Date of issue: 23/02/2021

Salvaging the ‘EVER’est in the Suez MENA OIL RESEARCH – MARCH 2021

Salvaging the ‘EVER’est in the Suez

Date of issue: 23/02/2021

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Table of Contents

Executive Summary ........................................................................................................................................................................ 3

Suez Canal: .................................................................................................................................................................................... 4

Significance of the Canal:............................................................................................................................................................ 4

Navigation in Suez Canal:............................................................................................................................................................... 6

Pilotage: ...................................................................................................................................................................................... 6

Cost Implications: ........................................................................................................................................................................... 6

Transit Revenue lost by SCA / Egypt: ......................................................................................................................................... 6

Cost implications for Supply Chain: ............................................................................................................................................. 7

Additional cost for Shipping due to Deviation: ............................................................................................................................. 7

The Grounding Incident .................................................................................................................................................................. 8

Possible causes of Grounding ..................................................................................................................................................... 8

Salvage Operation: ..................................................................................................................................................................... 9

Suez Congestion .......................................................................................................................................................................... 10

Vessels currently in Suez Canal anchorages - An overview ..................................................................................................... 10

Impact on Oil and Shipping markets ............................................................................................................................................. 13

Crude Oil: .................................................................................................................................................................................. 13

Middle Distillate: ........................................................................................................................................................................ 13

Light Distillate ............................................................................................................................................................................ 14

Impact on Freight Rates ............................................................................................................................................................ 14

Alternate solutions for the Canal ............................................................................................................................................... 16

Pipeline Solutions .................................................................................................................................................................. 16

Trans-Suez Dirty Oil Flows .................................................................................................................................................... 17

Salvaging the ‘EVER’est in the Suez

Date of issue: 23/02/2021

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Executive Summary

• Suez Canal is one of the major maritime chokepoints globally and the transit point handled 1.2 billion MT of cargo which

translates to ~11% of the world’s total seaborne trade.

• The maximum dimensions for vessels to transit are a Length Overall (LOA) of 400.00m and a maximum Beam of 77.50m.

The maximum size that the canal allows for a loaded vessel is a DWT of 240,000 with a draught of 20.10 m.

• Pilotage is compulsory for all vessels over 300 Suez Gross Tonnage (GT). Two pilots are required for vessels over

80,000 Suez GT. Although the pilots advise the ship’s Captain on the local navigational requirements and guides the

vessel during the transit, the ultimate responsibility of the ship remains with the Captain and his team of Navigational

Officers.

• With the transits stopped for the past six days, the loss in revenue for the SCA and Egypt are in excess of $95 million

• With the current blockage of the canal, the only other alternative for vessels to travel between Asia and Europe will be

to go around the Cape of Good Hope (COGH). Ships going around the COGH will now have to factor in the additional

10 days of transit time and the bunkers that will be consumed during the voyage. For a large container vessel, super

tanker or Capesize bulk carrier, this will be an additional cost in excess of USD400,000 just in bunkers.

• Unlike bulk carriers and oil tankers, which carry majority of their cargoes below the deck level, container ships have

significant portion of their cargoes above deck level. This has two impacts on the stability of the vessel.

o The surface area of the vessel above the water line is significantly higher, which in turn has a greater impact

with wind as the contact area is along the length of the vessel for the entire height of the cargoes stowed.

o With the height of cargoes going all the way to the top container, the centre of gravity of the ship is higher than

compared to tankers and bulk carriers which are bottom heavy.

A combination of these two factors, makes the manoeuvring of a container ship more challenging and why the wind

factor is expected to have a higher impact than a conventional bulk carrier or tanker

• Salvage attempts will almost certainly be conducted during high tide, which on normally occurs twice a day. A look into

the timings and height of the tides for the week indicates that the highest tide is available on Wednesday (31 March –

00:55 hrs) at 2.14 m followed by 2.12 m on Tuesday (30 March – 00:08 hrs). If a daytime operation would be preferred,

then the highest tide for the week would be on Tuesday (30 March – 12:28 hrs) at 2.10 m followed by 2.08 m on Monday

(29 March – 11:42 hrs).

• A total of 369 ships are currently waiting on either side of the canal to make the transit once the EVER GIVEN is re-

floated and the channel cleared. This accounts for a total DWT of 25 million, an increase of 80% since Thursday (25th

Mar). An estimated 85 ships are currently enroute to join the piling jam before the 31st March.

• The canal has handled about 100 ships making the transit on a single day according to the 2020 transit data. However,

there are limitations due to the size of the ships making the transit and the tidal factors that prevail on the day. Factoring

these, it will take weeks to clear the jam that has accumulated till date and not accounting for the additional vessels that

would be added for the week. Refinitiv Oil Research currently expects a delay of at least 10 days to 2 weeks for all

vessels reaching Suez henceforth and assuming the stuck container ship is re-floated within the next couple of days for

the transits to resume.

