PAPER 2009-302

Marine Fuel Bunkering: Environmental &

Economic Consequences of Low Sulfur Fuel
J. B. FITCH and S. VOSSOUGHI
University of Kansas

This paper has been selected for presentation and publication in the World Heavy Oil Congress 2009 Proceedings. All papers
selected will become the property of WHOC. The right to publish is retained by the WHOC’s Publications Committee. The authors
agree to assign the right to publish the above-titled paper to WHOC.
The IMO hopes that stricter limits on sulfur content in
Marine fuels will reduce sulfur dioxide (Sox) emissions in all
Abstract industrialized ports and surrounding areas by over 500,000
tons per year. Global shipping has been allowed to emit air
The world’s petroleum market has evolved into a dynamic pollution without recourse while land-based emitters such as
and complicated enterprise that closely follows the economic the electric-generation industry have been highly scrutinized.
laws of supply and demand. Similarly, marine fuel bunkering This dichotomy is on the brink of change and the resulting shift
(fuel for the world’s shipping fleets) mirrors the much larger in the economic dynamics of the petroleum industry will create
petroleum market. Marine fuel bunkers buy, distribute and a sharp increase in the demand for low sulfur marine fuel.
resell the three main products of Heavy Fuel Oil (HFO),
Marine Diesel Oil (MDO) and Marine Gas Oil (MGO) to ships
in every major port around the globe.
Using these petroleum products as fuel for their internal
The Marine Fuel Bunkering Industry
combustion engines, the world’s shipping fleets transport trade The marine fuel bunkering industry sells fuel to ships at
driving the global economy and nearly every nation’s Gross various ports worldwide for use as the ship’s primary fuel
National Product. However, this same shipping fleet emits source. By purchasing, storing, distributing, delivering and
millions of tons of air pollution every year. Accordingly, air reselling fuel, “bunkers” serve as the vital refueling stations for
pollution damages the environment and health of citizens in every class of ship while in port. Various grades of marine fuels
every country around the world. As nations become are purchased by the bunkering company or through the use of a
increasingly aware of the repercussions of environmental brokerage service. The three most common products are Heavy
damage, many unite to cooperatively resolve these Fuel Oil (HFO), Marine Diesel Oil (MDO) and Marine Gas Oil
environmental dilemmas. This spirit of cooperation has led 164 (MGO).
nations to unite to control shipping as the International Fuel brokerages monitor the price of “bunker fuels” issued
Maritime Organization (IMO). by the three predominant port areas, Rotterdam (Netherlands),
By 2006, the IMO mandates that shipping will not be Houston (Texas, U.S.A.), and Singapore, which have
allowed to operate within specified Sulfur Emission Control considerable refining and storage facilities, and serve to set the
Areas (SECA) unless the sulfur content of its marine fuel is less most competitive pricing for the world bunker market. Prices
than 1.5%, which equates to 15,000 ppm. In 1997, the IMO set are quoted for the various products based on specific parcel
a May 19, 2005 deadline for all member states to meet and sizes ranging from 5,000 metric tons for gasoline and jet fuel, to
maintain a 4.5% sulfur limit on marine fuel bunkers. Gradually as large as 25,000 to 35,000 metric tons for gas and diesel oils1.
tightening constraints worldwide, led primarily by the Trading these parcels has evolved into a highly competitive
European Union, will cause the world’s fleets to demand market dependent on both logistics and commodity pricing.
increased availability of low sulfur fuel. Existing world supplies Correspondingly, the number of companies investing in the
are extremely limited by current refining capacity and the high future movements in the price of fuel oil has grown
cost associated with producing the cleaner fuel. dramatically over the past few years. This industry and its

