Fuel prices overall likely to rise as shipping becomes bigger customer of global diesel market, but refineries are stepping up production.
In less than a year, the shipping industry faces one of its biggest changes since the requirement that all tankers be double hulled back in the ‘90s. The International Maritime Organization’s mandate that all ships burn fuel with no more than 0.5% sulfur, down from the current 3.5% global standard, will “yield substantial environmental and health benefits, but it will also have profound impacts on oil markets,” according to World Energy Outlook from the International Energy Agency. Now as the deadline for low-sulfur fuel use nears, its costs and availability are coming into better view.
As FreightWaves oil market expert John Kingston reported, refiners could see a 22 cents per gallon rise in margins for low-sulfur diesel. The price for low-sulfur crude oil, which offers the maximum yield of low-sulfur fuel, could rise 4 percent due to higher demand from refineries. “The ripple effects of the IMO sulfur regulation could spread beyond oil product markets. This would push up fuel costs for freight across the board (both maritime and road) around 2020, which could have broader economic ramifications,” the IEA said.
But one tailwind for freight markets might be if low-sulfur fuel inventories can be built up ahead of the 2020 mandate. Refineries are revving up capacity ahead of the 2020 mandate, which should help ensure there is adequate supply in the market. Global refining capacity is set to increase 2.6 million barrels per day, to reach just over 102 million barrels per day. But demand this year is only expected to increase 1.1 million barrels per day this year. “This should mean that product stocks will increase, which could be useful ahead of the IMO 2020 implementation,” the IEA said in its last Oil Market Report.
DP World plans capacity expansion in Vancouver
Terminal operator plans to reconfigure and extend surface area (Port Technology)
Amazon stepping up trans-Pacific shipping efforts
It hit the four million container mark last year in ocean freight (USA Today)
Ocean carriers look to slow impact of big ships
Slower speeds and delayed deliveries eyed as ways to lessen supply impact (Drewry)
Price gap for low-sulfur fuel narrowing
Lower prices remove need to use sulfur scrubbers on ships (Splash 247)
Greek port sees big increase thanks to China
Belt-and-Road Initiative provides big boost to Mediterranean port (Safety4Sea)
After 2020, 2050 is next big date for shipping
The 2020 deadline for using low-sulfur fuel is challenging enough, but an even bigger challenge looks over the next 30 years due to a mandate to cut carbon dioxide emissions by half. As FreightWaves Nick Savvides reports, the shipping industry will have to look for more innovation and new technologies to move cargo as the crude oil’s use in the industry is set to decline sharply. According to maritime economist Dr. Martin Stopford, the shipping industry must progress from an oil-based fuel to a low carbon future and “that move will be very much harder than the shift from coal to diesel in the last century.” Stopford says there will need to be fundamental changes to society, the supply chain and the fuels in use if the maritime sector is to achieve the 50 percent cut in emissions by 2050, which with growth taken into account will require a 2.5 billion tons cut in emissions compared to the business as usual case. To achieve such a reduction in emissions the amount of cargo shipped will need to be reduced, by cutting growth from 3.2 to 2.2 percent to achieve 40 percent of the emissions cuts. Another 40 percent will be saved by improving ship efficiency and complimentary technologies, solar, wind end electric, combined with a reduction in vessel speed from 12 to 10 knots; And the final 20 percent will come from new fuels, most likely hydrogen.