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The future fuels debate comes to the heart of America’s fossil fuel state

Lloyd’s List’s Future Fuels Forum, in Houston on September 25, comes just three months ahead of the transition to a low-sulphur future. Shipowners are prepared, refiners are not so sure

Texas has built its economy on the exploitation of crude oil and natural gas. It is doing well and is positive about the future. Could IMO 2020 derail this growth or become a catalyst for expansion? Join Lloyd’s List to find out.

TEXAS is the number one crude oil and natural gas producer for the US. According to the US Energy Information Administration, the state accounted for 37% of the nation’s crude oil production and 24% of its marketed natural gas production in 2017.

In January last year, 29 petroleum refineries in Texas were able to process more than 5.7m barrels of crude oil every day and accounted for 31% of the nation’s refining capacity. The state is said to be the largest energy producer and the largest energy consumer in the nation; the industrial sector, including its refineries and petrochemical plants, accounts for half the energy consumed in the state.

Further, also according to the EIA, in 2016 Texas was responsible for 657m tonnes of carbon dioxide emissions, almost double California’s output and as much as third-ranked Florida, number 4 Pennsylvania, and number 5 Louisiana combined.

Meanwhile, Houston-headquartered industry publisher Hart Energy noted in mid-2018 that Texas employed 325,000 people in the oil and gas industry — almost 40% of all US oil and gas jobs. Those employees received significantly higher wages than average private sector non-energy jobs. Employment in the energy sector is rising month-on-month, which is good news for the state, said the president of the Texas Oil and Gas Association, Todd Staples.

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Fossil fuels are big business for the largest state in the continental United States. How much of a shock will the transition to low-sulphur fuels for shipping have on Texan business?

On the face of it, IMO 2020 is good news for Texas. According to a recent paper issued by the Energy and Environmental Research Associates, a New York State analytical company, the global shift to cleaner fuels serves US economic and environmental interests.

“Thousands of American workers are already benefiting from high-paying jobs offered by US refineries, and our ability to ramp up refining capacity in response to IMO 2020 will strengthen these jobs and stimulate the economy,” the paper noted. It warned that failure to invest billions of dollars in upgrading refineries would “threaten the opportunity for the US to dominate the new global market for low-sulphur fuel”.

Earlier this year the academic journal Energy Policy considered the likely implications of the new IMO standards on the shipping industry. It opined that: “The desulphurization of the marine sector is as environmentally urgent as [it is] technically daunting.”

However, it argued: “The accumulated uncertainty, exacerbated by the very technology-neutrality of IMO policy, effectively favours the option that requires the least planning and up-front expenditure from shippers.” Although refiners are not directly targeted by the rules, the authors believed the onus is placed on refiners to cater to demand and anticipate changes to the best of their ability.

The paper concludes that “structural changes in fuel demand and the adaptability of most refiners, will likely prevent all too dramatic ripple effects of this policy as it is implemented in 2020”.

The global sulphur cap comes into force on January 1. There will be no ‘experience-building’ phase, no exceptions to the rule, no three-strikes regulation. Cleaner, greener shipping has been a long time coming and almost all ship owners have already decided their course of action.

But it will be unusual if there are no initial teething problems. These could include charter party clauses running across the implementation date, blending issues, non-availability of certain qualities of fuel, shipboard concerns over engine failure, and supply qualities that fails to match demand. And for the state of Texas, and the energy hub that is Houston, this new maritime regulation could have significant problems for refineries that have not completed upgrades in time.

Is IMO 2020 the good news for America’s fossil fuel state or might it be a mixed blessing? And what of the next step — the push for a significant reduction of greenhouse gas emissions by 2050? Will the experience gained by driving the transition to low-sulfur fuel in 2020 become a useful platform on which to build a 2050 strategy?

Lloyd’s List’s Future Fuels Forum seeks to tackle the issues in Houston, the beating heart of the discussion. A panel of experts from vessel operations, classification, legal, and technology will address the risks still in play in fuelling the shipping industry post-2020 and whether the decarbonisation pathway is fact or fantasy.

Join Lloyd’s List at the Marriott Hotel Houston on September 25 for the very latest thinking on the 2020 and 2050 debates.

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