Singapore ship owners grapple with HSFO contamination

Several vessels that have bunkered high-sulphur fuel oil (HSFO) in Singapore are now experiencing mechanical issues because of contaminated fuel, according to several fuel testing agencies.

Organic chloride compound, a substance which may cause excessive sludging, was found on 15 March in several samples of HSFO delivered earlier that month, according to testing agency Maritec.

Several dozen vessels have since experienced power outages as a result, owing to a loss of power and propulsion, testing agency Veritas Petroleum Services said.

Very-low sulphur fuel oil (VLSFO) bunkers have also suffered from quality issues, such as low flashpoints, in recent weeks, which has resulted in some debunkering operations in the region. The contaminated HSFO is heard to have originated from only a couple of suppliers.

But it is too early to say if any switching to LSFO will occur, with switching possibly unlikely given high LSFO prices as well, traders said. Outright Singapore 0.5pc sulphur marine fuel prices rose to record highs of $1,009.75/t on 9 March. They have since fallen slightly, but remain supported at $828.75/t yesterday.

"The lack of availabilities and high flat price can lead both suppliers and buyers to compromise on quality," said one local bunker trader.

The premium of HSFO bunkers over HSFO cargoes in Singapore has risen as a result, averaging $15.50/t in March and $25.75/t yesterday, compared to a more typical $10/t, according to Argus data.

Large vessels which are fitted with scrubbers — very large crude carriers (VLCC), very large ore carriers (VLOC), Capesize, and Suezmax vessels — are the ships that will continue to be most affected by the contaminated HSFO. Shipowners with vessels affected by the contaminated fuel have two options, depending on the severity of the contamination and the effect the contamination has had on the vessel's engine. One option is to return to Singapore to debunker and obtain a new supply of HSFO, while the other is to proceed with their voyage and be compensated financially.

How claims proceed would also be dependent on which version of ISO8217 is used, if it is based on 2005, 2010, or 2017. Clause 5 for each of these revisions differ, with 2005 being the most rigid in its writing. For example, in 2005, it states that bunkers "shall not include incorporation of small amounts of additives", while in 2010, the term "small amounts" was removed.

A temporary measure would be to perform more lab tests, but these tests can take 2-3 days, which would eat into shipowners' margins. Argus' TCE rates for a scrubber-fitted Capesize vessel on the Tubarao to Qingdao route was at $20,554/d on 31 March, with rates for a scrubber-fitted Suezmax vessel from Ras Tanura to Qingdao at $14,164/d.

The contamination of HSFO supplies at Singapore, along with likely supply losses from Russia and utility demand picking up in south Asia, have been driving up 180cst HSFO margins, traders said. Singapore 180cst HSFO margins against Dubai crude values shot up to over one-year highs of -$0.08/bl on 11 March, according to Argus' assessments. They also entered positive territory today at $0.83/bl for the first time since $0.05/bl on 2 November 2020.

Pakistan's state-owned marketer PSO has bought 260,000t of HSFO for April-delivery, all priced against 180cst HSFO Mideast Gulf spot assessments on a cfr basis. These are its first purchases since a 65,000t HSFO cargo for first-half November delivery last year, possibly as utility demand for cooling — which typically peaks during summer — picks up. HSFO imports into Bangladesh also reached a five-month high of 263,000t (54,700 b/d) last month, according to Vortexa data.

Meanwhile, leaner low-viscosity fuel oil exports from the US are also tightening low-viscosity molecules supply in markets, further supporting margins. The viscosity of such cargoes could range from 25-100cst, according to market participants.

Just 272,500t of HSFO is expected to depart the US next month, lower than the average 710,900 t/month exports last year, according to Vortexa data. This could be partially because of the loss of Russia fuel oil imports to the US, amid the ongoing Russia-Ukraine conflict. The US had imported 476,900 b/d of HSFO in 2021, with about half coming from Russia, according to Vortexa data.

By Sammy Six, Andrew Khaw and Sarah Giam