Sulfur Is the Oil Industry’s Other Problem

(Bloomberg Businessweek) -- Critics of the oil industry tend to fixate on carbon emissions, with good reason, but CO2 isn’t the only undesirable byproduct of hydrocarbons. There are also the sulfur oxides, emissions from the noxious fuel that’s fed into most of the world’s ship engines. Just one gallon of this high-sulfur fuel contains as much of the element as about 3,500 gallons of gasoline. Its emissions have been blamed for acid rain and linked to a range of health conditions, including lung cancer.

Three years ago, the International Maritime Organization (IMO) issued rules designed to cut sulfur oxides emissions from ships by as much as 77%. The move, which takes effect in January, is expected to prevent legions of premature deaths, but it’s proven anything but simple for the energy and maritime industries.

The challenges begin with the substance itself. High-sulfur fuel oil is what’s left over after more valuable molecules have been extracted from crude to make gasoline and other products. Jet-black, sticky, pungent, and laced with refinery waste, it’s sold on a massive scale, and at such a discount to crude that refiners effectively pay shippers to take it away.

Creating millions more barrels of lower-sulfur fuel will require refiners to adapt processes and equipment to the task or to buy different types of crude. (They’ll also have to find new ways to dispose of waste fuel.) Some shipowners will comply with the rules by continuing to buy the old fuel and installing onboard scrubbers to remove sulfur oxides from the exhaust, but such ships are expected to account for little more than 10% of marine fuel consumption next year.

The new fuels will be pricier, adding to shipping expenses and, as such, the cost of global trade. Analysts have said the cost of diesel will rise and that gasoline and jet fuel could also jump, because the new marine fuels will be competing for some of the same molecules. The economies of oil-producing countries will also be affected. Those whose crude yields relatively large percentages of high-sulfur fuel, such as Saudi Arabia, will suffer; those selling lighter, low-sulfur crudes, such as the U.S., will likely benefit.

Most shipowners are expected to comply with the rules, but there’s significant incentive to cheat. A rough approximation based on future prices suggests that an owner sending a supertanker filled with crude from Saudi Arabia to Houston would save $1 million by not complying. Flouting the rules can lead to fines and jail time, but enforcement will be up to local authorities. While the Netherlands, for example, plans to use drones to sniff out wrongdoers, poorer countries might find it hard to be so scrupulous.

For all this trouble, the best case is indeed good—and indicates why the IMO is going to the trouble. A Finnish study in 2016 estimated that, by 2025, lower sulfur emissions will prevent more than half a million premature deaths from lung cancer and heart disease alone.

This story is from Bloomberg Businessweek’s special issue The Elements.