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SIBCON 2022 Interview: Clyde & Co discusses handling of bunker fuel quality disputes, alt fuels contracts

‘There are some important differences between VLSFO and biofuels, and as a result, parties should consider whether additional changes should be made to biofuel bunker contracts,’ says Paul Collier.

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The following interview with Paul Collier, Legal Director, Clyde & Co is part of coverage for the upcoming Singapore International Bunkering Conference and Exhibition (SIBCON) 2022, where Manifold Times is an official media partner. 

Collier shares his insights on disputes related to marine fuel quality and bunker contamination, and provides helpful recommendations in handling off-specification bunker claims while touching on alternative fuels:

MT: How have bunker contamination cases at Singapore changed the legal landscape?

Bunker contaminations affecting multiple vessels are not uncommon, and much like the 2018 “Houston” contamination cases, and those originating from the US Gulf Coast in 2013 and 2007, the 2022 Singapore cases have renewed focus on whether basic ISO 8217 tests carried out on bunker samples are sufficient to identify off-specification bunkers. The underlying difficulty is that basic ISO 8217 tests carried out on bunker samples may not be capable of identifying all possible contaminants which could potentially risk causing damage to vessel engines. However, against this, there may be difficulties with parties carrying out more advanced testing (including GC/MS analysis) on bunker samples before their consumption, due to cost and time restraints, meaning that bunker fuel may be consumed before it has been identified as being off-specification. This has caused a significant number of cases of engine damage.

Bunker contamination cases have therefore raised a question as to whether fuel may be off-specification under clause 5 of ISO 8217, even if the fuel has been identified as being in compliance with ISO 8217 Table 1 or 2 parameters. In this regard, clause 5 of ISO 8217:2017 offers some protection to buyers, in that it provides that “the fuel shall be free from any material at a concentration that causes the fuel to be unacceptable for use” and “is not at a concentration that is harmful to personnel, jeopardises the safety of the ship, or adversely affects the performance of the machinery”, and buyers have relied on this to advance quality claims against bunker suppliers where tests have identified contaminants which do not form part of the Table 1 and Table 2 tests.

One interesting question will be how the ISO standards develop to deal with recent bunker contamination cases, and whether further parameters will be added to Table 1 and 2. However, it may not be straightforward for consensus to be reached as to the content of new ISO 8217 standards, given that there is a lack of technical consensus as to when the level of some compounds become “unsafe”, in circumstances where bunker supplies are non-standardised and typically contain hydrocarbons from several points of origin. 

MT: What are the key factors determining legal success of a plaintiff and defendant in a marine fuel quality / bunker contamination suit? Are there any simple operational steps players can include to protect themselves?

In general, the most important factor affecting the legal outcome in off-specification bunker claims is the quality of the evidence. If a party has good evidence supporting their position, then this significantly increases their prospect of success in any legal proceedings. In addition, good evidence will improve their settlement prospects (which may also increase the chance of a claim being settled at an early stage).

For this reason, it is worth all parties involved with a bunker supply collating and retaining evidence which could support their position.

The most important evidence is the collection of samples, with it being widely accepted that the most accurate samples are taken by drip sample at the receiving vessel’s manifold (ideally, witnessed by surveyor). However, parties should also consider whether they can retain any other contemporaneous evidence that supports their position. In the case of vessel owners, it is worth the Master and the crew ensuring that good records of engine maintenance and fuel management are kept, to assist in responding to any argument that engine damage was caused by another bunker stem or by poor management of the vessel’s engines.

MT: What is the first action a shipowner / bunker supplier / bunker trader should take when finding out contaminated bunker fuel has been involved in their delivery operation?

The first step that parties should take where there are suspected bunker contamination cases is to arrange for tests to be carried out on the fuel supplied. Whilst test results are awaited, the fuel should not be consumed, to avoid the risk of engine damage taking place in the interim. In addition, any bunker supplies which may be suspected as being off-specification should be kept segregated from other fuel.

If the test results are off-specification, the parties will then need to consider whether the fuel can be safely consumed or not, and whether any other steps need to be taken to mitigate their position. In this circumstance, parties should obtain both technical and legal advice on how to proceed.

MT: Alternative fuels such as methanol, biofuels, LNG, ammonia, hydrogen are expected to be within the marine fuels mix moving into IMO 2030/2050. Do you think current ISO 8217 standards need to be further developed to cover acceptable parameters for use of these material as bunker fuels? If not, what potential issues may arise when trading these materials with current ISO 8217 specs?

The ISO 8217 standards are primarily intended to be used for petroleum products, and additional standards will need to be developed to cover the full range of alternative fuels which are likely to be subject to increasing use by vessels. Whilst there are some standards in place for some alternative fuels, including ISO 23306 for LNG, further development of standards is needed, particularly in relation to “new” technologies such as hydrogen.

Parties should carefully consider whether it is appropriate to trade alternative fuels using ISO 8217, given that it is primarily intended to be used for petroleum products, and consider whether express reference should also be made to other standards (for example, EN14214 / ASTM D6751 in relation to biodiesel). If inappropriate specifications are used in a bunker supply contract, this will likely complicate the legal position and make it more difficult for buyers to contend that fuel supplied is off-specification.

