The role of bunker quality in a changing market
Brian HERON 1
Bunker quality remains, as always, uppermost in the eyes of most ship owners. Compliance with one of the recognised International Standards is a pre-requisite to supply, but increasingly this on its own is insufficient to fully meet the needs of the end-user. The role of the traditional bunker supplier is changing more towards one of being a Service Provider, making available a range of non-traditional support services to the customer. Within this new marketing mix, bunker quality will still have a role to play for the major suppliers as they seek differentiation. However, as the global demand barrel relentlessly moves towards a higher proportion of distillates, the refiner is likely to be challenging some of the established bunker fuel specification parameters. In this paper, the continuing need for control of bunker quality is reinforced, with a look at how suppliers will continue to seek differentiation in the light of pressure from the refining industry.
Key Words: Fuel quality, bunker fuel characteristics.
The residual fuelled diesel engine holds a dominating position in marine propulsion. Modern marine diesel engines, both medium and low speed; are designed to be very fuel tolerant, and are claimed to be able to burn the heaviest residual fuels, provided that the inspection properties lie within the limits set by international marine residual fuel specifications. Whilst these supply specifications serve to control bunker fuel quality, the over-riding influence on bunker fuel quality-of-the-day is market forces, primarily the demand barrel.
Through the last 20 years, there have been significant changes in the properties of marine bunker fuels with a trend towards fuels of higher density, viscosity, sulphur, ash, and carbon residue content. These changes have resulted solely from the need for more intensive refinery processing to convert surplus residual material to higher value distillate products to meet the changing demand. Thus- there is a clear linkage between the demand barrel and residual fuel quality and quantity.
Concurrent with the foregoing, end-user requirements are also changing. The fundamental role of the bunker supplier must now encompass more than just being a source of product. Suppliers are increasingly adopting the role of a Service Provider, in which product quality is but one element in the marketing mix.
Global oil demand.
Global oil demand growth is projected to have slowed to an average of 1.3% per year for the period 1997 to 2000, reflecting the loss of incremental Asian oil demand and three consecutive milder-than-usual winters in the Northern Hemisphere. Post 2000, with the resumption of Asian oil demand growth. world oil demand growth is expected to rise again to annual average levels of around 2%.
Bunker fuel demand.
The world residual bunker fuel demand (excluding marine gas oil) has increased from 105 million metric tonnes in 1990 to almost 120 million metric tonnes in 1998. The global bunker fuel demand is expected to increase only slightly between 1999 and 2005 with an annual growth rate of 0.3%.
In Europe, the Pacific, the Middle East and the Far East the supply/demand balance for bunkers will move towards an oversupply. Furthermore, in many parts of the world the marine market may become the main market for residual fuel oil. In particular, the power generation "dash for gas" will progressively release low quality fuel components into the bunker market fuel oil previously designated for power generation, In the longer term this may also be an effect of reduced need for residual fuels to be imported to the US.
Temptations to reduce quality.
The over supply of residual fuel in terms of heavier components tend to drive prices, and therefore margins for suppliers, down. In addition to price, competition amongst sellers on the quality of product is unlikely to disappear. Indeed in such an environment a few temptations may arise for those suppliers who do not need to protect their brand, or for those who find it difficult to sell high quality product at a reasonable price.
1 Technical Manager
Shell Marine Products, London