Salvaging the ‘EVER’est in the Suez

Date of issue: 29/03/2021

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Suez Canal

** Track live updates on the blockage in the Suez Canal in Eikon **

(Link to be pasted on Eikon Search bar)

The Suez Canal was built between 1859 and 1869 by the Suez Canal company and is a man-made sea-level waterway forming a crucial sea link between Asia and Europe. The total transit length of the canal is 193 Km with an average transit time of 12 – 16 hours. The entire canal is at sea-level thereby eliminating the requirement for locks such as the ones used in Panama Canal to connect water bodies at different altitudes.

A new canal has been built along a 72 Km stretch of land, running parallel to the old canal, in addition to the deepening and widening of the Great Bitter Lakes by-passes and Ballah by-pass. Creating a new canal, parallel to the existing one, maximises the benefit of the Canal and its bypasses, which enables traffic to pass in both directions and minimises the waiting time for transiting ships. The new Canal section also helps to increase traffic on the waterway, in anticipation of expected growth in world trade.

Significance of the Canal

As per UNCTAD (United Nations Conference on Trade and Development), the total sea borne trade reached a total of 11.08

billion tons in 2019, which was expected to be lower by ~4% in 2020.

Total Sea Borne trade (2019)* 11.08 billion MT

Total Sea borne crude oil trade (2019)* 18% of total sea Trade i.e. ~ 2 billion MT

Total Sea borne Refined Petroleum product, Gas & Chemical

trade (2019)*

12% of total sea Trade i.e. 1.33 billion MT

Total trade through Suez Canal transit (2019)** 1.2 billion MT

Total Crude Oil trade through Suez Canal (2019)** 107 million MT

Source: UNCTAD* / Suez Canal Authority (SCA)**

Out of the total world seaborne trade, crude oil trade accounts for roughly 18%, and refined petroleum products, gas and chemicals

account for ~12%, while the rest are dry cargoes of different nature carried in bulk, containers or multi-purpose vessels.

Suez Canal is one of the major maritime chokepoints globally and as per the data furnished by the Suez Canal website, the transit

point handled 1.2 billion MT of cargo which translates to ~11% of the world’s total seaborne trade.

In 2019, 59 million MT of crude oil went southbound while 48.1 million MT went North totalling to 107 million MT. Considering 18%

of total sea borne trade is of crude oil i.e. 2 billion MT, crude volumes transiting the canal accounts for about 6% of the world’s

crude trade.

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According to the Suez traffic figures, an estimated 36 million MT are coal shipments, thereby making bulk carriers a significant portion of the Suez Canal transits. In terms of container vessels, an estimated 40 million TEU’s transit the canal.

Based on the 2020 transit details:

• A total of 18,597 ships made the transit through the canal.

• An average of 1,550 ships transit the Suez Canal every month → More than 50 ships a day.

• Bulk carriers account for almost 30% of the transits followed by container ships which account for 25%.

• Tankers account for 15% of the total transits.

• There are at least twice as many vessels that go on ballast in the Northbound transit compared to Southbound vessels.

• There are twice as many LNG tankers that cross the canal into the Mediterranean compared to the ones entering the

Red Sea.

Fig: Destination split of voyages via the Suez Canal in South and North bound transit

Source: Refinitiv Oil and Shipping Research. For interactive version of this chart, click here

Salvaging the ‘EVER’est in the Suez

Date of issue: 29/03/2021

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Navigation in Suez Canal:

According to the Suez port entry requirements, the maximum size that the canal allows for a loaded vessel is a DWT of 240,000 with a draught of 20.10 m. The largest laden vessel handled by the Canal is 246,000 DWT, while on Ballast is a 554,000 DWT. The maximum dimensions for vessels to transit are a Length Overall (LOA) of 400.00 m and a maximum Beam of 77.50 m. Vessels transit the canal in a convoy system which is planned and monitored by the Suez Canal Authority (SCA). Cut-off times for joining the convoys are clearly established which makes the system function like clockwork round the year. Due to the tidal effects in the canal and the use of the Great Bitter Lake as the waiting area, there are two Southbound convoys every day, while there is only one Northbound convoy that is operated in a day. Vessels on the South bound convoy on reaching the Bitter Lakes drop their anchor on either side of the main channel to clear the way for the Northbound convoy which transits without any stoppage. Once the channel clears, the vessel anchored at the Bitter Lake will resume their transit and head South into the Red Sea. Southbound convoys start at 0001 hrs and 0700 hrs for which the cut off times are 1900 hrs the previous day and 0300 hrs on the day of the transit respectively. Movement for the Northbound convoy starts at 0600 hrs for which the cut off time is 0100 hrs. Vessels coming later than the cut-off time can still join the convoys if SCA permits and by paying an additional toll depending on the time of arrival.

