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USCG and ECA Enforcement, Technical and Safety Issues [Download PDF]


January 2012 Newsletter

Good Day. New Year's greetings to all and best wishes for a healthier economic environment in 2012! As we enter the New Year the spotlight is on sulfur, fuel cost, and quality. As of January 1 global limits on sulfur were reduced to 3.5% and on August 1st the North America ECA zone becomes active with a 1.0% limit. Fuel costs since 1st quarter of 2011 have pretty much remained above $640 a ton for RMG 380. However a number of refineries are expected to cut production as they shut down for upgrades. The expected shutdowns and anticipated growth in world economies should provide the catalyst to further raise the price of fuel and potentially increase supply and quality issues.

SULFUR

We took a look at all RMG 380 samples (No low sulfur 380) for the 4th quarter 2011. Approximately 7% of the samples tested above the 3.5 % sulfur content. Of the 7 % over the 3.5% limit the below pie graph provides a breakout of where the 7% sourced.

The biggest area of concern is the Middle East. More than half of the over 3.5 % samples came from the Middle East. Further of the total amount of samples received in the 4th quarter from the Middle East 48.8% were above the 3.5% new global limit for 2012. For higher viscosity fuels the percentages are more than double that of 380. In the 4th quarter 2011 approximately 19% of submitted samples of 500 viscosity or more had sulfur tested above 3.5%.

CATFINES

We have reviewed the major bunker ports over a 3 year period as well as 4th quarter 2011. As illustrated in the chart below, the percentage of samples that fall under a 20 mg/kg reading continues to decline in almost all areas. With most engines manufacturers recommending a reading of 15 or less, the percentage increases should serve to remind all to ensure that their fuel systems are working properly with 15 mg/kg or less of Al/Si entering the combustion chambers.

Submitted Samples Cat Fines 2009 - 2011

Fuel Prices

Since the 1st quarter of 2011 RMG 380 has traded between $640 and $660 MT. We are forecasting a slow climb in bunker pricing as suppliers try and source suitable cutter stock to deal with the new sulfur regulations and supply of residual oil is cut back when refineries begin upgrade programs. We expect RMG 380 to rise to $675 by late second/early third quarter 2012 and 380 LS to top $700.

HISTORICAL PRICING HOUSTON RMG 380 VS WTI VS BRENT


About Oiltest

Celebrating over 30 years of service, statistical contributors to the IMO, and members of the ASTM Round Robin, our Submitted Sample Program and Dedicated Marine Fuels Laboratory has been recognized as one of the best in the world. Simple, fast, and reliable. With global and regional sulfur standards in focus now more than ever accurate fuel quality enables the reduction of legal operational risks.

Surveys
Oiltest can monitor your bunker deliveries by safeguarding the quantity and quality of bunker fuels delivered to your vessels. Our impartial surveys are internationally recognized, cost effective, and developed basis specific customer requirements.

Additional Services
Oiltest provides advanced diagnostics for marine fuels specializing in identifying contaminants that ISO 8217 tests do not recognize as well as fuel alerts, monthly newsletters, and claims assistance.
Oiltest can also provide your technical team with Marine Fuels Training Courses to heighten awareness of regulation and problem areas.

Please feel free to contact me on any questions or comments.

Best Regards

Rob Leventhal
V.P. Sales and Marketing


October 2011 Newsletter

Good Day to all. We are pleased to present our latest review of bunker trends. This report looks at RMG 380 and RMG 380 LS for the period running January - June 2011, comparing these averages to the period running July - Sep 2011. The 1st tab of the spreadsheet attached (Jan - June RMG380 shows the January - June averages for the major ports in the world. Below that are the RMG 380 LS averages. Given the total number of LS samples to draw from we looked only at worldwide vs. individual ports to ensure statistical relevance. The 2nd tab of the worksheet shows the actual variances for each test in the comparative periods.

In examining the statistics, overall we find:

  • The fuels meet specification, but that doesn't mean that it will be trouble free.
  • Viscosity shows a small increase, requiring additional heating to obtain the desired injection temperature.
  • CCAI shows an increase, indicating that the overall burning quality is not improving.

