Bloomberg

When fuel supplier OW Bunker went public in March, raising $530mn on the Copenhagen stock exchange, investors cheered: The shares rose as much as 19% during the first day of trading. At the beginning of November, the company’s prospects still looked good. Its share of the $150bn market for bunker fuel — the heavy oil that powers tankers, container ships, and other vessels — was 10% and growing.

Less than a week later, the company filed for bankruptcy in Copenhagen; it will be liquidated, undone by a client that it says didn’t pay a $125mn bill and by an ill-timed bet that oil prices would rise, Bloomberg Businessweek reports in its December 15 issue.

Selling fuel on credit “is common practice,” says Jens Maul Jorgensen, chairman of the UK-based International Bunker Industry Association. “If this could happen to OW Bunker, it can happen to anyone.”

Known for campaigning against corruption in the industry, OW Bunker was apparently unable to prevent bad judgment by its own employees. Members of its board have claimed that two managers at its Singapore subsidiary, Dynamic Oil Trading, exceeded their credit limits by continuing to sell fuel to a struggling trader, Tankoil Marine Services.

A spokesman for the Danish public prosecutor says his office is trying to determine if it has jurisdiction and whether it should conduct an investigation. Both employees deny any wrongdoing, and no charges have been filed against them. Tankoil couldn’t be reached for comment.

Compounding Bunker’s woes, in recent months a risk manager, whose job was to protect the company against swings in the price of oil, bet that prices of diesel fuel would rise 20%. When prices fell, she increased the bet, leading to bigger losses.

The company’s demise opens a window onto the world of bunkering, in which ships and barges act as floating gas stations for the enormous vessels that ferry goods around the globe.

Bunker fuel is what’s left when petroleum, diesel, gasoline, and other distilled products have been separated from crude oil. It’s thick and difficult to measure when pumped into ship hulls, and unscrupulous players have found ways to exploit those characteristics and cheat their customers. One popular technique is raising the temperature of the fuel, which expands its volume.

Perhaps the most common deception involves mixing air into a shipment, called cappuccino bunkering because it causes froth on top of the oil, says Abdul Farhan, operations manager at the Singapore unit of Bunker Detective, a Vancouver-based surveyor that helps ship charterers navigate disputes over quantity and quality of fuel.

“Cappuccino bunkering is everywhere,” he says. Also, some suppliers use cheaper Iranian fuel, even though the European Union has banned oil from Iran since 2012.

Singapore, home to a tenth of the world’s bunker market, according to the IBIA, has been the centre of the industry’s scandals. In April the chief engineer of an oil tanker was sentenced to 18 months in jail for stealing 200 tonnes of fuel. A month later three men were jailed for several weeks for their roles in a conspiracy to illegally sell a vessel’s fuel back to the supplier.

Until its collapse, OW Bunker, founded in 1980, was known for insisting on the use of flow meters on its fleet of 30 floating tanker ships to ensure the right amount of fuel was being delivered, and for keeping careful records of where its fuel originated.

The company’s trustees are searching the globe for vessels, cargo, houses, cars — anything to pay creditors — as it’s liquidated. Its lawyers had to strike a deal with banks just to get the money to pay for the asset search.

The impact of OW Bunker’s collapse on the marine-fuel industry is still being measured. There have been no disruptions to Singapore’s bunker market, local authorities say, as competitors fill the gap.

The company’s push to foil fuel cheaters will outlive it. In 2017, Singapore will require all bunker sellers to install flow meters to measure how much fuel is being pumped. Rotterdam, the second-biggest bunker port, plans to introduce the meters as well.

More regulation is needed, according to Jorgensen of the IBIA. The International Maritime Organization has “no rules for fuel suppliers, while there’s a ton of rules for shipping companies,” he says. “It would also help if ship owners weren’t so cheap buying fuel.”