Pilotage:

Pilotage is compulsory for all vessels over 300 Suez Gross Tonnage (GT). Two pilots are required for vessels over 80,000 Suez GT. For deep draught vessels (ships over 11.6 m draught), the pilots board the vessel South of Conry Rock to make a safe transit to the entry of the canal. In addition to the pilots, the SCA mandates the use of tugs during the transit of the canal depending on the size and nature of cargo on the ships. Container vessels bigger than 170,000 SCNT will be escorted by two tugs during the transit. Apart from this the SCA also requires two mooring boats to be taken onboard the ship along with the pilots which are meant to help pass the mooring lines ashore and move the ship to the side of the canal in the event of any machinery failure during the transit. Although the pilots advise the ship’s Captain on the local navigational requirements and guides the vessel during the transit, the ultimate responsibility of the ship remains with the Captain and his team of Navigational Officers.

Cost Implications:

Transit Revenue lost by SCA / Egypt:

The transit cost for Suez Canal is based on the Suez Canal Net Tonnage which will be as per the certificate issued for the vessel.

According to a Reuters report, the canal revenue for Egypt was around $5.8 billion in 2019. As per this, the canal accounts for a daily revenue of almost $16 million. With the transits stopped for the past six days, the loss in revenue for the SCA and Egypt are in excess of $95 million. According to another article, it has been reported that the SCA is considering discounts for vessels affected by the blockage, which will result in a further loss of revenue.

Laden Ballast Laden Ballast Laden Ballast Laden Ballast Laden Ballast Laden Ballast Laden Ballast

7.88 6.7 5.58 4.74 4.22 3.59 2.09 1.78 1.8 1.53 1.55 1.32 1.52 1.29

7.88 6.7 5.58 4.74 4.22 3.59 2.8 1.78 2.74 1.53 2.47 1.32 2.38 1.29

8.27 7.04 6.32 5.38 5 4.25 1.83 1.55 1.61 1.37 1.51 1.28 1.45 1.23

8.27 7.04 5.99 5.09 4.43 3.77 3.6 3.07 3.15 2.68 2.94 2.5 2.94 2.5

7.88 6.7 6.13 5.21 5.3 4.51 4.1 3.49 3.8 3.23 3.63 3.09 3.53 3

8.24 7 6.37 5.41 5.08 4.32 3.7 3.15 3.3 2.81 3.1 2.64 3.05 2.59

7.88 6.7 5.41 4.6 4.2 3.57 2.94 2.5 2.73 2.32 2.15 1.83 2.05 1.74

7.88 6.7 6.08 5.17 4.24 3.6 3.18 2.7 3.08 2.62 3.03 2.58 2.97 2.52

7.88 6.7 5.86 4.98 4.56 3.88 3.29 2.8 3.08 2.62 2.97 2.52 2.86 2.43

7.88 6.7 5.41 4.6 4.05 3.44 2.89 2.46 2.73 2.32 2.15 1.83 2.05 1.74

7.88 6.7 5.54 4.71 4.56 3.88 3.23 2.75 3.18 2.7 3.08 2.62 2.97 2.52

8.55 - 5.66 - 5.09 - 3.61 - 3.4 - 3.08 - 2.97 -

8.24 7 5.55 4.72 4.67 3.97 3.4 2.89 3.29 2.8 3.08 2.62 2.97 2.52Other Vessels

Special Floating Units

Passenger Ships

Vehicle Carriers

Ro/Ro Ships

General Cargo Ships

Container ships

Chemical Carriers & Other Liquid bulk

Carriers

LNG Carriers

LPG Carriers

Dry Bulk Carriers

Tankers of Petroleum Products

Tankers of Crude Oil

Vessel Type

Suez Canal Net Tonnage (SDR / SCNT)

First 5000 Next 5000 Next 10000 Next 20000 Next 30000 Next 50000 Rest

Salvaging the ‘EVER’est in the Suez

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Cost implications for Supply Chain:

With more than 300 ships stuck on either side of the canal for making the transit and waiting for the ship to be re-floated before normal transit can resume, more than 25 million DWT is stuck thereby causing severe delays which takes them off the market in terms of available tonnage. Considering Container ships account for the majority of vessels waiting for transit, they are expected to cause a shock to the supply chain, specifically for the manufacturing and automobile sector which usually operates on the Just-in-time principal. Hence this isolated incident is expected to have subsequent cost implications and delays to the wider consumer goods mainly for the European, Middle East and Asian markets.

