FEATURE: Bunker fuel quality issues vex market amid floating storage builds

Singapore — Bunker fuel quality concerns have resurfaced among market participants as floating storage continues to be high in Asia and elsewhere due to persistent weakness in prices and tepid demand, as countries worldwide grapple with the coronavirus pandemic.

"A shipowner won't usually store [LSFO's] for a long time but a supplier could. However, if you store it for very long like six months or so, the fuel starts giving way," a shipowner source said July 27.

"Three months down, you may need to put a lot of additives to burn it," he added.

Around 5 million mt of fuel oil stocks are sitting in VLCCs around Singapore alone, S&P Global Platts reported on July 13, citing trader estimates.

"There is lots of oil that is still unsold and has been stored since March or April this year when the market was in deep contango ... that batch of oil has got to be somewhere in the market now. So quality issues are bound to happen," a Singapore-based bunker trader said late last week.

Meanwhile, bunker fuel prices have remained subdued as demand is tepid. The Singapore-delivered Marine Fuel 0.5%S, for example, averaged $658.76/mt in January compared to an average of $334.24/mt from July 1-24, Platts data showed.

Quality issues saw heightened focus, with sediment issues appearing at the heart of such concerns around the time of the International Maritime Organization's global low sulfur mandate, implemented from January 1, 2020.

Between December 24, 2019, and January 21, 2020, Veritas Petroleum Services, for instance, issued seven bunker alerts globally relating to sediment issues within VLSFO fuels, the fuel testing and inspection firm had told Platts around the time.

"The sediment issues are mainly for LSFO stored in floaters. I don't float cargo myself. Whatever is in my barges, I discharge all within a couple of days because you need to recirculate the oil regularly," another Singapore-based bunker trader said.

"If it's straight run fuel oil then it should be okay to sit in storage for a while with no issues. If it's blended fuel oil, a lot of it depends on the components and how compatible they are," said another source.

A source at a bunker fuel quality testing firm noted that after about 90 days of storage, asphaltenes start to precipitate and sludge problems could develop.

The sludge formed may then block a ship's filters and pipework and starve the engine of fuel, he said, adding that fuel stability is adversely impacted.

"I've been hearing about some sediment issues for LSFO stored in bunkers for too long," said a Singapore-based bunker supplier, referring to the current situation.

"It's not just sediment issues but the total acid number is also affected. If the total acid number is too high, it will lead to operational problems for the vessels," he added.

Adding to the conundrum is the fact that big trading companies such as Hin Leong, who were holding onto and trading huge quantities of oil, have collapsed. Such trading houses were still actively buying grades, such as LSFO, before their collapse, the first trader said.

Quality monitoring, testing

Some sources in Singapore said that bunker fuel quality issues worldwide could be limited if shipowners and operators exercised more caution.

It is imperative to select reliable suppliers so that fuel quality is assured, they said, adding that suppliers should provide assurance that they will adhere to the ISO 8217 requirements for the grade ordered.

"We are still waiting to see how the quality of the LSFO been stored onboard floating storage for a prolonged period (6-12 months) will be impacted in the end," another bunker supplier said.

"It is still too early to say but we would recommend bunker consumers to stay vigilant and keep close focus on certificate of quality and pre-tests," he added.

Commingling of bunker fuels should be avoided, sources said. However, if commingling is considered necessary, then more detailed tests should be carried out to assess whether the fuels are likely to be compatible, they added.