Sunday, July 27, 2008

Fueling the world

One perk of working at sea is you totally avoid the morning commute. My
office is a mere twenty second walk from my bedroom. There is usually no
grid lock on the way, no search for parking, and no need to gas the car
every week. The meals are free as well so forget grocery shopping. With
no errands to run, save the occasional foray ashore, I end up saving a
lot of gas when I'm out. It's always a surprise to see how much the
price of a gallon goes up each time I come home. For the last two years
as everyone knows it's seen a precipitous climb making a larger and
larger dent on our monthly budgets. Cutting six months of the year out
of that consumer cycle is a point of pride for me. Being at sea helps my
bottom line but the price of oil is definitely not helping the company I
work for.

My means of propulsion at home is a modest 4 cylinder VW Jetta. My
propulsion at sea is a behemoth 8 cylinder B&W 17,020 BHP, 12,500 kW
diesel engine. The compression ignition diesel is the most efficient
engine in human history. Our marine version burns a residual Heavy Fuel
Oil which is essentially the leftovers after the refining process. The
maritime industry is the end user of the barrel of oil burning up
everything that isn't fit for distillation into gasoline, kerosene,
diesel, etc.

This provides for a cheap fuel with sufficient BTUs that is compatible
with large slow speed diesel engines as long as it's first purified and
preheated by the engineers prior to injection. Well it once was very
affordable. Now that the barrel of oil has surpassed the 100 dollar mark
shipping companies are beginning to feel the squeeze like any American
driving the average two hour commute.

Because of the increase in HFO or 'bunker' prices "Best possible speed"
isn't being slipped into the voyage instructions as it once was. Instead
the Captain is now being told that he is using too much fuel and that he
needs to slow down. As an example for what 'stemming' the ship costs
take our current voyage from Georgia to Germany, a distance of 4,365
miles if you pass close to the Azores and Rhumb line each leg of the
trip. At full ahead sea speed, about 97 revolutions of the propeller per
minute, we average 18.8 knots. At that speed we will consume a little
over 50 metric tones of HFO in a single day. Given the current price of
bunkers this means a cost of $332,000 in HFO for a single crossing of
the Atlantic Ocean!

If we reduce our revolutions per minute from 98 to 88 we will save 44
metric tones of fuel on this crossing. That equates to about 28,000
dollars in savings, not much compared to our total fuel onboard, valued
at close to 2 million dollars, but with a fleet of 8 ships it will start
to add up quickly. Especially when you consider the estimation for
stemming the entire fleet this year will cost the company an additional
25 million dollars more than last year. That's a big hit in the pocket.

Unfortunately for big shipping HFO isn't the only oil being consumed
onboard. Besides the lubrication oils for the engines there also is the
marine diesel oil that's required to generate power. Our single main
engine turns the propeller but it is up to two generators to produce the
electricity and when we are in port to provide lighting and ventilation
in the cargo holds.

MDO is 45% more expensive than HFO on account of it's higher refinement
at current prices. Fortunately this vessel is fitted with a shaft
generator which means that as long as we are making sufficient speed we
can shut down the diesel generators and scavenge electricity solely off
the turning propeller shaft. This reduces our diesel expenses
dramatically and reduces carbon emissions.

Now that you have an idea what a voyage of fuel consumption costs for a
single ship what about all the shipping combined? According to an
article in last month's Marine Log there are 35,000 self-propelled
vessels afloat. Together they transport 95% of the world's commerce but
only account for 3% of the worldwide fuel consumption! (Marine Log, June
08 Pg. 69) It makes you wonder where all the oil is really going. I
think it has something to do with that morning commute I avoided today.

Besides the costs of fueling ships there is another cloud gathering. The
emissions of those 35,000 ships are coming under scrutiny as studies are
finding that the lower the quality of fuel the more hazardous the
emissions are to human health, notably around busy ports. This reminds
me of the Dutch river pilot I was speaking with last month that said the
air quality around Antwerp was so poor that the cases of breathing
disorders in children were depressingly skyrocketing. Antwerp is one of
the busiest ports in Europe.

Sulfur in residual fuels is a chief culprit of particulate matter in
exhaust. The International Maritime Organization is addressing this by
requiring a reduction from 4.5% total sulfur content in ship's fuel to
0.5% sulfur for all ships by 2020. Additionally Emission Control Areas
are going to be implemented in near coastal areas worldwide. The Baltic
Sea and the Coast of California out to 50 miles are early examples of
this. In those areas by 2015 ships will pretty much be committed to
burning only clean distillate diesel oil instead of the heavy fuel oil.

For my company this won't be much of a shocker as they are actually
leading the charge in this realm. We only purchase bunkers with the
lowest sulfur contents available, much lower than what is currently
allowed by the IMO. This fuel is more expensive but that cost eventually
gets passed on to the customer in the way of freight rates raising the
price of shipping goods. Here is one more fun fact I found to share
since I'm full of them today; according to the Hellenic Shipping News
"At today's oil prices, every 10 percent increase in trip distance
translates into a 4.5 percent increase in transport costs. While
shipping a standard 40-foot container from Shanghai to the east coast of
the US cost US$3,000 when oil was at US$20 per barrel, it now costs
US$8,000. If oil goes up to US$200, the cost would rise to US$15,000."

This has so many implications I won't go into here besides quickly
mentioning two. First, the pressure on a Captain to keep to a fixed
schedule and minimize voyage distances may relegate more authority to
weather routers and the home office reducing the master's ability to
make decisions based on how things look out the window of his bridge.

Secondly, as oil reserves diminish, prices rise for everything and at
some point buying grapes from Chile or automobiles from South Korea may
not be worth the price of transporting that 15,000-dollar container.
This will put the hurting on the shipping industry and the globalization
it enables. Something I like to keep in mind each time I gas up the
Jetta or the Car Carrier to go import some more foreign goods whether at
my local Hannaford Brothers or at the Autokaje in Bremerhaven.

(If you haven't read The Long Emergency I recommend it, there's still

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