Additional cost for Shipping due to Deviation:

The shortest voyage from Asia to Northwest Europe is to pass through the Gulf of Aden and transit the Suez Canal before entering

the Mediterranean, through Gibraltar and into the English Channel. With the current blockage of the canal, the only other

alternative for vessels to travel between Asia and Europe will be to go around the Cape of Good Hope (COGH)

Source: Refinitiv Oil Research/ Refinitiv Eikon

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Origin Destination Transit Point Distance (nm) Speed (kts) Time (Days)

Singapore Rotterdam Suez Canal 8431 13.5 26.0

Singapore Rotterdam Cape of Good Hope 11835 13.5 36.5

This deviation however will add more than 10 days to the transit time, which is quite significant in terms of the delays and additional

cost in bunkers that will need to be used as a result.

For ships doing the Asia-Europe route, the major bunkering hubs are either Singapore or Rotterdam which will be the first choice

of bunkering. With ships constrained on the draft during canal transits and to maximize the cargo carrying capacity, the general

criteria for carrying bunkers will be to carry just enough to meet the voyage requirements plus an additional 3-5 days consumption

in case of emergency. Ships going round the COGH will now have to factor in the additional 10 days of transit time and the

bunkers that will be consumed during the voyage. For a large container vessel, super tanker or Capesize bulk carrier, this will be

an additional cost in excess of USD400,000 just in bunkers. If the ships have to bunker en route, then the additional deviation and

any associated port costs will also need to be factored in. For smaller vessels, this will be an additional cost in excess of

USD250,000.

The Grounding Incident

The Container vessel ‘EVER GIVEN’ with a LOA of 399.94 m (the largest vessel allowed for transit through the canal) was fully loaded with a draft of 15.70 m and was en route from China to Rotterdam. The vessel arrived and anchored at the Suez anchorage on 22 March around 22:55 GMT. The ship joined the first Northbound convoy and started moving at around 02:30 GMT on 23 March, entering the canal at around 05:00 GMT. About 6 Km north of the Southern entrance, there have been reports of a severe gust of wind accompanied with restricted visibility and a blackout onboard the vessel. This could have possibly caused the vessel to swerve severely and the bow of the vessel to be stuck on the Eastern bank and the vessel diagonally stuck across the canal blocking the entire transit way.

Possible causes of Grounding

Manoeuvring of a fully laden container vessel of this size required extreme skill, especially in narrow straits such as the Suez Canal where the width of the channel for safe navigation is limited and the conditions such as wind speed and visibility are not favourable. Despite the ships being equipped with state-of-the-art technology and equipment, there are no room for errors. In this case, although official investigation is yet to reveal the root cause of the incident, the general navigation principal shows that the area around the vessel where the water is displaced is a low-pressure area, while at the bow of the vessel it’s a high-pressure area. Hence when going closer to the bank of the canals, there is a principal called Bow Cushion and Bank Suction effect, which is explained in the image below. If a ship is navigating close to one side of the canal, the increase in velocity of the water flow between the hull and the nearer bank coupled with a reduced velocity of flow between the hull and the farther bank creates a suction force that drifts the bow away from the nearer bank and pulls the aft part of the ship towards the bank.

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Date of issue: 29/03/2021

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The wind factor on the other hand also plays a huge role in the manoeuvring characteristics of a vessel, specifically for a container ship. Unlike bulk carriers and oil tankers, which carry majority of their cargoes below the deck level, container ships have significant portion of their cargoes above deck level. This has two impacts on the stability of the vessel.

• The surface area of the vessel above the water line is significantly higher, which in turn has a greater impact with wind as the contact area is along the length of the vessel for the entire height of the cargoes stowed.

• With the height of cargoes going all the way to the top container, the centre of gravity of the ship is higher than compared to tankers and bulk carriers which are bottom heavy.

A combination of these two factors, makes the manoeuvring of a container ship more challenging and why the wind factor is expected to have a higher impact than a conventional bulk carrier or tanker.

Salvage Operation:

With the ship firmly stuck on the banks of the canal, the current salvage in being planned by excavating the areas around the portion of the ship that has been banked and using the tugs to pull the ship out. According to the latest reports, a total of 14 tugs of different sizes are engaged in the operation to assist the ship and re-floating the vessel along with three dredgers working to clear the site. As per the recent update, about 17,000 cbm of sand and rocks have been dredged out of an estimated 20,000 cbm and the dredging operation started about 100 m away from the ship and will be done till about 10 m to ensure safety of the operation. While not much of the planned dredging remains, the tide will also play a huge role for the salvage operation.

