Bottom of the Barrel – The Bunker Business

In the interests of expanding our knowledge of the industry, we thought we would take a closer look into the bottom of the barrel to understand the bunker business by providing some background, courtesy of Beth Wilson-Jordan and an invaluable text, Neil Cockett on Bunkers, and then put these abstractions into context by viewing Aegean Marine Petroleum Network Inc. (“AMP”) as an investment opportunity.

Bunkers 101 Bunkers – The What?

Produced from oil fields, petroleum crude oil is processed in a refinery that manufactures oil products, any one of which is referred to generically as an oil fuel. The two main oil fuels that the bunker industry utilizes are residual fuel oils, which as the name suggests are residues of the crude oil refining process, and distillates. The former accounts for roughly 85% of the total bunker fuel off take while the latter, which is more specifically categorized as marine gas oil or marine diesel oil, makes up the balance. As the latter are used to power the main engines of small vessels, our primary focus will be on residual oil, which has been the principal source of power at sea for 50 years.

Residual oil is the heaviest viscosity oil fraction of a refinery. Viscosity is a measure of a liquid’s internal resistance to flow at 50 degrees Celsius and is measured in centistokes or cSt. Its viscosity will depend on the refiner and the grade of oil being processed and may vary depending on the refinery, the port and time. Residual oil can be used as is, in which case it is known as “bunker C” and is often referred to as heavy fuel oil or No. 6 oil. Alternatively, the fuel oil can be blended to the viscosity needed by “cutting back” with distillate oils or cutter stock. Blended fuels are known as intermediate fuel oils. The majority of commercial marine vessels use marine fuel oil (IFO) with viscosity ranging between 180 cSt, 380 cSt and 500 cSt with the most common being 380 cSt.

This is only an excerpt of Bottom of the Barrel – The Bunker Business

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