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HomeEconomyNext problem for Indian economy: Fuel shortage for domestic shipping

Next problem for Indian economy: Fuel shortage for domestic shipping

Ships hauling everything from coal to iron ore & consumer goods on domestic routes may run out of fuel as India struggles to meet new environmental standards.

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Mumbai/New Delhi: Ships hauling everything from coal to iron ore and consumer goods on domestic routes along India’s coast may run out of fuel as the nation struggles to meet new environmental standards.

The maritime industry in Asia’s third-largest economy is facing a shortage of cleaner-burning fuels as local refineries aren’t producing enough after the Jan. 1 introduction of the rules, known as IMO 2020. Under the standards, vessels without pollution-reducing kits must burn oil with lower sulfur content.

While foreigns ships calling at India can refuel at hubs like Singapore and Fujairah, the deficit of IMO-compliant fuel is a threat to vessels plying India’s coast. The shortage is another potential near-term hurdle for an economy where economic growth rates have halved since 2016 and inflation is surging.

“Adequate quantities of low-sulfur fuel oil are not available at quite a few ports, especially on the eastern coast,” said Ranjit Singh, chief executive officer of Essar Shipping Ltd. “If the marine fuel problem is not resolved, I think ships will come to a standstill.”

Some local refineries simply can’t ramp up output quickly enough to meet consumption, while others aren’t prioritizing the production and supply of grades such as very-low sulfur fuel oil and marine gasoil.

India’s bunkering demand averages around 20,000 barrels a day, but this has risen to around 30,000 in January due to IMO 2020, according to Abhishek Nambiar, an analyst at industry consultant FGE. Current supply availability is from 16,000 to 20,000 barrels a day, he said.

Also read: Indian economy could recover to 6.6% next fiscal, new UN report predicts

Supply Crunch

Only two state-run refiners — Hindustan Petroleum Corp. and Indian Oil Corp.– have announced they’re producing IMO 2020-compliant fuel. Hindustan Petroleum started supplying very-low sulfur fuel oil from its Visakhapatnam refinery on India’s east coast in December and supplied 5,000 tons last month. Indian Oil has began producing the fuel at two of its nine plants.

That’s in stark contrast with the situation before the roll-out of new standards, when almost every Indian refinery could produce and supply what was the previous industry norm of shipping fuel with more than 3% sulfur. The big private processors — such as Reliance Industries Ltd. and Nayara Energy Ltd. — tend to focus on higher-margin products like gasoline and diesel.

To make matters worse, refiners with the ability to produce IMO-compliant fuel are prioritizing supplies to their own vessels, prompting a scramble among other shipowners. Some processors offered shipments for exports in the run-up to Jan. 1, resulting in less supplies in tanks and other storage facilities.

“We will first supply to our own vessels and then we will be contracting the remaining volumes,” said Mukesh Kumar Surana, chairman of Hindustan Petroleum. “We can’t be selling all our production to others and then go buying for our own requirements.”

Almost 50,000 tons of bunker fuel will be required at 19 ports across the country this month, according to an estimate by Indian National Shipowners Association. Around 6% of Indian goods are carried by domestic ships, according to government figures.

Ship-owners are being hit either by a lack of fuel or high prices and may not be able to absorb the increased costs for much longer, Essar’s Singh said. However, the situation will probably be resolved in three to six months as the state-owned refiners increase output and other processors start producing IMO 2020-compliant fuel, he said.

“We can’t have full volumes from the first day,” said Indian Oil Chairman Sanjiv Singh. “Production is being ramped up and we expect to more than double the output to 1 million tons this year.”- Bloomberg

Also read: IMF trims global economic outlook, but tones down risk warnings


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