Volume 5 Number 3 June /July 2008 NATURAL SELECTION: Lloyd s Register CEO kicks off biofuels debate

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1 Volume 5 Number 3 June /July 2008 NATURAL SELECTION: Lloyd s Register CEO kicks off biofuels debate

2 Contents Head Office: Petrospot Limited Petrospot House Somerville Court Trinity Way Adderbury Oxfordshire OX17 3SN England Tel: Fax: Website: Publishing Manager / Editor Ian Taylor Tel: Mobile: ian@petrospot.com Publisher Llewellyn Bankes-Hughes Tel: Mobile: lbh@petrospot.com Associate Editor Lesley Bankes-Hughes Tel: lesley@petrospot.com Reporter David Waterman Tel: david@petrospot.com Advertising and Sales Ian Taylor Tel: Mobile: ian@petrospot.com Events Manager Luci Llewellyn-Jones Tel: Mobile: luci@petrospot.com Events and Marketing Executive Alison Parsons Tel: alison@petrospot.com Subscriptions and Events Sales Manager Luke Hallam Evans Tel: Mobile: luke@petrospot.com Subscriptions and Events Sales Executive Veronica Lozada-Uzuriaga Tel: veronica@petrospot.com Accounts Miles Walsh Tel: miles@petrospot.com Cover Photo: Courtesy of Lloyd's Register NEWS Bunker Markets and Prices 4 Europe 8 Americas 14 Africa and Mideast 16 Asia Pacific 17 CREDIT ISSUES As the effects of the US credit crunch continue to make an impact on global financial and industrial markets, Lesley Bankes-Hughes asks whether the ambitions of barge owners to grow their fleets may be stalled by a change in banks lending policy and rising construction costs 18 COMMERCIAL ISSUES Bunkerspot quizzes Adrian Tolson about the progress of Chemoil s new Fujairah operation 24 BUNKERSPOT WORLD MAP Global prices and news at a glance! 28 TRAINING ISSUES Capt Howard Snaith urges the bunker industry to support INTERTANKO s newlylaunched Tanker Officer Training Standards 30 OPERATIONAL ISSUES Douglas Raitt of Lloyd s FOBAS looks at how Qatar Fuel WOQOD has become the first company outside Singapore to adopt a voluntary Quality Management System for the Bunker Supply Chain 32 Klaus Vrey of Global-Concept tells Bunkerspot how his company s new tank cleaning system can collect bunker slops without the need for reprocessing 34 ALTERNATIVE FUELS David Waterman talks to Lloyd s Register CEO Richard Sadler about the issues surrounding the use of biofuel as a marine fuel 36 ENVIRONMENTAL ISSUES Tommy Christensen of CBI Engineering reminds the bunker community that emissions control should not focus exclusively on the after-effects of the combustion process 40 Martek Marine believes that its MariNOx system can play a major role in lowering ships emissions 42 Christian Eyde Moeller, chief executive of the DK Group, argues that the maritime industry should seize the opportunity to become the benchmark for success on climate control solutions 46 BMT outlines its environmentally friendly approach to oil spill detection 48 EVENTS Llewellyn Bankes-Hughes looks at some of the key issues raised during the 29 th International Bunker Conference in Copenhagen in April 50 Events and training course diary 52 NETWORKING Bunker people on the move 54 & A one-year subscription is only 225/$430 for both the magazine and unlimited website access Bunkerspot is an integrated news and intelligence service for the international bunker industry. The bi-monthly magazine and 24/7 electronic news service, both provide highly-specific information on all aspects of the marine fuels industry. Bunkerspot Magazine (published in February, April, June, August, October and December) annual subscription rate, including unlimited access to the website is $430 / 225 / 315. ISSN Copyright Petrospot Limited All rights reserved. Published by Petrospot Limited, a dynamic independent publishing, training and events organisation, focused on providing information resources for the transportation, energy and maritime industries. Disclaimer: Bunkerspot is an editorially independent magazine and electronic news information service. The information contained in the magazine and website is presented in good faith. Opinions expressed are not necessarily those of Petrospot Limited, which does not guarantee the accuracy of the information contained in Bunkerspot. Nor does Petrospot accept responsibility for errors or omissions or their consequences. No part of Bunkerspot may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photographic, recorded or otherwise, without the prior written permission of the publisher. Designed by Matthew Stuart. bunkerspot June / July

3 Bunker Markets & Prices 600 Houston 380 Singapore 380 PRICE $/tonne Fujairah 380 Rotterdam A M J J A S O N D J F M 1200 Houston MDO PRICE $/tonne Singapore MDO Fujairah MDO Rotterdam MDO 400 A M J J A S O N D J F M World prices for crude oil rose steadily throughout the second-half of April before hitting record highs in mid May, and showing very few signs of weakness. Market sentiment may have played a part when Iranian President Mahmoud Ahmadinejad announced that Iran was reviewing oil output, although as prices continue to climb, any bullish statements being made appear to be bolstering markets. Bunkerspot s prices for heavy fuel oil rose fairly steadily throughout the same period, averaging an increase of $7.50 per week until mid-may. Prices for distillate were more sporadic, increasing more dramatically at the beginning of May. This could be due to limitations in refining capacity, or a higher demand for low sulphur distillates, possibly brought on by the new European Union (EU) emission caps. But supply is tight in the wider market inventories of distillates in developed countries fell 6.7 % to million barrels in March from a year earlier, according to International Energy Agency (IEA) estimates. Of the major ports, Tokyo consistently remained the cheapest for distillates throughout April. In comparison, Gibraltar remained the highest, and in mid May was $237 above Tokyo for distillates. Rotterdam was slightly undercut by Houston for heavy fuel oil for two weeks in mid-april before returning to the norm, but it should be remembered that Houston prices are quoted ex-wharf. If anything is certain, it is that bunker prices will not be easing-off anytime soon. Although Brent Crude for June and July delivery is similar to May s prices, a report by Goldman Sachs recently said that crude oil prices could rise to $150 or $200 a barrel within two years. Also, shipping is by no means immune from the emerging credit crunch in the world economy. There is the risk of rising marine fuel prices exacerbating the situation for bunker suppliers and shipowners alike, as more and more credit is required for bunker purchases. Lesley Bankes-Hughes examines this issue in Crunch? What Crunch? on page 22. But every cloud has a silver lining, and the high price of crude oil is making the development of alternative fuels appear more achievable. This issue s interview with the CEO of Lloyd s Register (p.36) looks at the barriers and opportunities for shipping s use of biofuels. In particular, it is looking very feasible that slow speed diesel engines can handle one of the crudest and cheapest 4

4 Bunker Markets & Prices types of biofuel unrefined plant oil. This gives large-scale shipping a clear cost advantage over other modes of transport that would require refined plant oil (or biodiesel). Financial and environmental drivers will go hand in hand, and the new MARPOL Annex VI regulations will give plant oil a further advantage as a replacement for the low sulphur distillate that will be required in the more stringent Emission Control Areas (ECAs) of 2010 (1%) and 2015 (0.1%), subject to agreement in October. However, before the bunkering industry can think about supplying ships with plant oil, several barriers need to be overcome, not least the absence of marine standards for the fuel. Much discussion is required on the subject, including the storage and blending aspects for bunker suppliers. Emissions from ships are becoming evermore prominent in the public eye, and several events over the coming months will address the issue. In June, the ICCMI2008 (Impacts of Climate Change on the Maritime Industry) conference in Malmö, Sweden, will attract speakers such as International Maritime Organization (IMO) Secretary-General Efthimios E. Mitropoulos. In July, the World Ports Climate Conference (WPCC), held in Rotterdam, will see delegates from more than 30 ports and cities gather to develop the World Ports Climate Declaration. Chaired by Ruud Lubbers, the former Prime Minister of The Netherlands, the WPCC hopes the world s leading ports will subscribe to a tangible programme of action to reduce greenhouse gas emissions. Petrospot s own event in Miami in May, Martime Week Americas (MWA) featured a comprehensive environmental channel which looked at issues surrounding both air emissions and fuel spills. A further opportunity to have your say on all the issues affecting the industry will be at the International Bunker Industry Association (IBIA) Annual Convention 2008 in Cape Town, South Africa, November IFO April-08 May Rotterdam d Gibraltar d Piraeus d Suez d Fujairah d Durban w n/a n/a n/a n/a n/a n/a n/a Tokyo d Busan d Hong Kong d Singapore d Los Angeles w Houston w New York w Panama w Santos d Buenos Aires d n/a n/a n/a n/a n/a n/a n/a 180 IFO April-08 May Rotterdam d Gibraltar d Piraeus d Suez d Fujairah d Durban w Tokyo d Busan d Hong Kong d Singapore d Los Angeles w Houston w New York w Panama w Santos d Buenos Aires d MDO April-08 May Rotterdam d Gibraltar d Piraeus d Suez d Fujairah d Durban w Tokyo d Busan d Hong Kong d Singapore d GLANDER Bunkerspot prices are compiled from the reports of the four brokers whose market reports have consistently proved the most reliable and accurate: Cockett Marine Oil Limited, LQM-Gibson, Glander International Inc., and Davies & Newman Wake Limited. Bunkerspot welcomes market reports from other sources for inclusion on its website www. bunkerspot.com. Los Angeles w Houston w New York w Panama w Santos d Buenos Aires d

5 Credit Issues As the effects of the US credit crunch continue to make an impact on global financial and industrial markets, Lesley Bankes-Hughes asks whether the ambitions of barge owners to grow their fleets may be stalled by a change in banks lending policy and rising construction costs The shock waves caused by the US sub-prime mortgage crisis continue to impact the world s financial and commercial markets. Tales of woe from some of the largest global finance houses are regularly aired in the press, and as banks seemingly queue up to write off losses and confess to heart-stopping falls in the level of their reserves their willingness to offer loans, whether it be in the form of a mortgage to a first-time buyer in the property market or a complex syndicated loan to a multi-national shipping group, is being severely put to the test. Whether the current spate of gloomy statements about liquidity in the banking sector will be seen to be hyperbolic rather than prescient when 2008 comes to a close does, of course, remain to be seen. However, the question must be asked: is the current credit crunch seriously affecting the shipping sector and, more importantly for readers of this magazine, as the global order book for newbuilds grows ever larger, is the present nervousness in the financial markets causing bunker barge owners to reassess their plans for fleet expansion. The domino effect of a crisis in financial confidence, which began in the US and is now filtering through to other national economies, is just one of many pressures affecting shipowners. Bunker fuel prices which continue to break all records, and similarly steep hikes in global steel prices (resulting in higher barge prices) are all playing their part in relentlessly squeezing the margins of vessel owners and operators. Set this against potential problems in obtaining lines of credit in order to finance vessel acquisitions, and the barge owner would seem to be somewhere between the proverbial rock and a hard place. Yet if a barge owner was tempted to batten down the hatches, put acquisition plans on hold, and ride out the current period of financial stormy waters, the bad news is, of course, that he can t. The imperative for owners to switch to double-hulled vessels by 2015 means that those barges will have to be acquired in one way or another. Some companies have leaped onto the acquisition bandwagon with great alacrity. Aegean Marine Petroleum Network Inc. (AMPNI) has a large order book placed with Chinese and South Korean shipyards, which has been partially funded by lines of credit and the proceeds of a 2006 initial public offering (IPO) (Bunkerspot, February/March 2008, page 28). In the United States, TEPPCO Marine Services has boosted its barge fleet through corporate and asset acquisition rather than via the order book. In the first quarter of 2008, it paid $500 million for Cenac Towing and a further $87 million for a number of vessels plus commercial agreements held by Houston-based Horizon Maritime. This strategy has resulted in a barge fleet which includes 96 double-hulled barges, accounting for an impressive 90% of the company s total f leet. Other owners have been building up their double hull portfolios at more modest levels, but the current uncertainty in the financial climate is causing some observers in the shipping industry to speculate as to whether some owners may be seeking to renegotiate contract terms, sell on contracts or choose not to exercise options on vessels. Other alternatives could be to re-skin single-hulled vessels or charter barges rather than buy at least in the financially volatile near-term. The volumes of shipbuilding taking place in the South Korean and Chinese yards are unprecedented, and, say some analysts, unsustainable. The insatiable demand for consumer products by the US and Europe is the driver behind this construction growth, with an estimated 9,000 ships currently under construction world-wide. Asian yards have an order backlog of 3-4 years, and prices for ships are at record levels. South Korea, the world s largest shipbuilding nation, is taking steps to increase production at its yards by constructing new docks. Hyundai Heavy Industries, the leading global shipyard, secured million deadweight tonnes (dwt) in orders in 2007, a massive 43% rise over 2006, according to research from shipping finance group Clarksons. In spite of analysts predictions that this level of growth could not continue into 2008, the group filed first quarter results at the end of April which showed a 59% rise in operating profits, and, in an impressive show of self-confidence, it has lifted its order target for this year from $27.4 billion to $29.4 billion. Given 18