Salvage attempts will almost certainly be conducted during high tide, which on normally occurs twice a day. A look into the timings and height of the tides for the week indicates that the highest tide is available on Wednesday (31 March – 00:55 hrs) at 2.14 m followed by 2.12 m on Tuesday (30 March – 00:08 hrs). If a daytime operation would be preferred, then the highest tide for the week would be on Tuesday (30 March – 12:28 hrs) at 2.10 m followed by 2.08 m on Monday (29 March – 11:42 hrs). While dredging and pulling the vessel out of the banks seem to be the main focus of clearing the canal by the salvage operators, the vessel will have to be taken back to the anchorage once freed to have a complete inspection carried out for damage assessment and determining if the vessel is fit for sea. The one other option which would also potentially be considered would be to lighter the vessel by offloading the containers into a smaller feeder vessel to lighten the ship. However, this remains a challenge as vessels such as EVER GIVEN are not equipped with their own cranes for onloading and offloading containers. They usually rely on shore cranes for these operations and in order to lighter the vessel, floating cranes would need to be engaged. As per local sources, it is believed that a floating crane with the capability to reach the top of the vessel was not immediately available in Egypt and this is where help from international communities could be crucial. This will certainly not be the fastest and most efficient way of re-floating the vessel as it would be an enormous task to remove the containers stacked up using a make-shift crane. But failing the dredging operation, this would possibly be one of the next plans in the pipeline.

Salvaging the ‘EVER’est in the Suez

Date of issue: 29/03/2021

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Suez Congestion

Vessels currently in Suez Canal anchorages - An overview

The figures below capture the data of the daily convoy movement that was planned before the grounding took place, effectively

bringing shipping operations in the canal to a halt. To provide further granularity, the vessels have been split basis the type and

confirms the knowledge that the Suez Canal transit is dominated by dry bulk and container cargo movements, followed by oil

tankers in the third place.

On 23 March the vessels on the Northbound convoy which were ahead of the ‘EVER GIVEN’ managed to complete the canal

transit while the Southbound vessels had entered the Great Bitter lake anchorage and were stationed there awaiting the

completion of the North transit. Post the grounding, the Northbound transit was halted and the vessels that were behind the ‘EVER

GIVEN’ were subsequently brought back to the Suez anchorage with the assistance of tugboats. On the 24 March, 13 more ships

from Port Said that were to join the Southbound convoy moved and anchored in the Great Bitter lake anchorage effectively

reaching capacity while the other vessels that had entered the convoy were instructed to wait in the Port Said outer anchorage.

Fig: Daily southbound transit convoy split by vessel type Fig: Daily northbound transit convoy split by vessel type

Source: Refinitiv Oil and Shipping Research

Fig: Commodities currently stuck in Suez Canal

Source: Refinitiv Shipping Research

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The progressive addition of vessels to the outer anchorages in Port Said and Suez has increased the congestion in these

anchorages. Refinitiv Shipping Research monitors key ports and anchorages globally and clients can make use of the congestion

available on the Shipping app or on the exclusive ‘Suez Canal Blockage’ page on Eikon (link to be pasted in Eikon search).

Fig: Congestion in Suez anchorages

Source: Refinitiv Oil and Shipping Research; Anchorages for south bound vessels includes Port Said and Great Bitter Lake anchorages;

Anchorages for north bound vessels includes Suez anchorage (canal waiting zone north, southeast and southwest)

Fig: Expected vessel count increase in upcoming days

Source: Refinitiv Oil and Shipping Research

Based on the current AIS destination of vessels at sea that have indicated either Suez or Port Said, Refinitiv Oil & Shipping

Research estimates a further 85 vessels to be added to the current congestion by 31 March, if the salvage operation has still not

yielded any results.

Even with the SCA engaging more pilots and adding more vessels to the convoys once the channel is clear, it will take several

days for the ships to be cleared from the waiting list. According to the 2020 transit data, the maximum number of ships that have

been made to transit the canal on a given day is about 60 ships on the Northbound convoy and about 40 ships on the Southbound

convoy. So, the canal has handled about 100 ships making the transit on a single day. However, there are limitations to the size

of the ships making the transit and the tidal factors that prevail on the day. Factoring these, it will take weeks to clear the jam that

has accumulated till date and not accounting for the additional vessels that would be added for the week. Refinitiv Oil Research

currently expects a delay of at least 10 days to 2 weeks for all vessels reaching Suez henceforth and assuming the stuck container

ship is re-floated within the next couple of days for the transits to resume.

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Fig: Interactive map view of Suez Canal anchorage congestion

Source: Interactive Map/Refinitiv Eikon

The designated anchorages in Suez for the Northbound vessels are already overflowing and we can see the waiting ships spilling over way beyond the anchorage zones and further south of Suez. This severely hampers the traffic in the region and the regular STS operations that happen within the anchorage.

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Impact on Oil and Shipping markets

Crude Oil:

Given the crude oil volumes handled by the Canal and the current scenario of demand, inventory in Asia and in the West, it is

unlikely that the blockage in the Suez Canal will have a significant impact on crude oil balances as well as prices. A prolonged

delay in the canal being opened is the scenario under which prices could react but the likelihood of such a scenario remains

limited.

