Circle January 2020 on your calendar for what could be a major disruption to the energy market and a jolt to the global economy.The origin of the problem isn’t some oil cartel’s machinations, a looming war or even a technological shift — it is a bureaucratic body that few people have heard of: the International Maritime Organization. Just 30 months from now the cargo vessels that are the lifeblood of global trade will be required to cut the sulfur content in their fuel from 3.5% to 0.5%.
Ships move more than 10 billion tons of cargo a year and do it far more efficiently than road or rail, but it comes at a high cost in terms of overall pollution because ships use fuel oil, which is just about the cheapest, dirtiest stuff to come out of refineries. About 9% of all sulfur dioxide emitted globally comes from ships, contributing to acid rain and many premature deaths annually. Even the new cap is 500 times the sulfur content of most road diesel.
Even with significant investment, refiners may not be ready and ships may have to burn more expensive marine diesel.”Marine diesel affects land diesel which affects jet fuel which affects gasoline,” explains Mr. Tallett. That could cause the prices of those fuels to go up by 10% to 20%.
The only solution may be to simply refine more oil, which means increasing overall demand, to get enough low-sulfur fuel out of the world’s refineries. The International Energy Agency worried about the impact in a February 2017 report, yet it assumes many ships will install marine scrubbers to clean the dirty fuel and that refiners will add units to reduce sulfur content — both expensive propositions.
Excerpts from High Seas are to Deliver a Shock to Energy Sector, Wall Street Journal, June 7, 2017