Fuel uncertainty looms large at sea as clean oil deadline nears
Fuel quality is the great unknown for the shipping and oil refining industry. The International Maritime Organization’s (IMO) January 2020 deadline could see the majority of vessel owners switching to cleaner marine fuels incompatible with each other. Other solutions look similarly haphazard.
The IMO’s global sulfur limit for marine fuels drops to 0.5 per cent next January from 3.5 per cent, and the industry is developing a wide range of very low sulfur fuel oils which may be compliant but also vary in other qualities.
Specifications of the new fuels matters because marine engineers need to know how they will interact with their vessels, and bunker purchasers need to start planning which fuels they will be able to buy, at which ports and in which combinations. Imagine a driver in a car pulling up outside a petrol station uncertain as to whether the gasoline at the pump would cause their car to break down.
But this unthinkable scenario looms large at sea. There is at present no guarantee any of the new bunker fuels will be compatible with each other — when mixed in a single bunker tank, they may separate and form sludge that will block filters and ultimately damage the engine.
Viscosity differences could be vast, the fuels could have much higher presence of substances like silicon or aluminum compounds or there could be questions over fuel blends when mixing aromatic and paraffinic refinery streams.
“We’ll have to learn on the behaviour of these fuels, it will take quite some time to find the right balance and understanding across the global market,” said Damien Valdenaire, science executive at oil industry research body Concawe.
A buyer with ships travelling between Fujairah and Singapore – the two biggest bunkering hubs – may have no idea whether the fuel bought at the Middle East hub will be compatible with any of the products available in the Far East.
The cost could be huge, and not confined to a handful of credit-starved ship owners. Higher oil prices, slower-sailing ships, bankruptcies and squeezed margins across many connected industries, along with risks to world trade could all define the years that follow.
And then there’s the danger of high-profile engine failures in shipping arteries such as the Strait of Hormuz, the world’s most important chokepoint that allows 30 per cent of the world’s crude oil and other liquids as well as 30 per cent of global liquefied natural gas trade into the Gulf.
The message from the bunker industry has been unequivocal. “No co-mingling of fuels,” said Unni Einemo, the IMO representative at the International Bunker Industry Association recently. And at the Fujairah Bunkering & Fuel Oil Forum, top executives said they expect most shipowners to switch to marine gasoil or marine diesel oil in the short term, and to 0.5 per cent low sulphur fuel oil blends in the mid- to long term.
Glander International Bunkering chief executive Carsten Ladekjaer said this week at Fujcon the industry generally does not yet know enough about the 0.5 per cent sulfur products of the future, including their origin, components, stability and not least their compatibility, to make longer term plans.
The IMO has shown it won’t be backing down. But similarly, the United Nations’ body responsible for the safety and environmental performance of the shipping sector has left ownership of the issue up to the individuals concerned.
Some seafarers have rushed to fit scrubbers – kit to clean up the pollutants – so they can carry on burning fuel oil, while refiners are yet to come up with the goods on iron-clad specification-ready middle distillates.
The energy majors have been scrambling to be ready as the clock ticks down. BP said this month it was set to launch “a new very low sulfur fuel oil” with maximum 0.5 per cent sulfur content following sea trials of product produced and supplied in northwest Europe and Singapore. But details of specifications or when it plans to make the first sale were not given.
ExxonMobil announced in October that its range of 0.5 per cent sulfur marine fuel blends will be compatible with each other. That could mean ship owners end up willing to pay a premium for Exxon’s products that are likely to available at a wide range of ports. However, it still leaves open the question of whether shippers can mix Exxon’s fuel with other refiners’ brands.
Shell is conducting trials of its new 0.5 per cent sulfur fuels with customers in Rotterdam, Singapore and New Orleans.
Meanwhile, the world’s largest consumer of bunker fuel is increasingly becoming a supplier of the product as well, as it takes back control of its supply chain ahead of disruptive changes to emissions regulation next year.
AP Moller-Maersk, the parent company of container shipping firm Maersk Line, signed a deal with New Jersey-based PBF Logistics last month to produce and store 0.5 per cent sulfur bunker fuels both for its own needs and third-party customers on the east coast of the United States. The agreement follows a similar one made with Vopak in Rotterdam in August, and its leasing of storage capacity in Singapore in October.
Individual solutions point the way forward until the industry is able to figure out compatibility.
At an S&P Global Platts industry event earlier this year, participants felt that mixing fuels was too big a gamble but that in time an answer will be found. After all, the industry has already had a wake-up call. Last year hundreds of tankers in Houston and Singapore suffered damage due to contaminants in fuel clogged filters and pumps. While it was a very different issue and didn’t lead to engine failures, it sparked panic after ship owners in Asia were reluctant to buy US Gulf Coast-origin fuel.
Time is running out and the whole value chain could benefit from a dose of collective responsibility rather than individual accountability. It could be in as short supply as the right sort of fuel come 2020.
Paul Hickin is associate director for oil at S&P Global Platts. Jack Jordan is editorial lead for bunkers.
Source: The National