BUNKERING OPPORTUNITIES: Technology and teamwork · PU (WYPS [OYV\NO [V Petrospot’s V^U 4HYP[PTL...

$: BUNKERING OPPORTUNITIES: Technology and teamwork · PU (WYPS [OYV\NO [V Petrospot’s V^U 4HYP[PTL >LLR (TLYPJHZ PU 4PHTP PU 1\UL ZLL WHNL 380 IFO Feb-09 Mar-09 2-6 9-13 16-20 23-27$
www.bunkerspot.com Volume 6 Number 2 April / May 2009

BUNKERING OPPORTUNITIES:Technology and teamwork

INDEPENDENT INTELLIGENCE FOR THE GLOBAL BUNKER INDUSTRY

bunkerspot April / May 2009 3www.bunkerspot.com

Bunkerspot is an integrated news and intelligence service for the international bunker industry. The bi-monthly magazine and 24/7 electronic news service, www.bunkerspot.com, both provide highly-specific information on all aspects of the marine fuels industry. Bunkerspot Magazine (published in February, April, June, August, October and December) annual subscription rate, including unlimited access to the website www.bunkerspot.com, is $430 / £250 / €315. ISSN 1741-6981. Copyright Petrospot Limited © 2009. All rights reserved. Published by Petrospot Limited, a dynamic independent publishing, training and events organisation, focused on providing information resources for the transportation, energy and maritime industries.

Disclaimer: Bunkerspot is an editorially independent magazine and electronic news information service. The information contained in the magazine and website is presented in good faith. Opinions expressed are not necessarily those of Petrospot Limited, which does not guarantee the accuracy of the information contained in Bunkerspot. Nor does Petrospot accept responsibility for errors or omissions or their consequences.

No part of Bunkerspot may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photographic, recorded or otherwise, without the prior written permission of the publisher. Designed by Matthew Stuart.

Head Office:Petrospot LimitedPetrospot HouseSomerville CourtTrinity WayAdderburyOxfordshire OX17 3SNEngland Tel: +44 1295 81 44 55Fax: +44 1295 81 44 66Email: [email protected]: www.bunkerspot.com

Director-Publishing / EditorIan TaylorTel: +44 1295 81 44 55Mob: +44 7876 70 45 41Email: [email protected]

Managing Director / PublisherLlewellyn Bankes-HughesTel: +44 1295 81 44 55Mob: +44 7768 57 44 30Email: [email protected]

Associate EditorLesley Bankes-HughesTel: +44 1295 81 44 55Email: [email protected]

Advertising Sales ExecutiveSteve SimpsonTel: +44 1295 81 44 55Mob: +44 7800 75 52 78Email: [email protected]

Director-EventsLuci Llewellyn-JonesTel: +44 1295 81 44 55Mobile: +44 7775 92 42 24Email: [email protected]

Manager, Design and Marketing Alison CutlerTel: +44 1295 81 44 55Email: [email protected]

Production and Events CoordinatorFaye MeadowsTel: +44 1295 81 44 55Email: [email protected]

Production and Events CoordinatorSinead HarveyTel: +44 1295 81 44 55Email: [email protected]

Sales ManagerLuke Hallam EvansTel: +44 1295 81 44 55Mob: +44 7815 86 73 52Email: [email protected]

Events Sales ExecutiveOsei MitchellTel: +44 1295 81 44 55Mob: +44 7789 20 20 10Email: [email protected]

Events and Subscription Sales ExecutiveElena MelisTel: +44 1295 81 44 55Mob: +44 7975 89 52 03Email: [email protected]

AccountsHelen WilkinsTel: +44 1295 81 44 55Email: [email protected]

Cover Photo:Courtesy of CBI Engineering

NEWSBunker Overview 4

Europe 8

Americas 12

Asia Pacific 16

Africa and Mideast 20

COMMERCIAL ISSUESMike Wittner of Société Générale looks at where the oil markets are heading in 2009 22

Tommy Christensen of CBI Engineering believes that bunker players can turn challenges into business opportunities 25

Morten Dehn of OW Bunker considers how the current financial crisis has created new threats and placed risk management at the top of the value chain 28

CREDIT INSURANCEGraham Watts of Bunker Insure suggests that bunker credit insurance will continue to pay out despite the slow-down in shipping 30

BUNKERSPOT WORLD MAPGlobal prices and news at a glance 32

ONLINE METERINGJoel Weinstein considers the challenges that are being overcome in order to introduce Coriolis technology to the bunker industry 34

Jon Watson of Razaghi Meyer International considers how the bunker industry can prepare for future changes to MARPOL with the use of online instrumentation 36

ENVIRONMENTAL ISSUESAdrian Tolson argues that the bunker industry cannot use the current economic crisis as an excuse to avoid its environmental responsibilities 40

Geoff Jones of Lintec Testing Services looks at how the introduction of Emission Control Areas can affect bunker fuel characteristics 44

FUEL QUALITY ISSUESAndrew Shaw of Guardian Marine Testing considers what tools are currently available for detecting bunker fuel contaminants 48

Ralph E. Lewis looks at how shipowners can overcome fuel quality problems that are not currently addressed by the ISO 8217 specification 50

REGIONAL FOCUSLesley Bankes-Hughes looks at how fuel storage issues are thwarting the growth of Sri Lanka’s newly-liberalised bunker sector 55

Alejandro Risler gives an overview of Argentina’s bunker market 58

EVENTSEvents and training course diary 60

NETWORKINGBunker people on the move 62

Contents

4 April / May 2009 bunkerspotwww.bunkerspot.com

Bunker Overview

100

200

300

400

500

600

700

800Houston 380

Singapore 380

Fujairah 380

Rotterdam 380

A M J J A S O N D J F M

300

600

900

1200

1500Houston MDO

Singapore MDO

Fujairah MDO

Rotterdam MDO

A M J J A S O N D J F M

Intercontinental Exchange ICE

International Monetary Fund IMF

OW Bunker

PR

ICE

$/t

onne

PR

ICE

$/t

onne


Bunkerspot

Cockett Marine Oil Limited, LQM, Glander International Inc., KPI Bridge Oil Bunkerspot

GLANDER

Bunker Overview

Bunker Insure

Chemoil

Lintec Testing Services

Petrospot’s

Feb-09 Mar-09 2-6 9-13 16-20 23-27 2-6 9-13 16-20 23-27

Rotterdam d 246 252 238 227 226 230 239 258Gibraltar d 273 273 251 255 252 258 265 283Piraeus d 276 275 247 253 254 256 267 290

Suez d 256 325 304 305 304 310 324 330Fujairah d 264 269 254 247 234 237 241 258Durban w n/a n/a n/a n/a n/a n/a n/a n/a

Tokyo d 293 286 273 270 263 262 259 278Busan d 277 277 278 285 282 284 280 289Hong Kong d 281 287 270 258 251 253 255 275Singapore d 266 273 255 246 235 238 242 259

Los Angeles w 262 253 254 241 258 250 246 251Houston w 282 275 262 244 247 235 240 261New York w 270 261 252 245 255 244 250 262

Panama w 302 297 289 275 279 272 264 279Santos d 246 256 255 244 249 251 250 271Buenos Aires d n/a n/a n/a n/a n/a n/a n/a n/a

380 IFO

Feb-09 Mar-09 2-6 9-13 16-20 23-27 2-6 9-13 16-20 23-27


Suez d 322 331 301 302 310 314 318 335Fujairah d 285 287 274 267 253 257 262 275Durban w 269 273 261 255 245 248 267 271



Panama w 333 322 314 300 308 300 285 292Santos d 275 280 276 264 270 272 271 292Buenos Aires d 298 297 304 297 304 299 300 304

180 IFO

Feb-09 Mar-09 2-6 9-13 16-20 23-27 2-6 9-13 16-20 23-27


Suez d 786 787 767 763 779 775 751 772Fujairah d 616 545 522 493 477 471 471 482Durban w 461 442 422 409 397 408 447 499



Panama w 732 667 635 583 533 493 472 478Santos d 477 453 438 437 423 403 426 486Buenos Aires d 618 616 605 611 616 608 613 611

MDO


Commercial Issues

Société Générale (SG) has revised its oil price forecasts downward. The short-term outlook we issued

in the last quarterly Commodities Review, on 12 December, has so far proven to be reasonably accurate. We said that we expected front-month Intercontinental Exchange (ICE) Brent and West Texas Intermediate (WTI) crude oil to average around $40 a barrel in the first quarter of this year. Despite this, actual and forecast economic growth has deteriorated dramatically in the last two months. This simple fact has caused us to lower our expected oil price path, as we slow the rate of increase.

Our previous forecast for front-month ICE Brent was $56 a barrel for 2009 and $88.50 a barrel for 2010. We have now lowered our forecasts to $51 a barrel for this year and $75 a barrel for next year.

‘It’s the economy, stupid’In the last Commodities Review, SG’s forecast for global gross domestic product (GDP) growth in 2009 was 2.4%, on a purchasing power parity (PPP) basis. After a series of downward adjustments, global GDP growth is now projected at 0.2% this year. This dramatic change was driven by data f low, as the financial crisis has continued to negatively impact the real economy. However, SG’s view has also shifted from optimistic to slightly pessimistic, compared to the consensus.

In the 28 January update of its World Economic Outlook projections, the International Monetary Fund (IMF) summarised the situation: ‘The continuation of the financial crisis, as policies failed to

dispel uncertainty, has caused asset values to fall sharply across advanced and emerging economies, decreasing household wealth and thereby putting downward pressure on consumer demand. In addition, the associated high level of uncertainty has prompted households and businesses to postpone expenditures, reducing demand for consumer and capital goods. At the same time, widespread disruptions in credit are constraining household spending and curtailing production and trade.’

We still expect a strong ‘V’-shaped recovery, but it has been pushed back somewhat. SG now expects economic activity rates for the G8 countries (G7 plus China) to be at their worst in the second quarter of 2009; previously, the trough was in the first quarter. We now forecast G8 growth to turn positive in the fourth quarter.

Weaker economy drives contraction Economic growth is the foundation for oil demand. Therefore, in line with our dramatic downgrade in GDP growth projections, we have slashed our oil demand forecast (see Figure 1). The previous forecast was for global oil demand to shrink by 100,000 barrels a day (b/d) this year; we are now projecting a large contraction of 900,000 b/d in 2009. This consists of a 1.3 million b/d contraction by Organisation for Economic Co-operation and Development (OECD) countries, partly offset by 400,000 b/d of non-OECD growth.

OECD demand growth has been cut from -900,000 b/d previously to -1,300,000 b/d. The contractions in Europe (-480,000 b/d compared to -230,000 b/d previously)

Mike Wittner of Société Générale

looks at where the oil markets are heading

in 2009

Mike Wittner is Global Head of Oil Research with Société Générale.This article is adapted from a Société Générale forecast published on 17 February 2009.

Contact:Michael WittnerSociété GénéraleTel: +44 20 7762 5725 Email: [email protected] Web: www.sgcib.com


Commercial Issues

and Japan (-360,000 b/d compared to -210,000 b/d) were steepened significantly, based on actual 4Q08 data and lower GDP assumptions going forward.

The story is similar for non-OECD growth, as both recent data and more pessimistic GDP projections affected the demand forecast. Non-OECD demand growth was cut from 800,000 b/d to 400,000 b/d. Key downward revisions include China (110,000 b/d compared to 240,000 b/d previously), other Asia countries (10,000 b/d compared to 140,000 b/d), and the Mideast (210,000 b/d compared to 250,000 b/d). Dramatically lower exports of goods are hitting the economies of China and other Asia, while lower oil revenues are dragging Mideast demand down. There may be more downside to demand in the latter region.

OPEC cuts cause summer stockdrawsCompared to demand, revisions to supply from countries not part of the Organization of Petroleum Exporting Countries (OPEC) were minor. Non-OPEC supply growth was revised from 350,000 b/d to 200,000 b/d, with the most significant adjustments coming in the mature regions of the North Sea and Russia, where oil company investment budgets continue to get cut. OPEC natural gas liquids (NGLs) output growth has also been revised down from 390,000 b/d to 210,000 b/d, due to delays in gas projects and to a lower forecast for OPEC crude production, which impacts associated gas supply (see Figure 2).

OPEC continues to cut production aggressively. From the June 2008 peak to January 2009, crude output was cut by

2.9 million b/d; 2.2 million b/d of this occurred between October and January, and one million b/d took place just between December and January. We believe that with the last round of cuts, effective from 1 January, the cartel has finally caught up with the global demand contraction. With time lags for implementation and tanker transport, onshore OECD crude imports and stocks should be visibly reduced in the second quarter and even more so in the third quarter.

Turning from bearish to neutral Since December, the broad-based deleveraging and risk aversion, which had previously put downward pressure on oil prices, has faded to neutral, as illustrated by the stabilisation of the US two-year Treasury yields (see Figure 3). Conservatively, we have maintained our previous assumption that deleveraging could still be negative in the first quarter of 2009. Many large US hedge funds deferred investor withdrawals from the fourth quarter of 2008 to the first quarter of 2009, and this could still be a factor in the oil markets. However, we now have a higher degree of conviction in our forward-looking assumption that financial f lows will be neutral for oil in the second quarter of 2009, and could turn modestly supportive in the second half of this year, after the economy hits bottom.

For the oil markets, this means that oil prices have recently been driven more by oil market fundamentals, and we expect this to continue.

2009 and beyondThe short- and medium-term oil price outlook boils down to a macro call. In this oil market, which we characterise as a classic battle between weak oil demand and OPEC supply cuts, the key point is that even OPEC only reacts to oil demand. OPEC controls short-term crude supply, not product demand. We are now forecasting lower prices because we expect weaker economic and oil demand growth (see Figure 4).