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futures are known as Marine Fuel Bunkering and have • Accessibility
worldwide economic implications. • Proximity to major shipping lanes
• Fuel price
Factors Affecting Marine Bunkering
Industry Price:
Bunker costs range from 60% to 95% of the vessel
There are three basic factors affecting marine bunkering
operating costs with higher percentages being more typical of
industry. These are:
older and more inefficient ships. Bunker costs are the major
expense for every shipping fleet depending on:
1. Consumption
• “In transit” or “at sea” consumption
2. Port decision
3. Price • “In port” consumption for loading and
unloading personnel and cargo
Consumption:
The world’s marine fuel consumption depends on: The World Bunker Market
• Volume of sea-born trade, cruise ship In 2001, the total international sales of marine bunkers
activity and tourism reached 138 million tons (Figure 1) and sales are estimated to
• Size of the world’s merchant fleets reach 140 million tons by 2005, roughly equivalent to a cost of
• Advances in technology such as engine fuel 15 billion U.S. dollars. In the 1990’s, world bunker sales grew
efficiency and hull design an average of 3.4% per year. Currently Europe and Asia are the
• Adoption of efficiency practices throughout largest consumers of marine fuel. Their combined demand for
the marine industry 2001 was expected to be 48 and 42 million tons, respectively2a.
• Re-engineering of existing ships to improve Regional consumption pattern for heavy fuel oil and distillates
fuel efficiency are quite different as shown in Figure 2. The total bunker
demand in European Union (EU) is estimated to grow annually
Port decision: by 10.5% from 48 million tons (in 2001) and reaching 190
The decision to bunker in a specific port depends on: million tons by 2015.
• Product quality
• Availability

Figure 1: World Marine Bunker Sales2a

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 Figure 2: Regional consumption of HFO and distillates2a

European Market Specifics Environmental Damage From Ship

In 2001, EU marine bunker sales reached 45 million tons Emissions
reflecting a steady rise in the shipping activity predominantly
along the Mediterranean seaboard. Distribution of EU total
bunker sales among the European countries is shown in Table 1. Generation of Sulfur Dioxide in Exhaust
Since 2001, EU sales have increased by more than 3% per Gas
year2b. The internal combustion process can be restricted by the
There are over 250 ports in the EU. These ports are a large presence of a variety of compounds such as sulfur, whose
set of niche market. The three most significant factors being: residue can cause corrosion of internal engine parts. Engine
• Close proximity to shipping lanes and manufacturers strive to insure that the inner engine surfaces do
traffic patterns not reach temperature (dew point) that causes condensation. In
• High volume of cruise ships for the tourist most engines the sulfur from fuel burns to SO2 then combines
industry with excess oxygen to form SO3. If there is water vapor present,
• Lower marine bunker prices compared to the SO3 is converted to sulfuric acid, which forms on the
other world regions cylinder walls if the temperature is below the dew point of the
As shown in Figure 3, European Union bunker sales acid. Due to improved engine performances only a small
reached 45 million tons in 2001 of which 80% are heavy fuel portion of sulfur content forms condensation, the vast majority
oil. of sulfur oxides leave the engine in the form of exhaust gases or
emissions4.
United States Market Specifics
In 2001, U.S. sales of marine bunkering reached 30 million Air Pollution and SOx
tons equating to 22% of world bunker sales2a as shown earlier in “An air pollutant is a substance or effect dwelling
Figure 1. The U.S. ranks as the 13th largest shipping fleet in the temporarily or permanently in the air, which adversely alters the
world or 5.5% of the world’s fleet with 11 million tons of environment by interfering with the health, the comfort, or the
merchant fleet registered3. food chain, or by interfering with the property values of
people.”5a Air pollutants occur as solid, liquid and gas and even
occur naturally. Natural release of air pollutants has affected the
world’s air by only 0.01%. Natural sulfur dioxide (SO2 or SOx)
release occurs in the gases emitted during the decomposition of
plants and during volcanic eruptions as ash is dispersed into the
atmosphere. Total emission of sulfur oxides in U.S. and Canada
is estimated to be around 29.1 million tons/year5b. As shown in
Figure 4, the vast majority of SOx releases are from the

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combustion of coal for electric power generation, the refining of sulfuric and nitric acids attaining pH levels well below
petroleum for its various uses, and the combustion of fuel in normal5c. It is reported6 that the acidity of rain during the last 30
primarily diesel engines. years in north hemisphere zones is now 5 to 30 times greater
SOx has been recognized for decades as a major cause than the natural precipitation that would be expected in
of “acid rain” and other air pollution that affects urban and unpopulated areas. SOx emissions resulting in acid rain are
industrial areas. Acid rain is produced when the oxides of sulfur known to decay structures, damage sensitive ecology and cause
and nitrogen are converted in the atmosphere to form sulfuric health issues such as respiratory illnesses. European studies
acid and nitric acid, respectively. These acids combine with show that by 2010 sulfur emissions from ships, at current rates,
moisture in the atmosphere to generate a solution with a pH could match over 75% of the emissions from all land-based
lower than 5. Although most rainfall is mildly acidic due to the sources combined7.
absorption of carbon dioxide in the atmosphere forming
carbonic acid, acid rain can contain significant concentrations of