6 Credit Issues that orders tend to impact on shipbuilding revenues around two years after placement, then Hyundai s positivity in the near-term looks hard to challenge. If South Korean shipyards are feeling buoyant about their prospects, then China s ambitions seem to be limitless. In 2006, it overtook Japan to become the second largest shipbuilding nation, and a good number of commentators expect it to topple South Korea from its top spot by In 2006, the Chinese government set out its expectations for the nation s shipyards, stating that it should aim to capture at least 25% of global business by 2010 and 35% by In reality, in terms of garnering new orders China took the lead in 2008, securing 42% of the world s business. Given that 80% of vessels built in its shipyards are for export, then closely monitoring how China performs in this sector is imperative for the Very Large Crude Carrier (VLCC) operator and barge owner alike. Clearly, how shipyards juggle their own commercial and financial pressures is crucial for vessel buyers as they can inflate construction costs and, therefore, force purchasers to call on banks to lend larger amounts of credit. For all shipbuilders, rising orders mean improved revenues, but margins on fixed price contracts are open to erosion by fiercely escalating iron ore and steel prices. Chinese shipbuilding costs are still cheap; some analysts suggest they are 30%-40% cheaper than in South Korea and Japan. However, a vast order book fuels a huge appetite for raw materials. In 2007, China sourced 383 million tonnes of ore from foreign suppliers. The main exporters of iron ore to China are Australia and Brazil, while India supplied almost 80 million tonnes last year around 15% of China s requirements and accounting for almost 80% of India s total iron ore exports. Iron and steel prices are spiralling upwards, but countries like China and South Korea are quite simply committed to buying more and more, whatever the cost. Production costs have increased the cost of iron ore by 65% over the past 12 months and steel prices have risen by 40% this year. Although well over 50% of China s iron ore imports are acquired on a long-term contract basis, many purchases are made on a spot basis. Chinese authorities have urged The current uncertainty in the financial climate is causing some observers in the shipping industry to speculate as to whether some owners may be seeking to renegotiate contract terms, sell on contracts or choose not to exercise options on vessels yards to reduce spot price purchases as yards cannot pass these higher costs onto existing customers and loading them on to new contract quotations will make obviously make them less attractive to future potential buyers. The Chinese government has attempted to cushion the blow for indigenous yards by offering preferential interest rates on loans. Asian yards are also seeking to raise cash levels through IPOs: China State Shipbuilding undertook a share offering on the Shanghai Stock Exchange last year, and China Shipbuilding Industry Corp and Sinopacific Shipbuilding look set to follow later this year. However, the continued weakness of the US dollar is an inescapable problem for Asian yards whose labour costs are accounted for in local currency. The vice chairman of the COSCO shipyard group has already called for contracts to be quoted in currencies other than dollars in order to reduce currency risk, and for costs to be realigned against the dollar at each payment milestone. So, with a business climate where external pressures are competing to erode margins for buyers and builders alike (and when have such factors really been so very different in the commercial world?), is the shipping industry inching closer to the edge of a financial precipice? According to Duncan McDonald, partner in the shipping litigation department at Stephenson Harwood, around 60% of the world order book does not have finance in place. Other commentators price the level of debt that must be raised to fund outstanding orders over the next three years at around $300 billion. The ability or willingness of banks to offer loans must therefore be concentrating the minds of owners already committed to contracts as well as contemplating placing orders in the future. There are indeed signs that some of the larger tonnage deals have started to unravel. Earlier this year, Hong Kongbased shipowner Jinhui pulled the plug on a contract to build two large ore carriers and had to pay several million dollars as a cancellation fee. In February, Oceanaut Inc pulled out of a $700 million deal to buy nine dry bulk carriers, and in April a construction contract/charter deal involving the giant container group Evergreen fell apart. A few days later, it was announced that Evergreen had pulled out of a joint venture agreement with the Chinese government to build a shipyard in Fujian province. So how should a barge owner aiming to purchase vessels of around 6,000-10,000 metric tonnes (mt) be looking to structure and finance a deal. Canvassing the opinions of industry experts, it would seem that while banks are showing caution and some reticence in extending credit, buyers looking for loans can possibly be more sanguine about their prospects for success than some of the dramatic headlines in the press might suggest. Mike Vernell, partner in the International Shipping Finance group of Watson, Farley & Williams, a law firm which works on very large tonnage deals right down to small-scale projects, notes that: You will hear of the really big deals going wrong, but these are really one-offs which probably would only ever have half a dozen potential users. He does, however, acknowledge a recent slow-down in order volumes: It is absolutely crystal clear that there has been a very significant slowdown in contracts since just before Christmas. He suggests that there is currently something of a stand-off by the shipping fraternity. They are making good earnings and have done so for several years, but now they are not being offered such a high percentage of value from their loans. Vernell still believes that banks are able and willing to lend on the right deals: They are being more pernickety, but there are lines 20

7 Credit Issues of credit on offer; maybe not for speculative one-off deals at the moment, but the money is there although it is more expensive. Duncan McDonald of Stephenson Harwood paints a slightly bleaker picture for financing: Talking to clients, we are seeing a number of banks cutting back on lending very significantly and in some cases pulling out altogether. He suggests that banks will be watching the market and seeing when to reengage. Both Vernell and McDonald agreed that banks will still be prepared to lend to established customers with sound business proposals, but the new entrant to the market may find it difficult to be taken on by the finance houses. Bob Beegle of the workboat broker Marcon takes a similarly pragmatic line: There is a general feeling that there is a crunch across the board. Banks are being a little less open on offering loans; they are taking a harder look at risk or value, and a lot more appraisal work and due diligence is being done. Steve Leonard of AMPNI shares this view: Obviously, the credit market is very tight. Quality owners continue to do business, but owners and banks are paying more scrutiny to the yards being used. Beegle believes that some newbuilding programmes may be scaled back and some options not exercised, primarily as a result of the economy versus credit crunch. Addressing the possibility that some buyers may look to reconfigure single-vessels rather than pursue a newbuild policy, he notes that: A few barges will continue to be candidates for reskinning, but in the overall picture will be a small percentage in the future. The key factor here will probably be technical suitability issues. Newbuilding will provide the majority of double hulls. He notes that availability of larger Oil Pollution Act of 1990 (OPA 90) retired single hull barges is becoming tight in the US, although Marcon knows of a couple which have been earmarked for doublehulling but which would be sold on if the owner achieved a satisfactory price. Double-hull availability is also very limited, although again Beegle is aware of a couple of year-old units which may come onto the market later this year as the owners are building new vessels. Beegle points out, Bunker fuel prices which continue to break all records, and similarly steep hikes in global steel prices (resulting in higher barge prices) are all playing their part in relentlessly squeezing the margins of vessel owners and operators however, that a second-hand double hull vessel will still command a premium price even if sold on to a foreign buyer Not surprisingly, the resale price of nonretired smaller ocean tank barges with an OPA 90 retirement date of 2015 has come off the $35-$40 a barrel level and some (carrying non-compete restrictions) are now available at around $20 a barrel. Not all owners are feeling negative about the outlook for barge acquisition schedules. Tom Marion of Buffalo Marine Service is particularly upbeat: Things are accelerating; there is a backlog in regional shipyards, and no sign of anything tapering off. Buffalo is due to take delivery of four 30,000-barrel vessels between September and October this year, and Marion points to the introduction of the Economic Stimulus Act of 2008 as having provided a real boost for his business. This legislation gives companies the possibility of a 50% first year bonus depreciation incentive on equipment manufactured, purchased and placed in service during 2008, and barge buyers are clearly prime candidates to take advantage of such fiscal benefits. Robert Socha of the US shipyard Bollinger also told Bunkerspo that funding did not seem to be an issue in the US market, but rising raw material costs were taking their toll: Barge operators continue to replace old tonnage, but today s steel prices have to be a deterrent. I have not heard that any of the operators are having difficulty in getting funds, but many are not getting a day rate that pays for the current prices for new tonnage. Interestingly, Bollinger is taking some measures to protect itself against rising steel prices in that it is to start construction of a number of offshore supply vessels and take them through close to completion before being sold, so that the costs of materials can be more realistically factored into the price. Opinions seem to differ as to whether there should be a shift away from pricing contracts in dollars. One commentator told Bunkerspot that it would be a healthy move to shift pricing away from a dollardominated business to one involving other global currencies. Mike Vernell doubted that buyers would easily move away from the dollar, while Marcon s Bob Beegle and Duncan McDonald believed that more deals would be struck using the euro. Steve Leonard also believes that a change in contract currencies is being talked up, and it would be very difficult for ship building nations to extricate themselves from their relationship with the dollar. Very few experts told Bunkerspot that they believed that newbuild contracts would be cancelled, although there was a feeling that deal terms may be open to renegotiation, with some contract periods being extended. Rescheduling a deal is infinitely preferable for both sides rather than a buyer having to pay a hefty cancellation penalty and a yard having to search for a new buyer mid-way through a construction programme. The strategies of shipyards themselves could also be an interesting area to monitor. Several observers told Bunkerspot that Asian yards could encounter difficulties due to their failure to sufficiently hedge against currency and commodity price fluctuations. One commentator even said that there has been speculation that some Chinese yards are attempting to ask for higher prices from customers before they will release the completed vessels. While some buyers may try to ease the pain by renegotiating their contracts with shipyards, Mike Vernell also suggested that the enormous push by Asian yards to fill their order books to the limit raises the questions of whether some of them will be able to deliver all they promise. Also, returning to the perceived trend that banks are choosing to lend to customers with whom they have long established relationships, another industry watcher said it might be interesting to see how 22

8 Credit Issues the finance houses react to the decisions of those customers to move their vessel building to the newer Asian yards where issues such as meeting delivery schedules may be more open to question. Mike Vernell takes a broad view of the current credit crunch situation. It is a banking issue a temporary banking hiatus, he says. The marine industry is very robust and it is going to be something that happens in China, India or a major event in the US that would have a major effect on shipping. Another expert noted that it is easy to forget that China, Russia and India are still cash rich, and while the US and Europe might be stuck in the financial doldrums, these nations are not yet seeing an economic downturn on their horizons. Steve Leonard of AMPNI also points to the issue of freight rates as being significant in the current climate of high oil prices. While owners have largely been able to absorb fuel costs up till now, the future There are lines of credit on offer; maybe not for speculative one-off deals at the moment, but the money is there although it is more expensive is much more uncertain: We have never been here before; this situation is new to everyone. Bob Beegle of Marcon puts his finger on the pulse of current market sentiment: It has been a crazy market. We have seen more sales fail, both in this and last year, at the last minute than at any other time in our 27-year history and all for various reported reasons, but we generally believe that some buyers may not have done all of their due diligence and jumped the gun to secure a stranglehold on a particular vessel or barge for a specific contract too quickly. With all of that, I think we will end up with the first half of 2008 as our best half year ever. The views of one busy broker cannot, of course, sum up the fortunes of an entire industry sector, but consider the comments from the Greece-based shipping research business Petrofin: There has recently been observed a widespread view that shipping is experiencing a credit squeeze. However, shipping is experiencing a recovery and has enjoyed a period of relative prosperity. In addition, the outlook from a demand and supply point of view appears positive and able to sustain a longer period of prosperity. Why then a credit squeeze. Does this sound a familiar question as we head for mid-2008? Indeed it does, but these words were actually written in 1993, and surely only serve to show that, in the shipping sector at least, there is nothing new under the sun. Marcon International, Inc. Vessels and Barges for Sale or Charter Worldwide Tel: info@marcon.com Fax:

9 Commercial Issues Bunkerspot quizzes Adrian Tolson about the progress of Chemoil s new Fujairah operation Selling close to 100,000 metric tonnes (mt) of fuel in your second month of operation is not every supplier s idea of a slow and steady start to setting up a delivery operation in a new port. But then, Fujairah is not a typical port, and Chemoil is definitely not an average supplier. Late last year, Chemoil s vice president for sales and marketing, Adrian Tolson, raised the curtain on the company s plans for 2008 (see Bunkerspot, December/January, page 16). Tolson told Bunkerspot that Chemoil was planning a three-pronged attack on the world of bunkering by: building on its relationship with barge operator FTS/ Hofftrans in the Amsterdam-Rotterdam- Antwerp (ARA) market; opening the Helios Terminal on Singapore s Jurong Island; and working with Gulf Petrol Supplies to start a completely new bunker operation in Fujairah. As Tolson pointed out, this would put Chemoil in a uniquely powerful position: the only bunker company with full control of its supply operations in all three of the world s major bunkering ports. It was a bold and imaginative plan, and very much in tune with the ebullient personality of Chemoil s founder and chairman Bob Chandran. Tragically, Chandran died following a helicopter crash in January (see Bunkerspot, February/ March, page 18). This was a terrible blow for Chemoil and its staff, but it is testimony to Chandran s success as a business leader that the company has shown the resilience and fortitude to keep the plan on track. The vision may have been Chandran s, but he clearly succeeded in sharing that vision with the Chemoil community. The question now is: will Chemoil succeed in making the vision work? In Rotterdam and Singapore, Chemoil is building on established foundations. Fujairah is a tougher proposition: Chemoil must woo a very different customer base, and compete with suppliers who are already entrenched in the market and wellversed in the culture of the United Arab Emirates (UAE). This will be the real acid test of Chemoil s claim to be the major independent, a company which can scan the globe for new opportunities, and then adapt its business model to suit the nature of specific markets. Bunkerspot met up with Tolson after the International Bunker Conference in Copenhagen for a progress report on the new UAE venture. Chemoil officially launched its operations in Fujairah in early March and supplied around 50,000 mt of bunker fuel by the end of the month. As mentioned earlier, the company achieved close to 100,000 mt in April. Looking to the longer term, Tolson said that Chemoil hopes to achieve bunker sales of around 200,000 mt a month. The company is building up the infrastructure to accommodate this growth in sales. The GPSChemoil terminal (a joint venture between GPS and Chemoil) currently provides around 48,000 cubic metres (m 3 ) of storage capacity. By the end of this year, this will increase to around 93,000 m 3. Under the plans approved by the Port of Fujairah, the terminal could build to a capacity of around 600,000 m 3 within the next few years. While the expansion work is underway, Chemoil is continuing to lease around 60,000 m 3 of capacity at the Vopak Horizon Fujairah terminal. On the barging front, Chemoil had two 7,000 deadweight tonne (dwt) vessels on station for the launch: the George Sea and the newly-built Lorenzo Sea. A third vessel, the Heredia Sea, was set to make its appearance before the end of May. Both the Heredia Sea and the Lorenzo Sea are double-hulled newbuilds from a Chinese shipyard, said Tolson. As Chemoil ramps up its volumes, it will need to take on new barges, which will be a costly undertaking. Of course, the expansion of the GPSChemoil terminal will allow the company to pursue opportunities on the ex-wharf side. This is a side of the business at which Chemoil is already a past master, through its activities in Singapore. Sourcing fuel, for both direct bunker sales and the ex-wharf business, should not be a major issue in Fujairah or at least it will be no more of a problem than in any other world bunkering hub. Tolson said there is a wide range of options, which include not only the Mideast Gulf itself, but also the Mediterranean market, the Black Sea region, and further afield. 24

10 Commercial Issues Will there be sufficient demand to support Chemoil s Fujairah ambitions? At the moment, the market is estimated to be worth around 16 million mt a year. This means that Chemoil s 200,000 mt a month target would equate to a market share of around 12.5% which does not seem overly ambitious. Furthermore, Tolson pointed out that the Fujairah market could be seeing some significant growth over the next few years. Tankers have been the mainstay of the UAE bunker market, but the region s phenomenal economic growth over the past decade has spurred a huge increase in general cargo shipping. This is particularly noticeable in the container sector. DP World, for example, achieved a throughput of around 11 million twenty-foot equivalent units (TEUs ) at its UAE marine terminals in This was an increase of almost 20% over the previous year. DP World expects to see even bigger expansion in the future especially in Jebel Ali, where the opening of the new container terminal has contributed to a substantial increase in handling capacity. On Sharjah s East Coast, meanwhile, the Khor Fakkan Container Terminal (KCT) recorded a 9% dip in throughput in 2006, but volumes bounced back in 2007 and Gulfcontainer is confident that the upward trend will continue. The Vopak Horizon Fujairah oil terminal where Chemoil itself is currently leasing storage has also played a major role in bringing more shipping into the area. Finally, Tolson believed that the new Fujairah-Abu Dhabi pipeline could be hugely significant for the local bunker market. The 360-kilometre pipeline, through which oil could start to flow before the end of next year, will carry up to 1.5 million barrels a day (b/d) of crude oil. The aim of the project is to enable Abu Dhabi s oil exports to bypass the troubled Strait of Hormuz. When the pipeline is fully operational, the tankers will be queueing to load up with crude oil cargoes and Chemoil hopes that they will be looking to take on bunkers too. So, the key ingredients for a successful market launch demand, product and a supply infrastructure are in place. But Chemoil won t have everything its own way: competitors in the physical bunker supply market include Aegean Marine Petroleum Network Inc. (AMPNI), Akron, Bakri Bunkering, Emirates National Oil Company (ENOC), FAL Energy and Oil Marketing and Trading International (OMTI). These players have had their own particular niches and strengths. Bakri, for example, has the advantage of having supply infrastructure in both the UAE and Saudi Arabia where it supplies by barge and ex-pipe in Jeddah, Yanbu, Ras Tanura, Jubail and Dammam. FAL has a particularly strong presence in Khor Fakkan. Tolson conceded that Chemoil s entry into the Fujairah market may have been made somewhat easier by the fact that ENOC has been very quiet of late. If there is a gap in the market, Chemoil will have to fill it fast because Vitol is waiting in the wings. The global trading giant bought the old Metro Oil refinery and has made it known that it plans to get involved in bunkering. Vitol has started processing crude at the refinery already, said Tolson, but we don t know exactly when it will start the bunkering. Actually, we had been expecting Vitol to start before us. Becoming an established player in Fujairah will be a challenge but if Chemoil is to become the company that Chandran wanted it to be, it will have to meet challenges like this on a regular basis. What was particularly illuminating about our conversation with Tolson was that while Chemoil was proud of its new Fujairah- Rotterdam-Singapore axis, this was by no means the summit of its ambitions. Projects are always on the Chemoil drawing board and Asia seems to be a particularly fecund breeding ground for new ideas. We have four or five projects/ideas in China, said Tolson, but I couldn t say which might be the one that will take off. Other Asian markets also offer great potential but Tolson said that there was nothing definite to report at the moment. High seas bunkering was another area of the bunker business which Tolson found intriguing, and potentially lucrative. What Fujairah has shown is that the next big bunker market can sometimes emerge from the most unlikely of places. Fujairah owes its current status as a bunkering super-hub to the Iran/Iraq war of the mid-1980s. Ships entering the Mideast Gulf via the Strait of Hormuz (the problem area which the new pipeline is trying to by-pass) had to run the gauntlet of Iranian fire. They had to proceed in convoys protected by US Navy and Royal Navy ships. Consequently, the tankers waiting for the naval escorts would queue up at the UAE anchorages, becoming a captive market for the bunker suppliers. Wars, changes in world trading patterns, even the much-debated global warming could all play their part in creating new bunkering opportunities. Chemoil would obviously want to be the supplier that finds the new Fujairah ; but, in the meantime, establishing itself as the new force in the old Fujairah will be challenge enough. 26

11 Training Issues Officer Class Capt Howard Snaith urges the bunker industry to support INTERTANKO s newly-launched Tanker Officer Training Standards Capt Howard Snaith is Head of the Marine, Chemical, Ports, Terminals and Environmental divisions at the independent tanker owners association, INTERTANKO. Contact: Capt Howard Snaith INTERTANKO Tel: Fax: Web: The main aims of the Tanker Officer Training Standards (TOTS) system developed by INTERTANKO are to provide the tanker industry with a clear standard of tanker officer competence, onboard and onshore training and assessment, and at the same time to provide a level of comfort to those oil companies that utilise officer matrix requirements. It also aims to ease the difficulties that tanker owners are encountering with differing time in rank and time with company requirements. Importantly, TOTS will address the current trend in increasing tanker accidents. Why is TOTS needed? TOTS is needed because a number of oil companies have in place their officer matrix requirement based on two elements: time in rank and time with company. These requirements have grown out of the perception that officer competence across the tanker industry does not universally meet with some charterers growing expectations for an officer s experience in rank and familiarity with his/her company operating and International Safety Management (ISM) systems. As a result, tanker owners are increasingly finding themselves subject to time in rank and time with company requirements which are competing and contradictory, and which can be difficult to comply with. INTERTANKO, and the shipping industry, has noted with increasing misgivings that tanker accidents have been rising since From an all-time low in 2003, incidents have climbed back up to the levels not seen since the late 1990s. They are still well below the levels seen in the 1980s and early 1990s, but nevertheless too high for comfort. The number of tanker incidents increased in 2007 to 326, an increase of 22% over 2006 s 266. This compares to an increase of 65% in 2006 over 2005 s 161 incidents. Unfortunately, both the number of fatalities and the amount of pollution increased in 2007 (61 fatalities and 17,250 tonnes of pollution) over 2006 (40 fatalities and 10,000 tonnes of pollution). What is causing this increase? Fingers are INTERTANKO, and the shipping industry, has noted with increasing misgivings that tanker accidents have been rising since From an alltime low in 2003, incidents have climbed back up to the levels not seen since the late 1990s pointing towards increased transparency and more reporting, towards hard-worked ships and crews in a succession of strong markets, towards the manpower shortage that has meant some taking shortcuts in training and recruitment. INTERTANKO is determined to work with the rest of the shipping industry, in particular with the Protection and Indemnity (P&I) and hull insurance sectors, to find out the cause of this unacceptable rise in incidents and to develop appropriate responses. Consequently, training and the human element will remain at the forefront of INTERTANKO s activities this year, and TOTS will be a key part of this work. What does TOTS do? INTERTANKO s TOTS system provides a structured response based on core competency, providing a set of voluntary Tanker Officer Training Standards for INTERTANKO members, which, when complied with, will establish officers competence for general shipboard operations, as well as for specific tanker types such as crude, product and chemical tankers. The aim is that this will be accepted as the norm of a competent tanker officer and provide alternative measuring tools to sea time or calendar years for both time in rank and time with the company. The TOTS system will provide a level of comfort to those oil companies that utilise officer matrix requirements, and will ease compliance with them. 30

12 Training Issues How will TOTS work in practice? The intention of TOTS is not to replace the officer matrix requirements, but to ease compliance with these requirements by offering a structured, controlled and auditable process to ensure enhanced competency training and an understanding of compliance with today s rules and regulations. INTERTANKO anticipates that the amount of easing compliance that will be attained with any of the existing officer matrix requirements will probably be based on a one-to-one basis between the individual shipping company and the oil company concerned. It will include various factors that will be assessed by and may be determined by the oil company not least how robustly the TOTS standard and associated verification process is implemented by the shipping company. TOTS in summary In essence, the overall aim is to provide a level of comfort comparable to existing officer matrix requirements and ease compliance with existing officer matrix requirements by providing an alternative way of measuring experience other than calendar years or sea time. Following the formal launch of the TOTS initiative in April, INTERTANKO s Executive committee members, many members of INTERTANKO Council and other INTERTANKO members have already made commitments to embrace TOTS. The Nautical Institute and the Institute of Marine Engineering, Science & Technology have also approved TOTS as a professional standard. We hope that the world s bunker community will lend their support to this important initiative. Training and the human element will remain at the forefront of INTERTANKO s activities this year, and TOTS will be a key part of this work

