Shipping’s Big Bang Sends Two Global Industries Spinning

Two weeks ago, the vast majority of the world’s ships were forced to change the fuel they use. Some big winners — and potential losers — are starting to emerge from what was a historic switch for the world’s oil refining and maritime industries.

Regulations began on Jan. 1 forcing vessels to sharply reduce emissions of sulfur oxides from burning so-called bunker fuel. If successful, the rules could turn out to be the single-biggest, globally mandated improvement to air quality ever. The pollutant is blamed for worsening human health conditions like cardiovascular disease and asthma, and causing acid rain.

But the cost of the new fuel has skyrocketed to the point where it recently surpassed diesel and gasoline in Singapore, Asia’s oil-trading hub. The dynamic adds to the cost of transporting goods and raw materials — a potential impediment to global supply chains since fuel represents the maritime industry’s single-biggest expense.

IMO fuel surpasses gasoline and diesel

“The cost of world trade is rising when the bunker costs go up,” said Peter Sand, chief shipping analyst at BIMCO, a trade group for many of the world’s vessel operators. Even if the hike will be largely invisible to end consumers, it’s important to owners, some of whom may end up in financial difficulty if fuel prices stay high, he said.

IMO 2020, as the rule is known, is a global sulfur cap on marine fuel of 0.5%, down from 3.5% in most parts of the world. The Jan. 1 start date was set back in October 2016.

The price surge points to significant support for those refineries that make the new product. Likewise, some shipowners are making fortunes because they invested in kit allowing them to burn the old sulfur-rich variety, which is several hundred dollars a ton cheaper.

Ship Shape

Before the rules took effect, some shipowners plowed billions of dollars into exhaust-gas cleaning systems that prevent the sulfur from being released into the air. The equipment allows their vessels to keep using the old fuel without breaking the rules.

Those who invested appear to be gleaning a competitive advantage because the discount for the old fuel is so big.

Supertankers hauling 2 million barrels earned about $20,000 a day more so far this year if they were fitted with scrubbers, according to data from Clarkson Research Services Ltd., a unit of the world’s largest shipbroker. That’s about $7 million a year in savings if the current market were to continue.

Scrubber investments could pay off in less than a year, according to Richard Matthews, head of research at E.A. Gibson Shipbrokers Ltd.

Rates for the oil tankers are very high by historical standards, meaning even those without are doing well.

However, where it may become more of an issue is in freight markets that are weak. For example, giant iron-ore carrying Capesizes bulkers built in 2010 earned about $4,000 a day so far this year. That’s not enough to even cover operating costs including crewing and repairs. The same carriers fitted with scrubbers earned about $10,000 a day more than that. Not great, but a level they can survive at.

If the current market doesn’t improve, those lower earnings might eventually discourage some ship operators from transporting cargoes, something that would help the owners of vessels that do have scrubbers.

Sand, from BIMCO, says that there could even be loan defaults if the price of compliant fuel doesn’t drop.

Refineries Diverge

For oil refiners, IMO 2020 has transformed marine fuel from essentially a waste material sold at a discount to crude into one of the industry’s most valuable products. What’s widely now seen as the dominant new propellant — very low-sulfur fuel oil, or VLSFO — is about twice the price of the old material in Singapore and Rotterdam. A similar trend is playing out for marine gasoil, the other main clean-fuel shippers can use to comply with IMO 2020.

The main new fuel’s high price is in some ways hard to explain. In theory, it shouldn’t be more expensive than products like gasoline and diesel because it’s easier to make.

Today’s sky-high prices are the result of both the refining and shipping sectors wanting the other to invest in making it, said Alan Gelder, vice president for refining and chemicals, at Wood Mackenzie Ltd., an energy consultant.

There have also been fuel availability issues at some ports around the world, as well as a shortage of barges to deliver, according to Melissa Williams, a marine fuel sales and marketing manager at Royal Dutch Shell Plc.

Standard Club, a marine and energy insurer, said Tuesday that it’s been notified of concerns about a lack of compliant fuel at some ports, without identifying which ones.

“The impact on refiners isn’t the same across the board,” said Mark Williams, principal refining analyst at Wood Mackenzie. Refiners in the U.S. Gulf coast which can process high-sulfur fuel oil — the old propellant that has become much cheaper since the switch — are doing very well, he said. But any refiners that lack upgrading equipment and process sulfur-rich crudes will be feeling squeezed.