Figure 3: European Union Marine Bunkers (1960 – 2001)2b

Table 1: European Union Total Bunker Sales – Metric Tons2c

Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Annual
Growth

Italy 2.70 2.55 2.45 2.44 2.36 2.44 2.30 2.40 2.64 2.43 2.48 - 0.8%

France 2.57 2.67 2.58 2.46 2.18 2.56 2.77 3.01 2.91 2.94 3.05 1.8%

Germany 2.51 2.11 1.76 2.22 2.05 2.06 2.04 2.17 2.06 2.10 2.21 - 1.2%

Spain 3.72 3.94 3.99 3.50 3.16 3.25 4.74 5.85 6.17 6.02 6.15 6.6%

Greece 2.57 2.36 2.71 3.16 3.36 3.61 3.18 3.18 3.56 3.16 3.65 4.2%

UK 2.54 2.49 2.55 2.48 2.31 2.47 2.67 2.96 3.08 2.33 2.08 - 1.8%

EU Total 34.78 34.68 34.96 35.97 34.55 35.52 37.71 41.14 42.59 40.63 42.29 2.2%

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 Transportation
3.50%
Other 4.00%

Industrial
Combustion
12.00%

Electric
Utilities
58.50%

Industrial
Processes
22.00%

Figure 4: Sulfur dioxide pollution from various sources in the U.S. and Canada5d

from air pollution, and overall improved quality of life.

Unfortunately, the restrictions and resulting improvements in air
Health Issues of Air Pollution emissions have an economic consequence immediately
impacting the industrial zones but ultimately to the consumer.
SOx due to its high solubility, is easily absorbed into the These transferred effects cause consumers to spend more of
respiratory system during breathing. SOx concentrations in air, their disposable income on utilities such as electric power and
as low as 0.3 to 1.0 ppm, are quickly identified by smell or increasingly less on other areas of economy. This relationship
taste. By then, most of the SOx is absorbed into the airway may appear innocuous but the long-term results may be
tissues of the nose and throat where it is just a mild irritant8a. increasing inflation and other economic detractors.
Higher or prolonged exposures can lead to serious health
conditions or even death. Studies have shown serious effects of
SOx on the respiratory and pulmonary health of people living in
The Impact of Ship Emissions
acid rain locations. Excess mortality in areas where fossil-fuel Sulfur and nitrogen compounds are naturally present in
combustion resulted in very high levels of SOx have been petroleum and coal and are found in the byproducts of these
documented8b, one episode being in Donora, Pennsylvania in energy sources such as marine fuels. The amount of these
October 1948. In this case 43% of the population of 10,000 compounds found in fuel depends primarily on the source of the
citizens was adversely affected. crude oil and then, to a lesser extent, on the refining process. It
is typical for worldwide marine fuel to have between 2 and 6%
Economic Issues of Air Pollution sulfur content, with the current average being 2.6%4. Shipping
accounts for a large portion of harmful air emissions in many
Health issues translate directly into economic costs as air areas of the world. Especially in the region of the EU, stricter
pollution has obvious human, social, and financial impacts limits on the sulfur content in marine fuels have been predicted
costing billions of dollars worldwide every year. Reducing to reduce SOx emissions in EU ports and surrounding areas by
harmful emissions through the restriction of sulfur levels in over 500,000 tons each year9. The highest level of SOx
fuels for combustion engines has been linked to: reduced health concentrations have been observed along coastal areas such as
care costs, increased labor productivity, fewer premature deaths the sea areas of the English Channel, the North Sea, the North

5
East Atlantic Ocean and the Baltic Sea10a. Accordingly, the gas fate is subject to meteorological and chemical conditions in
largest SOx emitting EU countries receive only about 50% of the atmosphere10b.
their own emissions while the remaining 50% are deposited
within the boundaries of surrounding countries. Simply, exhaust