MT: Biofuels, a popular option, seem to be the easiest route for shipowners to meet the IMO 2030 target. What are the contractual differences between a VLSFO and biofuel bunker contract and are there any specific clauses buyers and suppliers of biofuel bunkers should include to protect themselves during operations?

There are some important differences between VLSFO and biofuels, and as a result, parties should consider whether additional changes should be made to biofuel bunker contracts.

As a starting point, if buyers are seeking to use biofuels as a “green” energy source, the buyers may wish to consider pressing for sustainability warranties to be included in the contract. In this regard, there are concerns that the production of biofuels may have a negative impact on food security or have been produced by otherwise clearing lands beneficial to the environment. If this is a concern to the buyers, they may wish to place the supplier under contractual obligations to provide sustainable biofuels.

In addition, parties should consider the provisions regarding both the specifications and testing requirements, given the differences between VLSFO and biofuels. For example, parties may wish to consider whether joint testing should take place at a laboratory specifically accredited for testing biofuels. 

Given that biofuels deteriorate faster than traditional hydrocarbon fuels, the supplier may also wish to press for short time bars and an exclusion of liability for any damage suffered by the vessel engines if the fuel is not promptly consumed.

A list of other interviews conducted by Singapore bunkering publication Manifold Times on occasion of SIBCON 2022 are as follows:

Related: SIBCON 2022 Interview: Digitalisation in bunkering ops, can lower costs and enable decarbonisation, says StormGeo
Related: SIBCON 2022 Interview: Co-Convenors offer insights into Singapore’s upcoming Digital Bunker Document Standard
Related: SIBCON 2022 Interview: MFMs relevant for custody transfer of future liquid-based marine fuels, confirms Endress+Hauser
Related: SIBCON 2022 Interview: Clyde & Co discusses handling of bunker fuel quality disputes, alt fuels contracts
Related: SIBCON 2022 Interview: Singapore Bunkering TC Chairman shares republic’s direction on future marine fuels

 

Photo credit: Clyde & Co
Published: 28 September, 2022

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Alternative Fuels

IUMI: How can liability and compensation regimes adapt to alternative bunker fuels and cargoes?

Existing international liability and compensation regimes do not fully cater to the changes that the use of alternative marine fuels will bring.

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Dangerous cargo

By Tim Howse, Member of the IUMI Legal & Liability Committee and Vice President, Head of Industry Liaison, Gard (UK) Limited

The world economy is transitioning, with industries across the board seeking to reduce their carbon footprint and embrace more sustainable practices. As part of this, there is a huge effort within our industry to look to decarbonise, using alternative fuels such as biofuel, LNG, LPG, ammonia, methanol, and hydrogen.

Until now there has been much focus on carbon emissions and operational risks associated with the use of alternative fuels. This includes increased explosivity, flammability, and corrosivity. An ammonia leak causing an explosion in port could result in personal injuries, not to mention property damage, air, and sea pollution. In addition, alternative fuels may not be compatible with existing onboard systems, increasing the risk of breakdowns and fuel loss resulting in pollution. Apart from these safety concerns, which particularly concern crew, air pollution and other environmental impacts need to be addressed.

However, the green transition also presents us with a separate regulatory challenge, which has received less attention so far. So, whilst carbon emissions and safety concerns are rightly on top of the agenda now, the industry also needs to prioritise the potential barriers in the legal and regulatory frameworks which will come sharply into focus if there is an accident.

If anything, historic maritime disasters like the Torrey Canyon spill in 1967, have taught us that we should look at liability and compensation regimes early and with a degree of realism to ensure society is not caught off-guard. With our combined experience, this is perhaps where the insurance industry can really contribute to the transition.

Currently, existing international liability and compensation regimes do not fully cater to the changes that the use of alternative fuels will bring. For example, an ammonia fuel spill would not fall under the International Convention on Civil Liability for Bunker Oil Pollution Damage (Bunkers Convention), potentially resulting in a non-uniform approach to jurisdiction and liability. Similarly, an ammonia cargo incident would not fall under the International Convention on Civil Liability for Oil Pollution Damage (CLC). Uncertainties may also exist in the carriage of CO2 as part of Carbon Capture and Storage (CCS) projects, which may be treated as a pollutant, with corresponding penalties or fines.

A multitude of questions will arise depending on what happens, where it happens, and the values involved, many of which may end up as barriers for would be claimants. How will such claims be regulated, will there be scope for limitation of liability, and would there be a right of direct action against the insurers? In the absence of a uniform international liability, compensation and limitation framework, shipowners, managers, charterers, individual crew, and the insurers may be at the mercy of local actions. Increased concerns about seafarer criminalisation (even where international conventions exist, ‘wrongful’ criminalisation does still occur) may emerge, creating another disincentive to go to sea.