As with our previous forecast update, the key fundamental driver behind prices will be the counterseasonal global stockdraws in the second and third quarter, although the second quarter draw is less than our earlier projection. As a result, crude prices should be broadly steady in the second quarter, as compared to the first quarter. However, the third quarter draw will push Brent crude prices to $55 a barrel, from $45 a barrel in the second quarter. The fundamental tightening will coincide with the economy hitting bottom and the end of deleveraging, as discussed above. Based on improving economic and oil demand growth, we forecast continued gains in Brent crude prices to $60 a barrel in the fourth quarter and $75 in 2010. Next year is forecast to be a transition year for the economy and for oil demand. Beyond 2010, we continue to expect crude prices to return to a $100+ a barrel environment, based on healthy Asian-led demand growth bumping up against supply constraints.

‘Oil prices have recently been driven more by oil

market fundamentals, and we expect this to continue’

SG Oil forecasts (Mb/d)

Mb/d 2007 1Q 08 2Q 08 3Q 08 4Q 08 2008 1Q 09f 2Q 09f 3Q 09f 4Q 09f 2009f

OECD demand 49.2 48.9 47.2 46.6 47.3 47.5 46.7 45.4 45.9 46.7 46.2

Non-OECD demand 36.9 37.9 38.5 38.6 37.7 38.2 38.0 38.8 39.0 38.6 38.6

World demand 86.0 86.8 85.7 85.2 85.0 85.7 84.7 84.3 84.9 85.3 84.8

*Non-OPEC supply 50.7 50.9 50.7 50.0 50.6 50.5 51.2 50.7 50.3 50.8 50.8

*OPEC NGLs 4.5 4.6 4.6 4.7 4.7 4.6 4.7 4.8 4.9 5.0 4.8

*OPEC crude 30.3 31.5 31.4 31.5 30.5 31.2 28.8 28.5 29.0 29.5 28.9

World supply 85.6 87.0 86.7 86.2 85.8 86.4 84.6 84.0 84.1 85.3 84.5

Stock change -0.5 0.2 1.0 0.9 0.9 0.7 -0.1 -0.2 -0.7 0.0 -0.2

WTI NYMEX ($/bbl) 72.24 97.82 123.80 118.22 59.08 99.75 40.00 42.50 55.00 60.00 49.38

Brent ICE ($/bbl) 72.61 96.31 121.07 117.15 57.49 98.09 45.25 45.00 55.00 60.00 51.31 Source: Historical data – IEA. Forecasts – SG Commodities Research. Note: IEA historical data is based on the monthly Oil Market Report dated 11 February 2008. * Indonesia left OPEC on 1 January 2009. In this table, it has been excluded from OPEC supply starting in 2007, in order to facilitate historical comparisons. Non-OPEC supply includes processing gains and biofuels


Commercial Issues

In a typical year, I spend around 250 days travelling across the world, visiting refineries, oil export and

bunker terminals, f loating storage and off loading vessels (FSOs), bunker tankers, the offices of trading houses and – of course – attending bunker conferences and seminars. So, I like to think that I am in good position to take a global view of the bunker industry – and I would like to share this perspective.

First, the key message: if the bunker industry is to turn crises into opportunities, then we need to draw upon our reserves of leadership and experience.

Again drawing on my personal experience, I see that mistakes are often being made in the bunker industry – by suppliers, barge operators, traders and bunker buyers too – because people lack the necessary expertise, or fail to understand the roles and needs of the other players in the supply chain.

In order to win your customers’ trust, you must understand their true needs and then, at every opportunity, exceed their expectations. So the golden rule is to make sure that, at the very least, you supply the goods or services that your customers have paid for.

In times of economic crisis, companies may feel that they have to do ‘whatever it takes’ to win business. This can create a dangerous situation. Some may feel compelled to cut corners and take unnecessary risks. But it can also spur companies on to look for innovative solutions that transform their business and generate new opportunities. How do you distinguish between the bad risks and the good opportunities? You listen to the experienced people in your own company, and you also share information and ideas with your customers, your suppliers and even your competitors.

I would also suggest that you should avoid making the following mistakes, which are common pitfalls that companies tend to fall into when they are trying to rein in their finances:

cutting back on profit centres, while keeping cost centres

failing to distinguish between the good and the ‘not-so-good’ personnel when cutting back on staff numbers. Companies sometimes let their best

workers go, because they have the misfortune to work in a department or team which is underperforming (through no fault of their own), or because they are the sort that will keep their heads down and work, rather than singing their own praises to management

not involving employees in the cost cutting, ‘profit enrichment’ process. You may find that the people who do the job on a daily basis may have the clearest idea of where money is being wasted. They may also have some interesting ideas on where, with a bit of tweaking, you can open up new revenue streams or become more competitive.

Having listed the common pitfalls, I would now like to share three profit-making ideas:

stick with your core business, but find new and better ways to market your products and services, and new ways to work with your partners in the supply chain

evaluate and implement new technologies which can make operations more efficient and profitable for you, your suppliers and your customers

invest in your greatest asset, your staff. Send your trading, operational, purchase and logistic personnel for skills upgrading and training. Invite experienced people to facilitate educational programmes. There will be huge reserves of knowledge and information stored within your own company – but you have to find a way to unlock it.

I would like to give some examples of how I have seen – and worked with companies – who have used their own expertise, together with technology and know-how from technical partners like CBI Engineering, to f ind innovative solutions, and turn perceived problems into opportunities.

South AfricaI recently spent two 10-day trips in Cape Town and Durban, following up on a statement from bunker trading houses that the local refineries were only able to provide 180 centistoke (cst) fuel oil.

First, we have to clarify what the refineries are actually producing. A refinery does not produce a specific energy resource for the

Tommy Christensen of CBI Engineering believes that bunker players can

turn the current economic crisis into business

opportunities

Tommy Christensen is the Managing Director of CBI Engineering A/S.CBI Engineering was founded in 1980 as an engineering company and currently specialises mainly in the development of bunker terminals, floating storage and offloading (FSO), physical bunker operations, fuel blending and metering.

Contact: Tommy ChristensenManaging DirectorCBI Engineering A/STel: +45 4731 3388Fax: +45 4731 2233Email: [email protected]: www.cbi.dk


Commercial Issues

marine industry. Bunker suppliers have to take what is left over from the core business.

Refineries in Durban and Cape Town all ‘produce’ residual fuel oil of 500-700 centistoke (cst) at 50oC (cst@ 50oC), and then they have tank capacity to ‘batch-blend’ to meet the 180 cst specification.

The truth is that, if they wanted to, South African refineries could produce and supply 380 cst bunker fuel and they could also cut back on their requirement for imports of high quality cutter stock as automotive gasoil (AGO) and marine diesel oil (MDO). Imports of AGO in the range of 150,000 metric tonnes (mt) a month could be reduced by 20,000 mt because so much is currently used to blend down from 500-700 cst @ 50oC to 180 cst @ 50oC.

Some ‘industrial blending’ takes place in South Africa, but these systems are not developed for bunker blending.

There is one hurdle that the bunker players will have to clear. In both Durban and Cape Town, the fuel lines from the refineries to the harbours are not heated, and the wharfside tanks are not heated either. This would make it difficult to supply 380 cst, which needs to be heated in order to f low.

However, from my research in Durban and Cape Town, I estimate that the ‘give away’ can be in the range of $12 million to $15 million a year, based on today’s price level for heavy fuel oil (HFO) and AGO. This is a significant sum of money, and I believe that it would more than justify the investment required to upgrade the bunkering infrastructure in order to handle the heavier grades of fuel.

There is plenty of room for improvement, which would allow South African bunker suppliers to offer prices that are more competitive.

GhanaThe FSO WESTAF, which is now stationed off the west coast of Africa, has a very professional and f lexible cargo system on board, which includes in-line blending from CBI.

FSO and bunker terminals now have to conform to much more stringent operational and environmental regulations and standards and so there is always pressure to upgrade. The continuing investment in new technology and – just as importantly – education is the only way to ensure that the business will grow in a safe and environmentally

‘The continuing investment in new technology and – just as importantly – education is the only way to ensure that the business will grow in a safe and environmentally

friendly way’

Commercial Issues

friendly way. We are working together with our clients in Ghana to make sure that the WESTAF provides the highest levels of service, at no cost to the environment.

I hope to share information about our work in Ghana with fellow delegates at the Oil and Shipping Africa 2009 event, which Petrospot Ltd will be organising in Accra on 6-10 July (see page 60).

ThailandCompanies in Asia are also working hard to meet their environmental responsibilities. In Thailand, for example, we have been working with local players in the terminalling market to install the new Activated Carbon Filters, with safety valves, on tank storage units. As I have outlined in previous articles in Bunkerspot, the filter can be used to control vapour emissions and overcome the problem of bad smells emanating from HFO tanks (see

Bunkerspot, June/July, page 40).

South KoreaAs a result of a visit to Seoul in March, we identified a significant demand for CBI’s expertise from LG and GS Caltex.

SingaporeAfter years of work with the Maritime & Port Authority of Singapore (MPA), it has now been decided that CBI will carry out two trial projects for in-line blending on board bunker barges.

The challenge now is to find the two physical suppliers that we can work with, and also bring together all the other players in the supply chain. The MPA has approved the process and CBI has already approached about 15 operators and is currently awaiting feedback.

Once the trial operators have been selected,

we can run the tests and start to collate and analyse the data from Singapore. From operations that are already running – and running very successfully – outside Singapore, we know that in-line blending can cut costs, reduce down-time for bunker barges and improve the quality of the bunker fuel.

Trial protocolWe can also be certain that the customer is getting what he pays for (which brings us back to the ‘golden rule’ at the start of this article) because the in-line system provides a clear audit trail.

We are confident that the Singapore tests will be a success, and that we can work together with the authorities to develop a trial protocol. We believe that this could then be incorporated into the Singapore bunkering standard (SS600) and presented to the global bunker industry at SIBCON 2010.


Commercial Issues

The dramatic downturn in the first quarter of 2009 took the breath away of even the most

hardened economists, as the recession strengthened its vice-like grip and squeezed the life out of every global economy.

While governments inject unprecedented money and stimulus packages into the lifeblood of the financial system, every business in every market is faced with waiting impatiently for credit to be freed up so that commerce can be conducted with at least a modicum of confidence. While there is no guarantee when this will happen, what we do know is that the nature of business has changed unreservedly.

For the bunkering industry, the concept and practice of risk management, and the implementation of an effective programme, is central to business continuity. It has also shown us that success is also based on progressing and expanding all elements of risk management and implementing strategies that are based on an understanding of the new risks that have evolved from the fall-out of the current financial crisis.

Without question, the shipping industry has been hit harder than most as global trade has dried up. Trade volumes of major industrial commodities, shipping’s major cargo and a key driver for the recent freight boom, dropped significantly, as did sea freight indices. In conjunction with a decline in factory output, demand for energy and fuel products f lagged, which had a further impact on falling crude prices. Oil producing nations lowered production to slow down the decline, which further impacted the tanker market as the demand for shipping crude oil dropped. Consequently, shipping ports began to suffer as well. The ‘domino effect’ resulted in a nine-year low for the Baltic Exchange’s Baltic Dry Index (BDI – also known as the BALDRY) and tanker freight rates and the container market fell off a cliff.

For the bunkering industry, while consolidation was already in progress, the difficulties in gaining access to credit has speeded up the process, with only the larger operators with the financial strength and resources capable of weathering the storm. This has manifested other areas of

risk management that companies have to mitigate against; no longer is it just based on implementing an effective hedging strategy to lock in and control costs as a means of managing volatile fuel prices. The onslaught of the lack of credit in the market is also opening up new areas of risk management, and this is presenting the industry with further challenges.

For example, the move by all players to review their credit lines has left more and more companies exposed to falling into arrears beyond their existing credit, leaving them with the responsibility of immediately paying the difference; also known as the ‘margin call’. An initial margin will act as a protection for a specific position in the form of a cash amount. As a consequence of the financial crisis, initial margins have been increasing on a global scale as daily volatility on price movements has risen significantly.

As an example, if two counterparties have an agreed $500,000 credit line and one buys 2,000 metric tonnes (mt) a month of 380 centistoke (cst) fuel over a 12-month period at $300 a tonne with an initial delivery date of the second quarter (Q2) 2009, but one week later the price of fuel oil drops to $280, the buyer is $480,000 in arrears on the hedge. However, the current credit line ensures that no security needs to be posted. Conversely, if the price falls a further $20 a tonne to $260, the buying counterparty will be $960,000 in arrears on the hedge and owe the selling counterparty $460,000 as an immediate cash payment, as they will have exceeded the initial credit line agreement. This payment is due immediately, despite the first delivery often being weeks or months away. This could cause significant problems for hedgers if they do not have access to cash, which is becoming increasingly more common due to the current liquidity issues within the global economy.

This has highlighted the importance of companies understanding their exposure to counterparty risk, due to the lack of confidence in the strength of organisations’ f inancial stability. Shipowners and operators must now have a detailed understanding of the creditworthiness of counterparties, both from a derivatives and physical supplies

Morten Dehn of OW Bunker considers

how the current financial crisis has created new threats and placed risk

management at the top of the value chain

Morten Dehn is a Risk Manager for OW Bunker.

Contact: Morten DehnOW BunkerTel: +45 3945 6051Fax: +45 7026 5277Email: [email protected]: www.owbunker.dk

Commercial Issues

perspective. Fundamentally, developing a risk management strategy is now not just about controlling volatility in the market prices of bunker and freight costs, but also implementing a counterparty risk control programme both for shipowners and operators who need financing from banks, as well as bunker companies who are being forced to take on board more counterparty credit. Advising on and implementing such a strategy falls within the job description of bunker providers, and it changes the level of relationship that they have with their customers.

