How Surging Oil Can Lead to Contaminated Ship Fuel: QuickTake

By Elizabeth Low | Bloomberg,

Thousands of ships pass through Singapore waters each year, with the island state selling the most bunker fuel in the world. This year, an alarming surge in batches of tainted oil has been linked to vessels suffering power outages or losing propulsion. Fuel tester Veritas Petroleum Services reported at least 34 ships affected as of early April. While it’s uncertain what the cause of the contamination was, surging oil prices may offer squeezed sellers more incentive to cut corners. Unlike cars or planes, cargo ships traditionally run on the cheapest and most polluting oil, and even non-oil products have made their way into the fuel.

1. How common is this?

While the blended fuels may not always meet ideal specifications, it’s rare for ships to suffer major technical failures from using them, according to William Tan, senior vice president at Miyabi Industries, a Singapore-based consultancy. The last time such a problem arose, he said, was in 2018, when oil prices were also high. On that occasion, contaminated fuel was sold from the port of Houston, which compromised a large number of ships and led to container giant A.P. Moller-Maersk A/S suing supplier Glencore in New York last year, claiming more than $6 million in damages.

2. How is it fixed?

If the damage isn’t serious, shipowners can try to pump the fuel out of the engines in a process called de-bunkering. For larger vessels, this can be costly. Just removing the fuel and cleaning and refilling a tank for a Capesize vessel, the largest category of dry cargo ships, could cost around $500,000, according to Tan. Power outages can leave a ship stranded in the ocean or cause it to run aground or hit an iceberg — potentially treacherous situations for the crew. Should repairs or a tow back to port be required, costs would rise. 

3. How is marine fuel made?

The fuel sold to ships is usually blended with other cheaper products so as to maximize profit while still meeting the required specifications. While there’s a whole industry for regulating, testing and inspecting these fuels before and after they’re pumped into ships, what specifically goes into blending a particular batch of fuel tends to be known only to the blenders themselves. If the buyer and seller agree the fuel meets industry standards, typically set by the International Maritime Organization, it’s generally eligible for sale.

4. What usually goes into it?

These can include residues or byproducts from the extraction or refining processes such as light cycle oil or vacuum gas oil, or even unprocessed crude — whatever can pass muster at the lowest cost. When air travel was decimated during the pandemic, unused jet fuel found its way into maritime fuel. John Driscoll, founder and director of Singapore-based energy consultancy JTD Energy, said that “on rare occasions, more questionable and exotic materials” such as used lubrication oil from cars and even sawdust have allegedly found their way into ship fuel. Traders typically blend down the composite quality to meet the minimum specifications required so as to stay competitive.

5. Where are they blended?

Typically in tanks at port terminals, or even in oil tankers outside port. Near Singapore, that may be in the Malaysian ports of Tanjung Pelepas or Linggi. While blending onshore may offer a more controlled environment, blending on vessels can provide more secrecy concerning the ingredients.

6. What happened this time?

It’s difficult to say what exactly went into the contaminated fuel; Singapore’s port authority said it was notified of the issue on March 14 and opened an investigation. According to Miyabi Industries’ Tan, reports of organic chlorides suggest it might have included chemicals. Higher oil prices mean costlier bunker fuel, which drives shipowners to seek out the cheapest fuel and traders to hunt for the most affordable blendstocks, he said. Crude prices have surged over $100 a barrel in the wake of the Russian invasion of Ukraine, with some analysts forecasting prices could pass $200 this year.

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