A few alternate options are available to ship volumes, such as the SUMED pipeline (Arab Petroleum Pipelines Company) and

transit around the Cape of Good Hope (COGH). If necessary, the SUMED pipeline can move additional barrels of crude oil from

the Red Sea to the Mediterranean. The nameplate capacity of the pipeline is 2.8 million bpd but as last reported by the EIA it is

operating well below the capacity at 1.33 million bpd. The pipeline is majority-owned by Egypt's state oil company EGPC, while

Saudi Aramco, Mubadala, Kuwait Investment Authority and Qatar Petroleum have smaller shares. As reported by Reuters

recently, the SUMED pipeline operator approached crude traders to see whether they wanted to book space in the system but so

far traders have preferred to wait rather than pay the higher pipeline costs.

The Brent time spreads which had been falling in the recent past before the blockage on account of lower European demand had

moved Brent into a small contango. This reversed back into backwardation since the blockage. While benchmark crude oil indices

rose over 3% on Friday as vessels continued to wait, the lower demand in Europe due to the lockdowns will likely mitigate the

impact on prices. In terms of cash crude premiums, there may be an increase in premiums of medium sour crude in Europe, and

any such increase is likely to be higher than the increase in premiums of sweet crude oil delivered to Asia as Northbound transits

of crude oil through the canal are higher than any potential Southbound oil from Europe to Asia. The storage availability in Sidi

Kerir is likely to determine the magnitude of change in the medium sour premiums in Europe and Med.

Fig: European crude oil inventories Fig: Brent time-spreads ($/bbl)

Source: EurOil/Refinitiv Eikon Source: ICE/Refinitiv Eikon

The Suez blockage is likely to have a greater price impact on smaller tankers carrying oil products, such as naphtha and fuel oil,

for export from Europe to Asia. The Suez transit plays an important role in arbitrage opportunities and traders take advantage of

the imbalance in a particular region with any delays in transit ultimately closing the arb window.

Middle Distillate:

Middle East and Asia contribute to a major part of European diesel imports and in general both these regions account for 35% of

total European diesel import, accounting for 20% and 15% respectively. With the onset of COVID-19 and the pandemic induced

restrictions, demand for gasoil has been thin in Europe as compared to Asia, which has led to current inventories ~30% higher

than a year ago. Even in Asia the current market is not supported, with concerns of oversupply.

Singapore Gasoil 10 ppm crack is currently trading at $4.97/bbl, close to the 2021 low of $4.74/bbl. Given the lower demand

environment and higher inventory it is unlikely that few days of trade interruption will have any major impact on either the European

or Asian gasoil market. Recently it was reported that a few newly built VLCCs are being chartered to carry gasoil from Asia to

Europe on their maiden voyage, which would anyways be via the Cape of Good Hope. Similarly, jet fuel is also unlikely to see

any impact with high inventory and dismal demand.

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Fig: ARA distillate inventories

Source: PJK/Refinitiv Eikon

Light Distillate

The temporary suspension of traffic along the Suez Canal appears to have a limited impact on the Asian gasoline market for now.

Refinitiv Eikon Interactive Map showed just one vessel carrying the motor fuel where its journey may be delayed. The STI

PRECISION, which loaded 60,000 MT of gasoline from India on March 22, is currently headed towards Suez. Her eventual

destination has yet to be ascertained, although shipping fixtures earlier indicated that the vessel was chartered for discharge

either in the US Atlantic Coast or the UKC.

One product where the major impact is seen is naphtha. Even before the grounding incident in the Suez Canal, the East-West

arbitrage was trading higher supporting the flows from West of Suez to Asia and after the incident it increased to $20/MT.

Fig: Naphtha prices

The Asian naphtha crack has already spiked with concern of

supply tightness. As reported by Refinitiv’s APAC Oil

Research team, tanker-fixing activities for Western barrels

has picked up over the past week amidst lacklustre European

demand for the light distillate. Demand from petrochemicals

production was likely crimped by attractive prices of propane

while gasoline blending demand ahead of the peak summer

season is expected to be undermined by extended

lockdowns. The potential drop in Western demand could

force some cargoes to find outlets in Asia, with the East-West

spread also seen widening over the course of last week.

The widening spread between East and West may allow the

arbitrage to remain open despite the longer Cape route but

the delivery will be delayed by a week to ten days, by which

time petchem plants in Asia may start to feel the effect of

supply tightness.

Source: Refinitiv Oil Research/Refinitiv Eikon

Impact on Freight Rates

The suspension of traffic through Suez has raised the freight rate across many routes with mounting concerns on availability of

vessels. Also, in a bid to replace the cargoes stuck at Suez, there is likely to be a spike in demand of other available vessels

which has increased the freight rate across various vessel sizes.

