Will new 2020 maritime emission standards trigger the next recession?

[REWahoo]

There's always something looming out there to end the music:

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New [2020 maritime] regulations aimed at cutting sulfur emissions could cause a shortage of diesel fuel. The report says as many as half of world refineries cannot produce fuel that would meet the new regulations. Oil prices could rise over $200 over the next year and a half, according to a new report.

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The shipping industry accounts for about 5 percent of total global oil demand, and most ships burn heavy fuel oil that is high in sulfur. Switching over 5 percent of total demand to low-sulfur diesel and gasoil - a distillate similar to diesel - is a massive shift.

According to one "expert" (apparently a graduate of the Gloom and Doom School of Economic Forecasting)...

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As the rules take effect in 2020, oil prices will spike to $160 per barrel or higher. "Economic activity will slow and, in some places, grind to a halt. Food costs will climb as farmers, unable to pay for fuel, reduce plantings. Deliveries of goods and materials to factories and stores will slow or stop," he argues. "Vehicle sales will plummet, especially those of gas-guzzling sport utility vehicles (SUVs). One or more major U.S. automakers will face bankruptcy, even closure. Housing foreclosures will surge in the United States, Europe, and other parts of the world. Millions will join the ranks of the unemployed as they did in 2008."

Another report says this won't come to pass...

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Shippers switching over to low-sulfur fuels puts "the burden of innovation onto the refining industry," the report says, "but it will likely prove a lesser challenge for refiners than is commonly understood." That is because the fuels will be "fuel hybrids, the production of which will entail as much blending as actual refining." Ultimately, the report concludes, "speculation about a product supply crunch underestimates the industry's flexibility," and ignores the potential for a reconfiguration of demand and the emergence of new types of blended fuel hybrids.

Whatever the outcome, we won't have to wait long to see who has the most accurate crystal ball. And it might be a good time to recheck your risk tolerance and AA.

https://www.businessinsider.com/ther...by-2020-2018-7

[LOL!]

My impression is that anything at businessinsider.com is clickbait just like anything at outbrain.com.

[REWahoo]

Fair enough.

What's your impression of Reuters?

New rules on ship emissions herald sea change for oil market

[Koogie]

Funnily enough, we as shippers in the ocean industry have been getting hit with a "Low Sulphur Emission" fee for quite a few years now.

Trust me, the industry is in full cost recovery mode. If they continue to ramp that up, the refining capacity will probably follow along as it becomes economic for everyone involved up and down the supply chain.

Will it happen by the deadline ? H*ll no.

[davebarnes]

You can stay on top of this story by visiting gCaptain – Maritime News every day

[travelover]

I'm OK with it. The emissions from these old crude diesel engines is horrific.

[marko]

Sheesh! One more thing to worry about.

Right now, I'm more concerned with when I'll get my seventh star.

[Christine]

The price of oil has been high before. What happened then should be googleable.

But what about all the ships? Will they need to upgrade their engines for this? The eventual cost of that will be added to the cost of the goods transported?

[W2R]

I'm not going to lose any sleep over this, REWahoo.

Pundits like to think that they understand what causes economic changes but they seem to be wrong as often as not, or perhaps more often than not (since most are looking for clicks). One difficulty in making such predictions is that there are many, many factors affecting our huge, almost gargantuan economy, both positively and negatively. In other words, our economy is not as easily affected as, say, a chicken farm.

If we got tangled up in an active, all-out global nuclear war this week, I would expect a bit of a drop in the S&P. Or maybe not! Defense equities might do really well if that was the case.

[marko]

Quote:

Originally Posted by W2R Pundits like to think that they understand what causes economic changes but they seem to be wrong as often as not, or perhaps more often than not (since most are looking for clicks). One difficulty in making such predictions is that there are many, many factors affecting our huge, almost gargantuan economy, both positively and negatively. In other words, our economy is not as easily affected as, say, a chicken farm.

But as we're due for an eventual downturn anyway the timing could "conveniently" coincide and the author could claim prescience! Then he'd make mega bucks as an even bigger expert on the economy and his next great prediction.

[Walt34]

Yawn. Since I don't own any ships I'm not gonna concern myself with this. As far as prices for stuff that does come here on ships, pretty much the only new stuff we buy anymore is to replace old stuff that breaks or wears out. I think we'll be able to handle any minor increases.

