I had always assumed large container ships would be the last to go in the oil age since hauling cargo in them is more efficient than even trains, but it looks like that isn’t as true any more.

Ships use the nasty, gunky bottom-of-the-barrel oil, also used in boilers, thermal plants, and furnaces, typically less expensive by about 50 to 60 cents than gasoline or diesel.  But now modern refineries have found ways to upgrade low quality residuals into more valuable products.

So production of this fuel is falling, resulting in shortages that 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.

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.

Source: March 19, 2012. Bunker Fuel. ASPO Peak Oil Review.