As the world’s oil situation changes, a new problem seems to be arising – shortages of fuel for ships. Just before you get to the bottom of a barrel of crude you find the residual fuels made up of very long molecules that are used in boilers and furnaces. It usually sells for 50-60 cents a gallon less than gasoline and diesel and therefore is not particularly popular with refiners. Now modern refineries have incorporated processes to upgrade the lower quality residuals into more valuable products – and therein lies the problem. China’s output of residual fuels fell by 2.7 percent in February to the lowest level in five years. Russian shipments are expected to fall by 7 percent this year due to higher taxes.

As the older refineries are replaced by new ones, there is less fuel for ships and thermal power plants coming on the market. In locations as diverse as Norfolk, Virginia and Japan these shortages are approaching crisis proportions. The new large refineries just opening in India do not expect to export any residual fuels. Korea used to be the largest supplier in Asia; now it produces next to nothing.

The problem seems most acute in Japan where the demand for residual fuel to make electricity skyrocketed as Japanese nuclear reactors were shut down. Japan increased imports by 19 percent in January and it is expected that demand from power plants will grow by 7 percent this year.

With demand for the fuel growing in Asia and “everyone destroying the capability to make it,” prices have risen 25 percent so far this year in Singapore – more than the 17 percent increase in crude. Container ships, which usually sail on fixed schedules, are hurting the worst because with so much over capacity, they cannot pass the costs on to customers. Bunker fuel prices are expected to average 11 percent higher this year and possibly be in short supply.
The cost of bunker fuel at Norfolk, VA hit an all-time high of $775 /mtw due to tight supply of low sulfur fuel which is now required to lower emissions in ports. Part of the problem stems from the recent closing of the refinery in the Virgin Islands that was supplying much of the bunker fuel coming to the East Coast.

With no solution to this problem in sight, it seems inevitable that shipping delays and higher transportation costs are in the wind. The problem of higher costs for residual fuel oil will also impact many places in the underdeveloped world that are dependent on the fuel to generate their electric power.