Airlines and shipping companies could see a sharp though temporary increase in fuel costs over the next 15 months as a result of the International Marine Organization’s recent decision to reduce the allowable sulphur content in marine fuels from 3.5 to 0.5% in 2020, analysts say.
“The change affects large ships, which use a low grade of fuel that’s considered the bottom of the barrel because of its air pollution,” CBC reports. “In order to comply, many ships will likely switch to diesel, which could lead to the strongest-ever demand for the fuel.”
When that happens, the cost of diesel for all purposes ” will rise in a remarkable way, in the neighbourhood of 30% plus,” said CIBC analyst Jon Morrison. “This is one of the topics that will be of increasing importance over the next 15 months.”
Airlines will be affected because diesel and the kerosene used for jet fuel “are of a similar grade and traditionally sell for a similar value,” CBC explains. So “if diesel prices spike, so too will jet fuel.”
Jet fuel prices have already increased about 45% since early 2017, prompting carriers like Air Canada and WestJet to raise ticket prices. Platts Oil analyst Richard Joswick said the IMO rule will add another 4¢ to 34¢ per litre to the cost of diesel over the one to three years that it takes for refineries to adjust.
“That’s enough to get people’s attention,” he told CBC.
Of the more than 85,000 ships plying the world’s oceans, the Canadian Fuels Association says about 2,500 cargo vessels are expected to install scrubbers by January 1, 2020, to comply with the new IMO rule without switching to lower-sulphur fuels.