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

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.’


Aramco profits fall in tough quarter, but sees partial recovery from COVID-19 impact

Updated 09 August 2020

Aramco profits fall in tough quarter, but sees partial recovery from COVID-19 impact

  • Aramco see’s “partial recovery” from pandemic impact
  • Aramco president says company remains resilient

DUBAI: Saudi Aramco, the world’s biggest oil company, reported a net income of $6.57bn for the second quarter of 2020, the period which witnessed the most volatile oil market conditions for many decades.

The result, announced to the Tadawul stock exchange in Riyadh where the shares are listed, compared with income of $24.7 bn last year.

Amin Nasser, president and chief executive, said: “Despite COVID-19 bringing the world to a standstill, Aramco kept going. We have proven our financial resilience and operational reliability, setting a record in our business operations, while at the same time taking steps to ensure the health and safety of our people.”

Aramco’s dividend - a big attraction for the investors who bought into the world’s biggest initial public offering last year - will remain as pledged, Nasser added. Cash flow in the quarter amounted to $6.106 bn.

““Strong headwinds from reduced demand and lower oil prices are reflected in our second quarter results. Yet we delivered solid earnings because of our low production costs, unique scale, agile workforce, and unrivalled financial and operational strength. This helped us deliver on our plan to maintain a second quarter dividend of $18.75 billion to be paid in the third quarter,” he said.

Aramco said the loss was “mainly reflecting the impact of lower crude oil prices and declining refining and chemicals margins, partly offset by a decrease in production royalties resulting from lower crude oil prices and a decrease in the royalty rate from 20 per cent to 15 per cent, lower income taxes and zakat as a result of lower earnings, and higher other income related to sales for gas products.”

Sales and revenue in the period - which saw oil prices collapse on “Black Monday” in April - fell 57 per cent to $32.861 bn from the comparable period last year. 

Nasser said he was cautiously optimistic that the world economy was slowly recovering from the depths of the pandemic lockdowns.

“We are seeing a partial recovery in the energy market as countries around the world take steps to ease restrictions and reboot their economies. Meanwhile, we continue to place people’s safety first and have adapted to the new normal, implementing wide-ranging precautions to limit the spread of COVID-19 wherever we operate.

“We are determined to emerge from the pandemic stronger and will continue making progress on our long-term strategic journey, through ongoing investments in our business – which has one of the lowest upstream carbon footprints in the world,” he added.

Aramco expects capital expenditure to be at the lower end of the $25bn to $30bn range it has already indicated for this year.