The communication and interaction is based on a complete understanding of the industry and its challenges, as well a total knowledge of the customer’s business and its objectives. It changes the foundation of the relationship to a consultancy-based partnership that is focused on maximising

operational and financial performance. It changes the approach from being ‘told’ by customers what they want, to discussing, debating and advising customers on what they need and ‘why’ they need it, based

on an understanding of the current market challenges in line with their strategy for business growth and development.

It is clear that the business of bunkering is changing its reputation from a commodity-based industry to one that adds value and impacts the bottom line profitability. This should not be surprising when, in many cases, bunker fuel now accounts for more than 50% of a vessel’s operating costs, but it is also being compounded by the devastation of the financial markets over the past six months. The role of ‘consultant’ is being driven by the importance and changing nature of risk management, and the new threats that affect all parts of the industry on a daily basis. As it rises up the industry value chain, risk management is now not just central to business success, but also continuity.

‘The move by all players to review their credit

lines has left more and more companies exposed

to falling into arrears beyond their existing credit, leaving them

with the responsibility of immediately paying the

difference’

��

�� !�"#$��$�%��##&�' !�"#$��$�%��##(�� !��)�*�)�+,�+�-

./0�1/��23 (4��415(4

1�61��23 (463.��7(�61/6��

�23 (4�46� ��131.(�(3��03�2/�13�8��(496�(�

��+�)��+,�

�� :��-��;� <��#��,�� 0��= ��#�#:

�� !�"%$�%��##&�'� !�"%$�%��#�(�� !��)�*�)�+,�+�


Credit Insurance

The onset of the financial crisis has clearly had a profound effect on the credit insurance industry. The

number of bankruptcies worldwide has increased. In the UK alone, corporate insolvencies increased by 220% in the last quarter of 2008 from a year earlier. Insurers are therefore facing mounting claims and this is bound to lead to unprecedented overall losses on the 2008 and 2009 years of account. Many expect that this will continue into 2010 before the situation begins to stabilise. However, what exacerbates the position for many credit insurers is the quality of the companies that have been filing for bankruptcy. The very counter-parties, the banks, that would have been considered the safest of an overall portfolio just a year or so ago, have proven to create the biggest losses – which just goes to remind people that there are no certainties in life.

In the meantime, one of the larger credit insurers has been downgraded while it is obvious that the AIG, another major credit insurer, has its own problems. In an attempt to try to restrict losses, certain insurers have taken emergency measures by cutting buyer limits. There have also been reports of one broker having to pass on the removal of 40,000 buyer limits over just one weekend. Personally, I do not approve of such measures, but some insurers feel it necessary to try to exit from certain sectors as quickly as possible. Of course, insurance coverage is now far harder to find and prices have risen and will almost certainly continue to rise while, as a general rule, coverage is being seriously restricted. Several insurers are withdrawing from specific markets altogether and are not likely to wish to return for three or four years.

Of course, our concern is marine credit risk and, in particular, coverage for bunker companies. It is clear that the shipping and bunker communities have been seriously impacted. Alongside major shipping bankruptcies, such as Britannia Bulk and Industrial Carriers, several other companies have sought protection to try to restructure, including Armada (Singapore) and Samsun Logix. Thankfully, no bunker company has suffered bankruptcy as yet, although several are well known to have suffered substantial losses, some in the range

of tens of millions of dollars. From personal experience, I have been

heartened by the care and professionalism demonstrated by the bunker companies I know well. There are clear decisions to be made every day about credit which can have far-reaching implications. We are all aware that a negative withdrawal of credit and its subsequent knock-on effect – in a community that closely interacts – can even precipitate the demise of a company which, if treated positively instead, may well have survived. So, we are all of us careful to try to distinguish between fact and mere gossip, of which there is much at the present time. The bunkering community is by far and away the major day-to-day shipping creditor, so it is uniquely placed to appreciate the day-to-day vagaries of payment performance, one of the key indicators if a company is beginning to face difficulty. It is for this reason, clearly, that the marine credit reporting companies rely so heavily on the bunker industry for their information, so much so that I sometimes wonder if they should not be paying the bunker industry for the information, rather than the other way around.

The good news is that credit insurance coverage is still available for professionally-run bunker companies, although it has to be said that companies are being more selective, and prices are clearly higher. But where we ourselves provide cover, we believe that we do so in the same professional fashion that we did before the crisis. We have not yet cut a single buyer limit or restricted coverage in any way – for which we are proud. And we are still approving new buyer limits to the same degree, albeit that it can take a little longer than usual as due diligence needs to be carried out to a greater extent on each new enquiry.

There are some signs of recovery in the shipping sector although, just recently, I read one report suggesting that there may be as many as 10,000 new buildings coming out of the yards, most of which will be surplus to requirements. But the bunker industry should be proud of itself for the way in which it continues to service the shipping industry, even in this harsh climate, acting, as always, on trust.

Despite everything, insurance companies exist to pay claims and, providing a claim is genuine, it should always be paid, no matter how severe the crisis becomes. However,

Graham Watts of Bunker Insure suggests that

bunker credit insurance will continue to pay

out despite the current economic climate in

shipping

Graham Watts is Managing Director of Bunker Insure, a Member of the UIB Group and at Lloyd’s.

Contact:Graham WattsManaging DirectorBunker InsureTel: +46 8 33566Mob: +46 768 614552Fax: +46 8 5010 9541Email: [email protected]

Credit Insurance

customers should always be aware of the credit rating of the insurer as the better the rating, the more likely is it to pay. The insurance community has in fact already been severely tested, suffering its own ‘Pearl Harbour’ in the early 1990s, following the major losses such as that of the Piper Alpha North Sea oil platform or the Exxon Valdez oil spill in Alaska. As a result, a number of reinsurance companies (the companies that insure the insurance companies) collapsed. But despite this, Lloyd’s and other major mainline insurance companies survived and throughout this crisis, claims were still paid – although it was the investors and Lloyd’s names who suffered very heavily indeed. In fact, Lloyd’s proudly claimed that not a single genuine claim went unpaid. The crisis now by comparison is not really affecting insurers to anything like the same extent – it would take a series of major catastrophes to do that.

Today, having taken stronger measures to ensure the protection of its clients, I believe the industry is in far better shape to cover its responsibilities.

Especially at this time, having mentioned credit rating, I think that it is important to appreciate that, unlike most other areas of insurance, all credit insurers have different credit ratings, coverage wordings and philosophy. So one credit policy can be markedly different from another and one company’s policy will be more reliable than another. So while all policies are marketed as ‘credit insurance’ they can offer wide to almost nil protection. In extreme cases, I have even seen policies where there is almost no situation where the insured might have successfully been able to make a claim. For example, some cover bankruptcy but not protracted default, while others cover all risks of non-payment. Some policies cover

interest lost on the debt in addition to the original debt, while others allow costs for legal expenses. Most significantly, some credit insurers include a clause allowing them to withdraw any limit at any time, while others specifically state that they do not. Some prefer to write what is known in the industry as a managed policy – which means that the insurer prefers to tell the insured about which companies it can do business with. Others prefer to write what are known as ‘excess of loss’ policies for more sophisticated companies, where they prefer to support the insured’s own decisions.

The cheapest policy is not a good assessment of coverage, because it is rare that any two policies offer the same cover. But even with this in mind, as an insurance broker, it is our task to know precisely what each insurer offers and then to negotiate the best coverage at the best price.


Online Metering

Interest in Coriolis direct mass f low measurement is increasing for marine applications, and fuel

bunkering in particular. Coriolis technology provides measurement of mass f low rate, volume f low rate, density, temperature and batch totals – all from a single device. Coriolis meters have no complex moving parts and require no maintenance, nor do they require f low conditioning or straight pipe runs. Flow and density accuracies of +0.1% and +0.5 kilogrammes per cubic metre (kg/m3) result in unmatched performance and measurement certainty, making Coriolis technology an attractive alternative for fuel bunkering.

While Coriolis measurement is well suited for fuel bunkering, there are other considerations and challenges that must be overcome to ensure optimal performance in marine applications. These include: the ability to handle entrained gas; performance in measuring viscous f luids; and the importance of technical application expertise to promote proper installation and operation practices.

Two-phase flowWhether due to tank stripping, turbulence during f il ling or when changing compartments, it is easy to get gas trapped in heavy fuel oil (HFO). When gas is entrained in bunker fuel, it can take considerable time for it to be released, so measurement equipment must be able to deal with the presence of two-phase f low. But before accuracy can be considered, it is necessary to determine what measurements are the right ones when multiple phases are present.

Consider three measurement devices – a mass f low meter, a volumetric f low meter, and a tank gauge – all measuring bunker fuel with 5% entrained gas. Even though all meters are working perfectly, the volumetric meter and tank gauge both give liquid oil batch errors of +5%. The reason for this is that each meter simply measures what is going through it, which in this case is a mixture of gas and bunker fuel. The operator, however, interprets the measurement as a liquid volume. Because gas has such a low density, it takes up a lot of space, and is interpreted by the operator as a large volume of oil.

On the other hand, the mass of a gas is so small that it does not contribute significantly to the total mass of the mixture. Therefore, even though a Coriolis meter measures mixture mass f low rate when a liquid and gas are present, the mixture mass is nearly identical to the liquid mass, which is the quantity needed. So while a volumetric meter over-predicts liquid quantities by about 5% in the presence of 5% gas, a mass f low meter only over-predicts by 0.01% at typical barge pressures. This is because the mass of a gas is negligible compared to the liquid mass.

However, the presence of two-phase f low can cause significant additional noise in the measurement signal of a Coriolis meter and tends to reduce measurement accuracy. Emerson’s Micro Motion Coriolis meters answer this challenge directly – improvements to the sensor stability coupled with state-of-the-art digital signal processing algorithms to handle the additional noise – to deliver accurate, reliable measurement that is f lexible to changing f luid conditions.

The data in Figure 1 illustrates the benefit of Micro Motion Coriolis mass measurement in the presence of entrained gas. In the graph, liquid-only reference meter measurement is indicated by bold lines, and test meter measurement by thin lines. The mass f low rate of the test meter closely tracks with the reference meter when 5% gas is entrained. The test meter also correctly indicates the mixture volume f low rate, although this value is about 5% greater than the liquid volume f low rate given by the reference meter. Both measurements are correct, but an operator needs liquid-only quantities, not mixture quantities, and therefore only the mass f low measurement is acceptable. Only when measuring in mass is the liquid energy content – the quantity of bunker fuel oil paid for – unaffected by entrained gas.

Joel Weinstein considers the challenges that are

being overcome in order to introduce Coriolis

technology to the bunker industry

Joel Weinstein is a research and applications engineer for Micro Motion, a division of Emerson Process Management, which developed and manufactures the Coriolis flow meter.Dr Weinstein has recently completed a five-year joint research project with the University of Colorado focused on improving Coriolis measurement with entrained gas for difficult industrial applications such as fuel bunkering.

Contact:Joel WeinsteinTel: +1 303 530 8415Fax: +1 303 530 8596Email: [email protected]


Online Metering

An added benef it of Micro Motion Coriolis measurement is shown by the Drive Gain data represented in Figure 1. The Drive Gain output is a powerful diagnostic tool to check for gas or other impurities during bunkering operations. When gas, liquid, or solid particles of differing density than the bulk f luid are entrained, vibration of the f low tube requires more energy and the Drive Gain output immediately rises. Drive Gain is more reliable than density as a diagnostic for entrained gas because density is also affected by changing f luid conditions such as composition and temperature.

Measurement of viscous fluidsHeavy fuel oil or bunker fuel is thick, viscous, and in many cases must be heated to f low. With no moving internal parts to clog or wear down, Coriolis meters offer advantages over other mechanical f low measurement devices. Even more importantly, Coriolis meters are calibrated on water, which directly transfers to measurement of any f luid – from gases to viscous oils. Also, mass of oil is conserved regardless of changing temperature and pressure, making f luid look-up tables unnecessary. The result is an easy-to-use, robust device that is capable of both accurate measurement and lasting performance in the most challenging of conditions.

Emerson regularly pursues independent third party testing of its Micro Motion Coriolis meters to ensure performance on difficult f luids. The data from the Société du Pipeline Sud-Européen (SPSE) laboratory in France (represented in Figure 2) shows excellent performance from the Micro Motion CMFHC3 Coriolis meter on widely varying f luid types, including fuel oil, all from a single water calibration. MID and OIML certificates have been awarded for +0.2% mass accuracy on liquids.

-1.0%

-0.8%

-0.6%

-0.4%

-0.2%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

0 500 1000 1500 2000

Mas

s Fl

ow E

rror

Volume Flow Rate (m^3/hr)

NMi certification testing at SPSE in France, May 2008, CMFHC3 .Widely varying viscosities and densities. Meter passes all tests and iscertified for +/- 0.2% mass measurement on products other than water

Fuel oil ARH Oural Naptha

Technical expertiseEven with a Coriolis meter that can handle two-phase f low and offers proven performance measuring highly viscous f luids, the importance of technical application expertise cannot be overstated. In order to maximise the performance of Coriolis measurement in bunkering applications, it is critical to consider installation best practices and be able to rely upon actual, real-world experience.

Of the measurement challenges that exist in marine applications, and bunkering in particular, ensuring proper installation to minimise – and in some cases completely eliminate – entrained gas, is critical. In order to further understand the specific

measurement challenges, Emerson has visited numerous global customers who experience multiphase f low. It is clear that application requirements are extremely diverse, and that specific guidance on installation and operation best practices for bunkering is imperative to ensure operational performance. For example, the meter must be sized so that velocity in the f low tube is relatively high during bunkering, which ensures a homogeneous mixture if gas is present. Careful placement of the meter on board can reduce or eliminate entrained gas, while intelligent valve sequencing allows barge pipelines to properly pack before f luid enters the meter.