When being carried as a cargo, the International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea (HNS), which is not yet in force, may resolve some of these issues for alternative fuels and CO2. However, until HNS comes into force, there will be no international uniformity to liability and compensation for the carriage of alternative fuels and CO2 as cargoes. This creates uncertainties for potential victims and their insurers, who may face increased risks and costs, due to the potential inability of existing regulations to provide protections.

The situation is even less clear in the case of bunkers. The rules for using alternative fuels as bunkers might require a separate protocol to HNS, a protocol to the Bunkers Convention, or a whole new convention specifically for alternative fuels.  Relevant considerations for the appropriate legislative vehicle include states’ preparedness to reopen the Bunkers Convention, the ability to conclude a protocol to HNS before it comes into force, and whether a multi-tier fund structure is needed for alternative fuels as bunkers (perhaps unnecessary because bunkers are usually carried in smaller quantities compared to cargoes).

Until then, what we are left with are the existing international protective funds, designed to respond at the highest levels to pollution claims resulting from an oil spill, without any similar mechanism in place to respond to a spill of alternative fuels, which are themselves so central to a green transition. Somewhat perversely, victims of accidents involving an oil spill may therefore enjoy better protections than victims of an alternative fuels spill.

In summary, while the use of alternative fuels will no doubt help to reduce the industry's carbon footprint, there are safety and practical hurdles to overcome. Stakeholders must also come together to find solutions to complex - and urgent, in relative terms - legal and regulatory challenges.

 

Photo credit: Manifold Times
Source:  International Union of Marine Insurance
Published: 13 June 2024

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Ammonia

Expert discusses technical considerations of using ammonia as marine fuel

Ammonia as bunker fuel poses significant safety challenges due to its toxicity and flammability, says Senior Marine Surveyor Muammer Akturk.

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Technical considerations of ammonia as marine fuel

Muammer Akturk, a Senior Marine Surveyor specialising in alternative bunker fuels, on Monday (10 June) published an article on technical considerations of using ammonia as a marine fuel in his Alternative Marine Fuels Newsletter.

The article dives into the use of ammonia as a marine fuel, focusing on the safety and technical considerations necessary for its implementation.

Ammonia is recognised for its potential as a zero-carbon fuel, making it an attractive option for reducing greenhouse gas emissions in the shipping industry. However, it poses significant safety challenges due to its toxicity and flammability.

Key points discussed include:

  1. Safety Measures: The importance of stringent design and operational safety measures to prevent ammonia releases and mitigate risks during both normal and emergency conditions is emphasized. This includes the need for gas dispersion analyses and the use of safety systems like gas detectors and alarms
  2. Regulatory Framework: The article reviews the latest regulations and guidelines developed to ensure the safe use of ammonia as a marine fuel. This includes the IACS Unified Requirement H1, which provides a framework for controlling ammonia releases on vessels
  3. Engineering Considerations: Technical aspects such as fuel storage, handling systems, and the role of risk assessments in identifying potential hazards and implementing preventive measures are detailed
  4. Human Factors: The article also considers the human factors approach to safety, emphasizing training and the importance of designing systems that account for human errorOverall, the article aims to provide a comprehensive overview of the challenges and solutions associated with using ammonia as a marine fuel, highlighting the importance of safety and regulatory compliance in its adoption.

Editor’s note: The full article can be found at the link here.

 

Published: 13 June 2024

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Methanol

Green Marine Fuels Trading, Vopak team up on green methanol port storage facilities

Green Marine Fuels revealed a strategic collaboration with Vopak to secure necessary port storage to accommodate green methanol supply in Shanghai, Tianjin and later in Singapore.

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Green Marine Fuels Trading, Vopak team up on green methanol port storage facilities

Green Marine Fuels Trading on Tuesday (11 June) announced a strategic collaboration with Royal Vopak Terminals in the key ports of Shanghai Caojing and Tianjin Lingang, China. 

The firm said the milestone agreement marked the next phase of methanol supply chain infrastructure expansion for Green Marine Fuels Trading, securing necessary port storage capacity to accommodate projected supply of green methanol from Chinese business partners.  

Green Marine will be undertaking a similar cooperation plan with Vopak Singapore as well. 

Gavin McGrath, Director at Green Marine, said: “This is an important milestone in the evolution of Green Marine Fuels Trading and further underscores our preparedness to supply green methanol to the imminent green transition within the shipping industry.” 

“Our leadership in the global methanol marine fuel sector uniquely positions us to bridge the gap between methanol producers and buyers, with storage and supply infrastructure being a crucial link in the chain.”

“We eagerly anticipate leveraging our expertise in these domains to enrich the Shanghai and Tianjin green port and marine fuel ecosystems.”

Manifold Times previously reported Vopak signing a strategic cooperation agreement with the Vice Mayor of Tianjin delegation to support the repurposing of Vopak Tianjin's infrastructure for new energies, including green methanol, sustainable aviation fuel, and potentially ammonia and liquid organic hydrogen carriers (LOHC).

Vopak said Tianjin Port Group will work closely with Vopak to develop a green methanol bunkering service solution.

Related: Tianjin Port Group and Vopak partner to develop green methanol bunkering service

 

Photo credit: Green Marine Group
Published: 12 June 2024

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