With the new decade comes an international air pollution regulation which hastens the switch from high sulfur fuel oil to either diesel or LNG in ocean-going ships.
The mandate drops the sulfur content from 3.5 percent to .5. While that number sounds trivial, it is applies to 62,000 vessels worldwide.
Ship owners and environmental regulators battled over the sulfur limit for years; however, starting on January 1, the International Maritime Organization (IMO) implemented it as promised. It has a dramatic impact on shippers and consumers.
Oil refineries are not configured to process the high sulfur fuel oil to the new standard. To completely comply, it would require an estimated $200 billion. There just isn’t enough diesel available if a large and sudden shift occurs.
“While ships make up just 5% to 7% of global transport oil demand, according to Goldman Sachs, they emit half of sulfur from transport because they use the dirtiest fuel—literally the bottom of the barrel,” Wall Street Journal reporter Spencer Jakab wrote last month
Right now there is a $350-per-metric ton gap between the price of diesel and high sulfur oil. “It could widen to as much as $1,000 next year adding tens of billions of dollars to shipping costs.”
If shipping owners don’t covert to liquefied natural gas, IMO wants them to either to burn diesel which operates trucks and trains or install expensive scrubbers like the ones on coal-fired power plants.
Companies like Tote, which hauls cargo in over-the-road truck trailers between Tacoma and Anchorage, have been converting fleets to LNG. “These vessels are the most advanced, environmentally responsible vessels of their kind – reducing particulate matter by 99 percent, vessel sulfur emissions by 98 percent, nitrogen oxides by 91 percent and CO2 by 35 percent,” TOTE reports.
Container shipping giant Hapag-Lloyd is testing LNG. The German company is retrofitting its 15,000 container ‘megaship’ Sajir to cleaner burning LNG becoming the first in the world to convert a ship of this size.
The shipping industry’s “forced move” away from high sulfur fuel is reminiscence of the massive switch 40 years ago among U.S. electric utilities because 1970 federal clean air act. At the time, the national concern was acid rain. A big culprit was coal-fired power plants.
High sulfur coal from Appalachian emitted high levels of sulfur dioxide which mixed with rain and snowfall. “Acid rain” was killing forests, polluting streams, and a health threat to animals and people.
Scrubbers were required and although Appalachian coal was cheaper and hotter burning, more expensive low sulfur coal from Montana and Wyoming started taking market share.
So how does the new sulfur rule for ships impact us?
It is a health issue. IMO studies project it will prevent a half million deaths caused by pollution globally in the next five years.
It will cost us more to fill up our cars. Texas and North Dakota fields contain “sweet” low sulfur crude which is suited for diesel and gasoline refining. Vessel owners switching to diesel will drive up demand and accompanying prices.
Older vessels unable to cost-effectively meet the standard will be scrapped—-hopefully in American shipyards which better protect workers, pay family wages with benefits, and have state-of-the art environmental protection. Scrapping ships could breathe new life into our nation’s shipbuilding.
The bottom line is it may be surprising these standards took so long to enact. However, writing a sweeping world-wide environmental rule is delicate, complicated, expensive, and takes lots of time and patience.
Hopefully, we have learned we can enact laws which improve our environment without categorically banning an energy source just because it is carbon-based.
Don C. Brunell is a business analyst, writer and columnist. He recently retired as president of the Association of Washington Business, the state’s oldest and largest business organization, and now lives in Vancouver. He can be contacted at theBrunells@msn.com.