
—Are you leasing infrastructure in Murmansk?
— Yes. Although we’re looking at a project involving the development of our own terminal network, based around one of the local assets. We’re considering acquiring this, with subsequent capital investment. A decision will be taken on this in 2015.
— Murmansk — is that part of the North East Passage?
— Murmansk is an entry point into the North East Passage: all vessels choosing this route refuel here. In 2014 we refuelled vessels in Murmansk to the extent of about 180,000 tonnes.
—How far have you increased the extent of your own fleet and bunkering infrastructure in the last two years?
— As at end-2014 we had eight directly owned bunkering barges in Russia, as well as three abroad. We have a further six vessels on long-term leases: in Kaliningrad, Murmansk, and in the Russian Far East. We lease vessels in the Black Sea, and in St Petersburg, from time to time. In 2012 we acquired a
At the end of 2013 we acquired a terminal in Novorossiysk, and have been working on its integration throughout 2014. This asset came to us from private ownership and needed considerable attention. The standards between private and corporate ownership are very different.
— What did you have to change?
— We received observations from Roztechnadzor (the Federal Environmental, Industrial and Nuclear Supervision Service of the Russian Federation), Rostransnadzor (the Federal Service for Supervision in the Sphere of Transport), and Rosprirodnadzor (the Federal Service for the Supervision of Natural Resources Usage), which had to be considered one inspection after another. It was very much a case of patching things up. We took a systematic approach to rectifying these difficulties, designing a fully compliant project. We started by establishing a protective buffer zone. The first step, in December 2014, was receiving a letter from the Chief Medical Officer of the Russian Federation legitimizing such buffer zone. The facility is now fully operational, with vessels being refuelled. Most reconstruction will be conducted in 2015. Upgrading will allow us to increase capacity almost two-fold. This is a major strategic achievement for us, since we’re looking for high returns in the Black Sea.
— Which region of Russia is most important for you?
— The North—West. We deliver about 40 percent of our total volumes here. But bunkering volumes in the Russian Far East and the Black Sea are growing, so the North—West’s share will, gradually, go down.
— How is inland traffic developing?
— Not bad. But 2014 was complicated in terms of navigation, insofar as there were low water levels in the Volga and the Don, as a result of low snow volumes the previous winter. This meant that river vessels couldn’t be loaded to their full draft. Nonetheless, we refuelled ships to the extent of more than 200,000 tonnes in 2014.
The company is paying considerable attention to this sector. Russian bunkering companies are currently using infrastructure built during the Soviet era, and which is not in the best state. Basically, it’s what remains of the “Volgatanker” infrastructure — repair docks, supply bases, and so on.
In the near future, once we’ve finished all our major maritime projects, we’ll concentrate on river traffic. We’re currently planning the optimum allocation of stations (we’ve 10 at the moment); there needs to be enough to satisfy vessel owners, but, on the other hand, not so many that they can’t operate to the full.
The key question at the moment is — what fuel is likely to be most in demand from Russian river traffic? Among other options, we’re considering the use of liquid natural gas (LNG). It all depends on environmental requirements. The two or three years we spend in developing any investment project will, actually, be enough to determine the range of fuels we should offer.
— Are you planning to develop just the Volga and the Don?
— No, there’s the Siberian rivers as well: we operate on the Yenisei, the Ob—Irtysh, and the Lena. River traffic is developing, with a new fleet emerging. But, at the same time, new vessels use less fuel, because their engines are more fuel-efficient. We currently see a stable pattern of consumption, but we’re planning on this expanding. The market will increase from 700,000 to 900,000 tonnes. We’ll hold on to our market share here, increasing sales volumes from 200,000 to 300,000 tonnes.
— How are you expanding abroad?
— We have two overseas assets. In March 2013 we took over Marine Bunker Balkan S.A., a major player in the market around the Romanian port of Constanta. This involves both a fuel storage facility, and a bunkering vessel, with all necessary licences. We’ve integrated these into our own network, and can now offer clients in the Black Sea not just Russian ports, but Constanta also. The market is difficult, and business volumes not that high. We spent a year organising everything. Thanks to a recent tax manoeuvre, export duties have gone down. We are moving over to supplying resources through Novorossiysk. We expect annual sales of marine fuels to reach 100,000.
In August 2013 we acquired an asset in Estonia — AS Baltic Marine Bunker. This is considerably closer, and we’ve been able to integrate it quickly into our supply network out of the Omsk Refinery. We expect annual sales of marine fuels in Estonia to exceed 600,000 tonnes.
— You’ve touched on the question of the environment. How have changes to EC regulation impacted your business?
— Considerably: ecological regulation has become far more stringent since 1 December 2015. This stringency will impact the Baltic, the North Sea and even the United States (in terms of emission control areas (ECA)). Regulation in one part of the word has an impact on others. Regarding those vessels travelling through our Russian Far East ports to the United States, demand for fuel has already changed.
— But in many regions, that are not part of an ECA, regulation on the sulphur content of marine fuels is far lighter
— Yes, 3.5 percent is acceptable (in comparison with 0.1 percent in Europe). In these regions the question is being asked: how can you enforce global restrictions, if they are accepted in only a limited geographic area? For example, Korean shipping companies simply do not see why they should pay for EC countries to breathe more easily.
