Growth & Challenges in Sri Lanka's

Bunker Market

By Channa Abeyagunewardena

Director - Interocean Energy (Pvt) Ltd1

Silk Trade Route

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3

Ancient Maritime Silk Route

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� CLOSET POINT TO MAIN SHIPPING ROUTE

� LOCATE AT THE CENTRE OF SUBCONTINENT

� NO CONSTRAINS IN ACCESS CHANNEL

Today and the Future

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9%24%5%15%19%2008

9%18%8%23%25%2000

ME/AfricaAsiaJapanEuropeUSAWorld GDP

70mn35mnEast – West route

20152002Container

growth

23%20mn153mn172mln1.15bn2000

World pcSLBangladeshPakistanIndiaWorld

Population

World Statistics

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Growth of Sri Lanka’s Bunker Market

� Growth can be measured and expressed in many ways.

– Bunker volumes,

– Infrastructure,

– Ports,

– Trade,

– Hub status,

– Regional growth,

– Support services,

– Efficiency,

– Ease of doing business,

– Offshore exploration for oil and gas,

– New opportunities with changes in the Geo Political situation (Piracy, Sea Marshalls, bunkers, crew changes, replenishment),

– Calls of Naval vessels etc.

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Bunker Volumes

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Monthly Volumes

2629

3

3032

0

2732

8

3200

2

3168

728

810

2407

1

3052

1

2493

5

3007

2

2976

4

2822

6

2937

5

2879

3

0

5000

10000

15000

20000

25000

30000

35000

June Aug Oct Dec Feb Apr Jun

IFO 180

IFO 380

MGO

Total

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Average Bunker Volumes

28812

28812

Average (mt)

1847347795560Monthly Avg

64%17%19%Product %

1293133345638917Total

380cst (mt)180cst (mt)MGO (mt)

75% of the

volume - bunker

only calls

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Total

60%15%25%Bunker Volumes

213481Total Vessel

Calls on average

AnchorageOPLInside port

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Product Diversification

� IFO 180cst

� IFO 380cst

� MGO

� IFO blends

� All Major Marine Lubricants

� Fresh Water

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-The Colombo Oil bank storage was at 30k.

-The market grew from 22k in 2008 to 29k in 2011.

- With the commissioning of the new tank of 5000mt in July, we

anticipate the volumes to increase to about

33-35,000mt per month

- However due to limited land area in Colombo, the expansion of

the tank farm will be limited to about 100,000mt

- So the requirement for facilities with larger storage volumes

becomes even more evident

• Market Overview

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Growth - Infrastructure

• Colombo Oil Bank (JCT Storage)

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Storage, Tanks and Facilities at JCT Oil

Bank Colombo

� IFO 180cst: 02 Tanks, Storage 6,500mt

� IFO 380cst: 04 Tanks, Storage 19,240mt

� MGO: 06 Tanks, Storage 9,400mt

� Present Total storage: 35,140mt

� Pipeline Facility: 1.5km (approx.)

� Heating: To 45c

� Tanker Berths: 03 nos

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Colombo Harbour

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Colombo South Harbour Development Project

HAMBANTOTA PORT

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Project Features

Port Layout Plan – Phase 1

Depth of Basin - 17m

Depth of Channel - 16m

Turning Circle - 600m

Cargo Quay - 600 m

Oil & Gas Quay - 310 m

Service Terminal -105 m

Break Water - 1450 m

Dredging/Excavation - 12 Mn Cum

Contractor -

China Harbour Engineering Co &

Sinohydro Corporation (JV)

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Hambantota Oil Terminal� The construction of a fuel terminal under phase 1 will be completed

later this year with the bunkering terminal in full operation.

� It will have 14 tanks with a capacity of 80,000 m3.

� Among them, 08 tanks will be dedicated for ships fuel while 03 for aircraft fuel and another three for L.P.Gas.

� There is sufficient land and facilities to increase it to 2mn cum.

� Refinery is another project in the pipeline

� BUNKERING

� Cement Grinding & Bagging plant

� Fertilizer bagging plants

� Warehousing

� Operation of LP Gas Terminal

� RO-RO Operation

� Ship repair facilities

� Off Shore Services

Proposed Services

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Galle Harbour

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Trincomalee

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KKS Harbour

� The Port of Kankesanthurai will be developed to serve the Jaffna Peninsula and the Northern Province.

� The port that was rendered unusable due to the volatile situation that prevailed in the past is now being developed and it will bethe first such deep water facility that is rebuilt in the northern peninsular.