More broadly, refiners are having to rethink their whole approach to fuel production as other margins are pulled around by the IMO 2020 effect. Low-sulfur feedstocks like vacuum gasoil and straight-run fuel oil that, among other things, can be used to make the new product, have shot up in value relative to crude. If large volumes get diverted to the maritime market, more traditional outputs like gasoline, that can also be made from them, could tighten.

The diesel market, meanwhile, has largely shrugged off the IMO 2020 boost many were expecting. Warm weather across the globe is partly to blame, along with recent downward revisions to oil demand growth forecasts, said Steve Sawyer, director of refining at FGE. The result is VLSFO rising above diesel in Singapore, a “bizarre” pricing dynamic, he said.

Looking forward, Sawyer expects VLSFO to remain at a premium to crude as long the crude oil price remains in a $60-70 a barrel range.

Gelder and Williams expect the VLSFO price to fall going forward, while the price of HSFO is set to rise by about 20% by the fourth quarter as more shippers fit scrubbers. The IMO transition period, meanwhile, is set to last for a couple more years, they said.

So the current price surge is just the start of a process. Refineries will need to decide if it’s worth spending the money on equipment to make new fuels, and shipping companies will have to consider buying more scrubbers.

“If you’re going to reduce the impact of these extra costs on the overall economy, there’s more investment needed,” Gelder said.

Smooth Sailing for Ships After Historic Fuel Switch

A major switch in maritime fuel aimed at reducing emissions from ships is proceeding smoothly, shipping executives say, with new blends available in most ports and operators reporting few problems adapting to the fuel.

The mandatory change began on Jan. 1, when some 60,000 oceangoing vessels were ordered by the International Maritime Organization, the United Nations’ marine regulator, to slash their sulfur emissions by more than 80%. It is the first in a series of environmental steps the maritime industry is due to take in the coming years that will alter operating costs and raise fundamental questions about how ships should be powered.

To comply with the 2016 Paris climate accord, members of the IMO have also agreed to cut greenhouse-gas emissions to half of their 2008 level by 2050. Ships now contribute up to 3% of the world’s global air pollution, a share comparable to that of a major country.

Shipping executives say the low-sulfur directive alone will add around $50 billion in new fuel costs over the next three to four years, and they say they plan to pass the expenses on to cargo customers.

Low-sulfur fuel in Singapore, one of the world’s biggest refueling hubs, was quoted this week at an average $670 a ton, 64% higher than the $409 a ton for the heavy oil, known in the maritime sector as bunker, that has long powered ships. Bunkering brokers said the price spread is at least 10% higher than shipowners originally expected, but the gap is expected to narrow over the next couple of months.

“It’s very expensive right now,” a senior broker in Singapore said. “Demand is high and many bunkering barges are still flushing the old fuel from their tanks, meaning not enough is out there and ships are held up longer to refuel.”

Fuel represents up to half of a ship’s operating expenses, and some operators will see their earnings take a hit this year as the cost is absorbed through supply chains.

“If shipping companies take on all the cost, they will collapse,” said Kitack Lim, secretary-general of the IMO, the global marine regulator that mandated the fuel switch. “But compared to the value of the cargo, price increases to consumers will be very small.”

The fears of some shipowners that there wouldn’t be enough low-sulfur fuel availability, or that it wouldn’t work well with maritime engines, so far appear to be unfounded.

“The switch went well and we haven’t experienced issues with performance or fuel availability,” said Ole Graa Jakobsen, head of fleet technology at Denmark’s A.P. Moller-Maersk A/S, the world’s largest operator of container ships by capacity. “We have lab-tested a broad range of fuel formulations to determine optimal blends for our vessels.”

Maersk’s French rival CMA CGM SA, which operates more than 500 container ships, said prices vary from port to port, with rates at big European gateways being cheaper.

“There is a wide spectrum of different blends, that may not all be available in some ports in Africa and South America” said Farid Trad, the group’s vice president for oil management. “There is high demand so fuel barges take more time now. The challenge is to get the entire supply chain to work together, from fuel suppliers to refueling barges to shipowners managing their fuel needs.”

Bunkering suppliers say new fuel supplies are short for smaller vessels doing coastal sailings on the east coast of India, the Philippine archipelago and Bangladesh.