One way or another, however, vessel owners have to take European regulation into account. In terms of responding to this, there have been, right up to the last moment, many responses in terms of how a fleet should conform to these. There were several options — including “scrubbers” — exhaust purifiers. You can get “wet” or “dry” ones, with special changeable cassettes. This is inconvenient, expensive and not properly regulated. Nonetheless, a number of vessel owners have chosen this option.
A second option involves utilising different tanks — with diesel fuels used within an ECA, and mazut used out in the ocean.
A third option is LNG. This would not only resolve the issue of current limitations, but would also allow us to lay the groundwork for the future — restrictions will soon impact carbon dioxide and nitrogen oxide (NOx). Under an initial plan, under discussion up to summer 2014, these restrictions were to come into force as early as 2016. Vessels launched in 2016 would have had to comply with new requirements on NOx emissions. Neither distillates, no scrubbers, can fix that problem. It can only be solved through the use of LNG, or methanol. To tell the truth, methanol is highly toxic. Although the jury’s still out on this fuel. LNG looks like a more viable option.
Gazprom has charged us with the role of operator on their project to develop the use of LNG as a marine fuel in the Baltic. But, in summer 2014, the start date for new regulation on NOx emissions was moved to 2021. Vessel owners gave a sigh of relief and deferred any resolution of this problem for three to five years, continuing to equip vessels with traditional engines.
In autumn 2014 a new product appeared on the world market — an environmentally friendly fuel, which is fully compliant, and cheaper than diesel. We have such a product too, producing it is easy, from a technological point of view — it’s basically working with vacuum gas oil. But that’s not a solution for us.
— So what is your solution?
— We’re positioning ourselves for the long term, maybe even foreseeing market trends. So, for the moment, we think it expedient to expand our range of fuels, offering vessel owners optimum choices in terms of quality and price.
— Have you put aside using LNG?
— No, we’re always updating our position on this issue. We’ve done some monitoring of the vessels currently being built in shipyards. It turns out, orders being placed are for small boats and craft to operate in the Baltic Sea, using LNG. So — you could say, the market is developing.
There’s also a problem in St Petersburg, which is the starting point for about 200 river vessels. Diesel fuel is a very expensive option for these. We’re fine tuning a programme with these involving the use of LNG on low-tonnage vessels. You can convert the engines on small tourist vessels to run on LNG. This will significantly improve the city’s ecological environment, and is economically viable for vessel owners.
— Are you converting engines at your own expense?
— Converting the boats is normally undertaken by the vessel owners. But we have taken the initiative, together with the Ministry of Transport, in supporting this project.
— Where will LNG be produced?
— Construction of two plants is planned in the Leningradsky Oblast — one in the port of Vysotsk (by Gazprombank) and one in the port of Ust-Luga (by Gazprom). Vessel owners in the Far East are also taking considerable interest in our LNG initiative. They see this as an opportunity to save money. We already have a company from the United Arab Emirates which has decided to invest $2 billion in this — they’ve laid the keels for nine cargo container ships with dual-fuel engines. These ships will travel from Rotterdam to Korea, and from Korea to the United States. Typical LNG usage by one vessel will be in the order of 40,000 tonnes per year, giving a total (across all vessels) of about 400,000 tonnes. This is a customer you can definitely rely on. If these vessels prove themselves, then the LNG initiative will come on in leaps and bounds. This opens up a real opportunity for vessel owners to improve their economic performance by saving on fuel costs. In terms of our resource base, we’re considering either the Prigorodnoye production complex, or a new Gazprom project in the Russian Far East.
— But it’s probably going to be more expensive to build LNG-powered boats than ordinary ones. Why are vessel owners from the UAE continuing to invest in this project?
— They’re hoping to get back their investment through the price of fuel. LNG is about 40 percent cheaper than mazut. Fuel costs increase by about 15 percent, but operating costs are reduced, and engine life extended. So, for our part, we’re also continuing with the LNG bunkering initiative.
— Where are you placing your orders?
— Korean, Dutch, Turkish and Chinese shipbuilders.
— And St Petersburg?
— All of the shipyards are overloaded at the moment. We’ll build new ones in the future, but we need new bunkering barges before then. And this is a specialist sector of the shipbuilding industry, which has yet to develop in Russia.
— Speaking of which — regarding market development, and import substitution: is there a trend towards greater usage of Russian components?
— Our fuel-storage facilities are practically
— The importance of mazut is decreasing in proportion to the rest of your product range. What is the main marine fuel for you now?
— We’re planning for there to be no mazut at our plants by 2018. In terms of the market, we see the following trends: a transition to distillates in the North—West; and to gas (LNG) in the Russian Far East. In the Black Sea we expect to see greater demand for distillates.
— And is the fleet ready for this?
— Technically, yes. In terms of price, the most expensive fuel is diesel, then mazut, and the cheapest is gas (LNG). Vessel owners have to decide, once and for all, what will be most viable for them.