BUREAU VERITAS

VERIFUEL - MARINE FUEL SERVICES

 ‘What you need to know
about Marine Fuels today’
B. Stamatopoulos

07.12.2017

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 First things first

What do you consider more important?

• Commercial?
• Statutory?
• Technical?

What is good fuel quality?

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 First things first

Commercial
• Shortlifting
• Water / sediments

Statutory
• Flash Point
• Sulphur

Technical
• Cat fines
• Cold flow properties
• Sulphur
• Stability / compatibility, etc.

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Different opinion of what constitutes a good fuel quality
 The overall marine fuel quality is a combination of these but people may
be biased towards one or the other depending on their own interests
 A charterer may be more interested in meeting the commercial value
rather than the fuels’ technical properties. If the statutory requirements
are not met, the authorities may fine or arrest the ship
 The ship owner may be more interested in protecting its engine
installation and extending time between overhaul
 ISO 8217 is a purchase specification as it defines the required
properties of fuels at the time and place of custody transfer. Being on-
spec does not necessarily mean good fuel and likewise, off-spec does not
necessarily mean poor fuel.

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The Refineries – Supply & Demand, 1973/74 & 1979/80
 Refinery production of residuals: 40%
 World shipping consumption: 5%
 Asphalt paving, insulation industries, could not absorb the remaining 35%
 Question of survival for refineries
 Refineries managed used (cracking) to convert residuals into distillates

This increased conversion of a barrel of crude into higher distillate yield

resulted in concentration of worst characteristics in remaining residual.

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 Crude Oil Composition

Gases & gasoline Kerosene/gasoline/diesels Fuel oil & residues

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 Barrel Comparison

STRAIGHT RUN & (Al+Si) CRACKING

GASES 2%
1%

NAPTHA
17%
45%

DISTILLATES
38%
38%

44% RESIDUALS 15%

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 Blending

 Historically, the controlling Parameters Sulphur > 1.50% Sulphur < 1.50%
parameters for refiners or
Density (kg/m3) 980.5 986.4
blenders have been viscosity
and density, before Sulphur Viscosity (mm2/s) 239 87
became so important Sulphur (%m/m) 2.11 1.46

 Suppliers and traders have had Calcium (mg/kg) 3 13

to develop their methods so
Potassium (mg/kg) 1 11
that increased blending
activities meet the required S Al + Si (mg/kg) 18 66
content, albeit at the expense
CCAI 847 864
of the product’s overall
quality.

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HFO with a maximum 1.50% and 1.00% sulphur content meant:

 Increased blending, leading sometimes to unstable fuels

 Imbalance between aromatic - paraffinic blend components
 Precipitation of asphaltenes : separators’ overloading and filter blocking

 Higher density

 More catalytic (Al+Si) fines due to the slurry oil from refinery Fuel Catalytic Cracking units
 Cylinder liner and piston ring wear / scuffing.

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Fuels with maximum 0.10% sulphur content means:

 Increased distillate demand

 Introduction of new ECA compliant fuels (ULSFOs)

 Flash points issues (automotive distillates)

 Cold flow properties

 Typically lower viscosity.

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 2020 - how big is the change?
 0.50% S represents 75% of global marine fuel demand compared to ECA and a
huge undertaking for bunkering/shipping industry
 In total 3 million barrels per day of HSFO will need to switch to 0.50% S and with
improved logistics segregation
 Quote from ExxonMobil:
“The impact on the refineries is significant. When the ECAs kicked in, some of the barge
capacity had to be changed. Now we have to convert all the barge capacity and we have
to clean all the tanks in the refineries. We cannot estimate the scale of the change. It is
profound and one of the biggest in living memory."

