Known commonly as fuel oil, bunker fuel is a liquid fuel that is fractionally distilled from crude oil and used in ships. Your fuel cost is the largest expense of a ship’s voyage. Global marine fuel use in the open seas is in the range of millions of barrels per day and is only expected to increase.
Here are some facts about the bunker fuel industry:
Bunker Fuel Types:
When the long-chain hydrocarbons remaining after lighter and shorter fuels, such as gasoline and diesel, have separated from crude oil it is called Residual Oil. Residual oil currently makes up around three-quarters of all bunker fuel consumed internationally.
You also have middle distillate fuels, which are also used as bunker fuels.
Bunker Fuel Pricing:
Bunker fuel prices are closely related to oil prices. Lower crude oil prices translate to lower bunker fuel costs. Global bunker prices have approximately doubled over the past 18 months. Current fuel prices are also expected to rise due to stricter emission norms.
Emission Control Norms:
Bunker fuel is highly viscous and also contaminated by various substances. When it is burned, it causes pollution. The International Maritime Organization (IMO), a 171-member United Nations agency that sets standards for marine fuels, has reduced the maximum allowable amount of sulfur and other pollutants present in marine fuels to 0.5% by weight, effective in 2020.
Impact of Emission Control Norms:
You will see emission norms affecting many areas of bunker fuel supply:
- More ships will use fuel with a sulfur content of 0.5 percent which will cost more in the future, compared to current fuel prices.
- More ships will install scrubbers, which remove pollutants from ships exhaust, allowing them to continue to use higher-sulfur fuels.
- More ships that burn LNG will be in use.
- Insufficient supply of low-sulfur fuels may necessitate use of a blended product created by mixing high-sulfur fuel with diesel, so you might see more demand for diesel.
- You can see more demand for modern eco-ships as they are more fuel-efficient
- Older ships may be scrapped sooner and newer ships may commissioned faster since it costs you more to retrofit a scrubber in an existing ship than to install it during the building process.
Risk and Efficiency:
Your bunker fuel expense has a huge impact on your profitability. Marine fuel management systems significantly help in calculating the exact amount of fuel oil burnt for any vessel speed or engine rpm. Their usage in marine vessels can greatly help with efficiency.
You can also develop a risk management strategy that will help you hedge your risks against fuel price fluctuations.