13 Operational Issues Douglas Raitt of Lloyd s FOBAS looks at how Qatar Fuel WOQOD has become the first company outside Singapore to adopt a voluntary Quality Management System for the Bunker Supply Chain Douglas Raitt is Global FOBAS Manager at Lloyd s Register. Contact: Douglas Raitt Lloyd s Register Tel: douglas.raitt@lr.org In March, Qatar Fuel WOQOD completed a Quality Management Bunker Fuel Supply Chain (QMBS) project with a view to accrediting the quality management system for its bunker supply chain. WOQOD, which has the sole concession for the marketing, distribution and storage of all petroleum products and related services in the State of Qatar, implemented and ran the system in all its bunker supply processes in the three-month run-up to the accreditation. With the rapid growth in Qatar s maritime industry and the strong development of shipping activities supporting liquefied natural gas (LNG) exports, WOQOD identified bunker supply for gas ships as an important support function and business opportunity. The convenience of picking up bunkers for vessels whilst loading LNG at Ras Laffan terminal offers a unique opportunity for operators of such vessels to reduce voyage times and operational costs to the port of discharge, as they will be able to pick up bunkers in Qatar without making a detour to other ports in the region to re-fuel. WOQOD will be distributing bunkers throughout Qatar, but particularly at Ras Laffan where the company has built a dedicated bunker supply storage facility in Ras Laffan Industrial Park capable of delivering 4 million metric tonnes (mt) of bunker fuel annually. WOQOD is now well on the road to helping fuel the ships that will export the clean LNG that the world needs. Nayef Saeed Al-Hajiri, WOQOD Quality Management Representative, commented: The key to managing bunker supply is having a well-documented process: a process that is clear, accountable and professional, providing buyers with the confidence that they need. With the WOQOD QMBS now in place, WOQOD can assure customers that we are able to meet their needs for timely and safe delivery of the required level of quality in the right place. Lloyd s Register s Fuel Oil Bunker Analysis and Advisory Service (FOBAS) helped WOQOD implement the QMBS, ensuring its bunkering practices are properly managed and documented in line with Singapore Standard SS 524. Basing the QMBS on SS 524 was the obvious thing to do. Over the past few years, Singapore has developed standards for effective bunker supply management and processes to ensure the supply chain is effectively managed by fuel supply companies. As a consequence, Singapore is now arguably the best regulated bunker port in the world and the global fuel buying community are confident that bunkering in Singapore is a safe thing to do. It is an exciting development to see that Singapore s best practices are being noticed by suppliers outside the country and are being used as a tool to enhance business performance and overall quality performance of the bunker supply chain. WOQOD s commitment, as one of the first suppliers outside of Singapore to adopt QMBS, is commendable. The Singapore standards that contribute to bunkering best practices in Singapore are the following: SS CP 60: Code of practice of bunkering by bunker tankers SS CP 77: Code of practice for bunker surveying SS 524: Quality Management for bunker supply chain (QMBS). While CP 60 and CP 77 are standards primarily aimed at operational level, SS 524 is aimed at enterprise and company management level. QMBS is an effective mandatory scheme in Singapore, which all bunker supply companies in Singapore must adopt. Suppliers are required to adopt a QMBS and the system must be audited by an independent quality assurance auditor. Although Singapore has mandated a quality management system for bunker suppliers, other ports around the world are fairly liberal about the way bunker supply companies maintain the supply chain. FOBAS certainly believes that Singapore s commitment to best practices and the developments of standards such as CP 60, CP 77 and QMBS has helped the port to consolidate its status as the world s leading bunkering hub. The consultancy work that Lloyd s Register FOBAS undertook in helping WOQOD implement QMBS was to review and document the following aspects of the bunker supply chain into a comprehensive 32

14 Operational Issues quality manual in line with SS Management responsibility 1.1 Management commitment 1.2 Training 1.3 Customer focus 1.4 Quality policy 1.5 Quality planning 2. Procurement 2.1 Procurement process 2.2 Cargo provider control process 2.3 Verification of product procured 2.4 Procurement records 3. Custody control 3.1 Custody control process of bunkers 3.2 Bunker storage management 3.3 Custody transfer of bunkers 3.4 Custody transfer of bunkers review and reconciliation 3.5 Roles and responsibilities within the supplier company concerning custody control processes 4. Delivery of bunkers 4.1 Delivery process 4.2 Delivery control process 4.3 Control of measuring devices 4.4 Control of non-conforming bunker product 4.5 Customer feed back Our work with WOQOD and other companies in the bunker industry has reinforced our belief that the key to managing bunker problems and potential disputes lies predominantly in the ability of fuel suppliers to manage and document each step in the supply chain diligently and effectively. Most importantly, a bunkering company can use its quality management system to demonstrate its commitment to excellence, assuring customers that they are dealing with a professional fuel supplier which they can trust. WOQOD chose Lloyd s Register FOBAS to help implement the Quality Management System for the Bunker Supply Chain, ensuring its bunkering practices are properly managed and documented in line with Singapore Standard SS 524

15 Operational issues Klaus Vrey of Global-Concept tells Bunkerspot how its new tank cleaning system can collect bunker slops without the need for reprocessing Contact: Klaus Vrey Managing Director Global-Concept GmbH Tel: Fax: German company Global- Concept GmbH has created a new technology for the fuel oil tank cleaning process which, the company claims, allows collected fuel to be re-used without the need for re-processing. According to Global-Concept, the technology, called CATCO-Service, requires no heavy equipment, no specific temperature of oil or water, and can be used for regular cleaning of ships storage tanks, as well as road tank wagons (rtw), pipes, hoses, contaminated equipment and even serious oil-spills. One of the biggest problems associated with tank cleaning is the adhesion of the fuel oil to the tank. With existing processes, this adhesion is combated by chemicals that crack the structure of the oil and allow it to be cleaned with water. As a result, large amounts of water are mixed with the oil. This has to be reprocessed using complex procedures, or burned off creating unnecessary emissions. Combating adhesion CATCO-Service works in a completely different way: It does not disperse the oil, but instead combats its adhesion without touching its structure. After observing the quality, quantity and consistency of the oil, the ratio of product used for cleanup is decided. The oiled surface is sprayed with CYTOSOL a biological and non-toxic liquid product that has to be applied undiluted. The CYTOSOL has to be allowed to impact the oil, coat and isolate it from the surface it adheres to. The time taken for this depends on factors such as the viscosity of the oil, but is a minimum of one hour. The impact of the CYTOSOL can be observed when the oil starts moving from the walls of the tank. Low pressure washing The oil is then removed through low pressure washing, and the oil and water are collected together. The CYTOSOL does not mix with water, so the water will not bind with the oil. After a few minutes, a complete separation of oil and water will occur. One of the biggest problems associated with tank cleaning is the adhesion of the fuel oil to the tank. With existing processes, this adhesion is combated by chemicals that crack the structure of the oil and allow it to be cleaned with water. As a result, large amounts of water are mixed with the oil The separated water can be discarded without the need for further treatment, or can be re-used for further washing. The collected oil, which will have decreased in viscosity, can be re-used as a source of energy without the complex reprocessing that is normally required. According to Global-Concept, this collected oil is still inside International Organization for Standardization (ISO) regulations, but of better quality than it was before. The only difference is in the viscosity, and in the sulphur content of the oil. For example, when you have a 380 centistokes (cst) bunker fuel cleaned up with CYTOSOL, the end product is approximately 300 cst. Although the collected fuel may well be within ISO specs, shipowners are unlikely to use any fuel that has been collected from the bunker tanks directly. This is because legal disputes over fuel would have limited grounds if the slops were to be re-used without being re-tested; the supplier would argue that this was not the fuel that was originally supplied. Consequently, the technology is more likely to be used by slops disposal companies who normally sell-on reprocessed fuel that has been re-tested under ISO specifications. Either way, the new tank cleaning system has the potential to offer large cost savings for all players in the bunkering industry. 34

16 Alternative Fuels Dave Waterman talks to Richard Sadler about the issues surrounding the use of biofuel as a marine fuel Richard Sadler started his career in the Royal Navy before moving to study Naval Architecture and gain a Post Graduate Diploma in Welding. He worked for Lloyd s Register, then The Royal Bank of Scotland before moving back to Lloyd s Register in July He took over as Chief Executive Officer in July Bunkerspot subscribers can access Sadler s full IMarEST lecture and accompanying slides on our website, Contact: Tel: richard.sadler@lr.org On 23 April, Richard Sadler, CEO of Lloyd s Register, delivered a groundbreaking lecture at The Institute of Marine Engineering, Science and Technology (IMarEST) entitled Biofuels and their effect on the shipping industry. The event kick-started a long-overdue debate on the effects of biofuels both as a cargo and as a fuel for ships. Richard Sadler kindly agreed to answer some questions for Bunkerspot after the lecture. Dave Waterman (DW): You mentioned several operational problems in using biodiesel as a marine fuel. Which of these do you think presents the biggest barrier? Richard Sadler (RS): I guess the biggest barrier is the fact that there s really no distribution method for it at the moment in terms of storage and bunkering barges, and that there is no standard for it. In terms of actually getting it to the ship, we would have to think about how that s going to work are we going to distribute it mixed, or are we going to blend it on board? DW: You talked about problems relating to the Cold Filter Plugging Point (at which biodiesel starts to gel). Since fuel oil engines generally heat the fuel before combustion, is this such a problem for large-scale shipping? RS: Only in that biodiesel is more sensitive to the ambient temperatures, so certainly if it was to be used then you would require a modification to standard engine room designs. In colder temperatures you may have more significant problems. DW: So as long as you follow the right procedures? RS: Yes, technically it s not an issue, we have all the technology we need to handle it, we just need to be well aware of the properties of biodiesel. DW: Some in the bunkering industry think it may be possible to use the much cheaper, unrefined biodiesel in fuel oil engines, as they are designed to cope with higher viscosities. Given that this would mean a much higher presence of glycerol, do you think this is likely? RS: We think it s technically feasible, but there are concerns. We would not be complacent though about the issue, especially on the deposits. The biggest barrier to the use of marine biodiesel is the technology involved in getting commercially available second and third generation biofuels to the market DW: So glycerol really isn t that much of a problem in fuel oil engines then? RS: We think that there are technical solutions that could overcome those issues. As you rightly say, marine diesel engines are very flexible in their ability to burn, and we ve got the ability to process in a large engine room, so therefore we would hope to be able to overcome that problem. DW: You mentioned third generation biofuel crops such as algae, which can be designed in such a way that that their structure conforms to particular requirements. Is it likely that some of the operational barriers you have highlighted could be overcome through the use of certain third generation biodiesels? RS: That s the beauty of them really. My understanding is that you can structure them to suit exactly what you want to do with them. In terms of third generation biofuels, algae certainly leads the way The more we ve investigated this subject the more fascinating it gets. There are lots of people holding onto information, rather than releasing it into a general pot. DW: That information s worth a lot I suppose. RS: Absolutely, but there again it s companies like Lloyd s Register that are going to have to be at the centre of making sure marine biodiesel is safe and that the risks are suitably covered. So we can t take too long in forming a view on what needs to be done. DW: You also mentioned biomass-toliquid fuel (BTL). Can you foresee any problems using Fisher-Tropsch synthetic fuels (XTL) in conjunction with fuel oil engines? RS: From what we know, we don t, but that s a complex one I would go to the suppliers to answer that. 36

