In 2016, the International Maritime Organization (IMO) imposed stricter fuel standards for the industry. The rules will go into effect in 2020 and will force cargo and cruise vessels to switch to cleaner fuels. What effect will the move have on diesel prices for the trucking industry?
Bunker Fuel to Diesel Fuel
The maritime industry currently runs on “bunker fuel.” This is the thick, heavy fuel left over after oil has been refined into diesel, gasoline, or jet fuel.
Bunker fuel is less expensive than other fuels. But it’s also high in sulfur, which contributes to air pollution and acid rain.
To combat this pollution, the IMO is requiring the industry to reduce sulfur emissions from 3.5% to just .5%.
The most cost-effective way for the industry to make the change is to switch from bunker fuel to diesel. And analysts are already predicting that the change will hike the price of diesel.
“It wouldn’t surprise me in late 2019, or 2020, if the price of diesel per barrel is $30 or $40 above the price of crude,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service. “We’ve been fortunate it’s been $15, $20 above the price of crude, so that is kind of a coming attraction.”
Unclear Road Ahead
Correctly predicting just how much the IMO’s fuel standards will raise the price of diesel is no easy task.
That’s because not all marine fleet owners will necessarily convert from bunker fuel to diesel. Some may instead opt to use “scrubbers” – equipment that removes sulfur and other unwanted chemicals from a vessel’s exhaust. But the costs associated with installing the equipment will inevitably slow down the conversion process.
None of these complicating factors will make it easy for the trucking industry to adapt to the increased demand for diesel. Operators will certainly have to budget for higher fuel costs. And the impending change might move some companies to reduce their dependency on diesel altogether – by switching to propane, natural gas, or electric vehicles.