ANALYSIS: European bunker fuel market slow to move to new ISO standard

On June 15 2010, the fourth edition of the International Standards Organization's 8217 document prescribing marine fuel specification limits was released by the non-governmental organization. In the past buyers and sellers have adopted ISO standards readily, with almost all global bunker hubs trading to ISO standards.

However, despite the ongoing rise in the number of inquiries for the latest ISO standard -- and indeed the number of suppliers able to provide the new specification also rising -- not all shipowners require or want the new 2010 specifications, while not every bunker supplier can guarantee them.

Demand for the new standard has increased as some ship owners have embraced its benefits; the new specification is less abrasive to their engines, specifically due to the lower aluminum and silicon content of the fuel.

While not the only revision made to the 2010 document, the new 60 ppm aluminum and silicon content -- down from ISO's 2005 80 ppm -- has had the most marked effect on the price of bunker fuel conforming to 2010 specifications versus fuel conforming to 2005 specifications.

Trade sources currently estimate the cost of the lower metal content to be in the region of a $1-3/mt premium over 80 ppm and although ISO is an advisory body, in practice ship owners need to apply its stipulations as insurance companies may not cover those who do not, shipping sources said.

A reduced aluminum and silicon content in bunker fuel reduces wear and tear on engine components and injection equipment. Aluminum and silicon is a residual by-product of cracked residual fuel oil from the fluid catalytic cracking process of refining and is a catalyst called zeolite. "ISO 2010 is much better for us compared to ISO 2005 [standard]," a ship owner said. "The maximum aluminum and silicon content is lower. These [elements] are highly abrasive and create problems for our engines and this is the most important reason for us [to shift from ISO 2005 to ISO 2010]."

BUYERS SEE LIMITED AVAILABILITY, SELLERS LIMITED DEMAND

Despite the new marine fuel standard being advantageous for tanker engines, some ship owners said that they still buy ISO 2005 bunker specification for their fleet due to limited ISO 2010 availability and its relatively higher price, while some just do not care.

"ISO 2010 is not always available [in every port]," another ship owner said. "If it is available we would have to pay a few dollars premium. It will take a while before ISO 2010 is universally accepted; some ports in South America are still selling ISO 1996, so it is not easy to make a universal transition."

Most bunker fuel suppliers in the main Northwest European bunker hubs generally guarantee the new 2010 specifications, but the large part of trading activity is still done on the 2005 specifications, according to sources.

"Buyers prefer ISO 2010 [standards] but in Rotterdam most suppliers stick to ISO 2005 as the cargo [suppliers] will only sell ISO 2005," a bunker fuel trader in Rotterdam said.

Other sources had different views. "All [suppliers] comply with ISO 2005 minimum but it is very rare to find ISO 2010. I think that is only going to happen when vessel operators start to request in charter parties.

Chicken-and-egg scenario -- who moves first," a broker in Rotterdam said.

The transition to ISO 2010 standard in the Mediterranean has been slow, according to trading sources, despite the fact that many refineries in the region being able to provide the new marine fuel oil standard. The shift to the new standard is restrained because the ISO 2005 quality standard is generally well accepted in the market.

"80% of the time they [buyers] do not even ask [about the ISO standard]," a supplier in Genoa said, adding that ship owners were "OK" with both ISO 2005 and ISO 2010 standards.

"Only a few buyers are looking for ISO 2010, ISO 2005 standard is [good] enough for most of them," an east Med supplier said.