While at present no global trend is readily identified, (in part due to the fact that localized fuel blending is now standard practice by most suppliers), we can offer some regional precautions. Since a supplier is driven not only by specification and local regulations, but profit as well, local fuel blending components can have a significant impact on a fuel's usefulness.

For example, when a supplier purchases a base fuel with a higher or lower viscosity than required, they will need to blend to meet the specification. A cost effective blend-stock may be high in sediment, sulfur, or metals. The percentage selection of this blend-stock can yield a trouble free fuel, or a problematic one. If a supplier concentrates on too few parameters when making their blend, such as only density and viscosity, some of the other parameters may rise dangerously close to or even exceed their specification limits. One of the issues here may be elevated asphaltenes, which may increase combustion problems.

With blending on the increase, and the price of bunker fuel remaining high, vessel owners will need to pay close attention to a fuel's actual quality in use, not simply that the fuel met the purchase specification.

We are once again seeing increases in fuel problems from fuels that appear to meet the specification, such as excessive sludge and filter clogging problems. In-depth laboratory investigations have frequently discovered polymer contamination as the cause of these problems.

Another recent problem reported was that of sticking fuel pumps, which may lead to engine damage through continued use of the fuel. These types of problems were found to be related to acid contamination.

Finally as we have been pointing out in previous newsletters there continues to be a widening of the spread between the price of a barrel of West Texas Intermediate vs. the price of a MT of RMG 380 in Houston. As of October we have now broken the all- time spread with a whopping 8 x the price of WTI. The reason for this alarming spread is current demand combined with reduced availability of residual fuel. As refineries in the Western Hemisphere shutdown (2 older residual refineries closed this week in The Northeast US). Modern refineries do not produce as much residual as older refineries. Should you have any questions or comments please feel free to reach out to me at rleventhal@oiltest.com

Best Regards
Rob Leventhal
VP Sales


August 2011 Newsletter / North America ECA Zone

On March 26, 2010 a new ECA Zone, (see below), was formally adopted by the IMO for Canada and the United States. As of August 1, 2011, all vessels operating within this 200 mile zone are required to burn Low Sulfur Fuel Oil, (LSFO). Although active enforcement commences on August 1, 2012, according to a US Coast Guard presentation made at Maritime Weeks America in April 2011, the US Coast Guard will begin boarding vessels in 2011 to assist in educating vessel crews on the changes.

Recent reports have indicated that propulsion failure during fuel switchover is on the rise again. Given the much larger scope of the North American ECA, combined with increasingly younger vessel crews, leads us to expect a potentially larger increase in these problems when switching from HFO to Distillate. We have attached a presentation by the USCG covering switchover and legal aspects of the North American ECA.

The question remains: will there be a readily available supply of LS HFO at major North American ports? Many of the refineries in North America are older and use technology that is not able to offer a cost effective desulfurization process for HFO. A review of Fuel sample Sulfur results support this. We looked at submitted samples starting in January 2011 through June 2011 for North American ports, focusing on RMG 380 for average sulfur content.

Here are the results:

Further we have provided the average laboratory test results for RMG 380 for the same time period.

Given that the LS requirement was only recently mandated, there had been very little demand for this product, with few samples of originating in North America, Mexico, or Central and South America with a sulfur level at or under 1.0%. Almost all of the RMG 380 LS samples analyzed were supplied from Rotterdam, Antwerp and St. Petersburg. Given this geographic supply issue, we can expect most vessels, upon entering the new North America ECA, may choose, (need?), to switch over to distillate. This places an increased emphasis on the importance of having both crew and equipment ready to handle the switchover.

Naturally, these regulations will result in higher operating costs for those vessels calling on North American ports. As example, a vessel traveling at approximately 18 knots will need to burn a LS fuel for approximately 10 hours each way or 20 hours in/out of the ECA. The approximate premium for LS 380 is about $75 ton, but may even be higher, as when the product is imported. Therefore, a vessel burning 100 tons per day would experience increased costs of $7,500 if the switchover was to a LS 380, and closer to $30,000, if they choose to burn distillate. For those vessels trading heavily in ECA areas, scrubber technology may also need to be looked at carefully, as it may make better economic sense than burning a LS product.

