There’s much debate about how the upcoming International Maritime Organization (IMO) regulation on sulfur emissions, going into effect on January 1st, will impact fuel prices and the economics of transportation.
There’s little doubt that the most sweeping maritime fuel regulation seen in years will affect the global transportation industry—the question is by how much and for how long?
With the IMO deadline less than 30 days away, the time for on-road fleet managers to prepare for both the immediate and long-term implications of this regulation is now. By implementing cost-effective, reliable and price stable fuel options today, fleet managers can remain resilient to unanticipated disruptions to the global fuel supply in the future.
What is the IMO 2020?
The IMO’s new fuel regulation will soon implement an international mandate to reduce sulfur content in marine fuel oil from 3.5% to 0.5%.
Ocean-going vessels rely on “bunker fuel” or “heavy fuel oil” (HFO). This fuel type is considered a lower-grade fuel and is less refined than higher-grade fuels, such as gasoline and diesel. Less refined HFO contains higher levels of several compounds, including up to 4.5% sulfur; making the emissions from vessels burning high sulfur HFO more polluting, and more harmful, compared to other fuels.
Sulfur oxide, the criteria pollutant the IMO’s regulation targets, effects both human health and the environment—contributing to ocean acidification, acid rain and respiratory disease. The IMO’s new low sulfur fuel regulation is expected to result in an annual reduction of 8.5 million metric tons of sulfur oxide emissions globally.
How a Marine Regulation Could Affect On-Road Trucking
As the IMO’s regulation nears, it’s becoming more evident that the maritime industry is unprepared to handle the transition to the required low sulfur fuel. The long-term impacts of this regulation could spread beyond marine vessels to other industries, including on-road transportation.
According to an IMO analysis at Wood Mackenzie, our global refining system is not equipped to produce the volumes of low sulfur fuel needed to power the world’s shipping industry by the time the regulation goes into effect. While there are existing stockpiles of low sulfur fuel available, Wood Mackenzie points out that existing supply will likely not be enough to buffer global reserves until supply eventually catches up with demand—about 3.5 million barrels a day from the global maritime sector in 2018.
Implications for On-Road
With so many unknowns and contributing factors at play, the IMO 2020 regulation could lead to a fuel price increase. If demand spikes in 2020 and beyond, and reserves or refinery production are insufficient to meet that demand, the shipping industry could turn to diesel products. This increased demand could mean higher diesel prices globally, which would impact the U.S. trucking industry.
Avoiding Price Volatility with a Diversified Fueling Portfolio
With the on-road transportation industry waiting for the still unknown impacts of this new regulation, shippers and fleets can seek cost-effective, reliable and price stable fuel options that are more resilient to global petroleum supply disruptions.
Implementing domestically produced fuels—including natural gas, renewable natural gas, hydrogen and electricity—enables fleets to reduce an already highly variable expense while minimizing exposure to price volatility.
With over 25 years of fleet fueling experience, Trillium, a member of the Love’s Family of Companies, offers unmatched expertise providing clean fuels to fleet operators. Abundant, price-stable, domestically produced fuels like natural gas give fleet operators a cost-effective option to diversify their fueling for the long term. Fleets can safeguard against unforeseen or unavoidable price volatility, reduce their carbon footprint with more environmentally friendly and sustainable operations and reduce harmful emissions.
Trillium works with fleet customers to identify the clean fuel and power supply sources that work best for their needs—balancing cost, reliability, deployment timelines, location and scale. Leading up to their alternative fuel transition, fleets can start utilizing Love’s price protection program now, locking in diesel prices for the short term, further reducing risk and minimizing exposure to price volatility.
Trillium’s core goal is to ensure customers have access to a steady supply of clean, competitively priced fuel at predictable prices.
Stable, Cost-Effective, Clean Fuels for Fleets
One of the most abundant fuels produced domestically is compressed natural gas (CNG). On average, natural gas prices are 30% to 50% lower than diesel, and much more stable. Natural gas utilities transport this domestic, clean, abundant energy source to CNG stations via 2.5 million miles of existing pipeline infrastructure in the U.S. The U.S. is the number one natural gas producer in the world.
Produced from organic waste, renewable natural gas (RNG) is a pipeline quality, ultra-low carbon, domestic fuel. Renewable fuels and technologies can generate additional revenue for producers and users through the Low Carbon Fuel Standard (LCFS) and Renewable Identification Number (RIN) credits, which are the currency of California’s LCFS and the Federal Renewable Fuel Standard (RFS) programs, respectively. Trillium works with customers to deliver these fuels and the value they bring to a fleet’s the bottom line.
While CNG and RNG are the most abundant alternative to diesel nationwide, for some fleets—depending on duty cycle, location, vocation, available incentives, regulatory pressures and other factors—electricity and hydrogen may also soon be effective fueling options for the U.S. trucking industry. Regardless of the fuel type, Trillium partners with fleets to identify the right fueling options that maximize efficiency, cost savings and operating performance.
About the Author:
Bill Zobel is general manager of Trillium, a leading provider of alternative fueling solutions. Trillium designs, builds, owns, and operates a network of clean fueling stations across the US, serving on-road fleets that fuel with CNG/RNG, electricity, and hydrogen. Bill has nearly 30 years of experience in the energy sector covering a wide range of issues and responsibilities. As vice president of business development at Trillium, Bill helps to ensure Trillium remains a trusted partner for fleets, providing customized clean fuel solutions that meet fleets’ evolving needs.