Ships running on fumes as fuel switch causes delays

Logistical problems, including a lack of refuelling barges, have added to shipping firms’ woes in the wake of a switch to cleaner marine fuels. (Reuters)
Updated 05 December 2019

Ships running on fumes as fuel switch causes delays

LONDON: Disruption to shipping from the long-anticipated switch to more environmentally friendly marine fuels has finally arrived, exacerbated by logistical problems as much as any shortage of the cleaner fuel.

New International Maritime Organization (IMO) rules, referred to as IMO 2020, aim to stop ships from using fuels containing more than 0.5 percent sulfur unless they are equipped with exhaust-cleaning systems known as scrubbers.

From the start of January ships must load very low sulfur fuel oil (VLSFO) or more expensive marine diesel unless they have scrubbers for the old high-sulfur fuel oil (HSFO).

The new regulations have been on the radar since 2016, with no prospect of any extension to the 2020 deadline, prompting concern from oil producers, storage operators and shippers and multiple warnings over the potential for a chaotic switch.

With only a minority of ships in the global fleet having installed scrubbers, the oil industry had feared refiners would not be able to make enough diesel and VLSFO. But delays appear to be more down to a lack of refueling barges than the fuel itself, with sources saying that major ports are running 10 days behind schedule across fuel types.

HIGHLIGHTS

• IMO 2020 fuel regulations take effect on Jan. 1.

• Logistics rather than fuel supply causing delays.

• Some ships forced to wait 10 days or longer.

“It’s a very disrupted bunkering market,” one senior industry executive said of the ship fueling sector, declining to be named because of company policy.

“There is enough product in most places, but it’s the barge availability that is a problem.

The executive said that first availability in Singapore is not until Dec. 15 for the 0.5 percent grade — a long 10-12 day wait compared with the usual three to five days. There have been similar delays at Brazilian ports and in the busy Mediterranean terminals of Gibraltar and Malta, he added.

The delays have been creeping up steadily in recent weeks as ship owners swap to the cleaner fuels ahead of the fast-approaching deadline.

Shipping sources said there have also been delays of about a week at the Middle East hub of Fujairah.

The barge problem stems from the need for them to be cleaned before transporting different types of fuel, and many were converted to carry only cleaner grades in a process that can take a week.

Furthermore, barges that carry fuel from storage to individual ships now have three rather than two grades to handle and many more ships will require combinations that increase the number of barge trips to each vessel.

“The problem is you have twice as much product potential but no one built more barges,” one of the shipping sources said.

Tankers without scrubbers are also asking for smaller volumes of the more polluting HSFO.

“Imagine the time and logistics of bunkering 10 ships with 200 tons instead of three to five ships with 1,000 tons. It’s a lot busier,” another shipping source said.

In the past week, one tanker expecting to load crude at the Black Sea port of Novorossiisk had to sail back to Istanbul for fuel because the Russian port was unable to supply the ship.

In another instance, a tanker had to cancel a job after it was unable to secure fuel to reach its next port in time.

The disruptions are likely to worsen over the winter when northern hemisphere ports may be forced to close because of bad weather.

The logistical problems don’t end there, however.

In addition to refined VLSFO the fuel can be produced through blending. But the mingling of fuel from different sources can cause compatibility issues that clog engines.

The industry executive said there have been several cases of tankers having to discharge freshly loaded fuel because of quality issues, which can tie up barges for several days.


Barclays sees $2 per barrel impact to oil prices as coronavirus fears threaten demand

Updated 23 min 14 sec ago

Barclays sees $2 per barrel impact to oil prices as coronavirus fears threaten demand

  • More than 100 people have died and over 4,000 cases of the new virus have been confirmed in China
  • Barclays expects the OPEC and other allies to step in and take further measures to keep the markets tight

BENGALURU: Barclays said on Tuesday oil prices will be impacted by $2 per barrel on the potential economic fallout from the coronavirus outbreak in China.
More than 100 people have died and over 4,000 cases of the new virus have been confirmed in China, leading authorities to increase preventive measures, impose travel restrictions and also extend the Lunar New Year holidays to limit the spread of the virus.
The bank sees a $2 per barrel downside to their full-year Brent and WTI forecasts of $62 per barrel and $57 per barrel, respectively.
Compounding the effects of the spillover to economic growth from China and the region, Barclays expects transitory oil demand erosion of about 0.6-0.8 million barrels per day (mb/d) in the first quarter of this year, or 0.2 mb/d for the full year.
“If air passenger traffic in China declined by half in first quarter of 2020, it would likely lead to a 300,000 barrels per day year on year decline in jet-kerosene demand from China,” the bank said adding the fall in road transport would likely be less severe than in the past given reduced reliance on buses.
Barclays expects the Organization of the Petroleum Exporting Countries and other allies to step in and take further measures to keep the markets tight, in case the fall in demand is more acute.
Oil prices have been down for the last six sessions, but the bank said that the market reaction was likely overdone.
Barclays said the actual economic fallout from the coronavirus could be less severe than the 2003 SARS outbreak, given that the new virus seems less lethal than SARS so far and the measures taken by Chinese authorities.
The bank said the geopolitical risks to global supplies remain high as US-Iran tensions could continue to gradually escalate and oil production in Libya could fall further if the blockade of key infrastructure facilities continues.
Brent crude prices are currently trading around $59 per barrel and US WTI at around at $53 per barrel.