DPP Rhine barges, a niche market

Along the Rhine River, several large refineries are strategically located, including those in Cologne, Lingen, Gelsenkirchen, Karlsruhe, and Ludwigshafen. These refineries utilize an extensive network of pipelines coming from ARA and Italy for their crude oil supply. In addition to this, they also rely on barges and trains for the import and export of various products such as Vacuum Gas Oil (VGO), cokerfeed, slurry, and Heavy coker gasoil. These products are transported from and to the Amsterdam-Rotterdam-Antwerp (ARA) region, and occasionally, they are also exchanged between refineries or other (chemical) plants.

The DPP barges in the ARA region are primarily constructed for transportation within the ARA area and are not specifically designed to navigate the Rhine River, also most of the DPP barges in ARA have a deadweight of 3000 tons or more. While these barges theoretically can sail on the Rhine, most DPP crews do not possess the required licenses or have sufficient experience to do so. Only a select few barge companies, with a combined DPP fleet of approximately 15-20 barges with capacities ranging from 1000 to 3000 tons, specialise in navigating the Rhine River. As a result, this market is quite niche. In addition, there are around 5-7 barges with a capacity of 4000-6000 tons that operate in the ARA region but possess the necessary licenses and experience to sail in the Rhine area. Occasionally, some of these barges can be seen navigating the Rhine River.

When the water levels in the Rhine River are stable, the number of dedicated DPP barges operating in the area is sufficient to meet market demand. However, when water levels begin to drop, it becomes increasingly challenging to fulfil the demand. For instance, low water levels may result in reduced load capacities, which means that contracts would require twice the number of barges to transport the same volume of goods. Also the refineries in Ludwigshafen and Karlsruhe are located in the upper rhine, which means barges have to pass Kaub and Oestrich, also know as the point where the river reaches its lowest point during low water periods. Unfortunately, there are only a fixed number of DPP barges available on the Rhine, and this number is unlikely to change.

Flexibility

In certain situations (low water periods), some hauliers may opt to utilize 50% of a barge's tanks for CPP and the remaining 50% for DPP. This approach enables the barge to load DPP downstream and CPP upstream or visa versa, thereby optimizing the utilization of the barge. Moreover, some barge owners with CPP barges equipped with heating systems can temporary deploy their barges for VGO transportation. VGO is one of the few DPP products which can be cleaned relatively cost-effectively, making it a viable option for barge owners and suppliers when VGO demand is strong. The cost of cleaning a barge which loaded VGO can range between €50,000 to €80,000, however this amount can be lower if the tanks are flushed with gasoil or other distillates, or higher if the tanks are dirtier than anticipated. Therefore the trader or operator has to calculate if using this option is an economical one. Loading regular residual fuel oil in a CPP barge is not a typical practice because it necessitates a complete cleaning of the barge, which can result in cleaning costs running into hundreds of thousands of euros.

What does this mean for pricing?

Over 80% of the DPP barges operating in the Rhine River are engaged in Contracts of Affreightment (COA) or Time Charters (TC), which ensure that suppliers have a guaranteed number of trips. However, this does not necessarily guarantee liftings during periods of low water levels. When the market is stable, the limited number of Rhine DPP barges does not significantly impact pricing, DPP pricing tends to follow a similar trend compared to the CPP market. However, when the barge market experiences high demand, brokers may be able to increase their rates, potentially outperforming the CPP market due to the scarcity of available DPP barges. As you can imagine, given the limited number of (spot) trips and the small pool of market participants, it is not feasible to establish a price index for DPP Rhine barges.

Downside of refineries along rivers

One major challenge faced by refineries is the necessity to export residual fuels to prevent reaching the maximum capacity limits of their storage tanks, a situation referred to as hitting tank tops. This challenge becomes even more pronounced during periods of low water levels in rivers, which hinder barge transportation, a crucial method for exporting these fuels. In such low water conditions, refineries encounter difficulties in maintaining maximum operational capacity due to a scarcity of available barges to transport fuel oil. This logistical constraint can result in a substantial increase in freight costs as demand for barge services surges. The inability of moving residual fuels not only impairs refinery operations but also affects the wider market by creating bottlenecks in supply chains and escalating transportation expenses.

The Impact of Refinery Economics on Barge Demand

Refinery economics are intricately linked to the demand for barges. For example, refineries primarily use Vacuum Gas Oil (VGO) a DPP product, as a feedstock for producing various refined products, such as diesel, jet fuel, and lubricants. Many refineries possess more cracking capacity than they can support with their own vacuum gas oil (VGO) production from vacuum distillation units. This mismatch necessitates the import of additional VGO to maximize cracker throughput, especially during periods of low water when the transport of diesel and gasoline to regions like France is hindered. Consequently, gasoline and distillate prices in these areas can surge due to reduced supply, further influencing refinery strategies. Conversely, when refinery economics are weak, and there is an oversupply of gasoline and diesel, refineries may opt to minimize cracker throughput. In such scenarios, exporting VGO becomes a strategic move. The VGO is often shipped to the Amsterdam-Rotterdam-Antwerp (ARA) region, where larger refineries can process it or it can be arbitraged ("arbed") to other markets. This flexibility allows refineries to manage their production rates and inventory levels more effectively, balancing supply with market demand.

Residual fuels outlets

High viscosity residual fuels produced by refineries are often shipped to and used at chemical plants in Germany. These fuels are critical for the operations of these plants, where they are primarily used as fuel in large ovens. The heat generated by burning these residual fuels is used to create steam. This steam is then employed to drive pumps, generators, and compressors essential for various plant operations. The balance of these residual fuels, when not utilized by the chemical plants, is typically shipped to the Amsterdam-Rotterdam-Antwerp (ARA) region. This strategic distribution helps in managing the surplus and ensuring that these high viscosity fuels are efficiently utilized in regions where there is demand.

The future of DPP rhine barges

Expanding the Rhine fleet with additional DPP barges may not be a practical solution, as during normal water levels, there would be limited or no extra work available. Conversely, low water periods can persist for months, and these are the times when such barges are in high demand. Optimizing Time Charters for DPP Rhine barges can also be challenging due to the inconsistent flow of products and the scarcity of back-loading opportunities. Thus far, during previous low water periods, operations have managed to continue without significant disruption. As a result, it appears that business will proceed as usual, with no immediate changes anticipated. Since brokers avoid taking the risk of having idle DPP spot barges and refineries are unwilling to bear the cost of idle Time Charter (TC) barges, the current situation persists. Suppliers who can accurately forecast water levels and secure the few available DPP spot barges first, will have a competitive advantage. In this context, hiring a weather and/or data scientist to predict water levels might be the best investment.