Northwest Europe Low-Sulfur Fuel Oil Boosted By Spec Change

1st Jul 2010 20:40

By Reza Amanat Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Low-sulfur fuel oil barge premiums have risen sharply over high-sulfur barges in northwest Europe as the market formally adopts the International Maritime Organization directive to burn higher-quality bunker fuel in the Northwest Europe Emission Control Areas on Thursday. Bunker fuel oil with a 1% sulfur content was trading at a premium of $35 a ton over 3.5% high sulfur barges Thursday, compared to around $32 a ton last week and around $23 a ton three weeks ago. Traders said the rise in low-sulfur premium is a reflection of concerns in the market that more stringent fuel quality requirements could tighten availability of on spec-material in the northwest Europe oil hub of Amsterdam, Rotterdam and Antwerp. The shipping industry has traditionally used fuel oil to power vessels because it is the cheapest part of the oil barrel. The fuel, which is highly viscous and sulfurous, is the most economical way to power the fuel-intensive shipping industry. However, the use of fuel oil has been under increasing scrutiny in recent years as governments strive to reduce emissions from the transport industry. As a result, the International Maritime Organization, the body in charge of drawing up the regulatory framework for shipping, has offered proposals to tighten sulfur and carbon emissions, requiring ships sailing in Emission Control Areas, or ECAs, such as the Baltic and North seas, to burn fuel oil with a 1% sulfur content from a current 1.5% sulfur content as of July 1. In addition, the International Organization for Standardization issued a directive on June 15 requiring the aluminium and silicon content of low-sulfur fuel oil to be cut from 80 parts per million to 60 parts per million. The stringent fuel quality requirements are behind rising 1% fuel premiums and could tighten supplies of low sulfur fuel oil, traders said. Although anemic demand has seen most bunker firms in northwest Europe switch to 1% fuel oil ahead of the July 1 deadline without facing supply tightness, traders said the new requirements will inevitably increase the need for blending down of high sulfur material at a time when good quality slurry--a by-product of the refining process used in fuel oil blending--is in scarce supply and expensive. "Not all the refiners are ready to produce 1% fuel oil, so there will have to be a lot of blending. But there isn't that much blending material around at the moment," said a bunker trader. In Rotterdam, adding the need for more blending will certainly mean higher prices 1% prices. A fuel oil broker in Rotterdam said Royal Dutch Shell PLC (RDSA, RDSA.LN), which along with BP PLC (BP, BP.LN) and Petroleo Brasileiro SA (PBR, PETR4.BR), is among the few oil companies currently offering low-sulfur fuel oil, has only one 1% fuel tank in Rotterdam and the content inside is 80ppm metals specification at a time when bunker firms in the region have already started to demand fuel with a 60ppm metals content. Furthermore, a fuel buyer at a shipping company in Rotterdam said the switch to 1% fuel oil will mean more blending will be required to attain the lower sulfur level through the use of cutter stocks such as slurry. However, due to the high cost of good quality blending material, many suppliers are likely to use lower-quality cutter stock with a high metal content, therefore increasing and not decreasing the metal levels in blended 1% fuel oil. Meanwhile, concerns over the supply of low-sulfur fuel oil have deepened following news of a fire in a crude distillation unit of Total SA's (TOT, FP.FR) Lindsey oil refinery in eastern England on Tuesday. The blaze has partially halted production at the 200,000-barrel-a-day plant. The refinery is capable of supplying 100,000 tons of on-spec low-sulfur fuel oil per month, said a fuel oil trader in Europe. The incident is in addition to a recent fire at ConocoPhillips (COP) Wilhelmshaven refinery in Germany, which halted 260,000-barrel-a-day output. The plant was also a reliable source of on-spec low sulfur fuel oil, a fuel oil trader in the U.K. noted. -By Reza Amanat, Dow Jones Newswires; 4420-7842-9487; [email protected] (END) Dow Jones Newswires July 01, 2010 15:40 ET (19:40 GMT)