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The Bunkering Business, from the Baltic to Africa

Andrei Vasilyev

Interview with Andrei Vasilyev, CEO, Gazprom Neft Marine Bunker

27 June 2011, Oil&Gas Journal Russia.

— Mr Vasilyev, what were the company’s results in 2010, and what do you anticipate in 2011?

— In 2010, our sales totalled 1.464 million tonnes of fuel, not much more than in 2009. However, a simple comparison of numbers is not enough, since there have been many qualitative changes. In 2009, the company still engaged in wholesale trade, which we have completely abandoned in the past year. The number of customers has significantly increased. We have entered new regional markets.

This year sales are expected to increase to 2 million tonnes, of which about 400 thousand tonnes will come from overseas bunkering. Data from the first five months support our predictions.

— What is the reason for the company’s decision regarding wholesale, and what other changes have occurred in your business?

 The fact is that wholesale sales are not our main objective. This is the prerogative of Gazprom Neft’s commercial services.

The sales structure of Gazprom Neft Marine Bunker has significantly changed direction towards an increase in the proportion of “on-board” refuelling. This is when our bunkering tanker approaches the client’s ship and injects fuel directly into the bunkering tanks.

In 2010, “on-board” refuelling amounted to 935 thousand tonnes, which represents around 65% of our total sales. Over the past year across all Russia’s ports we bunkered 3241 ships, i.e. an average of nine vessels per day.

The number of direct contracts with customers has significantly increased: in 2009 there were about 60, and by 2010 that had risen to a base of around a hundred contracts.

Most of our clients are shipowners; however, there are also traders and brokers who work with several shipowners at once. Therefore through our 100 contracts we have in fact served about 200 shipping companies.

— Are these contracts spread out throughout Russia and abroad?

— Yes. But there are not many shipping companies in Russia, just around ten, so the majority of our contracts are those with foreign counterparts. In Russia we are amongst the top three leading bunkering companies. The total volume of the bunkering market in the Russian Federation in 2010 has been estimated by analysts to be around 5.7 million tonnes, of which our share to date is around 17%.

— Is there any difference between working with Russian and foreign companies?

— Russian companies, when procuring fuel, tend to look at the sales prices of our oil refineries, whereas foreign companies look at the international price list. But in any case both Russian and foreign companies look at all of the options for refuelling their ships en route, selecting the best refuelling points based on price and taking into account the necessity to have enough fuel to reach the next port.

We provide bunkering for various kinds of vessel, from small river vessels to large ocean liners.

I’d like to note that, for the third successive year, we have secured the lion’s share of contracts for bunkering cruise ships in the port of St Petersburg. Of the 300 ships to visit the port last year, about a hundred refuelled using Gazprom Neft Marine Bunker. This year we plan to increase this number to around 150. The total market for bunker fuel at St Petersburg Grand Port amounts to around 2 million tonnes of marine fuel, and Gazprom Neft Marine Bunker’s share accounts for about 25% of the total volume.

— What percentage of the company’s resources is acquired on the open market?

— About 10%, with the rest coming from our own factories.

— How has the infrastructure changed over the past years? How many ships and terminals does the company own?

— At the end of 2008 the situation was very difficult for us. On January 1 2009 the International Convention for Protection of the Sea came into force, prohibiting the use of “single-breasted” tankers with a capacity over 600 tonnes. According to the Convention only double-hulled ships may be used to transport fuel for international shipping. The effect of the Convention on internal harbour waters was decided by the administrations of the countries involved, in our case the Russian Transport Ministry. Accordingly, in preparation for the most stringent scenario, we purchased eight “aged” but useable Russian ships, as well as two modern Danish vessels. However, the enforcement of the Convention was postponed in Russia, only coming into effect on January 1 2011. In that time we were able to improve the quality of our fleet. Nearly all of the older Russian ships were sold, and new vessels were acquired. Right now we have four modern bunkering vessels which meet the requirements of the Convention. This year we plan to acquire a further two modern ships. In addition, we lease tankers from other companies, provided that the ships meet all of our requirements. In total we currently have around fifteen leased vessels. We use this fleet at all ports where we have a presence. By the end of 2010 we worked at 20 locations, thirteen of which are seaports, and seven are river ports.

— What are the company’s plans to expand its overseas presence?

— In August 2010 we began an international bunkering project, which marks the beginning of our active attempt to break into foreign markets. We got our first taste of overseas bunkering experience in Turkey while working in Istanbul together with local bunkering company Petrol Ofici.

Returning to the plans for 2011, we are considering the possibility of beginning work in the Baltic region. This region fits very well into our development strategy. We are currently working on the logistics of supplying fuel to seaports in the Baltic region, and the next step will be to organise bunkering directly within the ports. We will, for the moment, be leasing the necessary infrastructure for the storage and delivery of fuel. In the Baltic region (unlike Turkey) we will sell our own resources, which we will transport from St Petersburg and Kaliningrad. We estimate the volume of retail sales in the area to be around 1 million tonnes per year. We expect that our share will be no less than 30% of that total.

We are also preparing a project based in Romania on the Danube estuary.

We are actively preparing to begin bunkering in Serbia. We have a high-profile business unit located there, and it will be given full functional control of the project. At present the Serbian company NIS is in the process of restoring its infrastructure, drawing up the necessary documentation, beginning production of marine fuel at refineries, etc. In 2011 we plan to sell the first 10 thousand tonnes of the products.

Gazprom Neft Marine Bunker has also finished planning a project based in the port of Djibouti, actually an Ethiopian marine gateway, whose location on the Red Sea suggests great potential for transit bunkering.

— What are the trends in the international bunkering market&

— We are looking for various alternatives to oil as a marine fuel. In particular, we are actively discussing the potential use of liquefied natural gas (LNG) as fuel for ships. In Norway, for example, a company called Gasnor, which deals with bunkering for fleets with gas installations. Such ships already exist: they are used as car ferries, Coast Guard vessels and container ships. Currently there are around twenty of them sailing under the Norwegian flag. We have already begun collaborative marketing efforts in this direction with Gazprom Export. At this point it is necessary to work together with shipowners in order to determine the level of demand and find potential ports for LNG bunkering.

— What are the company’s most pressing strategic goals?

— Our strategic goals are to control 30% of the Russian bunkering market, increase our presence overseas and, by 2020, increase our total bunkering volume to 7 million tonnes per year. To achieve these goals we will build a network of terminals in Russia and increase the size of our fleet to 20 ships.

Late last year we updated parts of our strategy, namely deadlines for reaching specific milestones, because Gazprom Neft Marine Bunker grew faster than we had expected. For example, we had set ourselves the goal of entering the international market by 2015, and we have already achieved this goal.

Stricter environmental requirements, due to come into force in 2015, also forced us to update our strategy. Shipowners are considering alternative fuels, such as using diesel instead of petrol, or using natural gas and biofuels, as well as the introduction of specialised extruders which trap sulphur particles and prevent them from being emitted into the atmosphere. We expect diesel to become the most widely-used fuel by 2015.

Gazprom Neft is moving towards the production of higher quality fuels and reducing production of oil, so the company will be ready to meet the increased demand. Moreover, we will build on the decisions taken by the shipowners.