Shell Oil Guam this month took further supply-chain control diesel and jet fuels by initiating shipments to Guam and Saipan with its own tankers of gasoline.
The shipments are a break from a cooperative deal with competitor Mobil Oil which has been the sole shipper of gasoline to the Marianas for at least eight years and were tied partly to the pullout from Guam of giant oil trader J. Aron & Co.
Shell said shipping its own fuel to the Mariana Islands was a cost-savings measure that will save consumers money.
J. Aron on Jan. 31 stopped leasing storage in Shell’s massive Agat tank farm ending the ready availability of jet fuel and diesel that J. Aron stored there for trading purposes but also made available to the local market. J. Aron is a commodities trading firm that was acquired by Goldman Sachs & Co. in 1981.
Industry sources said J. Aron which leased about 80% of Shell’s tank farm in order to take advantage of seasonal price swings in oil prices pulled out due to “backwardation” in the worldwide market because of heavy demand from China and the war in Iraq. Backwardation occurs when deliveries of a commodity cost more than contracts that are due to mature many months in the future. It occurs mainly because demand for supplies in the near future is greater than demand for supplies at some more distant time.
Jeffrey C. Borja president and country manager for Mobil Oil Guam said “This does not impact Mobil greatly but we will have to revalidate our supply and logistics patterns. This potentially increases the frequency of imports but does not necessarily mean that inventories on Guam will change.
“While I’m not certain what is driving our competition to make this decision it’s not uncommon for any business to revisit its operations and make changes ” Borja said.
The Bright Pacific a Shell-chartered ship loaded with diesel motor gasoline and jet fuel from Shell’s Bukom Refinery in Singapore docked at Cabras Island and unloaded fuel from April 4 to 7 then departed for Saipan where it unloaded fuel and departed on April 8. The Bright Pacific was described as a typical medium-range tanker with a capacity of about 250 000 barrels of fuel. Shell’s decision to bring in its own tanker also means it will be able to purchase fuel from a Shell refinery. While vertical integration may appear to make sense industry sources speculated that with worldwide oil demand so high this factor was not as significant in the decision as the J. Aron pullout.
Inchcape Shipping Services agent for both Shell and Mobil confirmed the dates but did not know the rotation schedule for the Bright Pacific a 590-foot 28 823-ton tanker. Shell said it was working numbers to establish a turnaround schedule. Dion P. Cadiz port manager for Inchcape Shipping said Shell had not brought in a tanker since at least 1997.
Mobil tankers have delivered fuel to the Marianas on a less-than-30-day rotation. The Mobil Achilles a 570-foot 22 587-ton tanker docked at Cabras Island on April 13 and last delivered fuel to Guam on March 19 and 20.
Mobil is the largest of the oil companies on Guam. Industry sources said Mobil has the largest share with approximately 40% of the gasoline market. 76 has 32% and Shell has 28%. Mobil has an exclusive contract to supply gas on military bases on Guam.
Shell shares storage on Cabras Island in tanks that belong to South Pacific Petroleum Corp. which does business as 76 gas stations. Shell also stores some fuels at its massive storage facility in Agat which was the former refinery for the Guam Oil & Refining Co. The terminal agreement predates SPPC having its origins with Esso Eastern Inc. when Shell began doing business on Guam 18 years ago. SPPC acquired Esso’s asset five years ago. 76 will continue to purchase supplies from Shell.
Fred Keller marketing manager for Shell Guam Inc. said “Our contract for freight with the supplier we were previously using came up. We went to market to see if we could get a better rate — we’re always trying to bring the cost of product down.”
The new arrangement Keller said was beneficial both to Shell and consumers.
“We were able to get a better freight rate by approaching it this way than in our previous situation. This allows us to keep the cost of the freight component in line which stabilized the cost of freight.” While the cost of fuel is a pass-on cost to customers freight Keller said was an incremental cost.
“It’s a change in petroleum import dynamics ” Keller said. “It contributes to keeping prices lower than they might otherwise be. It’s a good thing for the consumer.”
J. Aron’s large tankers have made stops at Guam in the past for jet fuel and diesel that was stored for trading purposes. The Agat tank farm which was built as GORCO in 1971 has a capacity of about 4 million barrels of oil. There are 42 gallons to a barrel. GORCO was sold to Marc Rich & Co. in 1982. Shell acquired the tank farm in 1988. J. Aron began leasing space from Shell in September 1993.
Shared shipments are not unique to Guam existing especially in smaller markets. For a short period of time in the 1980s and ’90s Guam had four oil industry competitors who were bringing in separate shipments. In the ’90s they began consolidating shipments.
— Editor Maureen N. Maratita contributed to this story.