Solar power and fuel oil substitutes towards 2020

It was announced in 2016 by the International Maritime Organization (IMO) that the effective date for the reduction of marine fuel sulphur will be 2020. The reduction mandates that ships will have to use marine fuels with a sulphur content of not more than 0.5% Sulphur against the current limit of 3.5% Sulphur in an effort to reduce greenhouse gas emissions.

The Emission Control Areas (ECAs) will remain at the 2015 standard of 0.1%S content

Thus it is expected that ship owners will soon need to decide if they want to continue using high sulphur fuel oil, in conjunction with scrubbers or exhaust gas cleaning systems; or switch to low sulphur fuel options, including distillates; or virtually sulphur-free LNG fuel.

The transition to 0.5%S will cause more changes to the global marine industry than the switch to the 0.1%S fuel in the ECAs. The ECA’s comprise a much smaller percentage of sea time for vessels and thus the impact of this transition represents approximately 75% of global marine fuel demand when compared to the demand of ECA.

Tanks to store fuel.

Tanks to store fuel.

It is noted that in total 3 million barrels per day (mbd) of High Sulphur Fuel Oil (HSFO) Bunkers will need to switch to 0.5%S fuel through blending with gasoil, plus improved logistics segregation.

Therefore, the higher production costs and increased use of gasoil in the 0.5% blend may effectively drive up the fuel cost. However, the corresponding lack of demand for HSFO will drive down its price.

The impact of Hurricane Maria on the island of Puerto Rico highlights the start of a possible disruption in the electric generation market for fossil fuels. This, coupled with power generation in the mainland USA switching over to abundant Natural Gas will result in increased supply of LSFO to serve the demand by ship owners in 2020.

Puerto Rico’s electric company had already been in shambles. It owed $9 billion and needed $4 billion more to revamp its aging power plants, the median of which is 40 years old.

That was before Maria struck. Now, in light of the damage to Puerto Rico’s electric grid, people like Elon Musk are seeing the crisis as a chance for the island to move away from centralized, vulnerable electric power systems.

On Twitter, Musk said that his technology, which powers several smaller islands, could be scaled up to work for Puerto Rico. The island’s governor promptly responded: “Let’s talk.”

Tesla recently absorbed one of Musk’s other companies, SolarCity, which manufactures residential solar roofs and energy storage units. The company has been exploring ways to scale up its battery storage projects.

So the question is whether Musk will follow up with Puerto Rican Governor Ricardo Rossello about his offer to rebuild the island’s power grid. And if so, what would a Tesla-backed solar power project on the still-recovering island look like. The company says it has powered small islands, such as Ta’u in American Samoa. There, it installed a solar grid which can power the entire island and store enough electricity for three days without any sun.

In addition, Tesla has built solar energy grids for islands before, such as Kauai in Hawaii.

What will be the long term impact of the start of solar technology in the region and the release of the LSFO which was previously used by Electric Utilities to the bunker market. Will it add stability or chaos in 2020?

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