17 Alternative Fuels DW: It also seems XTL fuels are of such high quality that they re likely to go to more profitable markets before they end up in the bunkering industry. RS: That s right, it seems there s so far to go in making that a commercial process, that with the scales involved, it s a long way from being one that shipping could use. But we could be in a position in the future where carbon dioxide (CO 2 ) and particle emissions aren t acceptable and much higher grades of fuel are forced upon us. And with these reports that 60,000 deaths are caused by shipping emissions, whether they re right or not, the mud sticks. DW: As you said in your lecture, the MARPOL Annex VI definition of fuel oil would allow for the use of biodiesel. Given that biodiesel is virtually free of sulphur, how much of a driver will the new Sulphur Emission Control Area (SECA) caps be in encouraging the use of biodiesel at sea? RS: We think it s a huge driver, provided that the distribution and the standards are in place. I think it s inevitable that it will be seen as an option, but more likely second and third generation rather than first generation. DW: But as far as the International Maritime Organization (IMO) is concerned, is biodiesel a legitimate fuel to meet emission caps? RS: Yes, they ve opened the door to allow it to happen, but if it were socially unacceptable in some other way then I would imagine the United Nations (UN) would be keen to prevent its use through some other means. Provided it s socially acceptable, I can definitely see it being used. DW: How long do you think it will take the International Organization of Standardization (ISO) to produce marine fuel specifications for biodiesel? RS: We re not sure regulations do take time to produce. The advantage we have in the marine industry is that there s increasing experience in using it in landbased installations Wärtsilä for example is installing biofuel engines in power stations so at least we ll have a lot of practical experience on issues like injector performance. DW: Has any organisation conducted an extensive sea trial using biodiesel in In terms of third generation biofuels, algae certainly leads the way The more we ve investigated this subject the more fascinating it gets conjunction with a fuel oil engine on an ocean-going vessel? RS: Royal Caribbean Cruise Lines (RCCL) is the only company that s done anything major, but we re not sure that was in conjunction with fuel oil engines [RCCL has trialled a palm-based biodiesel since 2005]. DW: When can we expect one, and from who? RS: I would imagine that a company such as Wärtsilä would do that on a test bed and then a shipping company will try it in one of its engines with the advice of the engine manufacturer in terms of fuel management? DW: So ISO essentially takes its lead from engine manufacturers? RS: I think they need everybody s involvement. We need to understand the tolerance of the engine but also of things like fuel filters and centrifuges. It s not just the combustion in the engine; the ISO standard would have to take into account everything from bunkering right through to the injection. I would imagine they couldn t do that without the engine and component manufacturers involvement. DW: You said in your lecture that we would need to see the marine bunker supply market working closely with regulators to develop international marine standards. What can the bunkering industry do to influence this process? RS: If standards are created for using the biodiesel on ships then that s all very well, but if the process of storing, blending and bunkering is not made available by the bunkering industry, there s little point in having those standards. DW: Now that the debate has been kickstarted, would you like to see a regular forum for the bunkering industry to discuss the issues surrounding biodiesel? RS: Without a doubt they re central to it. I think even if there are things in this paper that aren t factually correct, it will provide a backbone that we can build on to make sure we ve got it right for the next decade. DW: What is more of a barrier to the use of marine biodiesel operational issues, or legislative/regulatory bureaucracy? RS: Probably neither; it s more the social impact of its production. The biggest barrier is the technology involved in getting commercially available second and third generation biofuels to the market. DW: What is likely to be a bigger driver for the use of marine biodiesel environmental legislation or rising oil prices? RS: From the shipowner s point of view I think the main driver will be environmental because it s sure to be a more costly alternative. DW: Unless it turns out that ships are in a position to burn the much cheaper unrefined plant oil? RS: Yes, and at what price will fuel oil be in the future? What we haven t done yet is an analysis of the likely crossover point between the prices of the two fuels. DW: But we re also at the mercy of Organization of Petroleum Exporting Countries (OPEC). It would make sense for them to increase oil production to stifle biofuel demand before large-scale production it takes off. RS: Yes, but then there s the peak oil theory to take into account as well. There are so many variables. DW: How long do you think it will be before biodiesel becomes available on the bunker markets? RS: That s an impossible guess! I think because of the environmental pressures and increasing energy demand, by 2015 we will see some. But estimates are that even by then biofuels will only make up three or four percent of world demand. DW: And do you think that limited supply will go to meeting government mandates in the automotive sector rather than going to the marine sector? RS: The big driver for ships is the cost of the fuel, which is why we burn the lower grade fuels. Therefore I think we ll be at bunkerspot June / July

18 Alternative Fuels the bottom of the supply chain, unless we get to the top because we can burn the far coarser biofuels. Gathering the info Richard Sadler welcomed the input of all concerned on this issue. The advantage of a classification society such as Lloyd s Register is that it collects relevant information and allows it to be accessed in a general pool. After the interview, Sadler s team forwarded a paper to Bunkerspot submitted by Norway to the Marine Environment Protection Committee (MEPC) in December 2007, which looks at the feasibility of using biofuels on the Norwegian domestic fleet. Carried out by the Norwegian foundation ZERO, the paper covers a whole range of technical, economic, environmental and social aspects, and draws on the experience of the two leaders in biofuel land-based power plants MAN B&W Diesel and Wärtsilä. The paper concludes that: the use of biofuels in marine engines represents no operational problems, provided that the engines and the fuel treatment systems are prepared for such operation if and as required the greatest barrier today to the use of biofuels in ships is the substantial price gap between fossil fuels and biofuels a significant use of biofuels in the future depends therefore on closing the price gap as well as ensuring adequate supplies. The advantage we have in the marine industry is there s increasing experience in using biofuel in land-based installations The issues surrounding the use of biofuels for ships can be summarised as follows: Technical issues storage shorter shelf life presents risks for bunker suppliers. Stability depends on feedstock biodiesels with high levels of saturated fatty acids are more stable with respect to oxidation (e.g. rapeseed). The ASTM standard suggests least stable biodiesel can be stored up to eight months. Longer storage would require oxidation preventative additive. Normal acid-proof tanks can be used without any major problems. Tanks should be thoroughly cleaned before switching from petroleum fuels to biodiesel (to reduce build up caused by biodiesel s solvent effects) BioMer blending limited experience in the marine industry according to a study by the Great Lakes Maritime Research Institute blends of biodiesel up to 20% were said to cause no fuel system degradation Comparison of biofuels and marine fuel properties (MAN B&W Diesel 2006) multifuel Switching between biofuels and heavy fuel oil (HFO) does not pose any problems with respect to the engine MAN B&W Diesel fuel system problems relating to cold flow properties of biodiesel/plant oil. Can be overcome with careful temperature control (fuel system may need extra heating components) and/ or additives. HFO systems already require pre-treatment injector corrosion can be overcome with adjustment of injector pump or replacing with more cavitation resistant pump such pumps are used in plant oil power plants by Wärtsilä corrosion of elements plant oil (see table) is within Wärtsilä and MAN B&W Diesel limits for Total Acid Number (TAN), but components such as rubber seals may have to be replaced with more resistant ones Thomas Knudsen, Senior Vice President of Research and Development at MAN B & W Diesel, estimates that an existing ship engine can be converted to run on biofuels for less than 5% of the engine cost engines designed for HFO can run on plant oil, but engines designed for marine diesel oil or marine gasoil (MDO/MGO) may have problems due to the higher viscosity MAN B&W Diesel. Types of fuel palm oil the cheapest plant oil so far, but has replaced rainforest in some areas other first generation feedstocks subject to food versus fuel debate jatropha drought resistant suitable for areas where other crops won t grow algae has the potential to produce times the yield of other energy crops in a given area Global Green Solutions. Closed-loop systems absorb CO 2 emissions which facilitate the growth of feedstock. Origo Industries has developed technology that traps CO 2 emissions from transport engines which is then used for this purpose. The company is actively looking for a marine partner 38

19 Alternative Fuels BTL not yet commercially viable for the shipping industry pyrolysis fuel oil produced from biomass. Poor quality fuel with limited applications (potentially very inexpensive) that HFO engines might be able to handle. Emissions of biodiesel CO 2 potentially carbon neutral. The US Department of Energy showed that the production and combustion of biodiesel resulted in a 75.8% reduction in CO 2 emissions compared to petroleum diesel Carbon monoxide (CO) reduced by 48% when compared to petroleum diesel US Environmental Protection Agency (EPA) Particulate matter (PM) reduced by 47%, and total unburned hydrocarbons reduced by 67% when compared to petroleum diesel EPA Polycyclic Aromatic Hydrocarbons (PAH) reduced by 80% when compared to petroleum diesel EPA. Likely to be reduced even greater when compared with HFO. Inhaling air containing PAH can cause serious health problems such as cancer ZERO NOx slight increase in biodiesel (approx 10%) compared to petroleum diesel EPA. This is probably because of the low levels of PM, which increases the combustion temperature. Even so, engines can be adjusted to counter the increase in NOx. Another question is whether these settings would have to be approved by the International Council on Combustion Engines I think shipping will be at the bottom of the supply chain, unless we get to the top because we can burn the far coarser biofuels (CIMAC). Rapeseed oil may have similar NOx emissions to HFO when used in a ship engine ZERO essentially free of sulphur (less than 10 parts per million). Other drivers fuel spills because they are biodegradable, a spill involving biofuels would be much easier to cope with ZERO. If governments and maritime insurance providers recognise this fact, this will provide a big driver for shipowners. The recent Cosco Busan incident cost the shipowner alone $80 million bunker handling can be made safer using biofuels (far less PAH than in HFO) ZERO cost ships with fuel oil engines are the only mode of transport that is likely to be able to effectively burn unrefined plant oil (roughly 75% of the cost of biodiesel) SECA regulations allow for unrefined plant oil to be used in place of lowsulphur distillate the former may well become the cheaper option so far, economics have favoured the export of unrefined plant oil. The shipping sector is likely to become the major link between the feedstock producers and the biodiesel refiners. One can envisage that the first ships to bunker with unrefined plant oil will be the ones visiting major feedstock export hubs where delivery infrastructure will already be in place. The consensus seems to be that it s a question of when, not if, ocean-going vessels will be burning biofuels. The modifications required in order for these ships to use plant oil or biodiesel seem to be quite minimal. The biggest barriers seem to be the cost/availability, lack of ISO standards, and the shelf-life of biofuels. There are still many more questions need to be answered: what will the properties of blended fuel oil and plant oil mean for the bunkering industry? who is going to be the first to take the lead and adapt a ship to burn plant oil in its HFO engine? will governments support shipping in an attempt to get plant oil to the marine markets, as opposed to inland power generation (which could make use of other renewable energy sources)? Whatever the technological developments, shipping will be at the absolute centre of the biofuel logistics chain, as will the bunker suppliers be at the end of that distribution chain to supply it to ships, says Sadler. There s no point in politicians and technologists agreeing on things that can t be coped with by the marine industry. The shipping industry must be heavily involved in the policy-making process. bunkerspot June / July

20 Environmental Issues Tommy Christensen of CBI Engineering reminds the bunker community that emissions control should not focus exclusively on the after-effects of the combustion process Tommy Christensen is the Managing Director of CBI Engineering A/S. CBI Engineering was founded in 1980 as an engineering company and currently specialises mainly in the development of bunker terminals, floating storage and offloading (FSO), physical bunker operations, fuel blending and metering. Contact: Tommy Christensen CBI Engineering A/S Tel: Fax: Web: Bunker fuel s journey from the refinery to its final destination at the receiving ship s manifold can be a tortuous one. Each time it is transferred to a new storage tank, product tanker, bunker barge or road tank wagon (rtw), vapours can be released, causing pollution, unpleasant smells and even health and safety hazards. When the bunker fuel is the subject of batch blending in the tanks, vapours are released at an even higher level. Reports of bad smells emanating from heavy fuel oil tanks have led environmental agencies to take a critical view of the bunker industry, and the pressure is mounting on port authorities and terminal operators to clear the air. In some quarters, it is claimed that the vapours from fuel oil tanks not only leave a bad smell, but could also be a contributory factor in increasing cancer risks for personnel who are exposed to them. There are calls for something to be done urgently, but as yet there is no international, national or European Union (EU) directive that addresses this problem. Activated carbon filters With the growing concern over vapour emissions, tank storage operators are taking a much closer look at the technical and safety benefits of installing activated carbon filters on top of tanks. Meanwhile, CBI Engineering has been working steadily over a number of years to prove that it can provide this service. Moreover, the company is also now concentrating on the risk issues associated with handling products that have a hydrocarbon concentration above 50 grammes per cubic metre (g/m 3 ). When dealing with products with a higher hydrocarbon concentration, there is a risk of a hot spot occurring in the activated carbon filter. This is can a problem for transshipment companies in particular, who are handling products on behalf of third-parties and are therefore not always aware of what the fuel s hydrocarbon concentrations are. In Denmark, CBI s home turf, tank operators have been using filters for years in order to overcome the problems of bad smells emanating from heavy fuel oil tanks. The practice is spreading to other parts of Europe, and beyond. In 2007, for example, filters were installed on six 5,000 m 3 tanks at the YugTranzitServis terminal in Taganrog (Rostov-on-Don), with the aim of preventing smells and potential harmful emissions from the tanks reaching residential areas. We can confirm that a very large multinational oil company involved in bunker transshipment is currently evaluating the feasibility of installing filters at its installations. Projects like this are helping to raise awareness that emissions control must focus exclusively on what is coming out of the combustion chamber. In the absence of international directives or regulations, local environmental agencies and, what is most encouraging, storage operators themselves are proactively looking for solutions. Terminal operators recognise the importance of being socially responsible employers and neighbours. CBI is already seeing environmental agencies conduct site inspections in Russia, Greece, Gibraltar, Thailand, Singapore and many other regions. It is not just land-based terminals which are being scrutinised; floating storage and offloading units (FSO) that are operating near to residential areas or regulated regions are also being monitored. Case study: Europoort Holland One of the key players in the global tank storage business is currently engaged in a project to install activated carbon filters on tanks in Europoort Holland. The installation has raised and answered a number of important questions, such as: what will be the gas velocity through the filter during thermal breathing when no pumping is taken place? what are the effects on temperature increase in the activated carbon bed for filters mounted on fuel oil tanks especially when the gas velocities increase when pumping starts? The gas flow through the filter is dependent on the pressure difference in and outside the storage tank. The pressure difference, in turn, is caused by the difference in temperature. A lower temperature leads to a lower vapour pressure in the storage tank. Due to the lower pressure in the storage 40

