No. 4, 2011

Sergey Nenashev


The formula for LUKOIL-BUNKERs strategy: renovation and expansion

By the middle of last summer, LUKOIL-BUNKER, which belongs to the LUKOIL Group and is based in St. Petersburg, had fully completed the vessel modernization program it adopted two years ago. The company has thus brought its entire tanker fleet in line with the new requirements of MARPOL 73/78 - International Convention for the Prevention of Pollution from Ships: tankers with a deadweight of over 600 tons for carrying oil and petroleum products with a density of over 900 kg/m3 must have a double bottom and double sides. This, in turn, allows the company to feel secure on the global refueling market and constantly expand its area of operations.

Proactive approach

LUKOIL-BUNKER launched technological preparation of its fleet for introduction of the given requirements in good time. In accordance with the program adopted for 2010-2011, the hulls of the bunkering tankers have been fitted out with a second side and a number of systems have been modernized, in particular those for loading, unloading and storing the cargo. Bringing the tankers into line with the MARPOL requirements reduces their cargo capacity. Yet the company's experts believe this is more feasible than acquiring or building new tankers.

The first upgraded tanker was commissioned in June last year and the last one in June this year. The upgrading was done at the shipyards of St. Petersburg and Kaliningrad.

According to Kirill Shirshov, Deputy General Director for Commerce, the company's bunkering tankers are constantly being modernized, when the need arises. After all, a modern ship of this type is not merely a "floating fuel canister." She is also a mini-refinery (carrying blenders that, on the spot, extend the range of fuels brought on to the ships, producing fuel oil of interim viscosity) and, at the same time, a high-tech laboratory equipped with the latest devices for sampling and quality control of petroleum products in accordance with the international ISO standards.

That is why the current upgrading program has not, according to Shirshov, become a stumbling block for LUKOIL-BUNKER. Introduction of the International Convention requirements has merely accelerated the Company's movement in the direction it has been following since its inception.

Can-do attitude

LUKOIL-BUNKER accommodates ships of any type: from self-propelled barges and cruise liners to research vessels and men of war. This is very important, since each refueling follows an "internal" tender: the potential client presents its conditions and compares the offers in effect on the region's bunkering market. The fact that LUKOIL-BUNKER is often the first choice testifies to the Company's high professionalism. In this case, the concept of "professionalism" includes technical capacity and speed and flexibility, making it possible to take the requirements of different clients into account.

"In addition, we are helped by the Company's brand, which is now well known throughout the world," Shirshov notes. "The quality of the LUKOIL fuel is confirmed by multiple testing by various foreign companies and is not doubted by anyone. And our clients know that we work with a single fuel supplier - LUKOIL's own plants."

This was the deciding factor behind the company's refueling the Dutch frigate HMS Van Amstel during the St. Petersburg International Maritime Defense Show 2011 this summer. LUKOIL-BUNKER had previously, too, served international regattas and naval vessels entering the Neva and the Gulf of Finland. Here, however, the task was a more difficult one: it was not simply a matter of fuel quality; the fuel had to meet the specifications of a NATO naval vessel - Naval Distillate Fuel F-76. The characteristics (specifications) of LUKOIL fuel comply fully with the standards required by other countries. This first and most important formal barrier was overcome comparatively easily, but it was followed by other "bureaucratic" though quite natural barriers under the circumstances: refueling of foreign warships involves an additional series of legal, customs and immigration formalities. As a result, such operations consume a lot of time and labor.

Even so, Shirshov notes, the company is prepared to refuel foreign naval vessels in the future, too, as they periodically visit Russian ports to take part in various international events.

At the end of the summer, another non-routine operation undertaken by LUKOIL-BUNKER was the participation in the bunkering of the ice-resistant fixed offshore platform Prirazlomnaya, intended for operating on the shelf in the northern regions. The platform and the two tugs that transported her to the operating site were refueled by specialists of the company's Murmansk subsidiary at the Murmansk port. This operation was specific in that the fuel was pumped up to a height of 50 meters (the height of a 17-18 storey building). Availability of the requisite equipment and the skills of the company's specialists mean they can cope relatively easily with even unusual situations.

Safety first

"Bunkering is a kind of activity that is fraught with environmental risks," tells Kirill Shirshov, "and our task is to minimize them in order to avoid the nature around us becoming simply the environment."

