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Feature: Off-spec Houston bunker fuel leads buyers to adjust buying decisions

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Feature: Off-spec Houston bunker fuel leads buyers to adjust buying decisions

London — Off-specification bunker fuel in Houston since spring has left local buyers scrambling to adjust and shipowners in Asia reluctant to buy US Gulf Coast-origin fuel.

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Related podcast: Off-spec Houston bunker fuel sparks contamination crisis

"The traces of chemicals that were found after deep scans by testing companies such as Fobas are considered as 'engine killers' and, yes, it affects more than one vessel," Clarence Dykstra, Bunker Manager of Seatrade Reefer Chartering, told S&P Global Platts.

Indeed, more than 100 ships in total that bunkered in Houston have had some sort of complication due to the fuel on board, sources have said.

Veritas Petroleum Services and other testing companies said as long ago as May that fuel samples from several ships contained phenolic compounds, whose natural binding and adhesive qualities can cause fuel plungers and fuel pumps to stick.

Testing companies also found the presence of FAME, fatty acids, and styrene in Houston bunker fuels, all of which can cause damage to ships if found in high concentrations in bunker fuel.

Since the reports started emerging, the Houston bunker market has seen noticeable changes in demand, deliveries of bunker fuel, as well as in the diligence with which buyers ensure only on-spec fuel is delivered to them, market sources said.

As such, gas chromatography-mass spectrometry testing on bunker fuel before loading in Houston has become widely adopted by buyers who say the test provided more detailed results than the traditional ISO 8217 test.

The GCMS test, however, can take many days to complete, adding costs to buyers already operating on tight margins.

One US Gulf Coast source said those extra costs can often be passed along to the end-user, though that resulted in an increase in RMG 380 bunker prices.

The extra due diligence required to do business in the Houston market meant some ships were simply avoiding buying bunkers in the region altogether.

A shipowner said it had moved bunker loadings to more expensive inland ports such as Philadelphia after it suffered an expensive debunkering process, demurrage and loss of earnings after buying bunkers in the Houston market.

A bunker supplier in the Caribbean said it had seen a noticeable uptick in business in recent months, and had heard directly from shippers that the uncertainty about fuel in Houston had led to their buying in the Caribbean.

PROBLEM SPREAD FROM HOUSTON

The issues in Houston have sparked a global contamination crisis as off-spec product has made the voyage to Singapore, the world's largest bunker hub and where there have been a series of de-bunkering operations in recent months, sources said.

"The off-spec issues were not only limited to Houston, but Panama, Curacao, and there are also reports indeed out of Singapore and Hong Kong," Dykstra at Seatrade Reefer Chartering said.

Fuel testing company Maritec said late July it had detected excessive sludge in a Singapore bunker fuel cargo that was likely of US or Estonian shale oil origin.

Maritec said ships that had sent samples from the US Gulf Coast to its laboratory had reported severe fuel injection equipment damage and sludging.

Fuel oil traders in Singapore recently said cargoes contaminated with phenol and styrene compounds had arrived in Singapore, creating concern as they could cause engine problems.

Because of that concern, which led to reduced imports, the Singapore 380 CST August/September spread hit $9.95/mt on July 30, S&P Global Platts data showed.

The spread, last assessed higher at $13.25/mt on May 29, 2015, has since eased back to around $5/mt with an increase in imports expected in September, particularly from Europe where off-spec issues have been negligible and fixtures east from Rotterdam have increased. Fuel oil stocks have plummeted at Singapore over the past few weeks as owners lap up RMG 380 CST bunker fuel.

Heavy distillate stocks were at 14.35 million barrels in the week ended August 8, down from 14.80 million barrels the previous week, according to International Enterprise Singapore data. The IE describes heavy distillates as 'residues' and includes cracked and straight run fuel oil and low sulfur waxy residue.

VLCC and Suezmax arbitrage economics have been difficult in recent months from net-long Europe to net-short Singapore. While about five VLCCs are typically booked from Rotterdam each month to take approximately 1.3 million mt to Singapore's bunker market, only five have sailed since April.

Three of those VLCCs have sailed this month and traders said that may be because Singapore recipients of bunker fuel want to guarantee delivery of on-spec RMG 380 CST cargoes.

Should arbitrage volumes increase from Rotterdam, Europe could be faced with scarce RMG bunker availability, though European and global bunker buyers did not see that scenario as likely.

--Eleni Pittalis, eleni.pittalis@spglobal.com

--Patrick Burns, patrick.burns@spglobal.com

--Atsuko Kawasaki, atsuko.kawasaki@spglobal.com

--Edited by Dan Lalor, daniel.lalor@spglobal.com