BAKU, Azerbaijan, March 29
By Leman Zeynalova – Trend:
There are two main alternative routes to Suez Canal, which is in blockage at the moment, Trend reports citing Fitch Solutions.
“One is the re-routing of vessels around the Cape of Good Hope. However, this increases shipping time (generally in a range of two to three weeks) and inflates costs. For example, for a cargo shipping from Libya to Singapore, the distance via the Suez Canal is around 5,700 nautical miles and takes around 20 days to complete. Navigating via the Cape would increase this to 12,000 miles and 42 days. At current Suezmax day rates, this would increase the shipping cost from around USD327,000 to USD687,000. Tanker rates have already risen in response to the blockage and will face further upward pressure, if it persists. Bunker fuel prices have increased substantially over the past six months and could see further growth, in line with higher crude prices and incremental demand,” the company said in its latest report.
Another option is to increase flows through the SUMED pipeline, which links the Red Sea with the Mediterranean Sea across Egypt, according to Fitch Solutions.
“Very Large Crude Carriers (VLCCs) already make use of the pipeline to discharge part of their load, given that fully laden VLCCs are unable to pass through the canal. The pipeline has a capacity of 2.5mn b/d and is currently severely underutilised. According to a report by Reuters, SUMED operators have approached traders, to offer capacity in the pipeline; however, this will also come at an increased cost. Estimated in a range of USD0.50-1.00/bbl, the cost would be broadly in line with that of re-rerouting via the Cape of Good Hope (at around USD0.70/bbl in the example above). Alternatively, companies may adopt a wait-and-see approach, hoping for a quick resolution of the issue. Regardless, there will inevitably be further delays and disruptions in the sector, as the backlog of tankers held up around Suez takes time to clear,” reads the report.
For crude, the main flows are from producers in the Persian Gulf (westbound) and from North Africa and Russia and the CIS (eastbound). Structural shifts in global trade dynamics, with the rapid rise in Asian demand, has seen westbound flows diminish, while eastbound flows have risen. Westbound flows have been further subdued by the OPEC+ production cut deal and so the disruptions to buyers in the Atlantic Basin market should be manageable. An extended blockage will pose greater challenges to those suppliers targeting Asia. West of Suez producers of light sweet crudes, such as those in West and North Africa, Europe and the Caspian and US shale may face additional competition in the regional market, while producers of heavier and sourer grades, such as Russia, will be well placed to offset the volumes lost from the Gulf.
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