“There was not enough preparation in India and new fuel supply is low, especially for small tankers and container ships in the east coast,” said Venkat Argawal, who runs three refueling barges at India’s Port of Chennai.

“Some are breaking the rules and run on heavy oil until supply is restored.”

One of the IMO’s biggest challenges is that member states enforce the new fuel regulations. This week, China caught two ships that were allegedly using noncompliant fuel according to the Standard P&I Club, a major maritime insurer.

“We are monitoring the situation and to date, whilst there have been some reports of tight supply of compliant fuel oil in some markets, so far we have not received reports of any significant issues,” an IMO spokeswoman said.

Some vessel operators, especially tanker owners, have chosen to limit their sulfur emissions with exhaust systems called scrubbers that trap sulfur created by fuel-burning engines.

The systems cost several million dollars, but companies using them could benefit from big operating cost savings in the next few years over carriers that are spending more for new, more expensive low-sulfur fuel.
Source: Wall Street Journal

Massive R&D needed to decarbonize deep-sea shipping beyond 2050

The goal of the International Maritime Organization (IMO) to turn the oceangoing vessel industry emissions and carbon free beyond 2050 will require a technological replacement to the dominant fossil fuel-burning engines of the world’s maritime fleet, World Shipping Council President and CEO John Butler told U.S. lawmakers of the House Coast Guard and Maritime Transportation Subcommittee on Tuesday.

While emissions- and carbon-free technologies, such as battery and hydrogen power, are already in the development stages for short-sea and ferry vessel applications, their scale is nowhere near the level to power today’s large oceangoing vessels.

“We have to keep in mind that the scale is different for the transoceanic, larger international vessel sector than it is for the short-sea sector,” Butler said. “We can’t make the mistake that batteries work for ferries and we just need a bigger battery [for oceangoing ships].”

Maersk (OTCMKTS: AMKBY) is currently testing a 40-foot container-size battery on board one of its container ships, Lee Kindberg, the carrier’s North American head of environment and sustainability, told the House subcommittee.

Kindberg said the battery will not provide power for ship propulsion but will be tested for potential onboard power uses, such as shipboard lighting, electric pumps and refrigerated containers.

However, she said Maersk has committed to “net-zero carbon emissions” for its worldwide operations by 2050 and is currently retrofitting vessels with new technologies and testing “carbon-neutral” biofuels, such as those made from cooking oil and an ethanol made from the byproducts of agriculture, paper and wood products manufacturing.

“The transformation from low- to zero-carbon emissions is an energy transformation, not just a vessel modification,” Kindberg said. She added that it will require not only massive industry and government investments in new vessel propulsion systems development but also shoreside-support energy production and infrastructure.

In 2018, the IMO, a United Nations body of which the U.S. is a member, adopted a resolution that called for a 40% increase in overall fleet efficiency compared to 2008 by 2030 and then a 50% reduction in absolute greenhouse gas emissions by 2050, with emissions being reduced to zero or near zero within ocean shipping beyond the half-century mark.

Butler told the House subcommittee members that it is possible for the ocean shipping industry to achieve the IMO’s 2030 goal.

“A highly competitive liner shipping market, fuel price increases associated with the IMO 2020 marine fuel sulfur cap regulation and increasing societal and customer requirements to reduce emissions provide vessel operators with powerful incentives to make their operations as efficient as possible,” he said in his testimony.

However, to achieve the organization’s 2050 goal and beyond will require a substantial, globally funded and driven research and development effort, Butler said.

On Nov. 18, the World Shipping Council and seven other shipping organizations proposed that the 174-member IMO establish a $5 billion to $6 billion research and development effort over the next 10 to 12 years to identify fuels and related technologies to aggressively achieve the IMO’s decarbonization goals for the global ocean shipping industry. The International Maritime Research and Development Board (IMRB) would be funded by a mandatory contribution based on each ton of fuel burned, Butler said.

“Because oceangoing vessels are long-lived assets (20-25 years), we must move as quickly as possible to develop and deploy low-carbon and zero-carbon propulsion systems and fuels to avoid stranded assets and delays in implementing next-generation technologies,” he said.
Source: Freight Waves

Shipping companies propose crash program to reduce CO2

in International Shipping News 30/12/2019

A group of eight trade organizations that collectively represent 90% of the world’s merchant fleet have proposed a collaborative shipping research and development program to help eliminate CO2 emissions from international shipping.