Earlier editions of our newsletter had tracked the spread of a metric ton of RMG 380 in Houston in relation to a barrel of WTI. Indications were that we would continue to see an enlarging spread between these 2 price factors. Unfortunately this trend has come to fruition.

The highest spread in the last 5 years was on October 2008, with WTI @ $76.75 and RMG 380 in Houston @ $576. This yields a 7.5 to 1 ratio. As of August 1, 2011, the ratio stood at 7.1, which is the highest level since October 2008. At November 2008, just after the global economic crash, the ratio almost collapsed in half to a 4.9 ratio. On August 4, 201, the ratio surpassed the October 2008 record with a 7.6. The next few weeks will be a critical time, as the world economy determines whether we are heading for a double dip recession, and a radical fall off in prices, or just a short pause in global recovery.

Over the next few weeks we will continue to review our submitted sample averages by test for Jan-July 2011, and then begin to compare them to July-December 2011, and work to determine emerging trends. As this study progresses, it will be forwarded to all recipients.

Fuel prices and fuel quality in the Americas will become a major focus with the newly implemented ECA. With complete quantity survey coverage of all major ports in the Americas, including ISO approved laboratories in Panama, Valparaiso, Guatemala, Houston, and NY/NJ, our highly experienced staff will be there to assist on any quantity or quality issues. Should you have any questions or comments please feel free to contact me.

Best Regards

Rob Leventhal
V.P. Sales and Marketing


June 2011 Newsletter / Maritime Week Americas

Good day to all. I recently attended Maritime Week Americas in Cartagena. The main focus of the presentations were an examination of the current situation in the marketplace, what can we expect as new tighter regulations move closer to enactment, and what lies ahead from a macro economic standpoint. All these dynamics will continue to determine future prices and quality for bunker.

Let us first look at the current state of the deep sea fleet. With the now widely adapted practice of slow steaming we have seen a rapid expansion of the active fleet since the recession. According to Lloyd's 2011 statistics the deep sea fleet is as follows:

Deployed Ordered Ordered as %
Containerships 5053 490 9.70%
Bulkers 8863 2613 29.50%
Tankers 12,836 1062 8.20%
Totals 26752 4165 15.60%

A large order book in these 3 segments, similar growth in other segments (cruise industry), and idled fleets back in service will further pressure fuel prices higher. Tight supply and high prices are key elements to the potential for both quantity and quality issues.

    Other dynamics are also playing a role on the maritime side:
  • Shipping rates are now falling
  • Regulations raising fuel costs
  • Bank loans more difficult to obtain
  • Interest rates are rising
  • China spending on shipyards and with low building costs may continue to build. Over 40% of all new builds were produced in Chinese yards in 2010
  • Lower fleet values make refinancing very difficult yet if fleet values improve banks may try to increase foreclosures.
  • KG (German Investment) spending way down
  • Ship values are currently flat

One of the by-products of all of these issues is and will continue to be tighter credit lines with fuel suppliers. As shipping rates fall in many key sectors and fuel prices remain very high (and most likely heading higher) suppliers will be placing more scrutiny on payment terms and sizes of credit lines.

Of course the biggest factor is the world economy, which will have the largest impact of all. While global commodities have seen broad support, higher interest rates and slower growth from emerging countries are a down side risk. Other wild cards are the US housing industry, European Debt, and China. We are also seeing a fundamental shift in growth. The latest GDP forecasted by Wells Fargo in the below chart, illustrates the change in growth away from OECD countries. With growth comes potential inflation, and the developing countries will need to keep a close eye on CPI as increases will hurt consumer spending.

Regardless of the downside risks, the current and projected rates of growth of the Non OECD countries combined with continued consumption (still growth) in the OECD countries has the strong potential in creating a fuel supply issue. This, even before the upcoming tightening of sulfur limits.