[NW-Bound]

So, do I stop worrying about asteroids to spend more time thinking about this new risk?

Nah, I will keep both in mind, along with all the others. A guy cannot be too paranoid.

[REWahoo]

Quote:

Originally Posted by Walt34 Yawn. Since I don't own any ships I'm not gonna concern myself with this. As far as prices for stuff that does come here on ships, pretty much the only new stuff we buy anymore is to replace old stuff that breaks or wears out. I think we'll be able to handle any minor increases.

Totally agree.

My concern isn't about shipping costs, it's the potential domino effect of a spike in oil prices. We've been living fat and happy on low interest rates and cheap oil for quite a while now. Interest rates are definitely on the rise and if oil goes up significantly as well, the good times will likely be over - until the next time.

[JoeWras]

Not worried at all. I read the book and now avoid Huge Ships.

[LOL!]

Quote:

Originally Posted by REWahoo Fair enough. What's your impression of Reuters? New rules on ship emissions herald sea change for oil market

Thanks for the link to the Reuters script. I like reuters.com.

To answer your question about recession and these new rules: No I don't think these new rules will lead to the next recession. Mostly I agree with the articles that the new rules will lead to cheating.

Apparently about half the US voters approve of cheating anyways and I also think there will be a new sequel to the children's book "Everyone Poops" for which you can easily guess the title.

[atmsmshr]

Cleaner environment, building more LNG ships, higher shipping costs to close 'The China price' and create jobs in North America - I like the new rule already.

[ERD50]

Quote:

Originally Posted by REWahoo Fair enough. What's your impression of Reuters? New rules on ship emissions herald sea change for oil market

Quote:

Originally Posted by LOL! Thanks for the link to the Reuters script. I like reuters.com. ... .

While Reuters is far better, IMO, than most, they still leave a LOT to be desired:

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That, in turn, will drive up prices. Gasoil now trades at a premium of about $250 a ton to fuel oil, but the forward curve forecasts this will balloon to $380 per ton by early 2020.

That's a 52% increase. Last time I blew up a balloon, the volume increase was far higher - I won't take the time to find one and measure it, but if a flat balloon is ~ 1 mm thick, and you blow it up 200 mm that's a 200x increase, far from 1.5x.

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Thomson Reuters Research estimates fuel accounts for about half a ship’s daily operating cost. .... For example, a VLCC, one of the biggest oil tankers at sea, will pay 25 percent more for its fuel, or an extra $500,000 on top of normal bill of $2 million, for a typical 25-day voyage from the Middle East to Japan.

So a 25% increase in fuel costs, which make up half their operating costs is a 12.5% increase in shipping costs. Significant, but as we were talking about earlier, shipping seems so incredibly cheap, I can hardly see where this is going to have any big affect on our daily lives.

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Originally Posted by travelover I'm OK with it. The emissions from these old crude diesel engines is horrific.

I don't like pollution either, but I didn't see any numbers in that Reuters article, to give us any perspective. From wiki:

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Of total global air emissions, shipping accounts for 18 to 30 percent of the nitrogen oxide and 9 percent of the sulphur oxides.[24][25] .... "A ship lets out around 50 times more sulfur than a lorry per metric tonne of cargo carried."[26]

The sulfur reductions won't affect other emissions, but could cut that 9% contribution down to ~ 1.3% overall? And I assume this has a larger point-source effect in the port cities?

I would need to do more googling later to verify this, but I it appears that coal burning may be responsible for around 50% of the sulfur oxide production? And that the US has been reducing emissions by adding limestone to the process, while China's emissions have been increasing. So I wonder if focusing on shipping is the best way to achieve global reductions, or whether the focus should be on coal (with a true cost-benefit analysis, so that we truly get the most bang for the buck - maybe some of both?).

-ERD50

[HFWR]

Quote:

Originally Posted by marko But as we're due for an eventual downturn anyway the timing could "conveniently" coincide and the author could claim prescience! Then he'd make mega bucks as an even bigger expert on the economy and his next great prediction.

Pffft... I predicted the housing bubble/crash. Too bad it was in 2010...

[Beldar]

Elon Musk and Tesla will come up with a solution.

_B

[RobLJ]

No.
(pithy response to post).