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Sulphur % in crude and products

Sulphur Crude AGO L. VGO H. VGO Atm. Resid Vac. Resid

Doba 0.08 0.05 0.07 .08 0.09 0.12
Statfjord 0.2 0.1 0.2 0.36 0.4 0.6
Brent 0.37 0.185 0.37 0.666 0.74 1.11
Khakhzastan 0.75 0.375 0.75 1.35 1.5 2.25
Zakum 1 0.5 1 1.8 2 3
Oman 2 1 2 3.6 4 6
Iran heavy 3.5 1.75 3.5 6.3 7 10.5

 The percentages above are notional but this does illustrate that even the atmospheric gas oil (AGO)
would need a degree of desulphurisation. Also note that the heavy sour crudes produce a residual fuel
which cannot meet the current “Global cap” of 3.50 % S
 Crude is either sweet (low sulphur) or sour (high sulphur) and either heavy (high density) or light (low
density).
 How to match supply to demand?

1. Run more crude to meet distillate needs

Pros: Simple
Cons: Its not possible to match all distillate needs. What do you do with the residue?

2. Process crudes with compositions that closely match the local demand barrel
Pros: Simple
Cons: Crude costs will be high. No crudes that exactly match the distillate demand. What to do
with the residue still exceeding demand?

3. Convert heavy distillate residues to lighter components

Pros: Possible to match supply to demand
Cons: Investment in conversion / Higher refinery fuel consumption / Emissions

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The Refineries - Complex integrated businesses

 Conversion units for producing more distillates equates to 1 billion dollars per
refinery and an average time-frame of 3-5 years
 IMO expects an increase of refining capacity (crude distillation capacity to grow
8%, coking by 35% and hydrocracking by 37% from the 2012 level), but this
maximum amount can only be produced if the crude slate is sweeter than in the
base case, especially for Asia
 Some refiners will produce 0.50% sulphur fuel oil, but not enough
 Many markets are expected to, once more, take a blending route; 0.80% sulphur
residual fuels are available regionally.

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 Technical considerations
Blending:
Aromatics:
 Improve stability
 Negative impact on ignition properties

Paraffins:
 May disturb stability
 Improves ignition properties
 Expensive product

GOAL: Balance between Paraffins and Aromatics

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 Technical considerations for 0.50% S fuels
 Stability & Compatibility (Sediments)
 Pour Point: Paraffinic vs Cracked blend components. ULSFO/VLSFOs close to max limits
 Acidity: Sweet crude sources with high AN (e.g. DOBA)
 Viscosity: No minimum limit in ISO 8217, Table 2
 CCAI: due to larger difference between viscosity and density.

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Simplified mixing basis average tested values in Singapore

PARAMETER UNIT HFO (15%) MGO (85%) BLEND

Density @ 15°C kg/m3 987.8 856.0 873.3

Flash Point °C 79 73 74

Viscosity cSt 370.0 3.5 4.3

Sulphur % m/m 2.90 0.08 0.50

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 Simplified mixing in terms of cost

 The average worldwide Sulphur level of HFO is 2.6%.

 Assuming mixing of HFO with 3.4% S and distillate with 0.10% S content: 3.4 𝑋 + 0.1 (100−𝑋) =0.5 𝑋 100
 If this is solved: 12% HFO should be mixed with 88% of 0.10% distillate to produce 0.50% HFO.
 Based on the current Singapore prices the 0.50% S blend will cost 380 x 0.12 + 555 x 0.88 = USD
534/MT.
 This gives a differential of 534 - 380 = USD 154 /MT between HFO and 0.50% S fuel.

Note: Blending will be a combination of new mixtures of ‘distillates’ and residue streams
Markets are likely to see a 1-2 year period of increased volatility and changing supply &
demand volumes.

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 Comparison
Product Pros • Cons

LS MGO (max 0.10% m/m) • Convenient and widely available
• Operational experience in industry
• No special need for purification
ULS FO (max 0.10% m/m) • Price lower than distillate fuels
• Higher viscosity
VLS FO (max 0.50% m/m) • Price expected lower than distillate fuels
• No modifications required for existing
vessels
• Higher cost
• Thermal shock and low viscosity
• Flash points issues (automotive distillates)
• Cold flow properties
• Limited availability
• Variability of quality of blends per supplier
• Only few suppliers can offer reliable supply
• Lack of an appropriate ISO 8217 standard
• Variability of quality of blends per supplier
• Only few suppliers can offer reliable supply
• Lack of an appropriate ISO 8217 standard
• Sediments, wax and paraffinity issues
 Availability
 Shell, ExxonMobil and BP: There will be enough compliant fuel
 Maersk counts on the availability of enough compliant fuel
 IMO expects sufficient refining capacity but there might be a need to export from the Middle
East, Europe and Latin America fuel with less than 0.5% sulfur
 Repsol Spanish refineries: Yes, we have 5 cokers in 4 refineries
 EM: Refinery in Antwerp as of mid 2018 (320,000 bpd).

