Solving big challenges of ours & the next generation will take many fuels and technologies contributing, and advanced diesel is one of them.
January 13, 2020 | Diesel Technology Forum
New cleaner fuel requirements in the maritime sector are now in effect, which had raised concern about the refining industry readiness, shipper compliance strategies and impacts on other petroleum products, especially distillate fuels like diesel. Business and financial analysts had predicted a near pandemic for global diesel fuel prices and even potential supply shortages. So far in 2020, those expectations have not come to pass, with diesel prices in the U.S. stable.
Container ships, car carriers, bulk carriers, oil tankers and other ocean-going vessels are powered by massive diesel engines in excess of 100,000 horsepower (for comparison the average horsepower of an American car is about 200).
For decades, these engines operated on bunker fuel, a heavy fuel oil derived largely from the remnants of the petrochemical refining process. While bunker fuel is widely available across the globe – a necessary condition for global shipping – the fuel contains high levels of sulfur, sometimes more than 3.5 percent sulfur by weight.
As of January 1, 2020, all ocean-going vessels in international waters must use cleaner marine fuel with lower sulfur content, transitioning from 3.5 percent by weight to 0.5 percent by weight, according to new rules from the International Maritime Organization (IMO). Borne out of treaties negotiated almost a decade ago, the rules are designed to reduce emissions of sulfur dioxide (SOx) and shippers had several options for compliance; use cleaner low-sulfur marine fuel, install and use stack gas scrubbing systems, switch to alternative fuels like LNG or pay penalties and continue to use higher sulfur fuel.
The vast majority of global shipping operators have opted to switch to cleaner lower sulfur fuels. This switch necessitates the largescale movement away from bunker fuel to cleaner distillate fuels that includes diesel fuel. Many industry analysts predicted a global spike in diesel fuel prices as more global refiners were required to switch away from residual fuel to distillate fuel for global shipping. Speculation was that new demands for cleaner distillate fuels in the maritime industry would add an additional 3 to 4 million barrels of day of demand for low sulfur distillate fuels also used largely by the trucking, goods movement, agricultural and construction industries contributing to an estimated short lived $0.25/gallon to $0.75/gallon premium to diesel fuel costs.
Thankfully, these price and supply concerns have not played out in the U.S. primarily due to the abundance of domestic sources of petroleum and the relatively smaller share of demand for these fuels by the international shipping industry. Newly found energy sources have more than offset the additional demand for cleaner distillate fuels in the global shipping industry. On the supply side, proven reserves of U.S. crude have more than doubled over the past decade. Between 2017 and 2018 alone, proven reserves of U.S. crude oil grew by 17 percent, according to the U.S. Department of Energy. In 2020, U.S. energy producers are expected to continue to expand production of crude and the energy sources derived from crude oil, according to the Department of Energy’s Short Term Energy Outlook. On the demand side, the switch to distillate fuels by the international shipping industry is not expected to generate enough demand to strain supply and add significantly to prices. International shipping makes up only about 10 percent of global fuel demand and much of the industry has already incorporated cleaner fuels into their business practices before the deadline. According to a survey conducted in 2017, only about 20 percent of international shipping operators were not in compliance at that time.
DTF’s analysis of data provided by the U.S. Energy Information Agency’s Short Term Energy Outlook
Today’s new sulfur shipping rules evolved beginning back in 2010, when more than a dozen nations including the U.S. adopted special rules that require the use of lower sulfur fuels within 200 miles of territorial waters (“Emissions Control areas, or ECAs) so as to reduce sulfur and particulate emissions. Because those rules were not adopted by the majority of other maritime nations, international negotiators agreed to the eventual prohibition on the use of higher sulfur fuels worldwide beginning January 1, 2020.
There is far more at play that explains the swings in diesel fuel prices than just new global demand for cleaner distillate fuels by the international shipping industry. Expanding supply of domestic sources of crude oil, the demand for diesel by other users including the trucking, agricultural, construction industries just to name a few and even global geopolitical events all play a role in explaining the fluctuation in diesel fuel prices.
Rules governing cleaner shipping fuels may not change U.S. diesel fuel prices, but they are expected to have a big impact on the environment. Reducing the sulfur content of these fuels is projected to eliminate 8.5 tons of sulfur dioxide emissions, reducing impacts on human health and acid rain deposition and impacts on agricultural and fishing industries.
Policy Insider | 01/06/21
Policy Insider | 12/01/20
Latest advancements in efficient diesel engines coupled with state-of-the-art energy storage systems deliver powerful hybrids that get job done while reducing emissions.
Policy Insider | 11/17/20
Rather than having a “sell by“ date, diesel will remain as the dominant technology moving the nation’s freight for decades to come.