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The Day the Ships Stopped Moving

Posted October 22, 2019

Many years ago a small United Nations organization slipped a time bomb into the engine room of global commerce. The committee is called the International Maritime Organization (IMO). The rule is the IMO 2020 rule on high-sulfur marine diesel.

You see, the oil used by ships all over the world, from Supermax to cruise ships to island junkers, is called “bunker fuel.” It is a heavy fuel oil created by distillation of crude oil.  

It is one step from the bottom of the stack, right above asphalt, and it contains 3.5% sulfur. This sulfur is nasty stuff that goes out the smokestack. The annual emissions from one large container ship running on bunker fuel are comparable to the emissions from 10 to 15 million cars running on diesel fuel. 

Sulfur oxides (SOx) are known to be harmful to human health, causing respiratory symptoms and lung disease. In the atmosphere, SOx can lead to acid rain, which can harm crops, forests, and aquatic species, and it contributes to the acidification of the oceans.

So the IMO is cutting back on SOx emissions from ships in an effort to improve air quality. That’s pretty simple, right?

Unintended Consequences

The first IMO regulations came about in 2005, under Annex VI of the International Convention for the Prevention of Pollution from Ships (known as the MARPOL Convention). Since then, the limits on sulfur oxides have been progressively tightened.

The big shoe will drop on January 1, 2020.  

The limit for sulfur in fuel oil used on board ships will be reduced to 0.50% m/m (mass by mass). It will cut pollution but will also cause a massive disturbance in global shipping just as the global economy is slowing down.

Currently, the global shipping industry uses 4 million barrels of oil a day — that’s more oil than is produced by Canada, Iran, or Kuwait. There is no way it can be replaced easily, if at all. But that’s what must happen unless you want the global economy to come to a dead stop. 

Many analysts think fuel prices will surge. Some industries like airlines and trucking that use the bunker fuel replacement called red diesel will run out altogether. 

And this won’t be a one-day event. Disruption could last years because most global shipping will have to (1) change their engines to consume the new fuel or (2) install multimillion-dollar devices called “scrubbers” that can take the old fuel. 

Either way, the costs are enormous. Oh, and by the way, the world's biggest maker of these scrubbers — a Swedish company called Alfa Laval — has said it can’t take any more orders. It's all booked up. You should have ordered years ago. 

The Motorship, a marine engineering company, reports:

People are realising the deadline isn’t going to be pushed back. But there could be a problem. To date less than 600 scrubbers have been fitted. That’s not a lot considering the size of the fleet (20,000). 

But first you must know that while the industry is working overtime to make the changes, there is no way everyone, or even most, will be ready. This new mandate will send a financial tsunami across trucking, airplanes, shipping, and even down at the Walmart, as the increased costs of transportation are passed on to people like you and me. 

Some people think diesel prices could jump 20% to 40%. 

CNBC says: “The biggest change in global fuel regulations since leaded gas went away could cause price shocks.” 

Oil & Gas Journal says: “New International Maritime Organization (IMO) rules will most directly affect shipping fuels, a market of over 4 million b/d.” 

Drilling Info says: “On January 1st, 2020, the global shipping industry will undergo a radical change.” 

No One Is Talking About It

The IMO 2020 change is very important to investors, and yet it has gotten very little press in both the mainstream and financial media. It has always been a goal of Energy and Capital to get out in front of these types of stories — especially when it has the opportunity to be very profitable.

I was recommending Bitcoin in May of 2016, well before it hit the mainstream. My readers made 2,528% gains as others jumped on the bandwagon.

Most people still don’t know about the rhodium bull market. That’s fine. I recommended you buy Physical Rhodium (LSE: XRH0) at $69. It is now at $447 three years later, and it’s still not over!

But that was the past. Rarely in the market do you get a clear, future date for a massive change in the energy market.  

We have one now, and it is fast approaching. I’ve written a free report that I am releasing next Wednesday, October 30.

Keep a lookout for it. It will tell you how to profit from this tremendous shift in 0.5% fuel prices caused by IMO 2020 and how you can profit from it (it’s not how you think).

All the best,

Christian DeHaemer Signature

Christian DeHaemer

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Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor's page.

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