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 HSFO > 1.50% m/m (option for scrubbers)

 May not be viable in smaller ports unless they have regular calls from vessels with scrubbers
 Major bunker ports with plenty of storage delivery options will have HSFO
 Wild card to be the availability of barging. The fuel might be sourcable but keeping barges as
designated HSFO may be tricky. This is why many players with fitted scrubbers or scrubbers
planned try to secure the barging long term
 HSFO may become a ‘niche fuel’ available in some ports only after 2020:

‘’If I sat on a batch of HFO in a specific port and you arrive with
a ship using a scrubber, I would not sell my HFO too cheap’’

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 IMO & ISO 8217 next steps

 PPR 5 (IMO Sub-Committee on Pollution Prevention and Response) in February 2018 will cover
aspects such as: preparatory and transitional issues, a standard format for the non-availability clause
and guidance on technical implications, verification and enforcement and then reported to MEPC 72.
 ISO 8217: There is insufficient time until 2020 to develop a full revision of the standard hence one of
the options being considered is to release a Publically Available Specification (PAS) as part of ISO
8217 for 2020 for the interim period. This will also allow ISO TC28/SC4/WG6 time and a better
understanding of new fuel formulations to come out with a full revision by 2022/23 (group’s focus to
address two main concerns i.e. unstable fuels and the compatibility between one fuel and another).
 Simplification of Table 1 and Table 2
 Option to reinstate sulphur limits: 0.10%, 0.50% and > 0.50% m/m.

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ISO 4259 & Claims
ISO 8217 – Annex L

 95 % Confidence level – as 1 in 20 results can fall outside the limit …Defined as 0.59 x R

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ISO 4259

When is a parameter off spec?

 Accuracy and precision

 Which one gives the true value?

 Which one would you like to use?

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ISO 4259

 ISO 4259 describes how to establish with a high degree of certainty, the validity of a quality
claim

 Relates to “R” - TEST REPRODUCIBILITY

Small errors attributable to differences in people, hardware, procedures, timing, weather, etc.

 Per ISO 4259, product fails a specification with 95% confidence if the single max
RESULT > SPEC + 0.59R

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ISO 4259

The quality of laboratory measurements by definition

 REPEATABILITY
The closeness of agreement between successive results obtained in the correct
operation of the same method on identical test material, under the same conditions
in the same laboratory with the same apparatus, same operator, and short intervals
of time

 REPRODUCIBILITY
As per above, but different laboratory, different apparatus and different operator.

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ISO 4259

Acceptability of results
When single results are obtained in two laboratories and their difference is less than or
equal to R, the two results shall be considered as acceptable and their average, rather
than either one separately, shall be considered as the estimated value of the tested
property.

Average counts!

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ISO 4259

Recipient’s limit basis a single test rest

Parameter DMA limits Buyer’s complaint limits*

Density, kg/m³@ 15°C 890 >890.3
Min kin viscosity, cSt @ 40°C 2.000 <1.985
Max kin viscosity, cSt @ 40°C 6.000 >6.034
Flash point,°C 60.0 <57.5
Pour point,°C 0/-6 >3/>-3
MCR, % m/m 0.30 >0.36
Ash, % m/m 0.010 >0.013
Sulphur, % m/m 0.10 >0.11
Cetane number 40 <39
Acid number, mg KOH/g 0.5 >0.6
Oxidation stability, g/m3 25 >33
Lubricity, (μm) 520 >580
ISO 4259

