IUA Market Briefing In co-operation with the Association of Average Adjusters

26 March 2013

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The Rise in Claims Attributed to Cat Fines in Bunker Fuel What can be done about it?
A Cat Fine
Paul Hill Marine Engineer

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Bunkers, are you getting more or less than you bargained for?

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What are Cat Fines?

Catalytic Fines (from here on known a Cat Fines) Hard Ceramic Compounds of Aluminium and Silicon, Used as a catalyst in the crude oil refining process, To enable higher yield of distillate fuels to be extracted from the stock The process is called catalytic cracking. The cat fines are expensive and are mostly recovered and used again, however small quantities may be carried over with the residual fuel

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How big are Cat Fines?

Cat Fines embedded in a fuel filter

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How small are Cat Fines?

75 m down to 1 m

1 m (micron) = 0.001 mm

25 m
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What do Cat Fines do?

They get embedded into engine components and cause abrasive wear The main components affected are cylinder liners and piston rings Can affect fuel pumps, injectors and valves In extreme cases piston rods and stuffing boxes

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Are all engines at risk?

Cat fine damage mainly occurs in large slow speed main engines: Why?
The larger fuel injection components allow sizeable cat fine particles into the cylinders Cylinder lubricating oil is minimally applied to the liner surface, and doesn t wash cat fines away

Less probable to find cat fine damage to medium and high speed engines: Why?
More copious splash lubrication of cylinder liners can wash away cat fine particles Closer tolerance of components prevents ingress of larger particles
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Why are cylinder liners vulnerable to cat fines?

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Close up view of the cylinder oil lubrication

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10 micron

Embedded cat fine 25 micron diameter

The effect of cat fines embedded in the liner are shown

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Are Cat Fines a New Problem? The answer to this is simply NO

Up until the 1950 s residual fuel oil was burnt in boilers, to create steam for turbines, the most common form of marine engine at the time. Large slow speed diesel engines slowly became popular in the 1960 s and 70 s as the ability to burn residual fuels improved. 1973 Middle East War tripled the price of crude oil, refiners forced to squeeze more product from the crude stock. Catalytic Cracking processes developed 1980 s engine problems attributed to these Cat Fines started to be reported.

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Early Warnings!

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Cat Fine Engine Damage Cases surveyed by Braemar SA

14 12 10

No of Cases

0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Year
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Why The Recent Rise in Cat Fine Claims ?

Environmental Legislation Demands: Sulphur Emission Control Areas (ECAs) Commercial Demands: Cheaper fuels

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Marine Sulphur Limits

5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

IMO MARPOL Annex IVarine Fuel Sulfur Limits M ARPOL Annex VI M

Global

Sulfur, % % Sulphur

SOx ECA

2000

2005

2010

2015

2020

2025

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Emmission Control Areas

1 % Sulphur in fuel oil at present In 2015 this is to drop much further to 0.1% Sulphur

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A Worrying Trend
5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

M ARPOL M arine Fuel Sulfurlimits Limits Braemar SAAnnex cases VI against the sulphur Global
12 11 10 9 8 7 6 5 4 3 2 1

Sulphur %% Sulfur,

SOx ECA

2000

2005

2010

2015

2020

2025

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What do the analysts say ?

The 2012 Global Cap of 3.5% sulphur Approx 11% of global HSFO will need to be blended to meet the new limit yet to be confirmed August 2012 North American ECA in force Analysts suggest demand for LSFO will double at the onset of US ECA Further more complex blending Increasing levels of Cat Fines as sulphur levels reduce further

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Average experts Worldwide Cat Fines Trend ? What do the say

30 29 28 27 26 25 24 23

Cat Fines ppm

26.8 25.6 25.9

23.5

22.1
22 21 20 2007 2008 2009 2010 2011

Year
Statistics courtesy of DNVPS

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The regional trends? Average Cat Fines by Region 2011

60 50 48 45 40 34 30 LSFO HSFO 20 19 27 27 24 33 34 33 33 26 22 19 32 32 30 27 22 27 21 21 20 43 41

18

10

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What else?Density HFO Density Trend

983 982.5 982

Density

981.5

981

980.5

980

979.5 2007 2008 2009 2010 2011

Year

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Who cares about all this anyway?

I guess you already know? It s you!

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What is being done?

The International Organisation for Standardization
Since 1982 have published a specification for marine bunker fuels specifying the maximum limits of various characteristic, components and contaminants. The standard is known as ISO 8217 and is currently in it s fourth revision:

ISO 8217: 2010

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What does ISO 8217 do?

It defines a specific quality standard for marine fuel oil

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ISO 8217 Cat Fine Limits

HISTORY
Date 1982 Version BS MA 100 first published
CAT FINE LIMITS Not specified

1986 1996 2005 2010

ISO 8217 ISO 8217 ISO 8217 ISO 8217

published as BS MA 100:1986 2nd edition 3rd edition 4th edition

Not specified Max 80 mg/kg Max 80 mg/kg Max 60 mg/kg

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So why is the limit not set lower?

MAN B&W, Wartsila and the other main engine makers specify a maximum of 15 ppm Cat Fines
The answer to this question is purely commercial, with refiners saying yes we can produce 15ppm fuel oil, but it will cost you the customer more. any how, all ships are built with a fuel treatment system that is capable of removing the Cat Fines to a level below the 15 ppm stated by engine makers, so what s the problem?

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What is the problem?