� The port is a key in connecting the Jaffna peninsula with the regional destinations, particularly India. KKS will give the Northern peninsular a window to the world and restore both regional and domestic connectivity. The Port will significantly lower the transit time of goods from and to India, Bangladesh, and the neighbouring countries and propel economic activity in the northern region that is now trying to find its feet after three decades of terror.

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Olluvil Harbour

Project Profile

Commercial Harbour

Stage I 5000 DWT

Breakwater Length 1320 M

Quay wall Length 330 M

Draft 8 M

Total Water Area 10Ha

Fisheries Harbour

Quay Wall Length 220 M

Draft 3 M

Total Water Area 06 Ha

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Growth – Container trade

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Expected Growth Rates of

Container Volume2011 2012 2013 2014 2015

North America 5.6% 4.9% 4.3% 4.1% 4.1%

West Europe 4.9% 4.6% 4.5% 4.2% 3.3%

Far East 10.0% 9.1% 9.0% 8.9% 9.5%

South East Asia 8.5% 7.2% 7.1% 6.7% 7.0%

South Asia 11.1% 8.9% 8.8% 8.7% 8.4%

Middle East 7.3% 6.8% 6.5% 6.5% 7.2%

Africa 7.4% 6.0% 4.9% 4.7% 6.3%

Latin America 6.0% 5.4% 5.0% 6.2% 9.7%

Oceania 6.1% 4.3% 4.1% 4.2% 4.1%

Eastern Europe 11.5% 8.8% 9.0% 7.7% 7.8%

World Total 8.0% 7.2% 7.0% 6.9% 7.5%

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Growth – Sri Lanka’s Exports, 1H

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Growth - Regional Activities

� Sri Lanka hosted the 13th conference of the International

Network of Affiliated Ports (INAP) in Colombo in August

2011 under the theme “Bridging Global Regions through

Affiliated Ports for Mutual Corporation”.

� International Association of Ports and harbors (IAPH), the

apex international body for ports and harbours will hold

the 12th Asia/Oceania regional meeting at Colombo In

March 2012, hosted by SLPA.

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Growth – Indian Sub Continent

� Having one of the worlds largest and fastest developing

countries as neighbor is a prime advantage to Sri Lanka

� Sri Lanka will be a gateway to the Indian subcontinent with the

rapid development of its ports especially with the deep draft ports

and the close proximity to the East-West sea lane which will be

better suited to act as a feeder port to the huge Indian market.

� Deep economic integration with a fast-moving economy like India

could contribute to stimulate growth rates in Sri Lanka

� Sri Lanka views the Indian Sub continent as an opportunity

and stands to benefit from the rapid growth that’s taking place

� It will propel a tremendous growth in the bunker market of Sri

Lanka.

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Growth – Tax incentives and duty wavers

� Foreign investment is an important element in Sri Lanka's economic growth and is therefore actively encouraged.

� Board of Investment (BOI) is an autonomous agency, government body overlooking the establishment of foreign business ventures in Sri Lanka and grants concessions to Investors with preferential tax rates, constitutional guarantees on investment agreements, exemptions from exchange control and 100% repatriation of profits & capital.

� Most of the Bunkering companies in Sri Lanka are BOI ventures.

� There are no import or export taxes imposed on bunkers

� Under the new Strategic Development Project act, projects which are likely to bring economic and social benefit to the country, which are also likely to change the landscape of the country primarily through the strategic importance are also given tax concession and duty waivers.

� Cairn Lanka (Oil exploration off Mannar basin) was the first such project approved and classified under this Act whilst the Colombo South Harbourproject and Globally-renowned hotel chain Shangri La are a few examples.

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Growth – New opportunities for

Bunkering

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Piracy

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Piracy in the East coast of Africa

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Increasing in calls of Naval vessels

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Patrolling Naval Crafts� Increase in Naval vessel calls to Colombo

which has increased the MGO requirement

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Sea Marshall Operation

� Latest statistics indicate that there are over 300 vessels per month calling in Galle and Colombo.

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Fishing Trawlers

� Trawler Calls at Mutwalharbour has increased from 18 to 30 in the last 4 months

� Bunkers (MGO) supplies has increased in the corresponding period

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Offshore Oil Exploration

� Presently the rig ‘Chikyu’ with its supportive Tugs

and Boats has increased demands of MGO

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Refinery Upgrade

� Sri Lanka is presently negotiating with Russia and South Korea to increase the capacity of the present refinery at Sapugaskandaand another at Hambantota.