Consider the schematics A, B, and C for meter placement in a bunkering application, represented in Figure 3. Which is the most effective installation? The answer, of course, involves a set of performance and

operational trade-offs, but installations B and C have proven to be the most effective for applications involving batching from empty pipes. The reason is that when the batch begins, the long empty pipeline completely packs before f luid enters the meter. Even a slight elevation increase, such as in schematic B, can dramatically reduce gas entrainment during a batch.

Other issues such as drainability, product hold-up, and available deck space are important and should be considered carefully for each application. Many simple and effective measures can be taken to allow for the best possible performance and ease of use in diff icult metering applications.

SummaryThere are many benef its to using Coriolis direct mass f low measurement in bunkering. Inherent advantages, such as multi-variable measurement and no moving parts are shared among all Coriolis meters. However, the challenges for fuel bunker measurement are clear. The ability to maintain ongoing measurement performance and reliability in the presence of entrained gas or two-phase f low is not characteristic of all Coriolis meters. Nor is the ability to deliver accurate measurement in the presence of highly variable process conditions. It is important, therefore, that measurement devices installed can deliver needed technical performance in harsh conditions, and that device installation and operations are backed with proven Coriolis application expertise in fuel bunkering applications.


Online Metering

The International Maritime Organization’s (IMO) MARPOL will remain as it is now for only a

short time; it would be most dangerous to assume that MARPOL will not change, and because change implies cost, effective financial planning requires an understanding of what those changes will be.

It is easy enough to predict the mandatory use of online instrumentation, which could happen any time soon. However, it is the implications of online instrumentation that require more careful consideration, as the additional costs may be far more significant than simply the cost of the instruments.

There are many sources available that lead to the conclusion that online instrumentation will soon be required; reports such as those prepared for the European Union (EU) about MARPOL and those studies which examine the requirements for successful Multi-Lateral Environmental Agreements (MEA) of which MARPOL is but one example.

MARPOL does not yet require online instrumentation, but it is considered an essential component in the success of MEAs, not just as a contributing factor to verification and enforcement but ‘observational monitoring’ is a key factor by itself.

This is an industry where only a few measurements are made online and then only for simple control functions, not for quality measurement. In this industry, in litigation, in dispute resolution and in the new legislation, quality is, currently, that which is determined by laboratory analysis of samples.

Historically, the bunker industry has assessed quality in a simplistic manner: can the fuel be cleaned and burned?

Quality, in terms of ‘value for money’, is almost never questioned. Mostly, the industry has been only concerned to know, from laboratory analysis of samples, if the fuel is ISO 8217 compliant and suitable for the engine. But MARPOL requires an exact reporting of density and sulphur content. While ISO 8217 compliance is relatively undemanding of fuel management and online instrumentation has had no role, achieving MARPOL compliance, establishing and maintaining exact fuel properties, is far more demanding and online instrumentation is essential – not just to collect and record data but as part of enforcement. The gap between fuel management now and

where it needs to be is very wide and possibly expensive to bridge.

Quantity accounting is a more obvious value for money problem, especially when fuel costs are high, since there is more money at risk through short delivery than poor quality. The industry depends to a large degree on tank dipping and reported density to account for the mass of fuel delivered; a system vulnerable to error and fraud.

Some quality and quantity problems have been inadvertent, but the lack of instrumentation has provided an opportunity for fraudulent activities involving both quality and quantity.

There is an important caveat: we are dealing with the bunker industry. Compare the production of aviation fuels and diesels with the management of bunker fuel oils and it will be seen that aviation fuels, with tighter quality control requirements and higher values, are produced by online blending under the control of online instruments. Quality is that reported by the online instruments and not laboratory analysis, which is used to authenticate the online instruments.

As for quantity, custody transfer measurement in the oil industry provides a model for the marine industry (but with the need to address entrained air).

So other industries have better quality and quantity solutions than the marine industry; the difference is cost. The industry has never, until now, been prepared to pay for good quality or quantity accounting. Except that now, there is no choice, under MARPOL, but to address the problems.

Online instrumentation is a key to delivering value for money; the investment in the instrumentation that MARPOL requires will, at today’s fuel prices, help pay for itself. Indeed, commercial considerations alone are already driving the industry along this path.

But from the outset, MARPOL has not required online instrumentation. It currently depends on a system of laboratory analysis and manual reporting for quality accounting, and the industry relies to a large extent on tank dipping (and the reported density of the fuels) for quantity accounting. There is no Information Technology (IT) component.

Most recent MEAs (except MARPOL) have some form of Continuous Emissions Monitoring System (CEMS) and an IT database where the measurements are

Jon Watson of Razaghi Meyer International

considers how the bunker industry can prepare for future changes to

MARPOL with the use of online instrumentation

Jon Watson Razaghi Meyer International Tel: +44 1903 734 480Fax: +44 7092 809 181Email: [email protected] Web: www.viscoanalyser.com


Online Metering

correlated and analysed. CEMS not only provides verifiable ‘observational’ data, it also provides real-time compliance monitoring to enforcement agencies.

If CEMS is so important, what form should it take and why does MARPOL not have it already?

Ideally, CEMS would be based on sulphur oxide (SOx) measurement, but this was not feasible and so it was then determined to measure fuel sulphur. This could have been done using online density and online sulphur analysers in the fuel supply to the engines and link the data to a global positioning system (GPS) time and position record. It would also report the real-time compliance (percentage mass of sulphur) over the automatic identification system (AIS).

This was only rejected because no suitable online sulphur analyser was then available. MARPOL instead adopted the industry’s use of laboratory measurements as the usual way to define fuel quality prior to bunkering.

MARPOL requires:‘The fuels shall be homogeneous blends

of hydrocarbons derived from petroleum refining.’

And:‘The supplier will specify the exact density

(to ISO 3675 Laboratory determination of density – Hydrometer method) and the exact sulphur content (to ISO 8754 Energy-dispersive x-ray f luorescence spectrometry).’

The vessel then manually records the fuels used into an engine log and records the density and sulphur content from the laboratory analysis.

Some of the concerns this solution raises

may be found in the On Board Treatment of Ballast Water and Application of Low-sulphur Marine Fuel (MARTOB) report to the EU. It is important to note that, suitable or not, MARTOB declares that it may become necessary to mandate online measurement. MARTOB declares that because of the high cost of fuel, there is every reason to expect that vessels may operate within Emission Control Areas (ECAs) with high sulphur fuels and that this is possible because it is too easy to falsify records and samples.

In another report to the EU by NERA, which examines market-based mechanisms (e.g. emissions trading), much the same message is apparent and both reports link CEMS to emissions trading.

Two things could cause MARPOL to change to a CEMS system:

evidence that the current system is error prone or open to fraudulent reporting and

non-compliant operation the availability of more suitable online

sulphur measuring instruments.

Recent trials in Singapore have evaluated the use of Coriolis meters during bunkering with new and improved online x-ray f luorescence sulphur analysers (see Bunkerspot, October/November, page 42). This means that the legislators are that much closer to being able to mandate online measurement, given the need.

It is not the cost of the instruments that is of concern; it is that online instruments will reveal a range of fuel management problems that have remained undiscovered by drip sample analysis and which will now have to be addressed. The key requirements are for a homogenous fuel and one where the density and sulphur content are accurately known.

Assume that a fuel produced in the refinery is truly homogenous and that all its properties are accurately known and that it is ISO 8217 and MARPOL compliant. How long will it remain so?

That batch of fuel is transshipped to various bunker ports around the world and further subdivided between different local bunker suppliers. It is then further subdivided into individual bunkers. Each bunker thus has a different history, and that history includes exposure to the many risks of its quality being compromised by poor management: stratification, separation, contamination and adulteration. Without instrumentation, many of these problems have gone undetected. Worse, the absence of instrumentation creates the conditions for fraud as well as inadvertent errors.

‘Online instrumentation is a key to delivering value

for money; the investment in the instrumentation that MARPOL requires will, at today’s fuel prices, help

pay for itself. Indeed, commercial considerations alone are already driving

the industry along this path’


Online Metering

If the local supplier has only one tank for 380 centistoke (cst) fuel, then some fuel may remain from a previous batch when a new consignment is received. It may be assumed that the amount of remaining fuel is relatively small and that the aggregate qualities are not significantly affected. It is also assumed that if all the fuels received into the tank are ISO 8217 compliant then any fuels bunkered will be ISO 8217 compliant.

Unfortunately, these quality assumptions are often f lawed. This is especially true if the tank does not have the means to homogenise the tank contents, as many do not. One supplier was concerned to discover that the fuel in a 380 cst tank was 215 cst at the top and 450 cst at the bottom – without tank mixing, the lightest fuel persists long enough to separate and stratify. Is a bunker a compliant fuel? Possibly, but accurately described by the analysis? No.

Even if the supplier invests in segregated storage tanks, as expected for MARPOL, there still remains a problem that there may often be too little fuel left to supply as a single bunker. What is to be done with it?

The same problem confronts the barge operator. Having bunkered a vessel, perhaps around 100 metric tonnes (mt) of fuel remain. What happens to it? There are no ullage facilities and thus the new consignment is simply loaded on top of the old.

Figure 1 shows a bunker where this has happened either on the barge or in the terminal. Evidently, the proportion of the remnant is significant. The drip sample will show the aggregate properties and these will agree with neither the certificate for the old fuel nor the certificate for the new fuel, whichever the supplier offers.

How big a problem this is has not been officially measured; however, one laboratory has unofficially indicated that over 50% of commercial samples show a significant difference between the analysis and the original certificate value of density, and a similar proportion show significant viscosity errors. Significant means ‘more than can be accounted for by repeatability and reproducibility errors’, i.e. the fuel quality has changed since it was originally sampled and analysed. The sample approach cannot tell if the fuel is homogenous, nor why the errors exist.

MARPOL requires fuels to be homogenous,

without providing a legal definition nor indicating how it should be measured. Of course, once online instruments are used the degree of homogeneity is immediately evident (see Figures 1 and 2). With online measurement there comes a need for a legal definition of ‘homogenous’ and the ability to deliver fuels that meets that definition.

If a fuel in storage is continuously agitated then it will become homogenous in all respects, so far as is possible. However, when fuels are blended, including in the refinery, only certain properties are monitored and controlled. Most usually this has been the viscosity. Hence a fuel consignment may have a uniform viscosity but the other properties may vary during blending.

Online measurement may soon be mandated, but because MARPOL initially has adopted the sample analysis approach, the door has been left open to the industry to support a choice of solutions:

set aside the original laboratory analysis and measure the key properties of density and sulphur content online (but the other properties will remain uncertain)

retain the original laboratory analysis and use the measurement of change to validate the original analysis.

The first option has some advantages to refiners who online blend fuels to tankers or to vessels where it is not easy to obtain a laboratory analysis to satisfy MARPOL requirements at the time of bunkering.

But ‘change in quality’ is easier and cheaper to measure, since all that is done is to test the continuing validity of the laboratory analysis. Razaghi Meyer International’s INtegrity

solution depends on a single instrument that measures the density and viscosity. If the density or the viscosity has changed then the fuel quality has changed after it was originally analysed. If they have not changed (a consequence of good fuel management), then the original analysis is valid in all respects. Virtually all changes to a fuel that affect any aspect of its quality will also cause a measurable change in the density, an additive property like sulphur, or a measurable change in the viscosity which, because it is not an additive property, is a very sensitive indicator of change.

This principle brings about the possibility that the industry may need to address the issues of homogeneity even before online instrumentation becomes a requirement simply because Port State Authority (PSA) enforcement needs a ‘due cause’ test to justify detaining vessels in port while awaiting laboratory analysis of the samples. The easiest and most effective way to demonstrate due cause is to show differences between the density or viscosity of the MARPOL sample and the certified values. This can be done on board the vessel or in a Port State facility using a Stabinger viscometer which provides a laboratory standard density and viscosity measurement within five minutes using just a few millilitres (ml) of the MARPOL sample or any other samples collected e.g. from the day tanks or the bunker compartments. If the results do not match the certified values then the certificates are invalid and it is then justifiable to detain the vessel at the operator’s expense even if the fuel proves compliant.

Irrespective of the instrumentation solution adopted, suppliers will f ind they need to be able to mix and maintain fuels in a homogenous state in storage on shore and on the vessel. They will need to be able to segregate fuels by batch and some means must be found to manage ‘ullage’ whether in shore tanks, on barges or on vessels. Even without online instrumentation, these measures may become necessary if only to avoid ‘due cause’ detentions, if PSAs adopt the ‘due cause’ method suggested.

This article has looked at instrumentation as a future cost and shown that the true costs may be far more than simply the cost of the instruments. One wonders what other aspects of MARPOL carry hidden costs?

‘It is not the cost of the instruments that is of

concern; it is that online instruments will reveal a

range of fuel management problems that have

remained undiscovered by drip sample analysis and which will now have to be

addressed’


Environmental Issues

During the last few years, the issues surrounding the marine industry’s environmental

footprint, and how to improve the sustainability of operations, have risen further up the international political agenda and are at the heart of many emotive, and public, industry debates. With the puzzle still unresolved, attention at both commercial and political levels has abruptly shifted away to manage the immediate fall-out from the global economic crisis. With many marine companies purely focused on survival and others looking to carefully navigate their way through the next few months, environmental responsibility, and its associated costs, may have slipped out of view.

However, the legislative ball is still rolling. Shipping emissions have captured the interest of politicians and the public, meaning that whilst companies are understandably distracted at present, progress towards a lower emissions world for the marine industry is irreversible. We only have to look to the United States for a clear indication of this. Despite being at the epicentre of the financial collapse, the pressure to implement legislation to limit emissions in coastal areas, especially in California, continues to accelerate. For example, from July 2009, vessels will be required to use marine gasoil (MGO) of up to 1.5% sulphur or marine diesel oil (MDO) of up to 0.5% sulphur and by 2012, the target is 0.1%. Also, now that the US has ratified MARPOL Annex VI there are strong expectations that the US will apply other emission control areas (ECAs) in the next two to three years. Many also believe that the Environmental Protection Agency’s (EPA) proposed ECA to stretch from Alaska to Mexico could come into force before the 2015 timeline.

