Launch of Japan ship-to-ship transfer service gets mixed refiner reviews

At least one Japanese refiner has welcomed a UK company's launch of a ship-to-ship transfer service in waters inside Japan's exclusive economic zone for giving the company more options, industry sources said Wednesday.
Other Japanese refiners and traders, however, see limited impact from the new ship-to-ship transfer location, considering South Korea's Yeosu port, which has been a popular destination for Japanese STS requirements, could remain competitive, sources said.
"At this moment the impact will not be much [for crude] because the Japanese [refiners] tend to bring crude to Japan by VLCC," a trader with a Japanese trading house said. "For products, especially for power companies, they might have the chance to [use] STS, as the volume and the demand can change and sometimes the power company prefers smaller vessels."
Japanease utilities use crude and fuel oil as direct-burning feedstocks for thermal power generation, and their oil requirements tend to surge when power demand peaks.
A Japanese refiner source said: "The impact won't be so big, I expect. I think the STS cost in Japan should be higher than it is Yeosu."
SafeSTS, a Norfolk-headquartered company, said Monday it plans to offer STS services for crude and oil products near the western Japanese port of Shimonoseki at the southwestern tip of Honshu Island facing the Tsushima Strait.
The company began offering the service this month in waters located at 34 degrees 30 minutes north latitude and 130 degrees 0 minutes east longitude within Japan's exclusive economic zone using the Shimonoseki port as a base. No transfers have happened.
With the area having no draft restrictions, SafeSTS is offering transfers between vessels up to VLCCs as well as Suezmax tankers, small range, medium range and coastal tankers for crude and products.
The company said it would carry out operations in accordance with Marpol Chapter 8 and the latest edition of the International Chamber of Shipping/Oil Companies International Marine Forum ship-to-ship transfer guide.
It took almost two years for SafeSTS to get permission from the Japanese government and regulatory authorities, according to the company's marine director, Captain Bob Gilchrist.
"It's a very conservative approach. We must make everyone feel very comfortable before we take it to a bigger level," Gilchrist said in a phone interview, adding the company was getting support from the Japanese supply chain and benefiting from its local knowledge and experience.
An official at the Japan Coast Guard confirmed that it had been approached by SafeSTS about its possible start of STS services.
If SafeSTS goes forward with the plan, it would be the first covered by new regulations that took effect in the fiscal year ended March 31, the Coast Guard official said.
The new regulations require any company performing STS in the Japanese EEZ to give 48-hour notice to the Coast Guard about an expected transfer of crude, fuel oil or lubricant oil, the official said. Companies must report details including location, shipowner, vessel specifications, vessel speed, and the expected start and end of operations.
The official said the Coast Guard is not requiring companies to seek advanced permission for planned transfers in the Japanese EEZ but to comply the 48-hour reporting rule.
Japan's Ministry of Land, Infrastructure, Transport and Tourism is also only requiring companies to conduct STS in the Japanese EEZ in accordance with the STS management plan under Marpol, a ministry official said.
Currently, most of the Japanese STS requirements are carried out at South Korea's Yeosu port.
In 2009, Cosmo Oil could not bring VLCCs to its 220,000 b/d Chiba refinery because of a leak in an underwater pipeline. As a result, it performed around 70 STS transfers at South Korea's Yeosu port by bringing crude on VLCCs from the Arab Gulf and transferring it to smaller Aframax vessels before unloading it at Chiba.
Gilchrist, SafeSTS' marine director, said the transfers happen for a number of reasons and offer shippers flexibility.
"Currently, a lot of long-haul cargoes come to Singapore where STS is carried out and bulk-breaking is done before it is shipped to Japan," he said.
Gilchrist said costs for the service would depend on the operations requested.
"Once mobilized, consecutive operations will benefit from economies of scale making ship-to-ship transfer a real opportunity for traders and charterers to see real savings," he said.
According to shipping sources, so far there have been a few instances of ship-to-ship transfer involving LNG cargoes at specific Japanese waters.
Source: Platts