� Russia too is becoming one of Sri Lanka’s strong trading partners and discussions are being held for Oil exploration withGazprom.

� South Korea's Hyundai Engineering and Construction Co is already in Sri Lanka, involved in the port expansion,

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Challenges in Bunkering

� The main challenge would be to successfully market Sri Lanka as a Hub for bunkering.

� Though prices of Bunker Fuels in Sri Lanka will be attractive for Vessels which are not calling Singapore and the AG, the challenge would be to break into the main liners and other vessels which are not calling Sri Lankan ports.

� Sourcing

� Storage

� Distribution

� Pricing strategy (the most critical element)

� Price Discrimination – Colombo Port vs Hambantota

� Monsoons

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Challenges

� In the process of making Sri Lanka a “bunker hub”

of South Asia, Sri Lanka needs to design an

effective bunker market which is in line with

global best practices.

� In this aspect appointment of a regulator with a

comprehensive bunkering management covering

the entire bunker supply chain is of paramount

importance.

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Challenges

COST EFFECTIVENESS

� A good analogy for the different costs faced by the bunker operator is an iceberg. Above the line costs, or the visible part of the iceberg, are usually the most obvious and easiest to manage. These include cost of product, freight, insurance etc. Below the line costs, or the part of the iceberg beneath the surface, include amongst others import taxes, port tariffs, barge operation & maintenance costs, breakdowns & delays, disputes, contamination issues, default and delayed payments. Like an iceberg, the obvious costs are a fraction of the hidden costs and if not properly looked at, these hidden costs can have a significant impact on a bunker operators bottom line.

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In Conclusion

� Hubs emerge because the economies are right. The Colombo Port became a regional hub because it had a comparative advantage over regional container ports and also the geographical advantage.

� Singapore, Rotterdam, Los Angeles-Long Beach, Shanghai and Hong Kong are gateways to great continental economic powerhouses. Many of the above are, among other things, also trans-shipment and bunkering points and gateway to vibrant economies. Similarly Sri Lanka is well poised to be the gateway to the South Asian region.

� The southern Port of ‘Hambantota’ is within 10 nautical miles and ‘Colombo’ is within 22 nautical miles from one of the world’s busiest International shipping lanes.

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Conclusion……..

� Colombo port will be geared to accommodate the next

generation of container vessels, 18000TEU/16m draft,

Triple E class of Maersk Line, the largest ever container

ships to be built, and will be the only port in the region to

handle this size of vessel.

� The Bunkering Port of ‘Hambantota’, with the terminal

facility of 80,000mt has the capacity to increase to 2

million mt.

� Exploration for Oil is well underway in the NW coast.

� Another refinery is year marked.

� Finally, revitalizing the silk route for intra regional

trade and above all a revolutionary change in the Asia

Europe shipping route, are bound to increase the

demand for bunker fuels in Sri Lanka.

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Conclusion………

� Lee Kuan Yew, architect of modern Singapore, observed

in an interview in the early 70’s that China plans for the

next 50 to 100 years, while other countries plan for the

next 10 years. China’s achievements since then have

proved that he was right.

� Similarly Sri Lanka has planned for the future and is now

on a clear path in making itself the ‘Wonder of Asia’ after

a 30-year war that devastated the economy. Along with

ports, the country is on a mega development drive, with

many other capital-intensive development projects

underway.

� As industry veterans, we from the Bunkering fraternity, are

buoyant and look forward to the challenges and the

opportunities that lies ahead.

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McLarens Group� ‘Interocean Energy (Pvt) Ltd’ and ‘Mc Marine (Pvt) Ltd’ are

two bunkering companies under ‘McLarens Group of Companies’ are working in collaboration with the GOSL and our business partners/associates in making Sri Lanka the Hub of Bunkering in the region.

� ‘McLarens Group’ is synonymous with excellence in Shipping & Marine Services, Logistics, and Lubricants, and sustains its commitment to Health, Safety, quality & Environment protection. McLarens has a strong presence in ports of Colombo, Galle, Trincomalee and already commenced services at Port of Hambantota.

� McLarens Group are JV partners GAC Group, Mediterranean Shipping Lines, Mitsui OSK Lines, Wanhai Lines and Simatech.

� GAC is also the logistic supplier for ‘Cairns India’ which is presently engaged in the Oil drilling and also agent for ‘Japan drilling co’, the owners of the drill ‘Chikyu’ which is engaged in the drilling. So there is tremendous interaction and participation by the McLarens group in the entire sphere of shipping which opens up a huge window of opportunity in the field bunkering since all of them require bunkers and Lubs.

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