Ara Barsamian, president and CEO, Refinery Automation Institute LLC (RAI). Image Credit: RAI
Very Low Sulfur Fuel Oil (VLSFO) pricing as of November 2019 is as muddy as it was at mid-to late 2019, when the ISO PAS was issued. Why? Because of lack of precise specs for VLSFO, everybody's doing their own thing. The results is a nightmare, primarily for shipowners who may be stuck with unknown blend formulations and unusual characteristics. As you all know from the "Houston" contamination problem, being "fit for use" without numerical specs is worthless.
1. VLSFO Blends on the Market
So what's available on the market? Currently there are 3 significantly different VLSFO spec clusters being sold:
Cluster 1: 5 to 50cSt
This is highly paraffinic HSFO using ATM or VAC bottoms (ATB or VTB) cut with mostly gasoil, in a ratio of about 1:4. This is simply a blend to dilute the HFO Sulfur to 0.5% using gasoils; thus one can expect the price to be about 80% of gasoil, pretty close to that of MGO. Is it worth the risk, since stability and compatibility of the blend depends heavily on the degree of aromaticity of VTB's and asphaltene content of the HSFO?
Cluster 2: 80 to 240cSt
This VLSFO blend is a mixed bag in terms of blend formulation, pricing, compatibility, and impact on ship engine:
For cluster 2.1, one can use a blend of 40% LS VAC bottoms and 60% LS FCC Slurry to get a highly aromatic VLSFO with low Sulfur but otherwise being a "residual" fuel with a price significantly lower than cluster 1 but not as cheap as Cluster 3. The advantage is that for the shipowner, it is more or less "business as usual" by burning a residual fuel without unpleasant surprises like thermal shocks or lubricity issues.
For cluster 2.2 one can use a blend of 40% LS VAC bottoms and 60% LS VGO to get a highly paraffinic VLSFO with a price significantly lower than cluster 1 but not as cheap as Cluster 3 or Cluster 2.1 (VGO being significantly more expensive than Slurry). Because of the highly paraffinic nature, it could be highly unstable with potentially disastrous consequences for shipowners.
Cluster 3: 300 to 380 cSt
This is a highly aromatic blend available in Europe which has many Visbreakers and access to low Sulfur crudes. Typically the VLSFO blends use 60 to 80% LS Visbreaker tar cut with about 20-40% FCC Slurry, so it is significantly cheaper than cluster 1. Besides the price advantage, for the shipowner, it is "business as usual" by burning a residual fuel close to today's IFO380 3.5%S, without surprises like thermal shocks or lubricity issues.
Table 1: Typical VLSFO Cluster Blend Prices and Characteristics
2. Market Pricing vs. Reality
When you examine Platts, Argus, OPIS, or other marine bunker price information sources, there is only one price for the column labelled VLSFO. But which VLSFO specs do they cover? Table 1 above clearly shows the VLSFO cluster formulation prices for typical recipes:
Cluster1 price is in the range of $550 to 600/MT.
Cluster 2 price is in the range of $500 to 540/MT.
Cluster 3 price is in the range of $250 to 360/MT.
It is you, the buyer that has to do the detective work to find out which specs go with what prices since the impact on marine engines is significantly different, and could be catastrophic.
In conclusion, VLSFO pricing will inevitably be variable across the globe, depending on the blend composition; this is just one more issue to consider in addition to headaches due to commingling and different fuel behavior (heating, lubricity, stability and compatibility).
Welcome to 2020! "Caveat Emptor".
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