Sri Lanka’s Bunker Industry -

Opportunities and Challenges

Zafir Hashim Executive Vice President - JKH

Sector Head – Transportation Sector

World’s Main Bunkering Hubs

0.7

All In Mn MTs

Key Factors Affecting the Sri Lankan Bunker Industry

- Lack of infrastructure

- Unavailability of ex-refined products

- Zero facilities for blending

- High tariffs

Bunkering Infrastructure at Sri Lankan Ports

- 34,000 MTs land storage - Deliveries by barge and tank truck - 8 barges

- Deliveries by barge and tank truck

- 73,000 Mts land storage - Deliveries by barge, pipeline

and tank truck

- 27,000 MT land storage - Deliveries by barge and tank truck - 2 bunker barges

Land Storage Floating Storage Singapore Est: 14.5 Mn M3 14 VLCCs

Regional Comparison of Bunker Storage Tariffs

Source: Lanka Marine Services

US

D $

/P

MT

-

2

4

6

8

10

12

Singapore Fujairah India Colombo

2.05 2.25 1.64

3.10

0.59 0.65

0.47

1.29 2.36 2.60

1.89

6.61

Pumping Heating Other Charges

USD5.00

USD5.50

USD4.00

USD 11.00

Sri Lanka Bunker Sales

Source: Lanka Marine Services

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2013 2014 2015 2016 2017 2018 2019 - July

298,908

389,179 421,585

484,692

687,061 702,650

349,759

MT

S HMB

TRINCO

Inside Port vs. OPL Volume (Colombo)

Source: Lanka Marine Services

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014 2015 2016 2017 2018 2019 - June

40% 37% 36%

61% 58% 51%

60% 63% 64%

39% 42% 49%

IN OPL

Colombo - Singapore Price Differential - IFO

Source: Lanka Marine Services and PLATTS

0

100

200

300

400

500

600

US

$/M

T

Colombo Singapore

What is 2020 Global Sulphur Cap Regulation

IMO Sulphur Regulation 85% reduction in Sulphur emission worldwide

IMO CO2 Strategy (vs 2008) • 50% on total annual GHG emission • 70% on CO2 emission per transport

work

2018 2050 2020

Glo

bal

Re

qu

ire

me

nt

SE

CA

Current: <0.1% Low Sulphur Gas Oil & Ultra Low Sulphur Fuel

Oct 2018 & Jan 2019: New China/ Taiwan

Zones

Source: Sibcon 2018

Current: <3.5%

High Sulphur Fuel

Jan 2020: <0.5%

Estimated cost to the shipping

industry

$60B*

Low Sulphur Gas Oil & Ultra Low Sulphur Fuel

Options for Ship Owners

- Switch to

compliant

low-Sulphur

bunker fuel

(largest

pathway in

2020)

- Install exhaust gas

cleaning systems, aka

scrubbers (smaller

pathway in 2020 but

expected to grow rapidly

after)

- Non-compliance, sanctioned

or otherwise (not a true

pathway – but cause of great

uncertainty)

- Switch to

liquefied natural

gas (minor

impact in

transition)

Four

Pathways

Source: Sibcon 2018

Compliant Fuel – Key Benefits and Risks

Low Sulphur Fuel Exhaust Gas Cleaning System

(Scrubber) Conversation to LNG

0.5% Fuel, or Marine Gasoil

The principle of scrubbers involves passing the exhaust gas flow of an engine (main engine and/or auxiliary engines) through a sea water “shower”. The water droplets atomized in a cloud capture the Sulphur molecules and fine particles present in the exhaust gases

*Benefits of Liquefied Natural Gas • Up to 25% less CO2 • -99% Sulphur emission • -99% particulate matters • -85% nitrogen oxides emission

Key Benefits

Major Risks

Easy to implement No CAPEX

Proactive technology & innovation meets long term

sustainable vision

Availability and Compatibility Low OPEX

• High OPEX • Availability • Compatibility

• High CAPEX • Elevated risk of operation control • Waste disposal

• High CAPEX • Availability • Elevated risk of operation

control

Source: Sibcon 2018

LSFO and HSFO Price Differential

350

400

450

500

550

600

3.5% S Fuel Oil 0.5% S Fuel Oil

US

$/P

MT

USD 126.7

USD 93.6

USD 118.5

Source: PLATTS

Adoption Rate of Scrubbers

- Ships with scrubbers by 2020 – 2700est.

- July 18 – 490 Vessels with

Scrubbers and ¾ of these are on existing vessels

- As per Hyundai Heavy Industries 50% of their new built will be with scrubbers

- March 19, Maersk committed to USD 263 Mn in installing scrubbers

- MSC indicated USD 439 Mn for retrofits on 86 box ships

- CMA CGM orders 10 ships ; 5 powered by LNG and 5 with scrubbers installed

No

of ve

sse

ls

Source: PLATTS, Bunkerworld, Manifoldtimes

-

500

1,000

1,500

2,000

2,500

3,000

Installed On Order

≈ 54,000 Ships in the World

Opportunities and Challenges of IMO 2020 Sulphur Cap Regulation

Opportunities Challenges

- Uncertain demand projections

( LSFO/HSFO/MGO)

- Availability of LSFO

- Origin of cargo

- Compatibility

- Limited storage and common user facility

- Operational readiness (land side/barges)

- Limited technical knowledge

- Credit risk due to increase in fuel prices

- First mover advantage

- Presence of global players such as

IOC and Sinopec

- An interim increase in demand for

Marine Gas Oil (MGO)

- Ability to cater to a different

segment of vessels

Steps Taken to Mitigate Challenges Faced by New Regulations

- International Independent Technical team appointed to study and submit

report on the operational way forward for JCT

- JCT increase storage

- Request made to the Sri Lanka Customs to approve floating storage

- Enhance potential supplier base to cater to LSFO

- Train and upskill local staff to handle LSFO

“The industry must come together, meet the challenge head on, and rise to the

occasion”

Thank You