The momentum is not just exclusive to the US. In March this year, there were further echoes of support from countries such as Japan and Denmark for a global levy on bunker and aviation fuel, with the proceeds contributing towards helping developing countries to lower their greenhouse gas (GHG) emissions. In advance of the United Nations (UN) climate conference in December 2009, it is expected that the International Maritime

Organization (IMO) will need to have a position on this issue. Right now, whilst the reduction in global trade is crippling the growth of many shipping firms, the prospect of further taxation is unlikely to be welcome. However, this might be more palatable if the funds could be channelled into research and development that would help the marine industry develop feasible environmental solutions. This would be a positive long-term approach rather than just hoping that financial pressure will reduce fuel consumption.

Either way, all the evidence suggests that the economic crisis is not a ‘get out of jail free’ card when it comes to emissions. If we are to be masters of our own destiny, we no longer have the luxury of time to debate without conclusion. We must face up to the inevitability of the task at hand and table some practical solutions, some of which may be embraced or eliminated through an unavoidable process of trial and error.

The combined effects of President Obama’s $150 billion energy package (which will see many companies and indeed countries trying to secure their slice of the action), the Copenhagen UN climate conference in December, the 1.0% sulphur limits in Europe in 2010 and the expiry of the Kyoto Protocol in 2012 could mean that new shipping technologies will f inally gain further funding and more widespread recognition in the next few years. For refiners and ship operators alike, these could potentially solve a multitude of problems. The reality is that residual fuel is still being produced, it is a by-product after all, and until a better disposal method is found, bunkering still seems to be the most viable option. If scrubbing and abatement technologies can live up to their promises of effectively removing harmful emissions from heavier fuels, then operators will be able to continue to use familiar and cheaper fuel products.

However, there are some stumbling blocks that these technology companies need to overcome. First and foremost is the question of cost. Until there is a financial incentive, whether it is to avoid fuel taxation or an unavoidable requirement to burn cleaner, expensive fuel products under enforced regulation, the number of companies that will proactively invest in expensive retrofits

Adrian Tolson is VP Sales and Marketing at Chemoil.

Contact:Adrian TolsonChemoilTel: +1 415 268 2740Fax: +1 415 268 2704Email: [email protected]: www.chemoil.com

Adrian Tolson argues that the bunker industry cannot use the current economic

crisis as an excuse to avoid its environmental

responsibilities

‘Whether we favour new technologies, adopt diverse alternative fuels, or utilise a combination of both, it is clear that change cannot be

stopped’


will be minimal. Secondly, despite the IMO ruling that scrubbing or abatement technologies are a viable tool to reduce emissions from vessels, there still appears to be a reluctance from firms to invest in the ‘first generation’ of new technologies, particularly when operators might be holding on to see whether later models might be able to reduce nitrogen oxide (NOx) and particulate matter (PM) as well as sulphur. Collectively, if these technologies are to make the contribution that they claim they can, there needs to be some form of collaboration between regulators, shipping companies, vessel designers and engineering companies to explore the likelihood of fitting scrubbers as standard in the same way that catalytic converters became a requirement for road vehicles.

Although scrubbing systems could seem like a more straightforward option,

particularly for vessels that will spend a lot of time in ECAs, we cannot rule out the importance of expanding the scope of marine fuels. Products such as biofuels and biodiesel will remain controversial until engine manufacturers, shipowners and inspectors invest in examining how these can be applied to vessels. Forward-looking companies will be keenly watching the outcomes of the biodiesel experiments on the US West Coast for signs as to whether or not this could be used on a mainstream basis, whilst questions remain largely unanswered on the possibility of introducing higher viscosity and cheaper biofuels. Taking strides towards sourcing and using alternative fuels will mean a significant step change in terms of fuel standards and testing. Bodies such as the IMO and CIMAC, the International Council on Combustion Engines, will need to readdress what is classif ied as marine fuel.

Without due recognition of biofuels within the fuelling ‘pool’ then adequate blending and storage operations cannot be overseen, tested and regulated, meaning that these alternatives will never be used.

Whether we favour new technologies, adopt diverse alternative fuels, or utilise a combination of both, it is clear that change cannot be stopped. On a greater scale, change has been thrust upon us as the global recession has transformed the world in which we do business. We can learn a lesson from this credit crunch and see the consequences when industries become complacent and fail to respond to the warning signs. The environment still continues to be a huge issue for shipping and can only be ignored at our peril. By being responsible and taking action we can inf luence the direction of change, making a positive contribution to society whilst avoiding unnecessary turmoil.

REITER PETROLEUM INC.LES PÉTROLES REITER INC.

AS INTERNATIONAL BUNKER BROKERS/TRADERS REITER PETROLEUM INC. CAN OFFER ALL GRADES OF MARINE FUELS AND LUBRICANTS AT

ANY PORT WORLDWIDE AT HIGHLY COMPETITIVE RATES AND SERVICES.

Make the ‘REITER’ choice

CONTACT US WITH YOUR INQUIRIES

625 du President Kennedy AveSuite 705

Montreal, Quebec H3A 1K2Tel: (514) 878-2563Fax: (514) 878-3463

E-mail: [email protected]



Residual bunker fuels derived from high sulphur crude oils have been used for ships’ propulsion

since the 1950s after the work carried out by John Lamb on behalf of the Shell Oil Company.

Since this time, these fuels have been a relatively low-cost option for marine propulsion, giving ref iners a market for materials that are essentially by-products of the refinery crude oil process.

The actual sulphur content of residual fuels depends on factors such as the sulphur content of the crude source and refinery processing configurations.

Prior to the implementation of the International Maritime Organization’s (IMO) MARPOL Annex VI, bunker fuels were blended with cutter stock to meet density and viscosity limits as defined by the commercial specification in force at the time.

For many years now, following the introduction of catalytic cracking technology in refineries, the quality of residual marine fuels has remained remarkably constant, allowing for recognised regional variations.

In general, vessels have been adept at handling heavy fuels with high density, viscosity, sulphur, water, sediment and even high metals contents in order to ensure safe and effective operation.

Now, following the implementation of MARPOL Annex VI and the 2008 revisions after the 58th meeting of the IMO’s Marine Environment Protection Committee (MEPC), Emission Control Areas (ECAs) are a fact of life and a permanent fixture for the foreseeable future.

Suppliers of fuels intended for use within ECAs now need to blend to a different controlling parameter: sulphur. Unless large quantities of low sulphur residuals are available, this necessitates the use of low sulphur cutter stock.

Blending to meet a sulphur limit also changes other parameters such as density and viscosity. In most cases, this will not cause major operational problems for vessels. However, more significantly, blending with cutter stock to meet low sulphur limits can lead to an increase in the levels of catalytic fines, and inf luence stability and ignition/combustion characteristics, as well as introducing waste chemicals.

This article examines trends for conventional

high sulphur and the newer low sulphur fuels needed after the introduction of ECAs.

Why do we need to test bunker fuels?For several years now, the quality of residual bunker fuels supplied to ocean-going vessels has been variable. Often, the same quality issues have been noted from the same ports over different timescales.

The International Organization for Standardization (ISO) specification, ISO 8217:2005, cannot cover all aspects of fuel quality. It is a commercial specif ication between a seller and a buyer and will lead to a proportion of fuels failing to meet the specification limits.

However, knowledge of fuel quality, and in some cases parameters that are not included in ISO 8217, is needed for safe and effective operation of vessels.

Off specification data for 2008Of the fuels tested by Lintec during 2008, 19% overall had one or more parameter failing to meet the ISO specification. More specifically, 19.6% of heavy fuels failed to comply with the specification, with distillates being lower at 13% and over 15% of low sulphur fuels failing to meet the limits (see Figure 1).

When we look at the parameters failing most frequently during 2008 we see the trend for off specification parameters summarised in Figure 2.

During 2008, Lintec rated 2.4% of all samples tested as having ‘critical’ off specification parameters.

A critical limit may be applied for a fuel failing to meet sulphur legislation, a high acid number, excessive catalytic fines or the presence of chemical waste as well as high values for density, water, sediment or metals.

In particular during 2008, a spate of problems were caused by fuels having Acid Numbers either in excess of the limit specified in Annex I of ISO 8217 or as a consequence of acidity present in the originating crude source.

Acid NumbersTest method ISO 6619:1988 detects Total and Strong Acid numbers. It is Strong Acid Number (SAN), also called mineral acid, that can have a catastrophic effect on a vessel’s fuel injection and other components.

SAN is an indicator of the presence of corrosive mineral acids in bunker fuels.

Geoff Jones of Lintec Testing Services

looks at how the introduction of Emission

Control Areas can affect bunker fuel

characteristics

‘Blending with cutter stock to meet low sulphur limits can lead to an increase in

the levels of catalytic fines, and influence stability

and ignition/combustion characteristics as well as introducing waste

chemicals’

Geoff Jones is General Manager of Lintec Testing Services Ltd.

Contact:Geoff JonesLintec Testing Services LtdTel: +44 1325 390187 (Office) Fax: +44 1325 460055Email: [email protected] Web: www.lintec-group.com



More work is needed to correlate very low SAN values with damage to fuel injection equipment.

Many crude oils contain relatively high levels of naturally occurring organic acids and in a similar vein to sulphur. A great deal of this natural acidity is accumulated in the heavy residual fractions. Consequently, a high Acid

Number – greater than 3.0 mgKOH/g – may not be an indicator of chemical contamination and a high value may simply be a consequence of the crude source used to process the bunkers.

Fourier Transform Infra Red (FTIR) is an analytical technique used to differentiate between various organic acids that may cause

corrosive activity and is often used as a precursor to analysis by gas chromatography-mass spectrometry (GC-MS).

A summary of off specification data for low sulphur fuels during 2008 is outlined in Figure 3.

Aluminium + Silicon is classed as a critical off specification parameter. A review of the average Aluminium + Silicon content for high and low sulphur fuels during 2008 showed that the average value for high sulphur fuels was 26 milligrammes per kilogramme (mg/kg).

Whilst the average value had risen to 29 mg/kg for low sulphur fuels, supporting the opinion that increased blending to meet the ECA limits may introduce a greater level of undesirable cat fines.

In addition, around 1% of low sulphur fuels were found to have ‘spot’ results in excess of that generally accepted. This indicates that the increased blending required for low sulphur fuels may potentially lead to stability issues.

Other low sulphur quality issuesIncreased blending may introduce quality issues not potentially covered by ISO 8217: 2005.

One such matter is the levels of chemicals in bunker fuels. Section 5.1 of ISO 8217: 2005 and Regulation 18 section 3.1.1.3 of Annex VI specifies:

‘The fuel shall not contain any added substance or chemical waste which:

jeopardises the safety of ships, or adversely affects the performance of

machinery, or is harmful to personnel, or contributes overall to air pollution.’

The detection of chemical waste in residual bunker fuels is now becoming a standard tool for testing agencies. The technique employed is GC-MS.

‘Blending to comply with low sulphur limits has resulted in additional

quality issues that will need careful on-going

monitoring as more ECAs are put in place’


GC-MS techniquesGC-MS has been a favoured analytical technique within the testing industry for some time. A gas chromatograph, containing a highly specific separation column, is linked to a mass spectrometer detector to identify target chemicals in petroleum products.

The effectiveness of this technique depends on factors such as use of the correct chromatography column, expertise of the analyst and selection of the correct sample preparation medium.

Heavy bunker fuels naturally contain many chemicals, ranging from relatively low carbon number compounds to those with very high carbon number – and hence high molecular weight compounds.

It is the high molecular weight compounds that are critical factors for the so-called ‘direct injection’ GC-MS technique.

Specific sample preparation is needed prior

to injection into the GC-MS, otherwise the chemicals for identification will be masked by many others present in the bunker fuel.

The GC-MS technique is ideally suited as an investigative procedure required to ascertain the possible cause of damage to a marine engine. It is labour intensive and requires high level analytical skills.

Another GC-MS technique used within the testing industry is ‘Head Space’ GC-MS. This is ideal for the determination of Volatile Organic Compounds (VOCs), as it can be automated to reduce the time needed by the laboratory analyst, and can be performed prior to the fuel being burnt rather than afterwards as is the case for the direct injection technique.

Head Space is a very convenient technique for volatile chemicals such as styrenes, many chlorinated hydrocarbons such as methylene chloride, chloroform and carbon tetrachloride, as well as many others including alcohols and

Dicyclopentadiene (DCPD).The presence of any of the above chemicals

as waste may cause fuels to fail to meet sub sections a, b, and c of section 5.1 of ISO 8217.

Head Space is not applicable for detection of high molecular weight chemicals, but it does offer the most appropriate and cost effective means of ensuring that volatile chemical waste is detected in marine bunker fuels.

Styrene and DCPD have been detected in marine fuels at sub percentage levels with the more serious waste chemicals such as chlorinated hydrocarbons often detected at very low parts per million (ppm) levels.

Volatile chemicals have been found in around 3% of fuels screened by Lintec and in many geographical regions.

Blending to comply with low sulphur limits has resulted in additional quality issues that will need careful on-going monitoring as more ECAs are put in place.


Fuel Quality Issues

Chemical contamination in bunker fuels: what is it? Why does it occur? What are the

damaging chemicals and effects on the ships’ engines? What are the common testing techniques used by laboratories? And what protection can the ship operators expect?

You may have recently seen an increase in the number of news items talking about chemically adulterated fuel. It has been well debated and discussed but looking forward, how does the industry detect and protect against chemical contaminants in bunker fuel?