On the supply side, the amount of spare capacity by OPEC is rapidly diminishing. According to data presented by FC Stone, spare capacity, which was approximately 6 mmb/d in 2010, will be at a deficit by 2013. We can also see this in the stockpile figures for OPEC. While averages had been about a 62 day supply current levels are around 56 days and typically supply draw down is highest in 4th quarter. Expect that by the 4th quarter this stock will be around 50 days. As supply comes down pricing will go up. If we look at the past and future trend projections for consumption we can see why there are even bigger concerns on supply.

In essence, global demand is expected to rise by about 50% between 2010 and 2020. As discussed in earlier newsletters we now also face the added impact of environmental regulation. In January 2012 the worldwide limits on sulfur change from 4.5% to 3.5% This followed by the full enforcement of the North America ECA Zone in August 2012 requiring 1.0% with 200 miles of coast. The demand for ULSD and other lower sulfur fuels will continue to rise.

Yet to produce low sulfur HFO economically many refineries require sweet crude. Sweet crude comprises only 25% of world crude supplies. So there is a fundamental supply issue in producing the product. Additionally, given that marine fuels represents a very small % of a refinery revenue pie there is little interest investing in the technology to produce low sulfur HFO.

So in order to meet the upcoming restrictions we will see increased demand for distillate as vessels will burn it within ECA zones and suppliers will use it for cutter for HFO to bring sulfur within the 3.5% global limit. All while competing for supply on the land side with global growth.

In looking at our trend lines on sulfur content for HFO bunkered in the Americas we see the following averages. From Jan - May 2011 for US and Canadian Ports our submitted samples for HFO averaged around 2.5% sulfur with the U.S. gulf region on the higher end around 2.9% and East Coast around 2.0%. Similar situation in South America with Venezuela on the higher end of the averages. Thus much work will need to be done to have adequate supply of lower sulfur HFO for voyages to ECA zones or alternatively higher stocks of distillate. As we proceed through the year we will be keeping a close eye on the trends/averages and publish in upcoming newsletters.

As the conference was a focus on the Americas we would be remiss in not discussing the biggest development in the maritime community in the Americas, the widening of the Panama Canal. The progress on the Canal is right on schedule with the opening expected for August 2014. In anticipation of the expected rapid increase in traffic the supply community and government are reacting in a positive manner by expanding the amount of dedicated marine fuel tank storage. Here are the current projects:

Administrator Location Capacity in M bbls
2010 2012
AMP BALBOA 1.76 1.76
AMP CRISTOBAL 1.59 1.59
APSA GATUN 1.21 1.21
PATSA BALBOA 0.98 0.98
Decal TABOGUILLA 1.05 1.05
Telfers Cristobal 1.2
Petroport Cristobal 0.6 2
MOTI Melones 2.1
TITSA Taboguilla 2
COASA/Oil Tanking 0.75
TOTAL CAPACITY 7.19
Source: Maritime Logistics Services Panama

These projects will increase storage capacity in 2 years by about 47%. No doubt that Panama will become a larger player in the bunker market. With this growth, new supply chains will need to be established from all over the world.

Given all the issues presented, fuel prices and fuel quality in the Americas are set to become an even bigger concern to all parties. With complete coverage of all major ports in the Americas (please see below chart) including ISO approved laboratories in Panama, Valparaiso, Guatemala, Houston, and NY/NJ our highly experienced staff will be there to assist on any quantity or quality issues.

In closing we are pleased to provide our updated historical pricing matrix calculating the spread of a barrel of West Texas crude vs. a ton of RMG 380 in Houston. Since June 1st the spread has widened further and as of June 7th we see WTC @ $99.99 and RMG 380 @ $664 or a 6.7 factor, the highest level since the peak in October 2008. Given all the prevailing conditions covered in this newsletter we can only unfortunately project record prices in the 4th quarter 2011.

Since June 1st the spread has widened further and as of June 7th day we see WTC @ $99.99 and RMG 380 at $664.00 or a 6.7 factor the highest level since the peak in October 2008. Given all the prevailing conditions covered in this newsletter we can only unfortunately project record prices in the 4th quarter of 2011.

Should you have any questions or comments please feel free to contact me.