Figure 5: Deposition of SOx in Europe (1997)11

studies and scientific evidence justify. These air standards have

served to reduce automotive and industrial air pollution in the
Environmental Regulations U.S. and Canada. Specifically, the Acid Rain Program has
targeted electric-power plants in an attempt to cut half of their
emissions of SOx and greatly reduce nitrogen oxides (NOx).
The United States Clean Air Act In spite of all the effort to reduce SOx emissions from
By 1970, many major U.S. cities were issuing smog alerts electric-generation plants, the shipping industry has remained
and having difficulty seeing skylines due to rampant emissions. untouched by the CAA. Ocean-going ships have rapidly
The federal government responded by enacting the Clean Air become the U.S.’s least-controlled source of air pollution14.
Act (CAA) as the first major U.S. environmental law12. This act Repeatedly the U.S. has derailed efforts to restrict emissions
created the Environmental Protection Agency (EPA) and from cargo carriers, tankers and cruise ships. The federal
established numerous programs for the establishment and government estimates that global shipping will triple by 2020
enforcement of air quality standard13a. Unfortunately, after just and “ships will account for one quarter of the exhaust produced
a few years, every major U.S. city was in violation of the newly by all vehicles.”14 In 2002, the EPA requested in vain that U.S.
imposed air standards affecting over 100 million people. The ships upgrade their engines to reduce pollution. Additionally,
act had failed in its goal to achieve acceptable air quality the U.S. has postponed until 2007 any regulatory action on
throughout the U.S.13b. The 1990 CAA amendments made foreign shipping which account for 95% of port calls inside the
sweeping changes to improve the U.S. air quality program U.S. Instead, the U.S. has emphasized negotiating with the
while keeping the core agencies of the 1970 legislation. Now, International Maritime Organization (IMO) whose 164 member
the EPA reviews air standards at a minimum of every five years states regulate worldwide shipping.
and is entrusted with adjusting the air quality standards if new

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MARPOL Anex VI IMO Regulation Timeline
In 1997, the IMO convened for the International • In 1997, the International Convention on the
Convention on the Prevention of Pollution from Ships Prevention of Pollution from Ships (MARPOL)
(MARPOL) issued a directive titled “Annex VI” to reduce accepted Annex VI and set a deadline of May 19,
emissions of SOx, NOx and volatile organic compounds (VOC) 2005 for a maximum limit of sulfur content at 4.5%
resulting from the combustion of certain types of fuels. for marine fuels used onboard ships belonging to the
Essentially, the Annex established NOx standards for newly 164 member states that belong to the IMO15.
manufactured engines, standards for fuel quality, special control • By 2006, the IMO and EU have mandated that the
areas (SCA) to limit SOx emissions, and regulations for ozone sulfur content of marine fuels will be no greater than
depleting gases and VOC’s. The control mechanisms created by 1.5% in the Baltic Sea and by ferries operating in EU
Annex VI consisted of a system of certifications and inspections ports and territorial waters (within 12 nautical miles).
to match existing port requirements used to monitor shipping • By the end of 2007, this restriction will include the
safety. The ultimate goal of the Annex is to reduce the harmful North Sea and English Channel.
effects of air pollution on the human health and environment of • By the end of 2009, a further reduction to no greater
the IMO member states. than 1.0% in marine fuel in all EU ports.
• By 2012, a continued reduction to no greater than
0.5% in all EU ports.

19 May 2005
• Global sulphur limit 4.5%
• S content on BDN

MARPOL 19 May 2006 November 2007

Annex VI Baltic Sea North Sea SECA 1.5%
ratification SECA 1.5% Emissions
trading

2004 2005 2006 2007 2008 2009 2010

14 April 2005 22 July 2005 January 2010

EU Parliament Publication of 11 August 2007 0.1% sulphur limit on all
passes Sulphur Sulphur Directive North Sea SECA 1.5% marine fuel used in EU
Directive 1999/32/EC 2005/33/EC ports

11 August 2006 EU Commission review on:

EU Member States laws • further restrictions on
enacted: sulphur in marine fuels,
• 1.5% in Baltic SECA “possibly down to 0.5%”
• 1.5% for all passenger ships • additional SECAs
sailing between EU ports • alternative measures
• Use of abatement including proposals on
technology as an alternative economic instruments
to 1.5% fuel

