If last year’s events in the Panamanian bunker market showed nothing else, it’s that the perception of quality can be more important than the reality.
The summer’s “bad bunker” claims – fuel oil consignments tainted with mystery contaminants suspected to have originated in Houston and quickly spread to Panama and beyond – badly dented fuel sales in the second half of the year. The contaminated fuel still met ISO 8217 standards which are routinely tested for, however, appeared to have failed the caveat of Clause 5 of the standard, which specifies that fuels shall not contain any material in a concentration that adversely affects the performance of the ships’ machinery. Reports suggest that some smaller bunker suppliers in Panama used time-bars and the fact that the fuel still met standards to deny claims by buyers. As a result, buyers supposedly stepped back from using smaller suppliers for fear of being left out of pocket if fuel turned out to be contaminated, fears compounded by the lack of a clear concrete cause behind the issues.An International Council on Combustion Engines (CIMAC) working group investigation into the problems found no consistent correlative factors behind them:
“Based on the results of the extensive fuel analyses performed by the various fuel testing labs represented in CIMAC Fuels, no final and concrete conclusion can be made as to what specifically in the fuel formulation may have caused these incidents,” CIMAC said. “Investigative testing has shown a range of chemical species in the fuel oils used at the time of the issues. Most were present at very low levels although some were present in more significant concentrations in some samples. It is unclear if and to which extent these chemical species are also present in other currently used and historically used fuel oils without issue.”
CIMAC added: “There are no consistent findings across the number of fuels tested (neither on components nor concentrations) that can be used to clearly distinguish problematic fuels from non- problematic fuels. In other words, so far, it has not been possible to confidently conclude if the blending process had gone wrong in some way or how any of the unexpected chemical species had made its way (deliberately
or accidentally) into the fuel oil.”
Despite the claims falling away well beforehand, year-on-year sales in Panama for the final couple of months of 2018 were down by around 18% according to Panama Maritime Authority figures. In the first half of the year, before the “bad bunker” problems began, sales had been up 3.8% on 2017, albeit with distillates making up for a slight drop in heavy fuel oil (HFO) volumes. The drop in sales became markedly worse, though, once the quality issues began to bite from September onwards.
That drop came despite Canal traffic remaining steady in terms of transits (up 0.89% to 11,504 in the first 10 months of the year), and greatly up in terms of ship size (2,160 neopanamax transits, up 31.2%) and Canal revenues (up 9.1% to US$2.082bn). While it might be the case that larger vessels may be a little less inclined to bunker before or after their Canal transit rather than waiting until later port calls, that certainly wouldn’t account for the marked fall-off in HFO sales.
Panamanian suppliers have remained unsurprisingly tight-lipped about the issue and its knock-on effects on the market either for themselves or for the sector as a whole – no one’s likely to come forward to say they’ve had issues with sales, and few to suggest they’ve taken business off rivals given how competitive the local market can be – but the quality problems have added fuel to questions over the likely level of very low sulphur fuel oil (VLSFO) uptake in Panama when the IMO 0.50% sulphur limit comes in.
Panama isn’t alone in playing home to such question marks given uncertainties over supply levels from refineries, cost, but the ability of suppliers to consistently provide fuel oil without contaminants or excess sediment from residual oil has been thrown into sharp relief by the scare. It’s also notable that while fuel oil sales dipped sharply overall in the second half of the year on the back of fewer stems – rather than a drop in stem size – distillate sales were much steadier.
The Canal currently lacks some of the alternative fuel infrastructure of some other major hub areas (though LNG bunkering may come online at Colón via the Costa Norte LNG terminal and elsewhere) so any uncertainties over consistent quality in VLSFO as production ramps up for IMO 2020 could leave distillates as the country’s only significant bunkering safety net if it’s to retain its hub status.
Continued improvements in traffic volumes would offset that, of course. In November last year, Canal Administrator Jorge Luis Quijano told EFE News agency that the mooted construction of a fourth set of locks for the Canal by 2025 – for which he said there was already demand – depended on being able to secure water supply and maintain levels in Gatun Lake. He said the current third set of locks “reflects a ship size focused on the container carrier and coincidentally there are those of liquefied natural gas… and the business models are those that have given us the ability to move in a business that is very rigid.”
“Our infrastructure is not a thing that is built from one day to the next, it took us 9 years to expand. To build a new lock it’s going to take another 8 years.“
Quijano told a trade forum in October that new reservoirs were urgently needed as both traffic increases and rising demand for water from the Panamanian population would both put pressure on levels in the lake and the Canal basin.
He expected consumption to increase by 79% by 2020, from 438 million gallons per day to 662 million gallons. The Canal basin supplies 60% of Panama’s domestic water and Quijano said that infrastructure needed to be put in place to pull water from Lake Bayano and elsewhere to balance demand.
The ability of the Canal to expand further isn’t the only possible influence on long term vessel traffic and consequently fuel sales. The top two destinations for
ships passing through the Canal are the US and China, and the Trump administration’s ongoing trade war – and any slowdown in China’s economy separate from that – could still have an impact on vessel movements through Panama (notwithstanding the risk of any reporting on current US presidential policy that such policy, or the individual personnel responsible for enacting it, will have completely changed by the time of going to press).