The numerous port projects all along Indian coast have thrown open huge opportunities for bunkering of fuels - both capital and maintenance. The multitude of projects have ensured that it is a year-round activity. More importantly, existing capacities are found terribly inadequate to meet the growing demand.With the Indian shipping industry registering an all-time high growth rate, the domestic oil companies are increasingly looking at bunkering business as a potential avenue to increase their fuel sales volume. Oil companies are thinking in terms of tying up with foreign bunkering majors and registering themselves with the International Bunker Industry Association, which has 450 members from over 60 countries.

HPCL, the second largest bunker supplier after Indian Oil Corporation (IOC), has taken the lead in this regard, entering into a preliminary agreement with Chevron Texaco’s Fuel and Marine Marketing LLC recently. The agreement will allow HPCL to fuel all Chevron Texaco vessels berthing at Indian ports.

Adani commenced its bunkering services from August 2006 and presently caters to ships calling at Mundra port and in small quantities to those in Kandla, Sikka, Vadinar and Jamnagar.The company was able to source IFO 180 cst from India but had to import MGO and IFO 380 cst since local refineries had not begun commercial sales of the fuel. Recently, local refineries, have begun supplying both MGO and IFO 380 cst which has prompted the company to strike deals with atleast one major oil supplier for its fuel requirements. 

Officials from the company say that acquiring the two new barges are a part of the company’s plans to expand its reach in the bunkering facility further. After supplying small quantities of fuel to Kandla Port on barges and trucks, to Sikka and Jamnagar by barge, the company is targeting the entire Gulf of Kutch with its long coastline for its expansion plans. At Mundra, the company caters to around 100 ships per month, which would jump considerably considering 4,000 ships arrive at the Gulf of Kutch every year. It has invested around Rs 150 crore in the bunkering venture so far. 

Notwithstanding the potential available in this sector, the bunker market has hardly grown due to high prices and inadequate port infrastructure. The domestic bunker market now stands at a measly 0.5 million tonnes, as against Singapore’s, Rotterdam’s and Fujairah’s bunker volume of 18 million tonnes, 15 million tonnes and 10 million tonnes respectively."With so many ships plying between Singapore and Fujairah, we can easily get a chunk of this market, as the ships would find it convenient to replenish their fuel at Indian ports," an oil industry source pointed out.

The major factor for the tardy growth of the bunker market is the price factor. With the bonded bunker prices in India being almost 50 per cent higher than those prevailing at Singapore, Rotterdam or Fujairah ports, foreign vessels uplift bare minimum bunker quantities at Indian ports. Even Indian shipowners procure most of their bunker requirements at foreign ports. Hence, bunker supplies at Indian ports are mostly limited to Indian Navy, merchant ships on coastal run, including tankers that are time chartered by oil companies and Shipping Corporation of India’s passenger ships.

According to an oil industry analyst, "The bunker prices in India must be brought to international levels if the bunkering potential has to be exploited in a big way. The difference in bunker prices in India and foreign ports significantly increases due to addition of sales tax, which varies from State to State."A recent study by the Indian Ports Association at Vizag port had shown that while the base price of bunkers at Vizag are comparable to the rates prevailing in Singapore or Fujairah, it is the high taxes and duties that shore up the prices, putting the Indian bunker trade at a disadvantage.

The average tax component has been worked out to be at Rs 1,312 per tonne, which is seen as the major reason for the abysmally low bunker lifting of only 0.55 million tonnes at Indian ports. Thus, for bunkering activities to pick up at Indian ports, analysts feel that the Government should reduce the tax and duty burden on bunkers.Inadequate port infrastructure is another reason for the poor offtake of bunkering supplies in India, though bunkering services are available at most of the major ports in India. For the ports to strengthen their bunkering services, it has to be ensured that quality bunkers are supplied at internationally competitive prices with round-the-clock operations.

Further, ports should have designated bunker berths or anchorage with pipeline and barge facilities, backed by a lower port tariff and adequate support services for ship supplies, spares and crew change. Also, it is felt, facilities for mid-stream delivery should be improved, apart from the existing facilities for bunker supply beyond port limits and at tanker berths.