The clean tanker rate for Jubail-Le Havre has bounced to $19.68/MT on 26 March from $18/MT on 22 March, while the freight

rate for Rotterdam to Singapore surged to $25/MT on 26 March from $20/MT on 23 March, a jump of 25% in a span of a few days.

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Fig: Freight rates for key clean tanker routes

Source: Refinitiv Shipping Research/Refinitiv Eikon

Fig: Freight rates VLCC dirty tanker route – Rotterdam to Singapore ($/MT)

Source: Refinitiv Shipping Research/Refinitiv Eikon

Similarly, Containers stuck in the Suez will reduce availability and the resultant impact was seen on the China-US west Coast

route, where freight rate surged after the EVERGIVEN incident and is currently trading at $5151 for 40’ container Ocean rates,

after hitting a multiyear high of $5174.09 on 24 Mar. The freights surged by almost 15% 23-24 March.

Fig: Freight rates for Container routes – China to USWC

Source: Freightos/Refinitiv Eikon

Salvaging the ‘EVER’est in the Suez

Date of issue: 29/03/2021

16

Alternate solutions for the Canal

Pipeline Solutions

SUMED pipeline

SUMED (Arab Petroleum Pipelines Company) operates two 42-inch parallel pipelines that traverse Egypt, connecting Middle East

and European oil markets. The pipeline has capacity to pump 2.8 million barrels per day (bpd) of crude oil from Ain Sukhna on

the Gulf of Suez to Sidi Kerir on the Mediterranean coast.

Fifty percent of the company is held by Egyptian General Petroleum Corporation (EGPC), the UAE’s Mubadala, Saudi Aramco,

and Kuwait Investment Authority all hold a 15% each, and 5% is owned by Qatar Petroleum. According to Mubadala, the pipeline

accounts for as much as 80% of crude transported from the Middle East to Europe

SUMED has approached oil traders offering alternative supplies to delayed cargoes awaiting Northbound transit along the Suez

Canal. Traders are reluctant, according to Reuters, citing transit costs of up to $1.00/bbl which reportedly require VLCC operations

to justify trade economics.

Terminal specifications at Sidi Kerir show five SBM loading berths for tankers up to 150,000 DWT and two SBM berths for tankers

up to 400,000 DWT. Refinitiv shipping data shows that Aframax and Suezmax tankers dominate operations at Sidi Kerir. Peak

activity in 2020 showed that 10 dirty tankers departed Sidi kerir within a single week – including one VLCC, four Suezmax and

five Aframax. That represents an estimated offtake of 1.03 million MT for the week or 1.36 million bpd.

Historical port activity implies that Sidi Kerir has the potential to ramp up loadings from current levels. Last week two Suezmax

and two Aframax departed the port, shipping an estimated 390,000 bpd. The port is currently operating below capacity and

depending on storage levels, Middle East suppliers with ownership stakes in SUMED may be able to meet crude supply

commitments in Europe despite the blockage.

The SUMED pipeline is fed by four SBM crude discharge buoys at Ain Sukhna on the Red Sea coast of Egypt. The facility is

generally used by ships too large to traverse the Suez Canal. SBM 1 and SBM 2 can berth ships up to 350,000 DWT, SBM 3

berths 150,000 DWT, and SBM 4 berths 565,000 DWT. Ain Sukna has ample ship handling capacity in order to feed the pipeline.

A peak in shipping activity in 2020 showed 11 tanker departures from the facility in a single week – including six VLCCs, three

Aframax, and two Medium tankers. Based on average cargos sizes, that equates to 2.3 million bpd.

Crude oil dominates cargo traffic at Ain Sukna. Refinitiv ship tracking data shows that an average of 729,000 bpd of crude

discharges at Ain Sukna since 2019, reaching 1.3 million bpd in April 2020. Ain Sukhna Products Terminal handles refined

products, including fuel oil, and Saudi Armaco has long-term tank leases at the facility to facilitate its Red Sea operations. Based

on Refinitiv ship tracking data an average of 20,000 bpd of fuel oil discharged at Ain Sukna since 2019, peaking at 55,000 bpd in

July 2020.

Salvaging the ‘EVER’est in the Suez

Date of issue: 29/03/2021

17

Trans-Israel Pipeline

The trans-Israel pipeline represents another workaround for traders looking to ship crude North or South via the Suez. The Eilat

Ashkelon Pipeline Company (EAPC) operates a single 42-inch bi-directional crude oil pipeline connecting the port Eilat in the Red

Sea with Ashkelon in the Mediterranean. Southbound pumping capacity is 400,000 bpd and Northbound capacity is 1.2 million

bpd. A Northern flow solution may be more effective in the current crisis.

