OSLO (Reuters) - Commodities trader Trafigura is joining forces with shipping firms Frontline (FRO.OL) and Golden Ocean (GOGL.O) to supply marine fuel ahead of a shake up in regulation which could disrupt delivery and cause prices to spike.
The three companies said on Tuesday the joint venture is expected to start operating in the third quarter, subject to agreement on final terms.
From Jan. 1, International Maritime Organization (IMO) rules will bar ships from using marine, or bunker, fuel with a sulphur content above 0.50% and instead will require them to run on compliant diesel or very low-sulphur fuel oil.
The shift will be seismic for the oil industry, affecting the entire chain from refiners to oil producers as light, sweet crude will be favored over sour grades that contain more sulphur.
Frontline and Golden Ocean will acquire 15% and 10% interests in the joint venture respectively, while commodity trader Trafigura will contribute its existing physical bunkering activities and own the remaining 75%.
The Geneva-based trading firm is already the largest bunker fuel supplier in Africa, providing more than 1 million tonnes per year.
“We believe ... the joint venture’s increased base volumes and greater access to both infrastructure and credit will provide increasingly competitive bunkering supply services to our customers,” Trafigura said.
“We are confident in our ability to supply quality products at competitive prices to the fleets controlled by the joint venture partners as well as to third party shipowners and operators,” it added.
Vessels with exhaust cleaning systems, known as scrubbers, can continue to use high-sulphur fuels, but logistics become more complex when multiple bunker standards co-exist, shippers say.
Major trading firms have looked at ways to cash in by adding scrubber-fitted vessels to their fleets or by expanding their fuel oil desks.
Trafigura has already invested in 35 scrubber-fitted vessels that started being delivered this year, while Geneva-based competitor Mercuria Energy Group acquired bankrupt Aegean Marine Petroleum Network, a marine fuel logistics firm, in preparation for the IMO change.
Dry bulk operator Golden Ocean and oil tanker firm Frontline are both controlled by Hemen Holding, the investment vehicle of Norwegian-born billionaire John Fredriksen.
While many Fredriksen ships have installed scrubbers, the majority of his fleet of more than 200 ships will need the scarcer compliant fuels.
“Our participation in the joint venture will ensure our ability to source and acquire marine fuels at competitive prices on a continuous basis,” the two shipping firms said.
While the deal aims to secure compliant fuels for the whole Fredriksen system, the shipping companies also clearly see a business opportunity from the joint venture, said Pareto Securities analyst Wilhelm Flinder.
“Teaming up with Trafigura I think should be seen as a positive,” Flinder said.
“It is clear that they continue their rather proactive stance on the coming IMO 2020 regulations though, and (are) now moving further down the value chain.”
Reporting by Terje Solsvik and Victoria Klesty; Additional reporting by Julia Payne; Editing by Kirsten Donovan and Mark Potter