21 Environmental Issues tank, air will be taken into the storage tank (hence the term breathing ). If the temperature rises, the equilibrium absorption capacity will decrease, so there will be a risk of desorbing hydrocarbons. Sulphur components will remain on the activated carbon. Increased gas flow The industry has observed that there is a correlation between rising temperatures and increased gas flow. This is easily explained. There will be heat given off during absorption, as absorption is an exothermic process. If the gas flow is sufficient, the heat will be driven away, out of the carbon filter. If the gas flow is minimal, the flow will be not sufficient to drive the heat out of the filter. The minimum recommended gas velocity through a filter is 5 cubic metres per second (m 3 /s). The minimum gas velocity is recommended to avoid channeling and also to avoid high absorption heat. In practice, we have seen some emission control systems for storage tanks using a recycling loop over the filter to ensure a constant minimum flow. However, this is not appropriate for heavy fuel oil applications. As temperature affects the chemical reaction rate exponentially, it s probably the most important parameter in achieving a safe adsorber operation. Fuel oil is typically stored at approximately C in the tanks. This raises the question: what is the maximum operation temperature for the adsorber on fuel oil tanks, and how is it calculated (experimental, computer calculation, or by some other means)? In general, the lower the temperature is, the more efficient the absorption process will be. The temperature limit is determined by the absorbing component and its boiling point. The heat generated by adsorption can lead to hot spots and/or bed fires. To reduce the risks, precautions can be taken, such as monitoring devices, extinguishing devices, carbon wetting, which will take care of a continuous flow through the bed. Safety precautions So, which safety precautions are advisable to mount on your system? The most efficient way to detect and measure a hotspot is to monitor the level of carbon monoxide (CO). Using temperature transmitters in the carbon bed is not recommended because hotspots can be very localised in a filter. A temperature transmitter above the filter bed could also be used to detect a hotspot. A nitrogen purge is probably the most efficient method to eliminate a hotspot. Carbon wetting is also a solution but this could cause steam and a significant pressure increase in the filter. Set pressure boundaries The drop over the activated carbon bed must be within the set pressure boundaries for the breather valves. The design pressure of the tanks is +7.5/-2.5 mbar. According to American Petroleum Institute (API) 650 specifications, the valve opening pressure must be equal to the design pressure. If the pressure is set on 0.9* opening pressure for 10% overpressure technology, the set pressure for the pressure/vacuum valves is +6.75/-2.75 mbar. The number of breather valves is calculated in accordance with API However, we at CBI recommend doubling the number of valves. These items are not expensive, so it is a small price to pay for the extra safety. bunkerspot June / July

22 Environmental Issues Martek Marine believes that its MariNOx system can play a major role in lowering ships emissions In March, the International Maritime Organization s (IMO) Marine Environment Protection Committee (MEPC) agreed on ground-breaking new amendments to MARPOL Annex VI, significantly lowering emissions limits over time (see page 11). This has further enhanced the focus towards on-board emissions monitoring and Martek Marine s MariNOx system in particular. The MariNOx system that is Type Approved by Lloyd s Register and Det Norske Veritas (DNV) has been installed on some major flagship projects such as all the liquefied natural gas (LNG) carriers for the prestigious Qatar Gas project (see page 32). In total, more than 100 MariNOx systems have already been installed, placing the system as the market leader. Moreover, MariNOx has just won the prestigious Seatrade Award for Protection of the Marine and Atmospheric Environment. Five of the top tanker organisations world-wide recently announced a move towards green operations above and beyond basic legislation. Martek is already supplying three of the five organisations with on-board emissions monitoring systems. The time for investing in on-board emissions monitoring systems has arrived, according to Martek s Marketing Director, A 2% fuel saving on a large oil tanker is equivalent to the total emissions from 700 cars in a year. On a large container ship this is more like 1,400 cars Steve Coulson. The innovators in the marine industry have identified the need to install these systems as a sign of environmental leadership, to improve running costs and to reduce nitrogen oxide (NOx) taxation to accurate levels in Norwegian waters. By committing to accurate emissions reporting through on-board monitoring, companies and their charterers can display totalised emissions reporting for each voyage. This provides them with transparent reporting of air emissions, in alignment with the International Organization for Standardization s ISO standards. Oil majors have already begun launching green chartering programmes, where vessels displaying environmental best practice will be favoured in chartering decisions. Installing a MariNOx onboard emissions monitoring system is a clear Contact: Mike Linstead Marketing Assistant Martek Marine Ltd Tel: Fax: michael.linstead@martekmarine.com Web:

23 Environmental Issues The time for investing in on-board emissions monitoring systems has arrived statement of environmental best practice onboard the vessel. It also proves compliance with MARPOL Annex VI Reg 13 and Reg 14 (4) (b), rather than the implied compliance given by the parameter check method. The IMO has identified the need to have more stringent regulations in place as the industry moves towards a more resolute environmental focus. The ever growing level of scrutiny towards the environmental impact of the industry has prompted more rigorous resolutions (such as the latest MARPOL Annex VI amendments) by which an eventual lower limit on emissions has been agreed, naturally creating the need for accurate reporting of this shift. The use of onboard NOx monitoring answers this need as it allows the fitting of improved emissions reducing technology, enabling the emissions benefit to be quantified. Regulation 13 has placed a focus on significantly reducing NOx emissions on vessels by as soon as 2011 and will affect vessels with a power output as low as 5,000 kilowatts (kw) (if they are built between 1 January 1990 and 1 January 2000). In addition, Regulation 14 prompts changes relating to sulphur oxides (SOx) and particulate matter (PM). Sulphur content of fuel oil can be calculated by monitoring SOx emissions due to the correlation between the two using the MariNOx system. The first real time, web-based, emissions reporting software is provided by Martek s DataLINK software. Clear emissions data on each engine s performance is transmitted from MariNOx to DataLINK to head office or any mobile internet point. A superintendent or fleet manager can at any time interrogate the system from his desktop to have an up-to-date and clear emissions profile for each vessel in the fleet. MariNOx has shown that it is possible to optimise a vessel s engines to save fuel. In fact, saving are 2% on average. This has been proven in independent trials with Hoegh Autoliners and Metrostar Management Corp. Even for companies who do not pay for the fuel, it s important to reduce the carbon footprint of their vessels to preserve our planet for future generations. A 2% fuel saving on a large oil tanker is equivalent to the total emissions from 700 cars in a year. On a large container ship this is more like 1,400 cars. The latest burgeoning sector within the marine industry has been the cruise sector and, in particular, the US cruise community, who have begun investing in MariNOx systems, commented Coulson. The use of onboard NOx monitoring allows the fitting of improved emissions reducing technology, enabling the emissions benefit to be quantified 44

24 Environmental Issues Christian Eyde Moeller of the DK Group argues that the maritime industry should seize the opportunity to become the benchmark for success on climate control solutions Christian Eyde Moeller is the chief executive of Netherlands-based maritime technology company, DK Group. DK Group pioneered the development of Air Cavity System (ACS) technology to reduce a vessel s fuel consumption and CO2 emissions by up to 15%, providing huge cost savings for shipowners and reducing the shipping industry s impact on climate change and global warming. Contact: Christian Eyde Moeller DK Group Web: The conventional wisdom, as well as cold summers, floods, cyclones, forest fires and warm winters, suggests that climate change is indeed a reality. The environment is now top of the agenda of many governments, and we are told it is as politically critical as the War on Terror. It is ingrained into the consumer mindset as the challenge of the 21 st century, acting as a catalyst for a different type of fundamentalism, where protagonists of the green lobby win Nobel prizes and anti-environmentalists are universally condemned. Business has been quick to react. Corporate Social Responsibility (CSR) has become more than just a buzzword as global corporations compete to head CSR league tables, as well as launching environmentallyrelated financial products to market. It seems that people want to invest in companies who take the environment seriously; it is driving up share price, increasing revenue and ultimately the value of business. One of the main drivers of climate change has been the aviation industry, while the maritime industry has cruised under the radar of scrutiny for many years until recently. As consumers embrace environmental activism with passionate fervour, fuelled by media headlines of catastrophe, the maritime industry has found itself daubed on the front page of national newspapers as a new, and key, culprit. Faced with this barrage of criticism, regulatory bodies and governments particularly in the European Union (EU) and California have stepped up the pressure for the maritime industry to respond and find solutions to the problem. What has been interesting is the reaction from the industry. At first, the forces for the defence retorted with vociferous enmity. They vehemently stressed that shipping is the most environmentally efficient form of transport in the world; that it is responsible for 90% of global distribution; that comparing planes versus ships was nonsensical and that it would be ridiculous and impossible to switch trade and distribution from the sea to the air. All absolutely valid points; and all accepted by both sides of the debate. Shipping s contribution to globalisation and economic prosperity has never been called into question. The key, and what many commentators have stressed and others seemingly ignored, is that despite these positive points, it should not mean that the industry doesn t do everything that it can to reduce its environmental impact. Many industry bodies seem to have missed this point. They have been surprised and have taken offence at being asked by governments, and the EU in particular, what the industry is doing and intends to do to mitigate its impact. They just churn out the same arguments that the sector is environmentally efficient, that ships emit less on a per vehicle basis than aviation, and that any change or adoption of a solution takes time. Only collective responsibility for minimising shipping s contribution of between of 4% and 6% of global carbon dioxide (CO 2 ) emissions will put shipping on an equal footing to its peers efforts; namely aviation and land-based haulage. However, as media and regulatory scrutiny has increased, the industry has started to slowly make progress. Following the International Maritime Organization s (IMO) Bulk Liquids and Gases (BLG) meeting in February 2008 and the recent Marine Environment Protection Committee (MEPC) in April, MARPOL Annex VI and the Nitrogen Oxide (NOx) Technical Code (Annex VI) has been revised so that by 2010 sulphur limits will drop to 1% in designated Emissions Control Areas (ECAs) and by January 2015 to 0.10%. The global sulphur cap will be reduced to 3.5% in January 2012, with a long-term global target of just 0.5% by 2020 (see page 11). Following this announcement, much mutual back-slapping and jubilation ensued. In the space of a few months, the IMO has shifted its communication messages from a theme of reactive protectionism to a fullfrontal assault that embraces the spirit of corporate social responsibility. In London, in May, the Secretary General of the IMO, Efthimios Mitropoulos, stressed shipping s eagerness and willingness to contribute towards sustainability: It [shipping] is caring, sensitive to criticism and keen to improve its performance so that it may become even better. Shipping today is an industry with good, and improving, credentials on safety, security and environmental protection. It is 46