Recipient’s limit basis a single test rest

Parameter RMG 380 limits Buyer’s complaint limits*

Density, kg/m³@ 15°C 991 >991.9
Kin viscosity, cSt @ 50°C 380 >396.6
Flash point,°C 60 <56.5
Pour point,°C 30 >33
MCR, % m/m 18 >18.99
Ash, % m/m 0.100 >0.114
Water, % v/v 0.50 >0.62
Sulphur, % m/m 3.50 >3.67
Vanadium, mg/kg 350 >383
Al + Si, mg/kg 60 >72
Total Sediment, % m/m 0.10 >0.15
Zn + Ca, mg/kg / P + Ca, mg/kg 15/30 >17/33 / >18/33
Sodium, mg/kg 100 >108
Acid Number, mg KOH/g 2.5 >3.1
CCAI 870 >871
T&C
Supplier’s T&Cs – Italy
3.3 Where standard specifications are given, tolerances of 5% in quality are to be accepted by
the Buyer without any liability on the part of the Supplier. Moreover, local specifications
supersede any other specifications which may be agreed to by the Supplier in good faith

3.5 Any claims related to the quality of the Products must be made in writing and delivered to
the Supplier latest within seven (7) running days from the date of the particular delivery

7.3 In any event the Supplier shall, under no circumstances, be liable for any loss of profit or
other consequential damages of the Buyer and the total liability of the Supplier shall not
exceed the proven actual running costs of the Vessel for the period of any delay for which
the Supplier may be liable.

Others: Russia, Cyprus

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Bunker Claims

 In terms of quality, there are generally two ways to build up a quality

claim:
 Fuel is off specification (according ISO 8217 tables 1 and 2 or as per general
Clause 5.3: ‘Fuels shall be free from any material that renders the fuel
unacceptable for use in marine applications’).
Fuel is not fit for its intended use
If a charter party is subject to English law then the principle of ‘fit for
intended use’ is always valid as per ‘Sale of goods act and the supply of goods
and services act’.

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REGULATIONS
INSPECTIONS
THETIS-EU

 EU enforcement / information system and harmonized reporting as of 01 Jan 2015

 More focus on sulphur related aspects during sulphur (PSC) inspection
 Exchange of inspection results, including alerts, between EU Member States
 Follow track-record of ship(s)(types)
 Basis for potential future risk based targeting approach.

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 Statistics – inspections /non compliances

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 THETIS-EU

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Several ECA countries currently working with remote sensing
Various Activities

 Sniffers on Great Belt Bridge and Rotterdam

 Drones over 50 km with continuous video being streamed
back to the ground station / on-board gas analyzer draws
samples of air and monitors SOx, NOx and CO2 levels
 PSC authorities in several EU countries consider the MARPOL
sample of little use for this purpose (shows what delivered to
the ship, not what is emitting)
 Other ECA countries: Norway, Canada, Sweden, Finland,
Germany, The Netherlands and Belgium.

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Measured signals at the Great Belt bridge for one ship with
high S (0.50%) and one with low S (0.10%)

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 Quick scanning 5 Min / 30 - 60 sec to test
ROTTERDAM, ANTWERP, HAMBURG, TALLIN, ST. PETERSBURG, US & CANADA – OPERATING 24/7!
 Legal basis

 UNCLOS forms legal basis for jurisdiction

 Coastal states have full jurisdiction in internal waters,
jurisdiction in EEZ limited to environmental protection
 High seas belong to no state
 Flag states HAVE jurisdiction over ships flying its flag
 Port states exercise port state control based on
domestic law
 IMO does not enforce
 The basis for enforcement is the transposition of
Annex VI into the domestic law of each ratifying party
 High seas enforcement is thus in practice left to the
flag state.

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 Best Practices

 Select most appropriate fuel grade as per ISO 8217:2012/17. ISO is a purchase specification (standard)
and not a regulation.
 Develop a ‘fuel purchasing policy’ and/or correct charter party clause
 Effective crew training
 Use an Independent Bunker Quantity Surveyor
 Fuel Treatment Plant should be operated in optimal condition / FSS
 Do not mix on board fuels and do not use the fuel before analysis results are known
 Interpreting the test result in accordance with ISO 4259
 Adequate documentation is necessary in potential legal disputes
 Be aware of remote sensing.

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