Big switch to low sulfur oil--that could impact pump prices

[Dave Grubb]

Extracted from a much longer and detailed article in this morning's WSJ:

A looming change to rules for maritime fuel in January could cause a splash, making goods and travel of every type more expensive. The International Maritime Organization is about to reduce the limit on sulfur in fuel oil to 0.5% from 3.5%. While ships make up just 5% to 7% of global transport oil demand according to Goldman Sachs, they emit about half of sulfur from transport because they use the dirtiest fuel—literally the bottom of the barrel. The move will prevent over half a million premature deaths from pollution globally in the next five years according to a study cited by the IMO.

But saving those lives may not come without significant cost and disruption, according to many in the industry. Refineries, as they are currently configured, can’t simply refine out more sulfur. In addition, there just isn’t enough very-low-sulfur fuel oil to go around. Tor Svelland, a London-based shipping expert who is actively betting on the dislocations through two investment funds, estimates that about 62,000 vessels world-wide that haven’t installed scrubbers to reduce sulfur will be impacted.

That, in turn, will drive the cost of cleaner alternatives including maritime diesel oil—similar to diesel used by trucks and trains—much higher. Right now there is a $350-per-metric-ton gap between the prices of that and high-sulfur fuel oil in use by most vessels. It could widen to as much as $1,000 next year, reckons Mr. Svelland, adding tens of billions of dollars to shipping costs.

Also discussed in this article:

1. Some newer ships have sulfur recovery systems to pull the sulfur from the stack emissions. They will be able to continue to burn high sulfur.
2. Some new cruise ships have changed to LNG fuel to avoid the sulfur issue.

[wacojoe]

Questions:
Is that 0.05% sulfur diesel the same as the low sulfur diesel Ben is burning in his truck?
If so, how much is the new competition for the fuel from forced maritime use going to raise his cost?

[Mike]

And my cost?

[Truckman]

Questions:
Is that 0.05% sulfur diesel the same as the low sulfur diesel Ben is burning in his truck?
If so, how much is the new competition for the fuel from forced maritime use going to raise his cost?

From my reading, they're referring to bunker fuel, the dregs left after refining for gasoline and diesel...This stuff is so thick it has to be heated before it can be pumped...It's the same thing everyone's navies used in steam turbines in WWII...At one point the Japanese supply was so choked off by the Allied embargo they were burning some grades of Indonesian crude right out of the wells...Burner life was considerably shortened......Ben

[wacojoe]

I think “bunker fuel” is the high sulfur stuff that the new regs are outlawing. I’m wondering if the 0.05% stuff being now required is the same diesel we burn on the road?

[Truckman]

I think “bunker fuel” is the high sulfur stuff that the new regs are outlawing. I’m wondering if the 0.05% stuff being now required is the same diesel we burn on the road?

I see what you mean...To my understanding, it's a different product, it just has to be de-sulfidized (assuming that's a real word), but it could not be used in modern automotive diesels...But the additional cost of processing would drive the price up, and therefore everything that moves by ship would correspondingly cost more also...That would include shipments of crude oil......Ben

[Dave Grubb]

I will answer your questions tomorrow when I am on a keyboard. The answers to your questions were answered in the article, only part of which was presented here.

[Dave Grubb]

Okay---first there was no mention of Bunker C and I'm not sure of how many might be burning that. As already mentioned it is a challenge to use, primarily due to the fact that it doesn't like to move. Just the process of refueling becomes a much larger issue. Back in my power plant days, I worked on conventional fueled plants as well. Those that burned "heavy residual" oil had to have tank heaters around the area of the feed line and then all the fuel lines had to be heated and insulated.

They did not spend a lot of time on current state relative to future state. The oil they will now burn is going to be No 2, low sulfur--pretty much exactly what we burn, and there in lies part of the rub with this change. As you may recall, in the early days of low sulfur road fuel there was limited refinery capacity to produce that product. Since that time things have improved but it is anticipated this change is going to repeat that event----and adversely possibly impact the price.