Their plan includes funding the program with $5 billion over a 10-year period.

The shipowner groups said they are seeking to accelerate the development of commercially viable zero-carbon emission ships by the early 2030s.

The groups making the proposal include organizations that represent a broad base of shipping companies – BIMCO and the International Chamber of Shipping – as well as groups that represent particular sectors of the shipping industry: the World Shipping Council, which represents the container liner industry; Cruise Lines International Association; Interferry; Intercargo, which represents dry bulk carriers; Intertanko, which represents tanker operators; and the International Parcel Tankers Association.

In a joint press release, the groups note “international maritime transport carries around 90% of global trade and is currently responsible for approximately 2% of the world’s anthropogenic CO2 emissions. To achieve the Paris Agreement’s climate change goals, rapid decarbonisation is vital – also for international shipping.”

They note the United Nations International Maritime Organization (IMO) agreed in 2018 to target an absolute cut in the sector’s total greenhouse gas emissions of at least 50% by 2050, regardless of trade growth, with full decarbonisation shortly after.

“The 2050 target will require a carbon efficiency improvement of up to 90%, which is incompatible with a continued long-term use of fossil fuels by commercial shipping,” the shipping groups said.

“Meeting the IMO’s GHG reduction goals will require the deployment of new zero-carbon technologies and propulsion systems, such as green hydrogen and ammonia, fuel cells, batteries and synthetic fuels produced from renewable energy sources. These do not yet exist in a form or scale that can be applied to large commercial ships, especially those engaged in transoceanic voyages and which are currently dependent on fossil fuels.”

The eight organizations have proposed establishing an International Maritime Research and Development Board (IMRB), a non-governmental research and development organisation that would be overseen by the countries belonging to the IMO and financed with a mandatory contribution of $2 per tonne of marine fuel purchased for consumption by shipping companies worldwide. That would bring in about $5 billion over 10 years.

“Additional stakeholders’ participation is welcomed,” they added.

In a proposal to the IMO, the industry group set out details for governance and funding of the program, which they say can be put in place by 2023 via amendments to the existing IMO Convention for the Prevention of Pollution from Ships (MARPOL).  

They said the plan will be discussed by governments in London at the next meeting of the IMO Marine Environment Protection Committee in March 2020.
Source: FreightWaves

Cabinet ministers want more homework done on port relocation

Shane Jones is keen to avoid too many more lengthy reports but acknowledges it’s a once-in-a-generation project and widespread buy-in is important. Photo: RNZ / Richard Tindiller.

Cabinet ministers have ordered more work to be done on the Northport proposal, to report back to Cabinet mid next year.

It’s officially released the report of the working group set up to consider the best configuration for the upper North Island ports, which came back with a strong recommendation to progressively move Auckland’s freight operations to Northland.

The Transport Ministry will now do more work on funding and financing options, governance and commercial considerations, land use planning and a range of other factors.

(Read the full report: PDF 1.4MB)

The Cabinet paper released alongside the report said the “key issue” for ministers was “whether the the potential gain… is sufficient to justify the significant Crown seed investment and possible need for regulatory and legislative intervention”.

Using the latter approach, it said, would result in “significant levers to use given the implications for private property rights”.

The working group made its one recommendations after considering eight scenarios – Cabinet ministers also want the ministry to also take another look at those scenarios.

(Read the full report: PDF 1.1MB)

The paper noted the “limited share of decision making rights” held by the Crown if it comes to relocating ports, and the importance of getting key stakeholders such as the Ports of Auckland and the Auckland Council on board.

“We advocate early and open engagement with the owners of the current upper North Island ports…and the Port Companies” to build consensus, the paper said.

The current owners are “cornerstone partners whose agreement and cooperation in any decision will be a requirement of making progress”.

It acknowledged engagement with those parties had been “limited to date…we anticipate aligning the partners will take some time to achieve”.

The ministry will also work with the newly formed Infrastructure Commission to help with the analysis.

Associate Transport Minister and chief cheerleader Shane Jones said he was “pleased” his Cabinet colleagues have “recognised the merit of this report and have agreed to move forward with this work”.

“I expect this analysis to consider environmental effects, including on New Zealand’s overall greenhouse gas emissions, and consideration of government infrastructure investments in roads and rail, for example, building a rail spur to Marsden Point,” he said.