The shipping industry is also increasingly facing the need for upgrading bunkering services at Indian ports, as a major slice of the tonnage engaged in overseas trading continues to depend on foreign ports for its bunkering requirements. Bunker costs constitute 25-35 per cent of the direct operating cost of vessels, taking into consideration a mix of different types of vessels in the fleet.The oil and shipping industries feel that the Government should come out with a fiscal incentive scheme for making bunkering more attractive and reducing the elaborate procedures involved in Customs documentations.

All these could enable strategic Indian ports to emerge as leading bunker destinations for the international shipping trade passing through the Arabian Sea and Indian Ocean region, apart from reducing the dependence of Indian ship owners on foreign bunkering services.

The global fuel oil and bunker markets are essentially two sides of the same coin. The global fuel oil market is a cargo market with cargo sizes varying in size from 20,000 tonnes to 260,000 tonnes.  The majority of cargoes range from 30,000 tonnes to 80,000 tonnes.The bunker market is the main market for fuel oil. Some fuel oil is also used for power generation, predominantly now in China.  As much as 97% of all paper contracts sold are linked to the fuel oil cargo market. As little as 3% is done linked to the physical bunker market and on fixed price physical delivery contracts. 

Research shows that the paper market linked to the fuel oil cargo market is estimated to be about between par and twice the size of the physical market, conservatively estimated at around 250 million tonnes per year.The Fuel oil market vs the Bunker market The total bunker market to end users in the shipping industry is approximately 175 million tonnes, which makes up 65 - 70% of the fuel oil cargo market.  The fuel oil cargo market is therefore estimated to be in the region of 250 million tonnes per year

Bunkers, which are sold in smaller parcels (1000-3000 tonnes in Fujairah and 500-1500 tonnes in Singapore, Rotterdam and Houston) attract a premium (called the bunker premium) which accounts for costs associated with for local barging, blending, delivery services and profit margins for local suppliers etc.  The Bunker market is the largest end user market for fuel oil, and the bunker premium is on average between US$3-10 above fuel oil cargo prices and priced in US$ per metric ton.

That means that every year around US$ 60 - 65 billion is transacted in fuel oil swaps, compared to around US$30 - 35 billion in the freight derivatives market.  In the physical end user bunker market during 2004, the four largest bunker ports sold a third of all the world’s bunker fuel, over 58 million tonnes to ship owners.

Specifications for marine fuels officially carry the first letters "D" for distillates, or "R" for residual fuels, followed by the letter "M" signifying their use as "marine" fuels. Distillates are composed of petroleum fractions of crude oil that are separated in a refinery by a distillation. There are four specifications (developed by the American Society for Testing and Materials, or ASTM) for marine distillate fuels:

DMX, a special light distillate with a lower flash point intended mainly for use in emergency engines. DMA (also called marine gas oil, or MGO), a general purpose marine distillate commonly used for tugboats, fishing boats, crew boats, drilling rigs and ferry boats that contains no traces of residual fuel.

DMB (also called marine diesel oil or MDO), used for larger marine vessels (Category 2 and 3 engines), including oceangoing ships (often as a blending agent), and is allowed to contain a trace of less refined fuel as a result of flowing through pipes used for residual fuel.

DMC, a grade of marine fuel that may contain some residual fuel and is often a residual fuel blend.

Residual fuel oils are the heavier oils that remain after the lighter fractions have been distilled away in the refining process. Residual fuel is inexpensive compared to other crude oil-derived products, and contains high levels of sulfur and nitrogen. Polycyclic aromatic hydrocarbons (PAHs) and metals become concentrated in residual fuel. Residual fuel oils may be directly produced from the distillation process, as well as from a complex process of selection and blending of various petroleum fractions to meet definite specifications.The International Standard Organization (ISO), in cooperation with the marine and petroleum industry, has set forth specifications for marine fuels supplied worldwide for use onboard ships.The following four fuel grades are most frequently supplied for use by ships :