There have been many cases of fuels containing chemical contaminants which have caused anything from an ‘inconvenience’ to a ‘catastrophic failure’. In all cases, a common feature has been the fact that the ship in question has suffered damage but a test report to ISO:8217 parameters has indicated the results to be ‘on specification’.

Today, the common reference for both buyer and seller is the international bunker fuel standard ISO 8217:2005 which covers various characteristics of the commodity in question. It is, of course, perfectly feasible that a ship operator may request any number of additional tests to be done

to further protect the engine, but these more investigative tests often incur more time and cost. Is it a realistic option to be spending increasing amounts of money on testing when the fuel is in say, 85% of cases perfectly ‘fit for purpose’? Well, it may be worth it when the damage caused by fuels that are not fit for purpose due to chemical contamination can run into millions of dollars.

The shipowner is currently protected within the ISO 8217:2005 standard by clause 5.1 which states: ‘The fuel shall not contain any added substance or chemical waste which: jeopardises the safety of ships, or adversely affects the performance of machinery, or is harmful to personnel, or contributes overall to air pollution.’ Thus, if a chemical can be detected in a fuel that is considered to have caused damage to the engine, then this would form the foundations of a claim against the fuel supplier for delivery of non-compliant fuel.

The problem in the chemical contamination debate is the way in which the laboratory test methods may or may not be able to identify a potential contaminant. In the event that it is a clean or ‘pure’ chemical, the only effect on the current test parameters may be to lower

Contaminant Date Region Notes

Styrene andDicyclopentadiene (DCPD) (Combined)

2008 Rotterdam Excessive levels of both the chemicals were reported in combination. The effects of the chemicals in combination were piston ring damage, blocked purifiers and fuel pump seizure

Phenols and DCPD(combined)

2008 Panama and Houston

Vessels reported seized fuel pumps, clogged filters and problems with injection systems. DCPD and phenols are present in refineries, a coproduction of the naphtha cracking process

Fatty acids 2007 US Gulf and West Africa

Investigation analysis identified Hexadeconic and Octadecanic Acid. Vessels report problems with fuel system damage, sticking pump and generator damage

Styrene 2005 Amsterdam-Rotterdam-Antwerp (ARA)

High concentrations of styrene monomer were reported and lead to de-bunkerings based on health and safety grounds. Styrene Monomer is widely known to exist in bunkers but only acceptable at trace levels

Chlorinates 2004 Mideast Chlorinated cleaning solvents (waste products) were dumped in bunkers and led to major operational damage including fuel pump seizure. It was reported that some 20 shipping companies were affected by this spate alone

Polymers(PE,PP & PS)

Late 1990s

ARA and the Baltic

Fibrous polymers in fuels originated from bulk stocks shipped in from the Baltic states. The polymers caused blocking to filter and clogging up fuel system

Andrew Shaw of Guardian Marine Testing considers

what tools are currently available for detecting

bunker fuel contaminants

Andrew Shaw is the Sales & Marketing Manager for Guardian Marine Testing Ltd (GMT).

Contact: Andrew ShawGuardian Marine Testing LtdTel: +44 1642 440991Fax: +44 1642 458537Email: [email protected]: www.gmtlab.com


Fuel Quality Issues

the density and/or viscosity. Whilst this may have stood out as being unusual in the past, with the current increased blending due to the demand for low sulphur fuels, and thus a lower density or viscosity, it is no longer such a good indicator anymore. In fact, many contamination cases have been a direct result of the blending stocks containing the chemicals.

Now we have defined the problem and explained why this is such an issue, we should look at a selection of those cases which are known and recognised from the past (see Figure 1).

It can be seen just from the selection in Figure 1 that the contaminants are wide and varied. The very fact that some of the recent contaminations are combinations of clean chemicals further demonstrates the challenges which exist in the industry.

The most recent problem area which has been identified is the inclusion of biofuels in the supply chain. Biofuel/waste will typically contain fatty acid methyl ester (FAME) which has been reported to have caused corrosive damage. If biofuels are used as blending stock this type of damage may become more common.

Now we have examined the cause and effects of chemical contamination, we need to look at the analysis techniques currently being used in the testing laboratories.

Fourier Transform Infra Red Infra Red (IR) spectroscopy passes IR radiation through a sample. Some of the IR radiation is absorbed into the sample and some is passed through it (transmitted). The generated spectrum is a representation of the molecular absorption and transmission, creating a molecular fingerprint of the sample. An IR spectrum shows absorption peaks which correspond to the frequency of vibrations between the bonds of the atoms making up the sample. Because each different material is a unique combination of atoms, no two compounds will produce the same IR spectrum.

The Fourier Transform Infra Red (FTIR) technique, therefore, can positively identify the presence of a wide range of materials (known as qualitative analysis). Also, the size of the peak of an FTIR scan is a direct indication of the amount

of material present and can also be used to gain a reasonable idea of the quantity of the contaminant in the sample (semi quantitative). Often FTIR may act as a trigger for further analysis such as GC-MS.

Gas chromatography-mass spectrometryGas chromatography-mass spectrometry (GC-MS) has become a widely used and powerful tool, and is often the preferred techniques for problematic fuel investigations. GC-MS is most effective when IR has highlighted a specif ic contaminant. The GC uses a capillary column to separate the components of the oil. The differing molecular properties of the sample will separate as it travels through the column and allows the MS to capture, ionise, and detect the ionised molecules separately. The mass spectrometer does this by breaking each molecule into ionised fragments.

A skilled technician is needed to select the correct set-up of the instrument. In addition, the best sample preparation method needs to be identified prior to analysis. The wrong method could lead to damaging chemicals becoming masked by the natural constituents of the fuel oil

Injecting the fuel directly into the instrument is known as ‘direct injection’. This process is used mostly for high molecular weight compounds.

Head Space GC-MS, is a process that involves heating the sample to ‘drive off ’ the volatile compounds in the fuel. The gas produced in the headspace is injected and analysed. This is a quicker and cleaner method but is very limited as it can only be used to detect Volatile Organic Compounds (VOCs) (see page 44).

Various extraction methods are also commonplace, often adopted when the contamination is a fatty acid or other acidic compounds

Other techniquesIn addition to FTIR and GC-MS techniques, there are other tools available which have been in existence for many years and can be used in detection and identif ication of contaminants. The biggest problem in approving a method for the detection of chemical contaminants in bunker fuels is that there is no single

or standard testing method that can be adopted to detect any possible chemical contamination which may have found its way in to the fuel.

The topic of testing techniques and common methods were debated during the Singapore International Bunker Conference (SIBCON) last year and a call was made to the testing industry to try and standardise the testing and detection of chemical contaminants.

It was suggested that all the testing companies should contribute to a standard which could be adopted throughout the industry to test and report the presence of chemicals. Whether this will gain momentum we are still unsure and the problem remains a complex one which will not be resolved quickly as each specific contaminant will require differing techniques of preparation before analysis by FTIR, GC-MS or any other method.

Future updates of ISO 8217The International Maritime Organization (IMO) has put pressure on the International Organization for Standardization (ISO) to ‘fast track’ the next revision of ISO 8217 to meet the needs of MARPOL Annex VI. The ISO working group committed to issuing the new version of the standard has confirmed that they will deliver the new version of ISO 8217 before July 2010. Although it is a little early to say with any confidence what changes will be included in the new version, there is already much speculation that it should include clauses detailing which chemicals should not be present in bunker fuels. However, until the industry has clear boundaries as to what is considered a chemical contamination, at what levels they must not be present and by which methodology they will be detected, it is likely that cases of fuel contamination will only increase.

Until such information is available, it seems that it is down to the individual fuel testing agencies to work with shipowners to offer the best possible protection not only by testing to standard ISO 8217 test parameters but by also finding ways of looking for significant levels of potentially damaging chemical contaminants in each and every bunker fuel sample that is tested.


Fuel Quality Issues

In recent months, vessel owners have been challenged by an increasing number of nagging

realities associated with bunker fuel quality. Although problematic, fuels producing these headaches are well within the limits set under the ISO 8217 specification. When judged against that standard, these fuels should theoretically not be troublesome in the least.

Serious problems can and do often occur with fuels that meet ISO 8217 standards. Included among them are issues with vanadium, catalytic fines and fuel stability.

In this article, we will closely examine these troubling issues, how they manifest, and how to remedy these seemingly incurable fuel ills.

Firstly, let’s look at vanadium. ISO 8217 calls for a 300 parts per million (ppm) limit in the RMG 380 specification. Doubtless many chief engineers would consider an RMG 380 fuel with a vanadium content of 65 ppm nothing to worry about.

Yet vanadium, named after the Norse goddess of beauty, Vanadis, can still have ugly consequences, even at reduced levels. When combined with sodium and sulphur during combustion, vanadium complexes into low melting point materials that generate signif icant rates of high temperature corrosion – a murderous condition that can quickly destroy exhaust valves, turbocharger blades, and piston crowns.

The classic rule of thumb among motor ship operators is that when vanadium and sodium coexist in a fuel at a respective ratio of 3:1, the likelihood of formation of these deposits is greatly increased. But there is more to the story.

A review of fuel analysis reports from certain vessels that have experienced vanadium-related damages, primarily burned exhaust valves, reveals vanadium/sodium ratios as high as 8:1. Further investigation suggests even higher ratios can be problematic.

General Electric, for example, warns that at a vanadium/sodium ratio of 10:1, problems can be expected. In one service bulletin, engine maker Wärtsilä suggests that ‘even if the vanadium content of the fuel is moderate, hot corrosion may

exist when both the sodium and sulphur contents are high enough’. And in the classic Babcock and Wilcox book, Steam - Its Generation and Use, 6:1 is cited as the most hazard-fraught ratio – a number based on extensive research.

So it seems that a ratio range of 3:1 to 10:1 can be highly problematic, even when vanadium content is quite low.

This is a fact not lost on operators of oil-fired power generation facilities in the United States. These massive 500-1000 megawatt (mw) units typically fire on low sulphur heavy fuel oil (HFO) blends with vanadium content in a low 25-50 ppm range. Fireside and super heater tubes often become thickly encrusted with corrosive vanadate slag. The units must be opened and extensively cleaned on an annual basis. For these operators, it is not about the quantity of vanadium in the fuel, but about the vanadium/sodium ratio.

Marine vessel operators should likewise be cautious when the vanadium content of bunker fuel is much less than the ISO 8217 limit. Recently, a vessel operating in the Far East experienced repeated, premature exhaust valve failures on its two Sulzer 16ZAV40S four-stroke engines. Upon review of fuel analysis reports, it was discovered that while average vanadium content was only 63 ppm, the vanadium/sodium ratio was 3.4:1, resulting in destructive high temperature corrosion.

Fortunately, the problem is solvable. At oil-fired power plants, specialty fuel additives composed of magnesium oxide or magnesium hydroxide are applied to fuel injection lines. These additives arrest the chemical process which complexes vanadium, sodium and sulphur during combustion.

Yet additives designed for power plants are too often unwieldy for vessel operators. The effective dose rates require too large an amount of this type of magnesium-based treatment to be injected, and storage space aboard vessels is limited. Marine engine manufacturers are also wary of products that introduce increased ash to the engines. Wärtsilä policy states: ‘If the additive contains ash (e.g. magnesium, iron, etc), we usually do not recommend it.’

One fuel treatment that has passed the ‘no objection’ scrutiny of Wärtsilä is PRI-RS

Ralph E. Lewis looks at how shipowners can overcome fuel quality problems that are not

currently addressed by the ISO 8217 specification

Ralph Lewis is the Vice President Technical at Power Research Inc.

Lewis, who has served as a technical consultant for the US Mine Safety and Health Administration and as a technology transfer and public information specialist with Shell Oil, is the author of numerous articles on mine safety technology, oil field engineering and refining, world oil economic and political trends, and fuel oil quality issues.

Contact: Ralph LewisPower Research Inc.US Tel: +1 713 490 1100EU Tel: +39 333 1899 361Email: [email protected]: www.priproducts.com


Fuel Quality Issues

heavy fuel oil treatment, manufactured by Power Research Inc. This chemistry has proved to be impressively effective in preventing the high temperature corrosion issues associated with poor vanadium/sodium ratios in both marine diesel engines and at power plants. Additionally, PRI-RS also significantly reduces particulate and unburned hydrocarbon emissions, verified under the MARPOL Annex VI protocol in testing by the engine maker Man B&W at the company’s Holeby, Denmark engine emissions certification facility.

The second area of increasing concern is that of catalytic fines content in fuel. Rudy Kassinger, DNV Petroleum Services’ (DNVPS) senior technical consultant, reports that catalytic fines content has increased more than 20% in bunkers since 2005. The average level of 23.5 milligrammes per kilogramme (mg/kg) for samples received by DVNPS in 2008 is still well below the ISO 8217 limit of 80 mg/kg. Yet as refiners continue to seek greater profitability with the introduction of more efficient catalytic cracking units, the trend of increasing catalytic fines in bunker fuel is expected to continue at a quickening pace.

For refiners, these catalysts are money in the bank, the key to extracting the more profitable lighter fractions from a barrel of crude. Typically composed of certain ratios of aluminium and silicon oxides, the catalyst mixture is fed from a regenerator into a reactor unit during the refining process. In the reactor unit, the feedstock first vaporises, and hydrocarbons are then split into lighter fractions from the catalytic reaction.

As the process continues, back and forth from the regenerator to the reactor, the catalyst material gradually begins to wear out. Some of the catalyst residue gets carried into the next process vessel – the fractionator. Like a distillation tower, fractionators extract lighter hydrocarbon gasoline off the top, mid-range light cycle oils from the middle, and slurry oils from the bottom.