The problems are many, such as, but not limited to: Poor efficiency of purifiers (essential part of the onboard fuel treatment plant and a topic on it s own) Lack of knowledge of the current bunker fuel quality by the ships engineers Lack of good maintenance practices, such as regular cleaning of fuel tanks Minimal and insufficient capacity of purifiers provided by the shipyard during the build

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What can be done?

To reduce the risk of engine damage due to cat fines? and by who: Owners and Managers Charterers Ships Crew Engine Makers/ shipbuilders Classification Societies New Technology

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What can ship s staff do?

The ships engineers do not know if the fuel that they are using contains high level of Cat Fines Until test results, if any are received onboard All fuel received onboard should be treated as if it contains Cat Fines The fitting of onboard Cat Fine analysis equipment should be considered:

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What is onboard analysis?

Has already been installed by a large shipping company with immediate positive results

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What else is currently being done?

The Joint Hull Committee have recently formed a working group to address the concerns of the Market on the increasing amount of claims due to Cat Fines, which I am a member of, Class, Regulatory Bodies and Engine Manufacturers are now being consulted in order to achieve a satisfactory solution to the problem for everyone.

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Bunkers
Paul Griffiths, Senior Partner Bentleys, Stokes and Lowless 26th March 2013

VESSEL OWNER TIME CHARTERER BUNKER BUYERS (FURTHER TIME CHARTERER(S)?)

VOYAGE CHARTERER

(BUNKER BROKER?)

CONTRACTUAL SUPPLIER POSSIBLE TORT CLAIM? PHYSICAL SUPPLIER www.bentleys.co.uk

1946 NYPE

2 The Charterers shall provide and pay for all fuel except as otherwise agreed 4 The Charterers to provide and pay for all fuel oil

BALTIME

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1993 NYPE

9(b) The Charterers shall supply bunkers of a quality suitable for burning in the Vessel s engines and auxiliaries and which conform to the specification(s) as set out in Appendix A.
Continued
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1993 NYPE

The Owners reserve their right to make a claim against the Charterers for any damage to the main engines or the auxiliaries caused by the use of unsuitable fuels or fuels not complying with the agreed specification(s). Additionally, if bunker fuels supplied do not conform with the mutually agreed specification(s) or otherwise prove unsuitable for burning in the Vessel s engines or auxiliaries, the Owners shall not be held responsible for any reduction in the Vessel s speed performance and/or increased bunker consumption, nor for any time lost and any other consequences .
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SHELLTIME 4

Charterers shall supply fuel oil with a maximum viscosity of ----centistokes at 50 degrees centigrade and/or marine diesel oil for main propulsion and fuel oil with a maximum viscosity of ----- centistokes at 50 degrees centigrade and/or diesel oil for the auxiliaries. If Owners require the vessel to be supplied with more expensive bunkers they shall be liable for the extra cost thereof. Charterers warrant that all bunkers provided by them in accordance herewith shall be of a quality complying with ISO Standard 8217 for Marine Residual Fuels and Marine Distillate Fuels as applicable.
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 Time bars Their sample determines quality Jurisdiction

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Avoid the problem Deal with the problem Consider defence / recovery position

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IUA Market Briefing: 26th March 2013, Cat Fines Engine Damage: Cause, Liability and Coverage

Keith Jones

Aon UK Limited is authorised and regulated by the Financial Services Authority in respect of insurance mediation activities only

Bad bunkers / Wrong Specification

Issues y Owners usually aware of problems pretty quickly y Potential for recovery who supplied bunkers and where? Solicitors? F D&D cover? y Any damage to machinery/ tanks require cleaning? / Contamination of good fuel due to mixture with bad? Cleaning tanks can be expensive operation Orjula1995 leakage of hydrochloric acid on deck. R. v. Henderson & Batley (1984) Damage can be various kinds in the Concise Oxford Dictionary damageis defined as injury impairing value or usefulness y Claim on hull policies??

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Bad bunkers / Wrong Specification

Claim on policies y Causation key issue y ITC 1.10.83 Named Perils y 6.2.3 Negligence of crew? Could description of claim affect recovery position? y 6.2.4. Negligence of Charterers in supplying wrong spec bunkers? y Bunkers totally off-spec - deliberately fraudulent intent? y ITC 1.10.83 with additional perils clause much easier: y Widens coverage considerably . loss of or damage to the vessel caused by any accident or by negligence, incompetence or error of judgment of any person whatsoever

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 Cat Fines
Issues y Causation key issue y Damage may occur over period of time possibly more than one occasion before cause identified y Generally speaking cat fines can be eliminated by purification processes. y How do they get there? In fuel delivered or sediment in bunker tanks? Agitated during periods of heavy weather. y Adjuster may need to instruct consultant engineer.

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 Cat Fines
Claim on policies

y ITC 1.10.83 Named perils y Crew negligence failure to operate the fuel equipment effectively y ITC 1.10.83 with additional perils clause loss of or damage to the vessel caused by any accident or by negligence, incompetence or error of judgment of any person whatsoever y Due diligence proviso?

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 Cat Fines
Claim on policies continued y More than one incident? Deductibles? Generally seen as a continuing act of the same negligence. y If multiple occurrences adjuster may need to reconsider vessel should no doubt have been taken out of service to determine cause. y Damages may span policy period whereby different underwriters concerned but only one deductible applicable if as a result of a continuing act of the same negligence

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