EAPC operates a crude oil jetty at the Red Sea port of Eilat which can accommodate 300,000 DWT vessels and offers 1.1 million

cubic metres of oil storage in 16 tanks. The Ashkelon terminal has two crude oil SBM buoys with a 250,000 DWT berth capacity

and 24 storage tanks with 1.9 million cubics capacity.

Refinitiv ship tracking data shows little oil tanker activity at the port of Eilat through 2020, although one VLCC departed the port.

Ashkelon tanker departures are also scarce with up to two vessels departing the port in any given week. Medium tankers, Aframax

and Suezmax class vessels all frequent the port.

Geopolitics prevents most Middle Eastern crudes from entering the EAPC pipeline, however a recent thawing of relations saw

Israel and the UAE reach an agreement on transhipments. The Suez Canal Authority said the deal could affect up to 16% of crude

shipments through the canal. Also connected to the pipeline system, Israel’s Haifa and Ashdod refineries represent another

immediate outlet for distressed crude cargoes.

Trans-Suez Dirty Oil Flows

Northbound

Middle East oil exporters and European refiners depend heavily on the Suez Canal for crude oil trading, although there has been

a significant decrease in flows since May 2020. The ongoing COVID-19 crisis in Europe continues to stymie oil demand and

refinery utilization in the region, thus softening the impact of the Suez Canal blockage.

Refinitiv ship tracking data shows that an average of 20 crude cargoes per month sailed from the Middle East to Europe in 2020.

Average seaborne crude fell by a 38%, from 1.04 million bpd to 647,000 bpd between 2019 and 2020. March 2021 is showing an

uptick in flows versus January and February, with up to 695,000 bpd of Middle East seaborne crude supply to Europe at risk from

the Suez blockage. In terms of Northbound oil flows, fuel oil is peripheral. Up to three fuel oil cargoes per month ship from the

Middle East to Europe. Since 2019, fuel oil flows have averaged 19,000 bpd with peaks of 45,000 bpd.

Salvaging the ‘EVER’est in the Suez

Date of issue: 29/03/2021

18

Southbound

As the primary global demand centre for crude oil, Asia bound crude flows from the Mediterranean, Europe, Russia and the former

FSU are equivocal to Europe bound flows form the Middle East. However, these volumes are not supplemented by the SUMED

and EPAC pipelines and are reliant on seaborne movements. Moreover, Asian oil demand has proved resilient through the

COVID-19 pandemic. Therefore, crude barrels at risk from the Suez blockage are potentially higher for Southbound flows than

Northbound. Analysis of Refinitiv cargo data shows that an average of 1.1 million bpd shipped from Northwest Europe and

Mediterranean in 2020, which equates to an average of 1.5 cargoes per day. These volumes exclude fully laden VLCCs, making

them a candidate for trans-Suez voyages.

Contrary to weak Northbound fuel oil flows, Southbound flows of residual products from Europe to the Middle East and Asia are

significant, driven by strong power sector demand in the Middle East and bunker fuel demand in Southeast Asia. Fuel oil

shipments from Europe, North Africa and Russia to East of Suez markets averaged 534,000 bpd in 2020 and is running higher

still through the first quarter of 2021. Again, taking fully laden VLCCs out of the equation, approximately 1.2 vessels per day are

a candidate for Southbound transit through the Suez Canal.

Saudi fuel oil imports from Europe tends to pick up in April as the summer demand starts creeping in. We can see a sharp spike

in Eastbound Fuel oil for April 2020. Although it is expected for the transits to resume immediately after clearing the canal, the

ripple effect in scheduling is expected to cause delays at least for the first half of April. Subsequently, we can expect to see some

fixtures from Singapore to the Middle East to compensate for these volumes as witnessed last year.

Salvaging the ‘EVER’est in the Suez

Refinitiv is one of the world’s largest providers of financial markets data and infrastructure, serving over 40,000 institutions in approximately

190 countries. It provides leading data and insights, trading platforms, and open data and technology platforms that connect a thriving global

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management, enterprise risk and fighting financial crime.

Date of issue: 19/11/2020

19

Refinitiv Oil Research MENA

Oil_Research_MENA@refinitiv.com

Ranjith Raja – Oil Research Manager

Ranjith.Raja@refinitiv.com

Sudharsan Sarathy – Senior Analyst, Oil Research

Sudharsan.Sarathy@refinitiv.com

Abhishek Kumar – Senior Analyst, Oil Research

Abhishekkumar8@refinitiv.com

Timothy France – Senior Analyst, Oil Research

Timothy.France@refinitiv.com

Mohammed Yasser - Analyst, Oil Research

Mohammed.Yasser@refinitiv.com