There have been suggestions that Singapore will see a 'two-tier market' develop in the run-up to 2017, when mass flow meters (MFM) regulations come into force in the port.

One would be based on fuel oil deliveries using barges equipped with approved MFM technology, and another on deliveries using traditional volume measurement methods. It was predicted that offers from suppliers could vary by as much as $50 per metric tonne (pmt), but that these differentials would disappear by 2017, when all fuel oil barges in Singapore will have to be equipped with MFMs.

The Maritime and Port Authority (MPA) of Singapore, meanwhile, has estimated that using MFMs - averaged out over a five-year period - will push up the cost of delivering fuel oil by less than a dollar pmt.

If players think there will be a two-tier market as more MFMs are introduced, we have to ask why.

Some think the MPA is underestimating the cost impact of installing MFMs, at least initially, even taking into account that the MPA offers a lump sum of S$80,000 ($64,000) to help cover the costs of installing the technology on existing bunker tankers.

But with talk of differentials of up to $50 pmt between deliveries based on MFM readings and traditional methods, more sinister reasons spring to mind.

Singapore has been the world's biggest bunkering hub for a long time, but it hasn't always had the best reputation. In a competitive market with many suppliers, and many buyers looking for the lowest price, some may be tempted to boost profits in questionable ways.

Allegations of deliberate short deliveries, with owners being charged for more fuel than they received, have plagued Singapore's bunker market. Several short supply cases have come to light over the years involving corruption by either barge operators, bunker quantity surveyors or chief engineers, often with several of them working in collusion. The "Cappuccino effect", whereby the fuel oil volume is inflated by air entrained in fuel oil during delivery, became infamous in Singapore, and has not really been heard of anywhere else.

There are also less obvious forms of short supply that may or may not be deliberate. Bunkers are typically sold in metric tonnes, but are measured during supply by volume.  The volume is converted into weight by means of the fuel density. If the density is overstated, the calculated tonnage (and the invoice) will become too high and the buyer has been short-changed on quantity.

Testing agencies have often found that deviations in density on the bunker delivery note (BDN) compared to tested values favour suppliers, or in other words, there was a short-delivery.  

This is one of the reasons why interest has grown in the Coriolis flow meter technology used in MFMs. The technology is said to be capable of accurately measuring mass directly, eliminating uncertainties relating to fuel density and temperatures associated with supply of heavy fuel oil (HFO).

It is also said to be able to detect entrained air in the fuel oil, which would put an end to short deliveries caused by the Cappuccino effect.

Bunkering is big business in Singapore, and the MPA has made more effort than any other port authority to enhance and protect the sector's reputation by providing a regulatory background that can allow it to flourish. The MPA says using MFMs "will not only enhance transparency in the bunkering process, but also improve operational efficiency and increase the productivity of the bunker industry" in Singapore.

It seems suspicious when some players talk about big price differentials between deliveries using MFMs measurement and those that don’t. This suggestion alone seems to justify the MPAs decision to make MFMs mandatory across the board, creating a more level playing field where deliberate short supply becomes more difficult, if not impossible.

There are sceptics of MFM technology, who doubt claims that such systems will be tamper proof, and suspect some will find ways to adjust the calibration in their favour. In Singapore, all MFM systems need to be approved by the MPA to build confidence that certain standards are met.

If MFMs eliminate deliberate short supply methods, and remove uncertainty relating to density, temperature and entrained air, will there still be room for price variations between bunker suppliers?

Probably, as suppliers have different economies of scale and different approaches to margins. Some will be able to survive on low margins pmt due to high volumes.

Bunker fuel value is also a function of quality. A fuel with high levels of contaminants, even if within ISO 8217 specifications, can be worth less either because it requires more treatment on the vessel or because it gives you less 'bang for your buck'. The calorific value of fuel oil is negatively affected by high content of water, ash and sulphur.

Test data comparisons drawn up for the Bunkerworld Port Profiles show that average water content in fuel oil supplied in Singapore, while well within the ISO 8217 limit, has been consistently higher than global averages for the past five years.

Percentage-wise, there have not been many off-specs for water in Singapore, but they do occur. Sometimes, a combination of high water and sodium content in fuel samples indicate sea water contamination as the possible culprit. A bit of extra water would not be detected by a mass flow meter.

There will always be a temptation for bunker suppliers to cut corners in the search for profitability, such as winning orders by offering what may look like a good deal -  until you examine it more closely. Buyer beware. If something seems too good to be true, it often is.