Figure 6: MARPOL Annex VI Timeline16a

the high cost associated with providing cleaner fuels. It is

reported17 that governments must be more consistent and even
more persistent to ensure that fuel quality standards are
The Response to Increased Regulation monitored and maintained from port to port. Unfortunately,
Accordingly, the collective response to these regulations is with so many governments involved worldwide, the statement
a growing concern for the immediate and future availability of is easier to be said than to be implemented.
low sulfur fuel not just in Europe but worldwide. Existing world
stock is extremely limited due to current refining practices and

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U.S. Approach • Initial capital expense of adding extra tanks and fuel
16a systems for fuel-switch.
It is claimed that, since 1974, the Clean Air Act has
• Technology requirements to ensure safe and efficient
resulted in a 51% reduction of the targeted pollutants being CO,
fuel-switching devices.
NOx, SOx, PM, VOC’s, and lead. However, there is still a long
way to go to arrive at the desired clean air globally.
Exhaust gas cleaners: Also known as “sea water scrubbers,”
Surprisingly, the United States has been slow to agree to
exhaust gas cleaners filter exhaust to scrub out the harmful
international air emission standards for shipping especially
emissions. Many use seawater to perform the scrubbing and a
those presented in the MARPOL Annex VI. Originally an
water treatment system to ensure the harmful exhaust
“active leader” in the negotiation of the Annex, the U.S. was
constituents remain on board as sludge19.
slow to participate in the Annex’s ratification. Regardless, the
• Forecasted to be 5 to 10 times less costly for ships
ratification was approved17 to be enforced on May 19, 2005, by
that spend a lot of time in low emission areas.
15 member countries which have an aggregate tonnage of 55%
of the world commercial fleet. • Decreased sound attenuation is added benefit for
inland areas.
• Initial cost and reduced fuel economy are
uneconomical for the vast majority of the major
Environmental Options for Shipping shipping industry.
Cleaner Fuel: Fuel with lower sulfur content will reduce
emissions of SOx when burned. Market-based Instruments: Emissions trading, infrastructure
• Increased cost of the cleaner fuel due to added charging and taxation have all been considered as options. All
expense to refineries. of which have been used worldwide to limit greenhouse gases
• Reduced supply of cleaner fuels until refineries and such as carbon dioxide.
bunkers can increase stocks. • Difficult to monitor and control which ships are
• Technological impacts such as marine engines meeting requirements.
adjusting to cleaner fuel. • Dependent on accurate emissions monitoring
technology still undeveloped.
Shipboard fuel switching: In order to meet stricter Monitoring may be reduced to verification of sulfur fuel
requirements, ships may opt to have duplicate fuel systems content20.
onboard and burn the required low sulfur fuel when in port
while continuing to burn cheaper fuels in transit18.

8
 California & Canada Chicago UK
NE ROCs UK Poland
Ontario NL Russia Ukraine,
West Coast Large Climate CO2 Norway NOx? EU
RGGI GIS?
Governors, Emitters NOx Exchange (& NOx?) NOx CO2 ETS Bulgaria,
Romania
CCAR GIS

China
SO2

Japan
MOE scheme
and METI
RECLAIM targets
SO2 &
NOx
Acid Rain
Program

NOx SIP
Trading
Program
Renewables
Markets
Across US

European
Actual or imminent Air pollution credits Renewables
Australia Australian states
markets New South Wales
MRET scheme CO2 trading?
Proposed Renewables credits CO2 trading
Brazil
Carbon
Greenhouse gas credits
exchange

