The U.S. Environmental Protection Agency on July 30 plans to begin reviewing the economic impact the transportation industry may face if tighter requirements remain in place that prohibit the use of high-sulfur fuel in cargo ships within 200 miles of the U.S. coastline.
Regulations state that those vessels must use low-sulfur fuel, such as diesel, to reduce the high levels of air pollution caused by dirtier and cheaper maritime fuels.
EPA is holding a public workshop to gather feedback from truckers, shipping companies and railroads about the regulations and how they impact their businesses.
Meanwhile, new international maritime regulations go into effect Jan. 1, 2020, that mandate significant air pollution reductions from the cargo and cruise line industries. Now, when out to sea, vessels burn a high-sulfur oil known as bunker fuel, which is among the biggest contributors to air pollution in the world. The London-based International Maritime Organization said the maritime industry is causing “major risks to both the environment and human health” by its use of bunker fuel.
Industry experts say as a result of those new IMO regulations, the price of diesel — the main fuel used in the trucking industry — almost certainly will spike in 2019 and 2020 as the shipping industry shifts from the bunker fuel to much cleaner fuels, such as diesel and liquefied natural gas.
Tom Kloza, the global head of energy analysis with the Oil Price Information Service, told Transport Topics that beginning in 2019, he expects the price of diesel to range from $3.60 to $4.25 a gallon. The U.S. Department of Energy said the retail price of diesel increased 2.7 cents in the past two weeks, and the retail price of diesel July 9 was $3.24 a gallon — 76 cents a gallon more than it cost a year ago.
Kloza said truck drivers likely will see the biggest increases along both coasts, where the shipping industry has numerous ports and that fuel can be pumped into cargo vessels instead of trucks.
“If you have the ability to get the diesel fuel or the low-sulfur fuel to the water, you have the ability to sell it into the international marine market,” Kloza said. “If you’re a refiner in the Dakotas or Minnesota, you don’t. I think there will be dramatic differences between what somebody pays on the East and West coasts and what somebody pays in the center of the country.”
The Energy Department recently forecast that in 2019 U.S. oil production will climb to nearly 12 million barrels of crude oil a day, making the United States the world’s top oil producing nation. But much of the crude oil being discovered and refined in the United States is classified as light or sweet crude, and more of that oil is refined into gasoline.
The IMO mandate comes as the world economy is growing and the maritime and trucking industries are at peak capacity. Industry officials said using more diesel for maritime purposes means less diesel could be available for trucking. It is estimated the maritime industry uses 4 million barrels of fuel a day, much of it bunker fuel.
A trucking industry association leader said most companies do not fully understand how the change likely will impact the price and availability of diesel for their operations.
“I can’t currently predict when the impact will be felt, but the financial analysts I have talked to have said we will see a big increase,” said Glen Kedzie, energy and environmental counsel at American Trucking Associations. “It is our obligation as a trade association to keep informing our members that stark diesel fuel price increases are a real possibility.”
However, some freight companies are rapidly moving away from diesel as a primary fuel. Atlanta-based UPS Inc. told TT only one-fifth of its ground fleet now use diesel, and the company attempts to mitigate any potential price fluctuations by adding fuel surcharges and ensuring availability by purchasing fuel in volume. UPS ranks No. 1 on the Transport Topics Top 100 list of the largest for-hire carriers in North America.
“The IMO decision is not helpful, because it induces changes in the system that have to be accommodated. It puts stresses on certain types of crude oil production and it really stresses out the refinery sector,” said Jonathan Chanis, senior vice president of policy at Securing America’s Future Energy, a nonpartisan Washington-based policy organization.
“Historically, the refining sector has always been able to rise to the occasion and work these all out, but there is a learning curve,” Chanis said. “It is not a foregone conclusion that this is going to be a smooth transition.”