Of course, the tired catalytic residue that sloughs off in the fractionator migrates to the bottom to be commingled with the slurry oil. This is not good news for vessel operators. Slurry oil is often used

‘As refiners continue to seek greater profitability with the introduction of more efficient catalytic

cracking units, the trend of increasing catalytic fines in bunker fuel is expected to continue at a quickening

pace’


Fuel Quality Issues

as a cutter stock in bunker fuel blending. After all, the thinking goes, why waste a good, high quality and profitable distillate fuel as a cutter stock when an inexpensive by-product will do?

This also begs the question as to just how much aluminium and silicon can any marine diesel engine tolerate? It is a bit like asking the question, at what daily dose rate can the human body tolerate arsenic before the expiration process begins?

The general consensus is that modern marine diesel engines can accept catalytic fines, post purifier, at levels below 15 ppm without serious harm to engine components. This is assuming, of course, that a shipboard purification system has the capability to reduce the catalytic fines to this level from a potential maximum of 80 ppm – an 81% reduction.

This seems to be asking a lot. And for some vessels, it is a challenging request. With increasing frequency, fuels with catalytic fines well within the limits of ISO 8217 are proving devastating to propulsion systems of many vessels, resulting in disabled fuel pumps, broken piston rings, cylinder lining scuffing and cracking.

Of course, optimum purif ication begins with an appropriate system design. Historically, design parameters have been predicated on fuel consumption volumes to determine the correct purif ier size. This information is designated in capacity tables developed by centrifuge and engine manufacturers which specify the maximum continuous rating (MCR) of any given centrifuge. Yet with continued problems regarding catalytic f ine purif ication, some think these tables may be a bit too optimistic.

An updated approach is the certified f low rate (CFR) standard for appropriate separation performance. This standard is based on a test method designed by the centrifuge manufacturer Alfa Laval. In this test, f ive micron plastic particles are placed in synthetic oil and the mixture is heated to viscosities simulating that of bunker fuels. The particle-laced oil is then run through the centrifuge at various f low rates. By this method, the proper f low rate of a centrifuge can be determined by measuring the extent to which these particles are removed.

Particle sizes of aluminium and silicon can vary from being submicron to several microns in size. Yet it is generally assumed that, on average, particle size in most bunker fuels will fall within a size range that can be properly managed by the system.

This new standard and improved centrifuge designs are expected to help in years to come. Yet even for new vessels with the latest systems, and older vessels with systems designed under earlier standards, the proper maintenance of fuel purification systems is of paramount importance.

Correct fuel f low rates and fuel temperatures to the centrifuges must be routinely observed and maintained by vessel engineering staff. Purif ier bowls must be regularly cleaned. Settling tanks should also be regularly drained to rid tank bottoms of the heavy particulate concentrations that accrue in time.

Regular draining is especially important. Rough sea conditions can stir up bottom sediments rich in aluminium and silicon – sometimes as much as 500 ppm and more. Suddenly, the suction line can pick up the abrasive mess and send it off to a centrifuge for mission impossible. There is nothing more stressful to a chief engineer than watching a main propulsion system grind to a gritty halt in rough sea conditions.

Another critical area affecting purifier efficiency is fuel stability – the third major issue. While all heavy fuels produce sludge, those of poor stability produce more. And the more sludge a fuel produces, the less efficient is a centrifuge in separating catalytic fines.

Today’s heavy fuels have especially

challenging stability issues. The hydroscopic components of these fuels tend to absorb more water and produce greater amounts of sludge. The cutter stock with which these fuels are blended to meet viscosity and density requirements under ISO 8217 also plays a critical role in the tendency of the fuel to maintain physical stability (see my previous article, entitled Loss Recovery, on page 38 of Bunkerspot, April/May 2008).

The unassailable fact remains that almost any cutter stock will disrupt the surface tension between the heavier asphaltenes and the mid-range maltene components. This results in fuel sludge precipitation. In the worst cases, a cutter stock conjoined with an eccentric residuum will set up a devastating compatibility conf lict: a condition that can occur slowly at first, but which progressively accelerates over time.

When this unhappy mixture erupts, the heavy amount of asphaltenic material released can completely disable the capability of even the heartiest purifier, no matter how well maintained.

Conventional Total Sediment Potential (TSP) testing under ISO 8217 is useful for identifying a fuel that has already experienced excessive sludge generation. But the test can easily miss the onset of a severe compatibility problem. The fuel may test well within specif ication the day the laboratory receives and evaluates the sample, yet the test method remains incapable of predicting fuel stability for the days and weeks ahead.

More than a few vessels have been temporarily disabled from sludge-laden purif iers, even though the fuel passed muster under the TSP standard under ISO 8217 just days before. Sludge producing fuel incompatibility problems can become quite aggressive in just a few days time.

Even with a moderately stable fuel, sludge generation and removal can be quite costly. Fuel sludge not only results in increased wear on fuel systems, it can also interfere with proper fuel atomisation, negatively affecting fuel efficiency. Sludge contributes to reductions in purif ier efficiency, and when it is disposed, either through incineration on board or off loaded on a slops barge, fuel value inherent in the energy-rich asphaltenes is simply thrown away.

‘Slurry oil is often used as a cutter stock in bunker

fuel blending. After all, the thinking goes, why waste a good, high quality and profitable distillate fuel

as a cutter stock when an inexpensive by-product

will do?’


Fuel Quality Issues

‘When this unhappy mixture erupts, the heavy

amount of asphaltenic material released can completely disable the capability of even the

heartiest purifier, no matter how well maintained’

Again, there is a prof itable remedy, which provides substantial payback for vessel operators. Power Research Inc. manufactures fuel treatment chemistries that signif icantly reduce fuel sludge generation, based both on shipboard studies and independent, third-party laboratory tests.

In a 2009 study of three European cruise ships, for example, sludge reductions with the PRI-RS chemistry ranged from 35% to 69%. Net return on investment (ROI), based on recovered fuel value and reduced sludge discharging costs, achieved an impressive monthly savings of $10,000 to $17,100 per vessel – or an annual average savings of $162,000 per vessel. For vessels presently trading, this is a nice number to have on the plus side of a balance sheet.

But what of the vessels that are temporarily being laid-up because of the slowing market conditions in some sectors?

When markets pick up in a few months and the ships are returned to service, some chief engineers can expect a rude awakening. This is because heavy fuel oils deteriorate over time. Sludge precipitation is, after all, progressive. The lighter hydrocarbons in the fuel slowly oxidise, losing ignition quality. Cutter stock used for blending can separate from the heavier components, resulting in fuel stratification. When a vessel is placed back into service after a long lay-up period, the quality of the fuel in its tanks is rarely the same as when it was freshly bunkered months before.

Fortunately, the same physical and thermal stability chemistries of PRI-RS that improve combustion characteristics and reduce sludge serve to maintain peak fuel freshness during long storage periods. When properly blended with PRI-RS, a heavy fuel will retain the same good ignition quality characteristics it had the day it was bunkered. Sludge precipitation is greatly reduced. Stratification is prevented. Purifier efficiency is maintained and even enhanced for protection against catalytic fines and other contaminants.

PRI-RS even restores severely degraded heavy fuels to a refinery fresh condition. In a recent case, this restorative capability saved the vessel operator an estimated $195,000 in fuel de-bunkering and replacement costs,

all for a mere $900 investment in PRI-RS.This high level of protection of PRI

chemistry is also available for marine gasoil (MGO). PRI-D, a stabiliser for middle distillate fuels, is a staple for operators of emergency stand-by power generation units throughout the United States to preserve and enhance fuel quality in long term storage. Included among them are emergency service providers, nuclear power plants, electronic data storage facilities, office buildings, cell phone tower sites, federal government fuel storage facilities, among many others.

Like PRI-RS, PRI-D is proven to maintain fuel integrity in long-term storage through industry standard fuel stability testing. PRI-D can also restore severely degraded fuels to refinery freshness.

With PRI-D, the fuel cost savings can also be immense. The Tennessee Valley Authority (TVA), for example, discovered 1.8 million gallons of deteriorated diesel fuel at a frame turbine power generation facility in Memphis, Tennessee. A standard stability pad test rated the fuel at 17 on a scale of 1-to-20, the higher number being the worst. Pad rating specification for the turbine units was 3, so burning the fuel was out of the question.

A sample of the unusable fuel was sent to company headquarters for testing. In repeated stability tests, PRI-D restored the fuel from a pad rating of 17 to a pad rating of 3, thereby meeting the company standard. The 1.8 million gallons of unusable fuel was treated, saving TVA an estimated $2.7 million in fuel replacement costs. The frame turbine units were soon operating on the PRI-D treated fuel problem-free, and for a fraction of the cost of fuel replacement.

Indeed, vessel operators are cautioned to read between the lines of ISO 8217. There is more than meets the eye. And we encourage owners to adopt proven technological approaches that positively alter heavy fuel oil behaviour both in storage and combustion. As discussed here in a few examples, the payback is substantial.

‘Once we accept our limits, we go beyond them,’ Einstein said. Today’s successful vessel operators, we believe, are those who look beyond the limits of today’s fuel standards.


Regional Focus: Sri Lanka

The marine fuel sector in Sri Lanka presents interested observers (and its local suppliers)

with something of a conundrum. Strategically well-placed to serve trade routes between West Asia and Singapore, the country’s bunker market has been beset with issues about monopoly of supply since the privatisation of Lanka Marine Services (LMS) in 2002. This, it was widely accepted, inf lated bunker prices in the local market, but the problem of the price differential between Sri Lanka and, for example, Singapore and Fujairah has been principally caused by a chronic shortage of indigenous refining capacity.

The opening up of fuel storage facilities in Colombo to local bunker licence holders in September 2008 was heralded as the beginning of a much more competitive and transparent market for suppliers which would result in an eagerly anticipated fall in fuel prices. However, the unexpected decision by the Sri Lanka Ports Authority (SLPA) and the country’s Customs authorities to clamp down on offshore bunkering directly from f loating storage has done much to restrict supply. Local companies claim that there has been a beneficial impact on prices since the liberalisation of the Colombo storage facilities, but there is clearly a storage capacity hiatus which is of great concern to suppliers. Ambitious plans by the Sri Lankan government to develop a new container terminal in Colombo and to press ahead with the Hambantota port project can only exacerbate the storage capacity problem. Although new bunker storage will be constructed at Hambantota, it is still difficult to see how the Sri Lankan bunker market, which, on paper, would seem to offer so much potential, can attract vessel operators away from Singapore and the burgeoning Indian markets.

The liberalisation of the Sri Lankan bunker market was intended to happen in 2002 when LMS, the monopolistic bunker business owned by the Ceylon Petroleum Corp. (CPC), was put up for sale. This, however, proved to be a false dawn. The company was eventually acquired by John Keels Holdings (JKH) (which took a

90% interest) and, as such, had control of the 30,000 metric tonne (mt) Bloemendhal storage facility at Colombo. Other local suppliers, however, believed that under the terms of the sell-off this would also be made available to them under a common user facility agreement. In the event, this promise failed to be realised, and LMS, being the sole occupant of the Colombo tank firm, went on to hold around 85% of the local bunker market which serves Colombo, Galle and Trincomalee.

However, the LMS sale did presage the entry of the Sri Lanka Shipping Co subsidiary, Lanka Maritime Services, into the supply market and this did go some way to shaving high local fuel prices.

After much legal wrangling, the island’s Supreme Court ruled that the transfer of the tank farm and land to LMS as part of the privatisation process was illegal, and it ordered that these assets should be returned to the SLPA. This was carried through in September 2008 and the Bloemendhal facility is now run and administered by JCT Co. Ltd, a wholly-owned subsidiary of the SLPA. Soon after this transition, the SLPA awarded bunker licenses to local suppliers who themselves formed a licensed bunker operators’ association. Each bunker supplier is entitled to an equal share of the storage facilities, and the Jaya Container Terminal and the SLPA will also be able to store and supply bunkers when required.

Prior to the opening up of the Bloemendhal tank farm, bunker fuel prices were estimated to be some 20% higher than at other regional hub ports such as Singapore. Sales of bunker fuel in Colombo hover around 15,000 mt per month and the majority of local suppliers have to bring in fuel from India, the Mideast or Singapore. Sri Lanka’s only domestic refinery, which is owned by Ceylon Petroleum Corp. and is located in Sapugaskansa north of Colombo, has an output of 50,000 barrels per day (b/d) which only satisfies half the country’s petroleum requirements.

Now that the green light has been given to the Hambantota port development, further refining capacity should be achieved as this project is slated to include the construction of a new 100,000 b/d refinery to process oil from the Mideast. However, initial discussions about this would seem

Lesley Bankes-Hughes looks at how fuel storage issues are thwarting the

growth of Sri Lanka’s newly-liberalised bunker

sector



to indicate that the refined products will be re-exported rather than fed into the domestic market.

Following the handover of the Colombo storage to the SLPA, the suppliers who were allocated a share of the facility also expected to be able to combine this capacity with additional f loating storage (which, with the exception of LMS and Lanka IOC, had been the only form of storage available to them prior to September 2008). Indeed, before LMS vacated the tank farm it had already chartered a vessel for storage. In the event, Sri Lanka Customs has ruled that there can be no off-shore bunkering using f loating storage, and that all fuel must be brought into the Colombo storage before being used for bunkering in Colombo, Galle or Trincomalee. As things stand, each supplier only has a storage allocation of some 3,700 mt to include 380 centistoke (cst), 180 cst and marine gasoil (MGO). They are able to negotiate additional space with other suppliers if they are not using their allocation, but the situation is imposing considerable restrictions on availability of supply.

This problem is compounded by the fact that Colombo has only one discharging berth which is also used by the local CPC oil terminal which supplies the local petroleum industry. Therefore, congestion at the port is resulting in suppliers being unable to discharge fuel, and local suppliers have confirmed that fuel supply is being disrupted and delayed. Furthermore, lack of storage space means that suppliers can only buy relatively small parcels of fuel at premium prices, and the discharging problems at Colombo means that they are sometimes having to hold on to the fuel they have purchased for longer than anticipated which, again, is having a financial impact on their business.