Figure 7: Emissions Trading Markets Worldwide (2004)16b

World Production of Low Sulfur Bunkers

Based on 2001 production figures, the worldwide potential
Economics of Low Sulfur Requirements for low sulfur production is around 40 million tons a year. By
retreating current fuel supplies and combining these with the
Market Demand future refining potential, the resulting world potential could
reach as high as 50 million tons a year. This retreatment or “re-
Until the MARPOL Annex VI, the supply of marine fuel blending” of current supplies may be the most cost effective
has been purely a commodity market based on price and the option, but it presents a significant risk of instability in fuel use
buy/sell agreement between distributor, seller and customer and bunkering21.
(ship). After May 19, 2005, the precise quality of the fuel sold The second most cost effective method to meet the demand
must comply with Annex VI. Monitoring and verification at for low sulfur fuel is by processing “sweeter” crudes. In the
every stage of fuel use is now of critical importance. “So far, petroleum community, the largest refineries currently producing
only the Singapore Port Maritime Authority has developed clear low sulfur fuel are located in Algeria, Nigeria, Libya, and
guidelines and procedures for bunker transfers to comply with Northern Europe due to their access to lower sulfur crude oil.
these requirements.”17 These combine for a total refining capacity of 21.3 million tons
The processing of additional crude oil to produce low a year of which only 5.5 million tons a year are currently
sulfur bunkers increased the price of low sulfur fuel by more dedicated to producing the low sulfur fuel2e. In order to meet the
than 15% by 20062d. To secure low sulfur crude for refining, looming demand, refineries would be forced to dramatically
regional refineries will pay a premium to respond to increased increase production and make substantial capital investment to
demand. Accordingly, these refineries will pass on the premium upgrade existing facilities to produce low sulfur fuel. These
when selling marine bunkers to distributors and continue to pass costs will translate into rising prices throughout the industry
this premium to sellers and ultimately to consumers who will be until an economic equilibrium could be achieved.
forced to increase shipping costs on a world scale. Additionally,
the cost of monitoring and verification of fuel quality will
continue to increase shipping costs at every level.

9
 Table 2: Low Sulfur Fuel Regional Production (2001)2a
Production Total refinery
% of light crude
Region Main Countries Low sulfur Capacity
world production
crude k bbl/d M bbl/d
Denmark 108
Norway 2 172
Europe
Russia 160
United Kingdom 1 774
Total Europe 4 214 29.6% 22.0
Kazakhstan 119
Central Asia
Turkmenistan 30
Total Central Asia 151 1.1% 3.2
Qatar 160
Middle East Saudi Arabia 192
Yemen 158
Total Middle East 510 3.6% 6.3
Algeria 1 521
Angola 283
Congo 128
Africa
Egypt 114
Libya 1 255
Nigeria 1 218
Total Africa 4 601 32.6% 3.2
Australia 542
Brunei 114
India 565
Asia Indonesia 706
Malaysia 485
Thailand 130
Vietnam 340
Total Asia 3 034 21.5% 20.2
Argentina 121
Americas Canada 785
Colombia 243
Total Americas 1 612 11.4% 26.9
TOTAL WORLD 14 122 81.9

The most expensive option to meet the demand for low

sulfur fuel is the desulphurization of vacuum residue (VRDS). The International Bunker Industry Association (IBIA)
However, hydro-treating of the bottom of the barrel (residue has stated that the IMO controls on marine fuels will hit the
desulphurization) is not a process that refiners are currently shipping industry extremely hard and could reach a $20 per ton
considering2d. premium by the end of 200522. Ultimately, as the marine fuel
bunkering market relies on shipping that originates and returns
Table 3: Price Premiums for Producing Low Sulfur Marine to ports worldwide, the expected increases in demand for low
Bunkers2d sulfur fuels may result in worldwide shortfalls.
Estimated price Conclusion
Production Option premium
(2002 $US/ton) The world’s shipping fleets depend on marine fuel
Re-blending 16-20 bunkering for their energy source as they transport trade around
Supply of lower sulfur 51-57 the globe. After the creation of the International Maritime
crude Organization (IMO), 164 nations united to support their
Desulphurization of residue 102-121 common goals and improve the shipping industry. A central
(VRDS) concern was the mounting pressure to reduce the environmental

10
damage caused by shipping. Accordingly, the IMO created the www.europa.eu.int/comm/environment/enveco/taxati
MARPOL agreement signifying a brighter future for the on/ship_emission/app6final.pdf
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May 2005 deadline for compliance initiated a gradual shift to Environmental and Practical Implications of a European
lower sulfur fuels throughout worldwide shipping. The resulting Union System to Reduce Ship Emissions of SO2 and
increase in demand for these fuels caused a ripple effect NOx - Appendix 6. Environmental Assessment of Policy
throughout the petroleum industry. Production of “sweeter” Options,” (2000) p. A6.5.
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Policy Options EU Ship Emissions to Air – Appendix 6.
Environmental Assessment of Policy Options,” (2002)
a) p. A6.4, b) p. A6.3.

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