New ‘sweet’ fuel to help sea freight become more environmentally shipshape

Shipping fuel is responsible for serious global pollution, but there are fears that switching to cleaner fuels could see costs rise for consumers. (AFP)
Updated 05 September 2019
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New ‘sweet’ fuel to help sea freight become more environmentally shipshape

PARIS: Tens of thousands of cargo ships will have to use less polluting fuels in January, in a move that could raise bills for consumers.

The International Maritime Organization (IMO) decided in 2016 that sulfur levels in fuels for ships, currently 3.5 percent, would have to fall to 0.5 percent in 2020.

The idea is to reduce the emission of highly toxic sulfur dioxide — a health hazard responsible for acid rain — by the nearly 80,000 cargo ships which ply the seas.

The shipping industry is critical to the global economy but the pollution it generates is estimated to cause 400,000 premature deaths per year.

Shipowners have several options to meet the new regulations.

One is to continue with heavy fuel oil but install scrubbers that remove sulfur from the exhaust fumes. But these can be expensive, and some models dump the water used to clean the exhaust into the ocean.

A second option is for shipowners to convert their vessels to run on liquefied natural gas (LNG), which is less polluting, but few have chosen it as LNG fueling infrastructure doesn’t exist in all ports.

The easiest option for many is to switch to new fuels with low sulfur content or marine diesel oil.

Around 3.6 million barrels of oil per day (bpd) are used to produce the fuels used by the shipping industry. Around one-sixth of the total is expected to remain dedicated to production of high-sulfur content-heavy fuel oil for vessels equipped with scrubbers or those which do not immediately comply with the new regulations.

“That leaves about 3 millions bpd that needs to adjust to the 0.5 percent fuel regulation” said Chris Midgley, head of analytics at S&P Global Platts.

The International Energy Agency said recently that the oil products market is heading for its “largest ever transformation” as refiners “will need to adapt to a new demand landscape.”

The first impact on shipowners will likely be an increase in costs.

Fuels that meet the new regulations are more complex to produce and are “two times more expensive, but we could see an even larger increase with higher demand,” said Nelly Grassin of Armateurs de France.

 

 Cargo firms may be tempted to raise their rates to ship goods, which could eventually lead to higher prices for consumers.

Both Brent and WTI, two benchmark grades of crude oil that are heavily traded on the markets, are “sweet” in industry parlance, meaning they have a low sulfur content.

But crude pumped from many other areas is “sour,” meaning it has more sulfur, including hydrogen sulphide is more costly to process.

“Brent could rise and test $70, maybe break through $70 at the end of the year,” said Midgley, compared to under $60 per barrel currently.

The new IMO fuel regulations “will have a knock-on impact on all consumers who are buying gasoline or diesel,” he added.

For Alan Gelder, a vice president at the energy research and consultancy group Wood Mackenzie, “the general public will be impacted by the IMO regulation in two major ways — the cost of flights and the retail prices of road diesel.”

Any increases in airfares are likely to be more gradual as airlines usually lock in prices for several months in advance.

Decoder

Sweet and sour crude oil

Crude oil with high sulfur content is known in the industry as ‘sour,’ while low sulfur content oil is described as ‘sweet.’


South Korea downgrades Japan trade status as dispute deepens

Updated 18 September 2019

South Korea downgrades Japan trade status as dispute deepens

  • The change comes a week after South Korea initiated a complaint to the World Trade Organization
  • The new measures in effect mean it might take up to 15 days for South Korean companies to gain approvals to export sensitive materials to Japan

SEOUL, South Korea: South Korea on Wednesday dropped Japan from a list of countries receiving fast-track approvals in trade, a reaction to Tokyo’s decision to downgrade Seoul’s trade status amid a tense diplomatic dispute.
South Korea’ trade ministry said Japan’s removal from a 29-member “white list” of nations enjoying minimum trade restrictions went into effect as Seoul rearranged its export control system covering hundreds of sensitive materials that can be used for both civilian and military purposes.
The change comes a week after South Korea initiated a complaint to the World Trade Organization over a separate Japanese move to tighten export controls on key chemicals South Korean companies use to manufacture semiconductors and displays.
Seoul has accused Tokyo of weaponizing trade to retaliate against South Korean court rulings ordering Japanese companies to offer reparations to South Koreans forced into labor during World War II. Tokyo’s measures struck a nerve in South Korea, where many still resent Japan’s brutal colonial rule from 1910 to 1945.
According to South Korean trade ministry, the new measures in effect mean it might take up to 15 days for South Korean companies to gain approvals to export sensitive materials to Japan, compared to the five days or less it took under a simpler inspection process provided for favored trade partners.
Lee Ho-hyeon, a South Korean trade ministry official, said the change would affect about 100 local firms that export items such as telecommunications security equipment, semiconductor materials and chemical products to Japan. He said Seoul will work to minimize disruption to South Korean companies.
Japan for decades has enjoyed a huge trade surplus with South Korea, an economy that’s much more dependent on exports. Many major manufacturers heavily rely on parts and materials imported from Japan.
But the dispute is taking a toll. Exports to South Korea from Japan fell 9.4% last month, Japan’s Finance Ministry reported Wednesday.
The trade dispute between the neighbors erupted in July, when Japan imposed tighter export controls on three chemicals South Korean companies use to produce semiconductors and displays for smartphones and TVs, major export items for South Korea. It cited unspecified security concerns over Seoul’s export controls.
A few weeks later, Japan dropped South Korea from its own trade “white list,” triggered a full-blown diplomatic dispute that took relations between the US allies to their worst in decades.
The dispute has spilled over to security issues, with Seoul declaring it plans to terminate a bilateral military intelligence-sharing pact with Japan that symbolized the countries’ three-way security cooperation with the United States in the face of North Korea’s nuclear threat and China’s growing influence.
Following an angry reaction from Washington, Seoul later said it could reconsider its decision to end the military agreement, which remains in effect until November, if Japan relists South Korea as a favored trade partner.
Seoul announced its plans to downgrade Tokyo’s trade status in August before holding a 20-day period to gather opinions on the decision, during which the Japanese government voiced opposition to the move it described as “arbitrary and retaliatory,” Lee said.
He said Seoul needs to strengthen controls on shipments to a country that’s “hard to cooperate with” and fails to uphold “basic international principles” while managing export controls on sensitive materials.
South Korea previously divided its trade partners into two groups in managing export controls on sensitive materials. Following Wednesday’s change, South Korea now has an in-between bracket where it placed only Japan, which would mostly receive the same treatment in trade as the non-favored nations in what had been the second group.