LMS currently operates three barges and has a 7,000 mt tanker. It undertakes bunkering in Colombo, Galle and Trincomalee, and purchases fuel from Singapore and India. Prior to September 2008, LMS had the lion’s share of the Sri Lankan bunker market, and CEO Zafir Hashim told Bunkerspot that he estimates it still has around a 60% share. With regard to LMS’s storage allocation at Colombo, he says that approximately 1,400 mt is used

to store 180 cst fuel, 1,200 mt for 380 cst fuel, and the remainder for MGO. He acknowledges that lack of storage capacity is having a ‘huge impact’ on the bunker market. He notes that prices for fuel oil are now a little better, but gas oil is currently more expensive than before.

Mr Hashim stressed that the lack of berthing facilities at Colombo is having a detrimental effect on suppliers’ operations and is also impacting on the terminal operator’s revenue streams: ‘The biggest problem is that 85% of the berth’s time is being used by CPC. Therefore, in reality only about 2-4 days per month can be used for discharging bunkers.’ He said that the Sri Lankan bunker association has already made representation to the Customs authorities to permit the operation of f loating storage, but has yet to receive a response. ‘We are individually trying our level best to overcome these problems,’ he said. ‘We do have the ambition for further investment in barges and tankers but don’t want to do anything until these problems are resolved.’

Last September, the port authority seemed to indicate that it would consider a moderate expansion of the Colombo storage, but no progress has yet been made on this. Mr Hashim points out that when LMS was the sole occupant it did preliminary work on tanks which would have provided an additional 5,000 mt capacity. ‘This is still available,’ he said, ‘and would need to be finished off.’

Another player in the market is Lanka Maritime Services, a subsidiary of the Sri Lanka Shipping Co. It supplies 380 cst, 180 cst and MGO in the three main ports and operates three barges (3,200 mt, 2,100 mt, and 550 mt). The largest of its vessel shuttles between Singapore and Sri Lanka with fuel supplies. A source within the company told Bunkerspot that another barge, the 1,100 mt LMS Ranboda, will arrive in Sri Lanka in late April. This is currently on charter in Mozambique and is expected to enter service in May. Again, the company highlights restricted storage as a significant issue: ‘The major problem is capacity; maybe only three or four companies are actively involved in bunker supply and they can share the storage if it is not being used by one of the passive players but it is

‘Congestion at the port is resulting in suppliers being

unable to discharge fuel, and local suppliers have

confirmed that fuel supply is being disrupted and

delayed’



still not sufficient and we feel very strongly about this.’

Lanka IOC is a subsidiary of the Indian Oil Corporation and owns a third stake in CPC. It supplies all grades of fuel in Trincomalee, Galle and Colombo, and obtains its fuel from India, Singapore and Fujairah. It can supply total cargos of around 8,000 mt, and operates two double-hulled barges which, a spokesman told Bunkerspot, are sufficient for the company’s needs at the moment. ‘We started bunkering in a small way,’ he said, ‘but in the past few months it has become a fully-f ledged operation and it is going very smoothly’. One asset belong to Lanka IOC which is particularly pertinent to the ongoing storage capacity issue is the China Bay tank farm at Trincomalee. Formerly operated by CPC, this connects to the harbour at Trincomalee, which is the fifth largest non-tidal natural harbour in the world. The farm, which dates back to World War II, has 99 tanks each with a capacity of 12,000 kilolitres (kl), although only 15 tanks are currently in use.

In 2008, a joint venture to supply bunker fuel in Sri Lanka was forged between the Ceylon Shipping Co and Ariston Oil and Shipping Pvt, whose major shareholder is Pyrros Vardinoyannis, a member of a well-known Greek family with interests in shipping and petroleum. CSC-Kandia supplies 380 cst, 180 cst and MGO and sources its fuel from the Mideast. It delivers fuel using barge operators at the port of Colombo, and a spokesman told Bunkerspot that it has no immediate plans to acquire its own vessel.

The newest player to engage in bunker supply in Sri Lanka is Moceti, a 100%-owned subsidiary of the Hayleys Group, which obtained its licence at the end of 2008. Kushan de Silva of Moceti told Bunkerspot that the company had been interested in moving into Sri Lanka since the liberalisation of the market in 2002, and that it had been a front runner in the bidding for LMS before it went to JKH. Moceti currently operates one barge, the 1,100 deadweight tonne (DWT) MT Simran. The company obtains its fuel from Singapore and the Middle East, and can supply 180 cst, 380 cst and MGO. Mr de Silva says that it operates predominantly in Colombo but it could position its vessel

in Galle or Trincomalee if there were a requirement. He concurs with the other local suppliers that ‘storage capacity is a major issue and scale of purchasing is limited’. He does, however, believe that the entry of more suppliers in to the market has driven fuel prices down: ‘The competition has reduced prices significantly for 180 cst and 380 cst; the price differential is less than $30.’ Mr de Silva did not disclose the company’s monthly supply volumes but he noted that: ‘We have been able to become the third largest supplier within a period of three months.’

The Sri Lanka Shipping Co also has another licence through Lanka Bunkering Services which is a joint venture with Chemoil. In December 2008, Lanka Bunkering Services filed a claim in the District Court of Colombo for almost $1 million from JKH and Lanka Marine Services. It is alleged that they contrived to prevent LBS from delivering marine fuel in Colombo following a reversal of the earlier decision to withdraw from the common user facility agreement. The action has now been taken as a result of the Supreme Court Judgement in July 2008 that the privatisation of Lanka Marine Services and the user agreement was f lawed. With regard to Lanka Bunkering Services’ present operations, Bunkerspot understands that the Sri Lankan market is not a current priority for Chemoil.

InterOcean Energy (Pvt) Ltd, a subsidiary of the McLarens Group, also supplies IFO 180 cst, 380 cst and MGO in Colombo, Galle and Trincomalee through a link-up with GAC Shipping. Established in April 2008, the company sources its fuel from CPC as well as from imports

and deliveries are made by the 1038 DWT MT Kandy. A spokesman for the company told Bunkerspot that it has plans to acquire additional vessels. The company supplies monthly volumes of around 3,500 mt, and its spokesman said that fuel prices in Colombo had been driven down by around 10% since September 2008.

Some 70% of container throughput at the South Asia Gateway Terminal at the port of Colombo is transshipment business from the Indian sub-continent. The current economic chill has impacted on volumes, with a 12% fall in January this year to 122,095 twenty-foot equivalent units (TEUs), but a request for proposals is currently out to build and operate the terminal at the new South Port of Colombo. The new port is intended to expand Colombo’s cargo handling capacity and accommodate larger container ships. Bids are due to be opened in mid-May and the project is seen as vital to Sri Lanka’s ambitions to position itself as a key transshipment hub. Construction work on the breakwater is already underway with Hyundai Engineering as the prime contractor. However, given that bunker storage in Colombo is such a pressing issue and is clearly restricting growth in the supply sector (local traders indicate that the current levels of business can really only sustain three or four active players), some concerted action on increasing storage by the SLPA and the Customs authorities is imperative ahead of the South Port development.

One lifeline for local suppliers could be the Hambantota port project in the south of the country. The government is pressing ahead with this scheme, and the first phase should be completed by the end of 2010. The bulk of the funding on this project will be provided by the Bank of China, and the $360 million first phase will see the construction of a 310-metre long bunkering terminal as well as a 600 metre quay wall for general cargo. Bunker storage here will be an estimated 80,000 mt and local suppliers are clearly looking at the business potential with considerable enthusiasm. New recruit Moceti told Bunkerspot: ‘We believe that our Colombo operation will be an ideal stepping stone to cater for increased bunkering operations. The potential [at Hambantota] is seen as significant.’

‘One lifeline for local suppliers could be the

Hambantota port project in the south of the country.

The government is pressing ahead with this scheme,

and the first phase should be completed by the end of

2010’


Regional Focus: Latin America

Although Argentina’s agricul-tural sector has been hit by a year-long conf lict between

the government and the farmers over export duties on grain, the country is still a big exporter of grain and related byproducts, edible oils and minerals, and shipping activity remains firm.

In 2007, Argentina produced 94,103 million metric tonnes (mt) of grain. In 2008 – despite the long strike – production actually rose to 95,703 million mt, according to statistics from the National Agriculture Secretary (SAGPyA).

At the time of writing, the dispute between the farmers and government appeared to be nearing a resolution, which will be good news for the shipping business.

The worldwide economic crisis will hit Argentina – but it is expected that food will be the first commodity to bounce back in the recovery.

Argentina ships significant volumes of soybean, sunf lower and others edible oils to markets across the world, including China, India, Vietnam, and Europe.

Most of the edible oils pass through the ports of Rosario and San Lorenzo on the Parana River – the second-longest river in South America.

Over the past couple of years, there has been a steady growth in the volume of bunker fuel sold at Rivers Plate and Parana, currently accounting for about 690,000 mt of intermediate fuel oils (IFOs), marine gasoil (MGO) and marine diesel oil (MDO).

All the bunker fuel produced in Argentina is derived from locally sourced crude oil, which is ‘sweet’ with a low sulphur content. The bunker fuel, therefore, has a maximum sulphur content of about 1% and no high sulphur fuel oil (HSFO) is available.

The refiners in Argentina include: Repsol YPF, which operates a 189,000 barrels a day (b/d) plant at La Plata; Shell Argentina Co, which has a 110,000 b/d refinery near Buenos Aires; ExxonMobil, which has a 84,500 b/d plant in Campana; Petrobras, which operates a 29,000 b/d refinery at Bahia Blanca; and Refisan, which has a 84,500 b/d plant in San Lorenzo.

There are a number of physical suppliers and traders active in Argentina. These include Bominf lot Argentina, whose affiliate Deltamar S.A. owns the barges

MT Parana (trading at Common Zone and Buenos Aires Port), and the MT Deltamar II, which arranges deliveries for Petrobras at Bahia Blanca.

Risler S.A. Bunkering has five double-hulled or double-bottomed bunkering vessels. The MT Mar Chiquita and MT Sofia R operate at Campana, the Common Zone of Buenos Aires Anchorage and in the port of Buenos Aires.

The MT Rio Cisnes supplies in the Buenos Aires area, and at Zarate and San Nicolas.

The MT Adelina makes bunker deliveries at San Lorenzo and Rosario.

In December 2008, Risler expanded its bunker f leet through the launch of the 3,200 cubic metre (m3) capacity double-hulled tanker, MT Gustavou. The tanker will enable Risler to strengthen its coverage in its key ports, and also bring new services to other location such as Mar del Plata.

Meanwhile, Risler is awaiting the delivery of two 1,500 mt capacity double-hull barges and a 1,600 horse power (HP) tug. The vessels, which are scheduled to be ready before the end of 2009, are being built in the same local shipyard which delivered the MT Sofia R to Risler in 2006.

Maritima Challaco owns the MT Estrella del Alba, and is particularly active in the San Lorenzo area.

Local branches of Tramp Oil and Brilliant Maritime Services act as traders or brokers, renting barges as needed.

The oil majors and refiners do not have their own bunker barges. Instead, they will charter barges from independent operators. Petrobras, for example, uses barges on a long-term charter to supply in Bahia Blanca, delivering at Buoy 11 and Buoy 17.

Bahia Blanca is the southernmost port where IFOs can be supplied. Other key ports in southern Argentina include Puerto Madryn, San Antonio Oeste, Puerto Deseado, Punta Quilla and Ushuaia.

From the Recalada Pilot station at the beginning of River Plate to San Lorenzo and Puerto San Martin areas, the Hidrovia waterway currently has a draft of 10 metres. However, there are plans afoot to dredge the waterway further, to give it a draft of 6.7 metres all the way to the port of Santa Fe. This should bring a major boost to shipping, which in turn will create extra bunker demand.

Alejandro Risler gives an overview of Argentina’s

bunker market

Alejandro Risler is the President of the bunker supply company, Risler S.A.

Contact:Alejandro RislerRisler S.A.Tel: +54 11 4393 0723Fax: +54 11 4325 3376Email: [email protected]


Events

APRILNORWAY: International Bunker Conference

MAYNETHERLANDS: BunkerExperience

UNITED KINGDOM: The Oxford Bunker Course

SPAIN: Bunker Summit 2009

TURKEY: 4th International Istanbul Bunker Conference

–STOP PRESS STOP PRESS–

UNITED STATES: Maritime Week Americas

JUNEUNITED KINGDOM: Bunker Summer School

JULYGHANA: Oil & Shipping Africa 2009

SEPTEMBERUNITED KINGDOM: The Oxford Bunker Course

NETHERLANDS: ARACON 2009


Networking

Europe

Mideast and Africa

Americas

VISIT THE OFFICIAL WEBSITE: WWW.MARITIMEWEEKAMERICAS.COM OR CALL +44 1295 814455Supporting MediaSupporting

OrganisationsSponsored by

Passport

BUNKERING SHIPPING TERMINALLING PORT SECURIT Y CREDIT AND FINANCE

Organised by

T: +44 1295 814455F: +44 1295 814466

E: [email protected]: www.petrospot.com

Be a part of this major event which draws together the key players from within the Americas and beyond in both the

MARINE FUELS and PORT AND PORT HINTERLAND SECURITY sectors

BUNKERING OPPORTUNITIES: Technology and teamwork · PU (WYPS [OYV\NO [V Petrospot’s V^U 4HYP[PTL...

Documents

Transcript of BUNKERING OPPORTUNITIES: Technology and teamwork · PU (WYPS [OYV\NO [V Petrospot’s V^U 4HYP[PTL...