Impacts of fuel prices and requirements

Heres an interesting article on fuel and its future impacts on maritime shipping.

Marine fuel prices soar after industry hits turning point
By Rudolph Kassinger, 18 January 2008 Lloyds List

HISTORIANS in the years ahead will note that 2007 marked a turning point in marine fuels. The full impact of more stringent environmental controls cannot be predicted now, but they are likely to be profound.

Last year fuel prices and their volatility, the introduction of environmental constraints on fuel composition and the threat of ever more stringent regulations were the pre-eminent issues.

Early last January light sweet crude was priced in the $58-a-barrel range, or $438 per tonne. By the end of the year prices had closed around $99 a barrel range and they finally broke the $100 threshold on January 3.

Marine bunker fuels, which follow crude oil prices closely, increased to unprecedented levels.

Bunker fuel prices in Singapore rose 70% last year. The increase in all other bunker ports was at the same level. This put bunker fuel in the $500–$520 per tonne range by December.

Some traders are already speculating that bunker prices will reach $600 per tonne some time this year.

By-product residual fuel prices have for many years been about 65% of average crude prices. Without any significant reduction in crude prices marine bunker fuel will likely remain in the $500 per tonne range, but $600 is certainly possible.

Although bunker prices have been steadily increasing, in any given month or week prices are also known to swing widely. An examination of weekly and monthly prices in the main bunkering ports showed prices varying by $20-$60 per tonne.

Not surprisingly, price hedging mechanisms are now widely offered by most leading bunker brokers and are an important tool in controlling fuel cost.

Other than the latest North Sea and English Channel Sulphur Emission Control Areas, the state of California effected a requirement from January 1 last year to burn low sulphur distillate fuel in auxiliary and diesel electric engines within 24 nautical miles of its coast.

It was legally challenged by a marine industry association and briefly overturned, but has been reinstated by the courts and is now in force. We anticipate that there may be more legal challenges on the marine environmental regulations, but California will prevail.

While the average quality of the principal marine fuel grades remains relatively unchanged, low sulphur fuels in the Secas have from time to time exhibited quality deficiencies, including poor ignition and combustion quality, higher levels of abrasives — catalytic fines — and poor fuel stability.

There is now insufficient data to determine if this will be a short-lived phenomenon or a regular risk associated with low percentage sulphur fuel.

We suspect it has something to do with the lack of familiarity with blending low sulphur fuels, as well as the selection of residues and blend stocks to achieve the stipulated sulphur limit.

Fuel manufacturers, after all, have had more than 50 years’ experience in optimising high sulphur fuel blending but only year or so with low sulphur fuel blends.

The IMO Bulk Liquids and Gases Working Group, charged with Marpol Annex VI revision, is evaluating six different options, ranging from a continuation of the present Annex VI regulations — albeit with the likelihood of an increase in the number of Secas — to a complete phasing out of high sulphur residual fuels and replacement with 0.5% sulphur distillate.

All options under review will require a reduction in average marine fuel sulphur content and stack scrubbing.

A review of DNVPS fuel quality data over several years confirms that, regardless of bunker port or supplier, more than 80% of all fuels tested fall within a very narrow range of physical properties.

In terms of viscosity the bunkers supplied are between 150 and 400 cst at 50 deg centigrade and density commonly ranging from 965 to 991 kg/m3.

Based on an analysis of electric utility low sulphur residual fuels, we believe that as marine fuel sulphur levels go down the range of fuel viscosity and density will be greatly expanded.

In fact, we see fuel sulphur content displacing viscosity and density as the parameter that controls blend composition.

In a sulphur-constrained fuel environment, future fuels could fall into the 10-50 cst viscosity range and 900 –930 kg/m3 density range.

This will represent a significant departure from the bunker industry’s past 60 years of operation.

If they come true, the predicted changes will have a profound effect on refinery configuration and investment and will therefore require at least a decade to achieve.

…and another article on fuel

Bio-diesel plant to fuel tanker boom
Marcus Hand, 16 January 2008 Lloyds List

ASIAN chemical tanker demand is set to be boosted by the world’s largest bio-diesel plant, which is to be built by Neste Oil in Singapore.

Finnish oil company Neste is building the 800,000 tonnes per year capacity plant in western Singapore at a cost of S$1.2bn ($840m). Construction will start in the next few months and the facility is due to be operational by mid-2010.

The plant will be capable of using a wide variety of feedstock, including palm, vegetable and animal oils. Palm oil is set to be its main source in the initial stages.

“We are not dependent on one raw material — palm oil or rape seed oil — we can use any vegetable oil or animal fat,” said Neste president and chief executive Risto Rinne.

“The estimate is at least half of the feedstock will be palm oil.”

The palm oil would be sourced from neighbouring countries Malaysia and Indonesia, which are among the world’s largest producers of the oil. At present, the company’s main supplier is IOI Group in Malaysia.

If all 800,000 tonnes a year of bio-diesel are produced using palm oil, the plant will require 1m tonnes of palm oil annually.

Since the beginning of last year, vegetable oil is required to be shipped in IMO type II chemical tankers with double-hulls. This has raised freight rates due to a shortage of such tonnage in the region.

While Neste does have its own fleet of 30 tankers, all ice-class vessels, it is almost certain to use third parties for shipping to and from its Singapore plant.

“I think we are not bringing our own ships here,” said Mr Rinne.

In terms of exporting bio-diesel, the main market is expected to be Europe, although deputy chief executive Jarmo Honkamaa said: “There is quite a lot of interest from Japan and California.”

He said that individual shipments will likely be in the range of 30,000 to 40,000 tonnes.

Neste will be utilising the existing jetty at the neighbouring Tuas Power plant, with some expansion planned at the site. In terms of storage capacity, itwill be leasing two 35,000 cu mtanks, as well building its own storage facilities.

The company is confident in the future demand for bio-fuels. This is despite growing concerns that they may not be as environmentally friendly as first hoped, are pushing up the price of basic foodstuff, and driving the unsustainable use of farm land.

According to Mr Honkamaa, Neste expects demand of 13m-15m tonnes a year for biodiesel by the time the new plant starts production.

The high price of bio-diesel compared with petroleum products means demand will mainly come from countries where the use of biofuels is government subsidised

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