Best Regards

Rob Leventhal
V.P. Sales and Marketing


 

Bulletin ISO 8217 2010 Final

June 30, 2010

To Our Valued Customers:

As of July 1, 2010 the ISO 8217-2010 revision comes into effect as well as the reduction to 1% sulfur for North Sea/Baltic ECAÂ’s. We believe the move to lower sulfur fuel combined with the lingering effects of the global recession on the supply side will cause potential for further deterioration in fuel quality.

 In summary, we believe the following conditions point to a higher potential for off-specification fuel and increased prices.

·      Over the last 3 years the percentage of a barrel of crude that falls to Residual Fuel Oil has moved downward from 16% to 9%.

·      Refiners remain under severe pressure to show better profits for stockholders, resulting in closure of refineries and a continued push for higher profit margin products.

·      Bunker demand will increase as world economies recover.

·      Crude tanker availability will be under pressure as single hull crude carriers are phased out and delays occur in new builds.

·      Increased movement by the product tanker fleet will be required to meet local demands as well as meeting supply requirements for 1% sulfur, thereby increasing the potential for quality issues.

·      Suppliers expect a 25%-40% potential price increase to meet ECA requirements

In regards to the ISO 8217:2010 standard, here is a summary of the changes from the previous revision:

·      Grade DMZ added to the distillate standard

·      Grade DMC has been reclassified as a residual fuel and is now known as RMA 10 grade

·      Grades RMA 30 and RMB 30 have been consolidated to a new Grade RMB 30

·      Grade RMF 180 has been deleted

·      Grade RMG has been expanded to 4 grades with 180, 380, 500 and 700 viscosity

·      Grades RMH 380 and RMH 700 have been deleted

·      Grade RMK has been expanded to include 500, in addition to the previous 380 and 700 viscosity

·      Sulfur content is now basis local standards

·      Lubricity specification added for distillates, applicable to clear and bright Diesel Fuels with a sulphur content below 500 mg/kg.

·      Oxidation stability specification added for distillates

·      Viscosity specifications have been increased for distillates

·      Ash limit has been lowered for all residual grades

·      Used Lube Oil (ULO) limits have been modified

·      Cat fines specification has been lowered

·      Vanadium limit has been lowered for all grades of residual and distillate fuels, with the exception of RMG 380 which goes to 350

·      Acid number and strong acid number limits added for both residual and distillate fuels

·      Total Sediment Potential, (TSP), has been changed to Total Sediment Accelerated, (TSA)

·      Sodium limit has been added to all residual grades

·      CCAI limit has been added to residual grades

·      A new limit on H2S goes into effect July 1, 2012 for both residual and distillate grades

·      Regarding Bio Fuels: Marine fuels shall be free from bio-derived materials other than “de minimus levels” (an amount of minimum importance) of FAME (Fatty Acid Methyl Ester)

We at Oiltest Marine Services feel that these changes, in conjunction with an effective sampling and testing programme, will provide and effective guard against fuel related problems for your vessels.

While adoption of the new standard is voluntary between suppliers and buyers, Oiltest Marine Services is fully prepared to analyse your fuels to whichever slate you designate.

 Oiltest Marine Services has added Sodium and CCAI to our standard test slate at no extra charge. If you would like to add any of the following tests to your current agreement, please contact us for a quotation:

Oxidation Stability, Lubricity, Acid/Strong Acid Numbers

Also, please let us know if you would like to have your fuels compared to the new standard. If you have any questions on the above information, please do not hesitate to contact us we will be back to you as soon as possible. Thank you.

Best Regards,

Wajdi Abdmessih                                Rob Leventhal

Wajdi Abdmessih                                                 Rob Leventhal

 Technical Director                                               Vice President, Sales and Marketing

Oiltest Marine Services                                        Oiltest Marine Services

 

 

 

 



Bulletin ECA Overview

 

 

 

MARPOL Annex VI Fuel Sulfur Limits

Date

Sulfur Limit in Fuel (% m/m)

SOx ECA

Global

2000

1.5%

4.5%

2010.07

1.0%

2012

3.5%

2015

0.1%

2020a

0.5%

a - alternative date is 2025, to be decided by a review in 2018