The company's HSE system complies with the requirements of the ISO 14001:2004 and OHSAS 18001:2007 international standards. Part of this system is the predeveloped Oil Spill Response Plan, which is currently in place and being routinely improved and fine-tuned in the course of training sessions held in all the regions where the Company's vessels carry out bunkering operations.

In order to decrease response times to potential petroleum product spills on internal waterways, LUKOIL-BUNKER has set up, on the basis of its Yaroslavl subsidiary, a non-staff emergency response team made up of members of river boat crews. The sailors have undergone theoretical and practical training and testing by the territorial departmental certification commission of the Volga Division of Rostransnadzor. Why an emergency response team specifically at the Yaroslavl subsidiary? This division operates over long stretches of waterways (the River Volga and its tributaries). The base points of professional rescue teams are located at considerable distances from one another here, so sometimes one has to rely primarily on one's own resources.

In order to maintain the non-staff rescue team members' skills at a professional level, the Yaroslavl subsidiary holds annual training sessions, including with involvement of professional emergency response teams. At the same time, the entire complex of measures is fulfilled to alarm duty and dispatch forces of LUKOIL-BUNKER, the Ministry for Emergency Situations and the Ministry of Transport. Collaboration between different units in eliminating accidental spills is practiced. According to the results of the last training session in November 2010, the representatives of the Ministry for Emergency Situations and the State Sea and River Supervisory Agency in attendance highly appraised the organizational standard of the training session, the competence of the ship crews and the well-tuned interaction between the units.

"Within the scope of the Russian Association of Marine and River Bunker Suppliers (of which we have been a member since 2007), we take an active part in developing documents regulating bunkering operations within the country," says Shirshov.

Company specialists have contributed to amendment of individual provisions of the General Rules of Navigation and Moorage of Vessels in Sea Ports of the Russian Federation and Approaches Thereto (2009), as well as to preparation of the regulatory framework in connection with Russia adhering to the 1997 Protocol to amend MARPOL 73/78. LUKOIL-BUNKER is currently participating in developing the draft Regulations on maintaining the register of bunker fuel suppliers.

Overseas business expansion

The Company entered the foreign bunkerage market in 2008, when it set up a representative office of LUKOIL-Bulgaria Bunker (LBB). The starting point was determined by the local market conditions and the opportunities for supplying high quality fuel - by that time, the LUKOIL refinery in Burgas, Bulgaria, had been in operation for several years. Today, LBB refuels vessels in 5 Bulgarian ports, in the mouth of the Danube, and, since the fall of 2010 - in the Romanian port of Constanta.

Last year was a very fruitful one for LUKOIL-BUNKER's overseas activities. The ports it serves were joined not only by Constanta, but also that of Istanbul (a Turkish representative office, LUKOIL-Bunker Istanbul Ihrakiye, was set up) and the Sicilian port of Augusta (an Italian representative office, LUKOIL-Bunker Italy (LBI, was set up).

Before LUKOIL-BUNKER came to Turkey, another LUKOIL subsidiary operated here, carrying out bunkering operations. Moreover, the Company's brand became even more entrenched in this region after 2008, when LUKOIL purchased 100% of the shares in the Turkish sales company Akpet, with its 693 filling stations in the country. So, as Shirshov noted, LUKOIL-BUNKER did not have to start from scratch at the Istanbul Harbor.

The launch of bunkering in Italy was preceded, in the summer of 2008, by JSC LUKOIL purchasing 49% of the shares in the Sicilian ISAB complex, consisting of two refineries. It is on the basis of this complex that LUKOIL-Bunker Italy operates.

The management of LUKOIL-BUNKER do not conceal their plans for expanding its geographical business coverage. This spring, the Serbian port of Kladovo was added to the foreign ports accommodated by the company. Bunkering operations are carried out here by LBB.

The company is thinking over the idea of using LBI to offer bunkerage services in other Italian ports, on Malta and in the region of the Canary Islands. If these plans come to fruition, the fuel will be supplied by the ISAB complex.

"In deciding on geographical expansion, a multitude of nuances characterizing the bunkerage market have to be taken into account - from the cost of vessel call at the port to local weather conditions," says Shirshov.

Are ship owners interested in new players entering the bunkerage market? If these are established companies with good quality fuel, it is evidently in their interests. After all, marine fuel accounts, sometimes, for up to 70% of the cost of a voyage. Increased competition between refueling companies at the Big Port of St. Petersburg, which is, to a certain extent, connected with LUKOIL-BUNKER entering the market, has made this port one of the cheapest in the world for refueling ships.

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Oil of Russia, No. 4, 2011
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