S'pore's grip on $41b marine fuel market challenged by China

China luring ships by expanding port, refining facilities and boosting bunkering capabilities

Ships in the waters of the Singapore Strait near Pulau Sebarok, with its oil storage tanks, in April. Singapore is the dominant marine fuel supplier in Asia, but China is catching up.
Ships in the waters of the Singapore Strait near Pulau Sebarok, with its oil storage tanks, in April. Singapore is the dominant marine fuel supplier in Asia, but China is catching up.ST PHOTO: KUA CHEE SIONG

Singapore is facing the greatest competition yet to its status as the dominant marine fuel supplier in Asia, with China luring more ships to its shores following a rapid expansion of its port and refining facilities.

China's marine fuel sales - known as bunkering - have almost doubled over the past five years and the country is banking on attracting ships that travel to nearby ports in major economies like South Korea and Japan. Singapore still has a commanding position as top supplier to a sector valued at over US$30 billion (S$41 billion) in Asia, but Chinese growth is accelerating.

The epicentre of China's bunkering is Zhoushan, an archipelago to the south of Shanghai. Some of the nation's newest and biggest crude oil refineries are being built in the area, while the government has introduced tax incentives that make Chinese fuels more competitive.

"Singapore has had an edge over Asian ports on all parameters," said Mr Jayendu Krishna, director at Drewry Maritime Advisors. "It continues to be so today. However, slowly other ports have been trying to catch up. Zhoushan will certainly capture a share of the vessels from North-east Asian ports."

Singapore, also the world's biggest ship refuelling hub, sold about 50 million tonnes of bunker fuels last year, or a fifth of the global total.

Industry consultant OilChem estimates China's sales rose for a fifth straight year to 16.9 million tonnes. SeaCred, a marine intelligence agency, valued the Asian bunker fuel market at US$31 billion to US$32 billion last year.

The world's busiest ports are in China, thanks to its massive manufacturing industry, and boosting its bunkering capabilities adds clout to supportive businesses.

The local government is spending 520 million yuan (S$110 million) to expand the anchorage and build new shipping channels at Zhoushan, while refiners are pumping out higher volumes of low-sulphur fuel oil (LSFO), now essential under new global rules that mandate ships use cleaner fuels.

"China's bunkering business is closely catching up with that of Singapore," Ms Zhang Xiaoli, a former official with the Customs authority in Zhejiang province, told an industry conference last month. She predicted China's marine fuel sales will be 40 per cent of Singapore's this year, or about 20 million tonnes based on last year's data.

China has issued more than 10 bunkering licences to companies operating in the free-trade zone of Zhoushan and has introduced an LSFO futures contract to the Shanghai International Energy Exchange to improve transparency on pricing. The actual LSFO fuel being sold at the port was at US$536 a tonne on Tuesday, US$3 higher than in Singapore, after being cheaper than the city-state in April, according to data from the Marine Bunker Exchange.

Zhoushan has been more competitive with its prices this year, and Stena Bulk vessels travelling to China will likely refuel more often at the port, said Ms Yvonne Rittfeldt, head of bunker procurement at the shipping company.

However, Singapore is more reliable with its efficient and timely delivery of fuel, she added.

Singapore has geographical superiority. It sits at the crossroads of a centuries-old trade route that links the region to Europe, the Middle East and the US. The construction of South-east Asia's first container port in 1972 helped Singapore map a path to the top marine fuel supplier spot and it is planning for the world's biggest automated terminal.

Singapore has a vast refining and storage network to keep the steady stream of vessels refuelled. Strict measures for monitoring bunker fuel deliveries were introduced last year, after the addition of flow meters in 2017, which gives shippers assurance that the quantity of fuel they buy will be delivered.

"The regional bunker fuel pie is big enough to support growth for key ports, but Singapore will remain the main bunkering hub in the foreseeable future," said Mr Victor Shum, vice-president of energy consulting at IHS Markit.

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A version of this article appeared in the print edition of The Straits Times on July 22, 2021, with the headline 'S'pore's grip on $41b marine fuel market challenged by China'. Subscribe