25 Environmental Issues characterised by a high sense of corporate responsibility. This is, on the face of it, good news. However, shipping started some considerable distance behind its peers meaning only half the job has been done; and there is much more to do. While the sulphur, nitrogen and particulate matter (PM) problem has been addressed for now, there remains the fact that current ECAs cover little over 4% of the world s seas and oceans. The remaining 96% remains capped at 3.5% until 2020, despite the fact that average sulphur content in bunker fuel globally is now 2.7%. In addition, there remains the issue of CO 2, the principal catalyst for climate change, global warming and summer concerts at Wembley Stadium. Again, there has been much movement over the past year on the reality of how much CO 2 emissions the sector is responsible for. In March 2007, based on figures produced by the German Institute of Physics of the Atmosphere, which stated that shipping was responsible for emitting over 800 million metric tonnes (mt) of CO 2 a year, the Chamber of Shipping retorted in a letter to The Guardian: It [the article] paints a strangely inaccurate picture. Ships carry some 90% of all world trade an altogether different order of magnitude to aviation yet all the major studies (including the Stern Report, which acknowledged that shipping, together with rail, contributed only 1.75% of greenhouse gases) have shown that total international CO 2 emissions from ships are lower than from aviation. Even the International Air Transport Association (IATA) confirms aviation as responsible for 13% of all transport CO 2 emissions. Given that IATA cites road transport at 75%, this leaves only 12% from all other modes (including marine, inland waterways and rail). Just under a year later, the IMO produced a report at the BLG meeting which stated that shipping was currently responsible for emitting just over 1.1 billion mt of CO 2 per year and rising; more than double the original estimation. This was based on a more scientific (yet simple) calculation of fuel burnt, rather than fuel bought. It certainly does not do a lot for the credibility of the Stern Report. And at its most basic One of the main drivers of climate change has been the aviation industry, while the maritime industry has cruised under the radar of scrutiny for many years until recently level, it clearly shows how far wide of the mark the majority of bodies and decision makers within the industry have been. The IMO also stated that CO 2 figures are set to rise to billion mt by Again this seems a long way off the reality. The order book for new build vessels is unprecedented and by 2010 stands at over 4,000. Based on the same calculations used by the IMO, these vessels will produce a further 240 million mt of CO 2, taking the annual tally to 1.35 billion mt in the next two years. Even based on a pessimistic growth rate of 5%, by 2020, CO 2 emissions will be closer to two billion mt rather than the 1.5 billion predicted by the IMO. There is also a particular paradox whereby the move to distillate fuels to reduce sulphur oxide (SOx) emissions, will actually increase CO 2 emissions, due to the refining and cracking process required to produce them. No doubt this will be disputed by industry representatives, but their track record of getting figures right first time around is not great. While the IMO has stated that a solution for CO 2 is next on its agenda, it is again getting pressure to move at a quicker pace. The EU is stressing that the industry needs to regulate, or be regulated. Ian Adams, Secretary General for the International Bunker Industry Association (IBIA) responded to these criticisms accordingly: It is disappointing... it doesn t help the debate or take it forward, but clouds it. The maritime sector is doing its bit and is aware it needs to do something, but it takes time. The idea that suddenly we can snap our fingers and come up with a solution is unthinkable. While the IMO continues to consider and pontificate over potential solutions, it is worth pointing out that those solutions already exist indeed some have been around for many years. As well as carbon trading schemes, which have been highly successful for land-based emissions, there are technologies that are also now available, ready to be employed immediately, and with proven results. This includes DK Group s own Air Cavity System, wind power, fuel additives, twin propellers, new propeller blades, recovering the waste gas heat; all of which can reduce emissions by up 30% in the container trade and 50% in tankers and bulk trade. What is extraordinary is that the IMO is aware of this. On page 20 of the report produced at the February 2008 BLG meeting, it listed a range of technologies that reduce CO 2, but cited them as voluntary not mandatory. For bunker suppliers and traders, readying themselves for an ongoing switch to distillates, the introduction of new technologies ensures continuing demand for the millions of tonnes of heavy fuel oil sold to ships each year, while also easing pressure on refiners being asked to distill cleaner fuels within the decade for operators plying their trade in ECAs. The maritime industry, including the bunker industry, is clearly going through a period of rapid change. As globalisation continues to expand, and competition becomes more about driving efficiencies within the supply chain, its role and significance, based on its contribution to commercial success, is more relevant than ever. As its profile increases, the industry becomes more open to scrutiny and criticism. It is impossible to hide, and it is futile to mount a defence against the indefensible. The best form of attack is to demonstrate proactivity in solving problems and finding innovative solutions. The greatest concern is that the industry is not fully aware of these solutions and is not engaging effectively with the groups and bodies that are developing them. Ultimately, there is an opportunity for the maritime industry to become the benchmark for success, and lauded universally for leading the fight against a real and serious global problem. And if environmentalism does drive business value, then there s also a very realistic chance that a lot more money will be made. It really doesn t matter where the motivation comes from. bunkerspot June / July

26 Environmental Issues BMT presents an environmentally-friendly approach to oil spill detection An estimated 1.3 million tonnes of oil enter the sea worldwide each year through the combined impact of natural seepage, extraction, transport and consumption. While the largest contributor is natural seepage, accounting for about 46%, the world is currently focusing on the increasing amounts of maritime traffic and oil exploration which are the most obvious causes of oil pollution through discharges and spills from ships, tankers and pipelines. While accidents will inevitably occur from time to time, the focus of this article is on combating oil pollution caused by possibly malicious actions. There is a growing movement to work towards a global philosophy whereby the polluter pays to clean up any damage that may be caused to the environment. This has garnered the support of the major corporations who are concerned about issues of reputation as well as the triple bottom line and corporate social responsibility. In this context, when BMT was asked to develop an ocean surveillance system for a client working in Indonesian waters, one of the key requirements was to implement a system which would pro-actively address issues of liability and reputation. Utilising Synthetic Aperture Radar (SAR) imaging, which is highly cost-effective and already in widespread use, the ocean surveillance service offers routine surveillance and analysis of the area in which the client is operating and is able to capture proof of the polluters and determine the causes of any oil spills in Indonesia s West Java Sea. Following an effective six-step methodology, BMT s Ocean Surveillance system starts by planning the acquisition of imagery through the pre-programming of RADARSAT -1 (24 days cycle, all-weather imaging and day and night acquisition). It then downlinks the scenes and preprocesses the image data at RADARSAT -1 networked ground stations, after which Near-Real Time (NRT) data processing of data will recreate the scene before the information is analysed and interpreted. After conducting the interpretation and forensic analysis, the service database will be updated and maintained to include archives. Finally, profile reports will be provided through The deployment of the BMT surveillance system can enable polluters to be tracked down using the information provided by SAR imaging Simple Messaging Service (SMS), and a dedicated secure web service. The deployment of the BMT surveillance system can enable polluters to be tracked down using the information provided by SAR imaging. The cost-effective provision of such information can also provide a knowledge base to support those who seek to discharge their corporate social responsibilities and those who wish to ensure compliance with the concept of the polluter pays. Another benefit of the system is that a profile report of the target area can be generated and forwarded to the client corporation thus allowing it to manage the information it has about the polluted area and, consequently, better manage its reputation and mitigate liability to protect its company brand. Routine satellite oil pollution surveillance also offers environmental security and serves both public and private interests. If a report was forwarded to the relevant government, then the transgressors could be watched and they could be ordered to pay for their actions. This would be a model of fair application as it would raise awareness of the issue and encourage people to clean up their act voluntarily. Over a period of 24 months, the system has proved to be so successful and able to deliver such high-resolution information, that BMT s client has actually cancelled an existing contract for helicopter surveillance of their subsea pipelines. Apart from significant cost savings by using the satellite surveillance services, fuel consumption is reduced alongside carbon emissions, thereby cutting down on air pollution and saving energy. BMT has also developed an oil spill model capable of predicting the movement, spreading, weathering and shoreline impact of spilt oil under the influence of current flows, meteorology and waves. 48

27 Environmental Issues The Oil Spill Information System (OSIS) has been developed by BMT and NCEC combining complementary expertise in spill behaviour, oceanography and marine systems development. Now in its latest version (4.0) the system is used worldwide by oil companies, national governments and response organisations for use in emergency response, planning and training. Knowledge of the movement, behaviour and shoreline impact of an oil spill is fundamental to the planning of a successful response. The model builds on 30 years of research into oil spill behaviour in the laboratory and at sea, coupled with over 15 years of modelling experience. In emergency situations, ease of use and speed are paramount to enable a rapid response. Its development has been guided by feedback from its extensive user base in marine terminals, offshore oil installations, oil spill Routine satellite oil pollution surveillance also offers environmental security and serves both public and private interests response vessels and emergency response centres and has been used to aid the clean up of oil spills across the globe as well as aiding forward crisis planning. The model is unique as it factors in a range of issues including: trajectory, spreading, weathering and beach impact models stochastic modelling (wind rose and time series modes) true coastline and object beaching spill move tool automatic computation of tidal and residual flow fields differential particle size oil spreading colour contouring of oil thickness and dispersion sub-sea dispersed oiling visualisation dispersant use time windows prediction integrated database of international oil types Through the use of high-end technology, governments and the maritime industry are slowly getting to grips with issue of oil pollution both accidental and intentional. As these technologies develop those who fail to maintain the highest of standards in the growing shipping traffic and oil exploration arenas will find themselves pushed out of the market and paying a high price for the failure to meet international standards. High quality information and true value for money Bunkerspot s editorial content is of the highest quality, written by highly-trained journalists and an integral team of well-known experts with a thorough knowledge of the energy, shipping and bunker industries. Bunkerspot is new and exciting, independent and substantial. Make sure you receive the next issue and gain immediate access to by subscribing today! o o I wish to take out a 1-year subscription to Bunkerspot (with unlimited website access) for US$430 / 225 / 315. Please invoice me. I would like to advertise in Bunkerspot and/or on the website. Please contact me. Your Details NAME: JOB TITLE: COMPANY: TYPE OF BUSINESS: MAILING ADDRESS: POSTCODE/ZIP : VAT NO. TEL: (Inc Intl code) FAX: FAX to:

28 Events Llewellyn Bankes-Hughes looks at some of the key issues raised during the 29 th International Bunker Conference in Copenhagen in April Refiners around the world will have to plan, build and commission cokers, crackers and other fuel conversion units at three times the rate that has ever been achieved in history if they are to succeed in having sufficient capacity in place by 2020 There is little doubt that the annual Norwegian bunker conference remains one of the most informative and well attended of all bunkering events, not least because it is inevitably topical and timely and has the added benefit of being attractive to shipowners and managers. While many international bunker conferences often claim to draw in the buying side of the industry, this event never fails to do so. As a result, suppliers and traders, quality testing firms and lawyers are not far behind. This year, the International Bunker Conference (IBC), organised by BI The Norwegian School of Management, made a highly successful appearance in Copenhagen, Denmark. It follows last year s slightly disappointing foray into Norway s oil capital of Stavanger and previous recent triumphs in Sweden s Gothenburg and Norway s Bergen. Next year, for its 30 th anniversary, the event will return home to Oslo. With over 240 delegates and speakers, this year s conference benefited by following hot on the heels of the recent MARPOL VI amendments from the International Maritime Organization s (IMO) Marine Environment Protection Committee (MEPC) and, almost inevitably, environmental issues once again dominated proceedings. Reaction to the MARPOL Annex VI changes appeared largely positive among speakers at the event, although Oystein Dahle of the Worldwatch Institute issued some dire warnings that the West will have to reduce consumption levels to about one tenth of current levels over the next few decades to accommodate the growing needs and expectations of the developing world. Peter Bjerregaard, Director of the Danish Shipowners Association, outlined the future challenges to shipping with regard to Annex VI and suggested, optimistically, that by 2020, when sulphur limits are expected to be reduced to just 0.5% worldwide (if ratified by the IMO) oil and shipping companies will have found a way to overcome the challenge and find a solution. Sveinung Oftedal, Senior Advisor to the Norwegian Ministry of the Environment, outlined the status and implications of Annex VI from a Norwegian point of view. Brian Elliot, Senior Policy Advisor to the UK s Maritime and Coastguard Agency (MCA), provided an insight into the UK s approach to greenhouse gases (GHG) and urged that any action should be taken on an international rather than local or regional basis. Future challenges Linda K. Wright, Global Director of ExxonMobil Marine Fuels, explained the challenges that lie ahead for refiners, namely investing heavily in conversion capacity or finding alternative land-based outlets for their fuel oil. She said that reducing sulphur levels to 0.5% by 2020 will be extremely challenging and added that abatement technologies would help but that it is not yet known what their impact will be by According to Wright, refiners around the world will have to plan, build and commission cokers, crackers and other fuel conversion units at three times the rate that has ever been achieved in history if they are to succeed in having sufficient capacity in place by 2020, when the global sulphur cap for marine fuels is reduced to 0.5%. But where the capacity to build this plant will be found, in an already tight engineering environment, remains highly uncertain. The need for such a significant increase in conversion capacity was one of the several major challenges that Wright suggested lie ahead for refiners. Wright warned that refiners will need both to reduce sulphur levels in fuel oil and ramp up the production of middle distillates significantly, in order to meet the challenges posed by the proposed revisions to MARPOL Annex VI. Wright did express some relief that the IMO has agreed to review the situation in 2018, which, she said, was a very valuable measure, given that more will be known about emissions and health issues by then. Switching to alternative fuels, Mark Harrison of Shell Marine Products looked into how gas to liquids (GTL) technology might help the marine industry, while Torill Grimstad of Det Norske Veritas (DNV) and Aksel Skjervheim of Gasnor covered gas powered ships and the availability of liquefied natural gas (LNG) 50