IFO180 (Intermediate Fuel Oil 180, also known as RME25 and RMF25), a blend of distillate and about 88 percent residual fuel, with a viscosity of 180 centistokes at 50°C;

IFO380 (also known as RMG35 and RMH35), a blend of distillate and about 98 percent residual fuel, with a viscosity of 380 centistokes at 50°C;

MDO (marine diesel oil, also known as marine distillate fuel B or DMB), sometimes a blend of marine gas oil and heavy oil; and MGO (marine gas oil, also known as marine distillate fuel A or DMA), 100 percent distillate, used in small and medium-sized compression-ignition engines, such as tugboats, fishing boats, crew boats, drilling rigs and ferryboats.

The distillate recycled fuel oil product MDO is comparable to crude oil-derived distillates used as marine fuels. Its low ash content (0.002 percent weight or 20 ppm), low sulfur and viscosity content makes it particularly desirable for blending in fuels for harbor craft or for oceangoing vessels.Fuel costs make up about 40 percent of the overall operating costs in ships. Because distillates are more expensive than residual fuels, the greater the proportion of distillate fuel in an intermediate fuel, the higher the price.

Rising costs and fluctuations in feedstock quality make blending low-cost; on-specification bunker fuel difficult and many suppliers produce higher specification products than needed.  An in-line blender can save between $1 and $5 a tonne by minimising the distillate give away.Blenders use a controller with unique control algorithms that respond instantly to changes in process conditions or feedstock quality. The heavy fuel oil and cutter stock are continuously measured and adjusted during the batch to ensure optimum quality and minimum give-away. 

The systems are designed to ensure consistent quality throughout the batch even during tank changes, feedstock starvation, loss of power or the unlikely failure of a system component. The final product is mixed in the blender header where a viscosity analyser can be installed. The viscometer generates a control signal, which can be used to continually optimise the blended product by adjusting the component ratio during the batch. This ensures that the blended product is produced at the lowest cost and remains as specified at all times.

The blenders are simple to use. The desired recipe and volume or mass is selected from the controller and the blend started. Once initiated; the blending process is automatic and produces the final product with no intervention, only informing an operator if an alarm condition occurs.Blenders can be skid mounted (for installation on a barge, jetty or shore), mounted in a container offering a portable, safe working environment or self-contained on a trailer allowing one blender to be used at multiple locations.

Because of its low density and combustion value, used oil has been added to bunker fuels in some parts of the world. Unprocessed (raw) used oil was a lower cost fuel blend stock for bunker suppliers and shippers concerned with tight profit margins. In the past, many ships would dispose of their own used auxiliary engine crankcase oil by placing it in their fuel tanks.A few countries (e.g., Australia, New Zealand, U.S.) reportedly encouraged the blending of small amounts of used oil with bunker fuel as an environmentally preferred means of disposal. The practice did not appear to be as prevalent in Europe as in North America.

While 10 to 25 percent of all marine fuels sold had been blended with used oil in the past, this practice rarely occurs today. Since the mid-1990s, the shipping industry has become increasingly less inclined to accept bunker fuel containing used oil. There are a number of reasons for this: the potential for the used oil to contain contaminants that can seriously damage the ship’s engine; evidence – albeit contentious — that used oil itself can cause engine damage or affect engine performance; and, with the rising cost of fuel, an unwillingness to pay fuel oil prices for a waste product.However, due to lack of proper testing and the commercial partnership between traders and vessel engineer, this practice goes on.Defining a few terms used in the article :

Bunker fuel. A general term often used to refer to fuel burned in ships for propulsion; bunker fuel mainly consists of.

Fuel oil cutter. Fuel oil used as a blending agent for other fuels, such as to lower viscosity; a major product of the recycling of used oil.

Industrial oil. Any compressor, turbine or bearing oil, hydraulic oil, metalworking oil or refrigeration oil; does not include dielectric fluids

Marine diesel oil (MDO). A distillate fuel produced from crude oil, as well as from the re-refining of used oil. Marine fuels. Distillate fuel, residual fuel or a blend of both, used to provide power for marine vessels.