29 Events for bunkering. The case for combined gas turbines, electricity and steam (COGES) and hydrogen cell technologies was covered by Fredrik Haglind of the Technical University of Denmark. Modifying ISO 8217 Lloyd s Register FOBAS Products Manager Tim Wilson told delegates that the fourth revision of the International Organization for Standardization s ISO 8217 marine fuels specifications will place a strong emphasis on environmental issues. In the first three versions of ISO 8217, said Wilson, the underlying criteria were safety and quality. But now the ISO working group tasked with developing the fourth version ISO/TC28/SC4WG6 will be taking a closer look at issues such as ships emissions. As a follow-up to the IMO s landmark MEPC57 meeting, the MEPC s Working Group on Air Pollution (WP7) has asked the ISO 8217 working group to advise whether the fuel characteristics outlined in the MARPOL Annex VI amendments are appropriate parameters for air quality control, and to consider whether they can be taken into account in the ISO 8217 revision. Wilson told delegates that the ISO 8217 working group will also have to review a further rationalisation of fuel grades. In addition, the group will look at issues such as ignition delay and combustion quality, and consider parameters for acid number, sodium, asphaltenes, nitrogen and hydrogen sulphide. Furthermore, the WG6, in future meetings, will have to revisit the stability test and address lubricity and viscosity concerns with ultra low sulphur (ULS) distillates. Finally, Wilson noted that meeting quality, safety and environmental compliance is achieved only by a holistic approach not by a standard in isolation. Wilson emphasised the importance of innovative technology and the need for cross-industry cooperation to develop excellent working practices. Soaring sulphur premiums Supplying 1.5% sulphur fuel oil inside the Baltic and English Channel Sulphur Emission Control Areas (SECAs) is still fraught with quality and availability problems, but the premium for low sulphur fuel will rise from the current $50 a tonne level to $100 a tonne by 2010, when the European SECAs move to 1% sulphur fuel, according to Chemoil s Vice President of Marketing, Adrian Tolson. Tolson said that Chemoil has been supplying 1.5% sulphur fuel to companies, including Wallenius Lines and A.P.Moller / Maersk, for several years, but has often encountered quality problems, such as excessive asphaltene precipitation and build-up of deposits. However, he suggested, sourcing adequate supplies is also a problem, and this will become a bigger issue once the 1% SECA limit is introduced. This is because one of the three key blending components, Russian 2.5% fuel oil, will have to be replaced by a lower sulphur fuel oil, such as those derived from North Sea Brent crude oil which contain around 0.6% - 0.8% sulphur. As a result, according to Tolson, the premium could rise to $100 a tonne. West Coast regulations Californian environmental lawyer, Frances Keeler, of law firm Keesal, Young & Logan, chaired a lively session on air quality regulations in the United States. Offering their views as to what this all means to California, the US and the rest of the world, the panel of Californian environmental experts included Wayne Nastri, Regional Administrator of the US Environmental Protection Agency (EPA), Jack Broadbent, Executive Officer of the Bay Area Air Quality Management District, Dr Robert Kanter, Managing Director of Environmental Affairs & Planning at the Port of Long Beach, and Tim Carmichael, Senior Director of Policy for the Coalition for Clean Air. INTERTANKO s Technical Director, Dragos Rauta also took a look at practical steps to be taken to reduce green house gas emissions, while Arnauld Filancia of Wärtsilä Corporation examined sea water scrubbing technologies and sulphur abatement solutions for the marine industry. The 29 th IBC ended with a panel of technical experts comprising Dr Rudy Kassinger and Per Holmvang of DNV Petroleum Services and Robert Thornton of World Fuel Services. The West will have to reduce consumption levels to about one tenth of current levels over the next few decades to accommodate the growing needs and expectations of the developing world bunkerspot June / July

30 The Panama Bunker Convention 2006 Events JUNE GREECE: Posidonia 2-6 June, Athens Held at the Hellenikon Exhibition Centre, this major shipping event is organised by Posidonia Exhibitions. Web: UNITED KINGDOM: Bunker Summer School 9-11 June, London Held at the Lloyd s Maritime Academy and organised by Lloyd s List Events. Contact: Andrew Whipp andrew.whipp@informa.com Web: JULY NETHERLANDS: C40 World Ports Climate Conference 9-11 July, Rotterdam A high-level event involving international politicians, cities and ports, and their business partners, charged with agreeing on a joint approach to improve air quality and reduce greenhouse gas emissions, resulting in a World Ports Climate Declaration which will be endorsed at the event. Contact: Management Partnership International BV Tel: Fax: organisation@wpccrotterdam.com Web: SEPTEMBER UNITED KINGDOM: The Oxford Bunker Course 8-12 September, Oxford A five-day intensive residential course covering technical, operational, commercial, financial and legal aspects of bunkering. Contact: Luke Hallam Evans Tel: Fax: luke@petrospot.com Web: GERMANY: SMM September, Hamburg The Shipbuilding, Machinery & Marine Technology trade fair attracts 45,000 visitors and 1,600 exhibitors and is the leading international gathering for the shipping industry. Web: OCTOBER SINGAPORE: SIBCON October, Singapore Offered as part of Singapore Maritime Week 2008 and entitled Powering Global Shipping: The Marine Fuels Challenge, this year s Singapore International Bunker Conference is expected to attract up to 800 delegates. Organised by the Maritime & Port Authority of Singapore, and managed by IBC Asia, the event will be held at the Shangri-La Hotel. Contact: IBC Asia (S) Pte Ltd Tel: Fax: register@ibcasia.com.sg Web: UNITED KINGDOM: Winter Bunker School October, London Held at the Lloyd s Maritime Academy and organised by Lloyd s List Events. Contact: Andrew Whipp andrew.whipp@informa.com Web: NOVEMBER UNITED KINGDOM: The Marine Credit Risk Assessment Course 3-4 November, Oxford An advanced level residential workshop on credit risk in the maritime sector, with particular emphasis on bunkering, that digs deep into the complexities of the high risk, volatile shipping and bunker markets. It offers comprehensive sector risk analysis that helps delegates avoid problems and get out of trouble, and covers credit risk analysis, real life experiences, marine credit reports, credit insurance, debt collecting, factoring and legal recourse. This highly interactive course is aimed at those working at the sharp end of trading, supply, purchasing, accounting, credit control, finance and legal departments of shipping, chartering, bunker and other maritime companies. Contact: Luke Hallam Evans Tel: Fax: luke@petrospot.com Web: SOUTH AFRICA: The IBIA Annual Convention November, Cape Town Now in its fifth year, the IBIA Annual Convention takes place at the Westin Grand Cape Town Arabella Quays Hotel. There will be one and two-day training courses, an exhibition, and an issue-led conference. Organised by Petrospot on behalf of IBIA. Contact: Luke Hallam Evans Tel: Fax: luke@petrospot.com Web: High quality information and true value for money Volume 3 Number 1 February / March Volume 3 Number 2 April / May Volume 3 Number 3 June / July 2006 PANAMA A CLEANER ENVIRONMENT Ready for the first SECA? MARINE LUBRICANTS: Unleashing hidden value Subscribe today! Sign up on

31 Networking Europe Tim Troy and Richard Warwick, recently of new trading company Artico Energy, have joined Cockett Marine Oil Ltd, as Marketing Manager and Credit Manager respectively. Karl Beeson, formerly Cockett s Finance Director, has become the company s Managing Director, replacing Kevin Bresnahan who has resigned. Both Bresnahan and Bob Russell have left the Cockett Group following its 100% acquisition by South Africa s Grindrod, but will be retained as part time consultants (see page 8). Tel: ; enquiries@cockett.com. Ben Holt has resigned as Managing Director of Channoil Consulting Ltd in London and is replaced by Colin Allcard. Tel: ; consult@channoil.co.uk. Anders Backman has joined StatoilHydro ASA in Stavanger, Norway, as a bunker trader. Tel: ; Mob: ; Fax: ; anbac@statoilhydro.com. Morten Grønbech Terp has joined A/S Global Risk Management Ltd, part of USTC, in Middelfart, Denmark as an oil risk manager. Tel: ; Fax: ; hedging@global-riskmanagement.com. Jan Henrik Monsen, formerly of Geogas Trading in Switzerland, has joined Bunker Holding A/S, part of United Shipping & Trading (USTC), as Credit Manager. Tel: ; krd@bunker-holding.com. Tatiana Tsoy has joined A/S Dan-Bunkering Ltd s trading team in Middelfart, Denmark. Tel: ; Direct: ; Mob: ; Fax: ; tat@dan-bunkering.dk. O.W. Bunker has appointed Søren Christian Meyer as the new sales co-ordinator for Europe. Tel: ; Mob: Thomas Worsøe (Tel: ; Mob: ) and Michael Walter (Tel: ; Mob: ) have joined O.W. Risk Management as key account managers. Vladimir Doudka has joined as a new assistant risk manager. Tel: ; Mob: owbunker@owbunker.dk. INTERTANKO has established a representative office in Brussels. Contact Kristian Fuglesang. Tel: ; kristian.fuglesang@intertanko.com. Cockett Marine Oil Southern Europe Ltd has added Philippe Vathananoh as a trader and Rozen Guennec in an admin and sales support role to its office in Cannes, France. Mark Bresnahan will return to Cockett s UK office in June. Contact: Philippe Vathananoh (Tel: ; pvathananoh@cockettgroup.com); Rozen Guennec (Tel: ; rguennec@cockettgroup.com). Mediterranean Bunker Services has moved to 3 Irodotou Street & SP. Trikoupi 10, , Piraeus, Greece. Contact details are unchanged. Fotis Maniatidis has joined Sea Med Bunkering Ltd in Glyfada, Greece. Tel: ; Mob: ; Fotis.maniatidis@ seamed.gr. Americas Andres Galavis has been appointed Managing Director of Chemoil Latin America Inc s Panama division. Tel: ; Fax: ; andres.galavis@chemoil.com. After 30 years in the bunker business, Ernest Janssen will retire from KPI Oil Associates, Inc. on 30 June. Tel: ; janssen@kpi-oil.com. To list details of bunker related moves contact: Tel: , Fax: , luci@petrospot.com If you are planning to recruit bunker-related personnel, you can now place an advertisement free of charge on the Bunkerspot website. Save yourself a small fortune in agency and search fees and still reach thousands of potential recruits worldwide. The ONLY restriction is that to advertise for free you must be a Bunkerspot subscriber. Not yet a subscriber? An annual subscription (for the magazine and unlimited access to our 24/7 online news, pricing and archive service, com) costs ONLY $430 / 225 / 315 significantly less than paying for recruitment advertising or employing an agency. Go to to subscribe and find out more. It really works! Dear Llewellyn, I just wanted to write to let you know we have managed to fill the vacancy on our broking desk thanks to the advert we placed on the Bunkerspot website Bunker Jobs page. Not only are we delighted with the quality of candidate we have employed, we feel we have to express our gratitude that as subscribers to Bunkerspot we were able to place the advert for free hence saving the best part of 10,000 in recruitment fees had we employed him via an agency! Many thanks Rob Daubeney Furness Withy Chartering Ltd For more details contact: Tel: Fax: luci@petrospot.com