“Nobody is keen on spending too much longer developing lengthy reports but this is a once-in-a-generation project and widespread buy-in is important, as is the need to make the best decisions for the long-term prosperity of our supply chain.”

It remained his view that Northport was “the most sensible relocation option” but he accepted this “is a whole-of-government decision”.

The working group has estimated the cost of the Northport proposal at around $10 billion.

Cabinet expects a report back by May next year. The report has a budget of $2 million.

Goff says compensation essential

Auckland’s Mayor Phil Goff says the city’s residents will need compensation when the port is eventually relocated.

Goff said a newly released working group report on the Northport proposal suggests Auckland is left with the land rather than being bought out.

He said residents have invested over $600m in the port and should be treated as shareholders.

“They need to get some sort of compensation if that asset were to get taken off them and that’s basically what Treasury and the Ministry of Transport have pointed towards,” Goff said.

“This isn’t the wild west, you can’t go around nationalising things and saying: ‘well, just be grateful we’ve left you the land even if we’ve taken the value of the company off it’.”

Goff said he was pleased Cabinet ministers have ordered more work to be done on the Northport proposal.

“What we wanted was evidence driven, robust and independent of any vested interest group report saying how it should happen and where it should go to,” he said.

‘Pie in the sky’ – Bridges

National’s leader Simon Bridges said the $10b price would be a big hit on the government’s books.

“If they make this decision they won’t have a single bean left from their infrastructure spend up; they can only spend this borrowed money once.”

And he questioned the government’s ability to make Northport a reality.

“These guys can’t deliver, they are unrealistic, they’re pie in the sky, they come up with a lot of stuff. They’re always short on the implementation and the delivery – this thing is fraught with issues.”

Northport wants to talk to two other ports

Northport said it is ready to meet with Ports of Auckland and Port of Tauranga to discuss the future of freight for the North Island.

In a statement, its chairman Murray Jagger said a newly released working group report on the Northport proposal gives it confidence to talk about the potential opportunities.

Mr Jagger said the three ports need to digest the ramifications of the report and discuss the situation together.

“Northport has a very clear vision of the role it can play in the economic growth of Northland, Auckland and New Zealand,” he said.

“Significant growth is possible here. We have been clear for many years that we stand ready to assist in any way we can to support Auckland’s growth and the aspirations that Aucklanders have for their waterfront.”

Mr Jagger said he hoped to convene a meeting of the chairs of all three ports involved – Northport, Port of Tauranga and Ports of Auckland.

“We need to digest the ramifications of what we’ve seen and heard today, and flesh out a win-win-win situation not just for our three communities, but for all of New Zealand,” he said.

“We then need to seek the input of tangata whenua, our wider communities, and business and civic leadership before bringing these suggestions to government.”

Ports of Auckland has declined an interview with RNZ.

Nation ‘$1b poorer’ if port leaves Auckland

With a working group’s third report on Port of Auckland’s future not available to the public, others are pushing ahead with their own analysis, Dileepa Fonseka reports.

A third port study will go before a Cabinet committee on Wednesday but on Tuesday Finance Minister Grant Robertson gave a clear indication it wouldn’t be enough on its own to persuade him to support moving Auckland’s port to Northland.

“The report’s a useful contribution, but as I’ve said to you previously, I’ve got further questions I want answered.”

“This is a massive, massive move we’re talking about here. So you know, we’ll go through the process, but we haven’t made a decision to do it.”

Meanwhile another report into the future of Auckland’s port has been released. 

The NZEIR report calculates New Zealand would be $1b poorer if the Port of Auckland’s functions were taken up by either Northport or Tauranga. 

“Auckland is both the largest source of import demand in New Zealand, and the largest concentration of commercial activity,” says the report.

“An equally profitable port elsewhere, employing the same number of people, would have a similar direct effect on its local economy, but its wider economic effect would depend on how efficiently their customers’ exports and imports moved from the port to their doors.”

The use of diesel trains to transport goods from Northport to Auckland would emit 121,461 tonnes of carbon dioxide into the atmosphere every year. 

“Longer and more frequent road or rail trips would be required to bring imports to their ultimate destination or to the port for exporting.”

Most of the costs of relocating the port would be borne by Auckland in terms of reduced consumption, higher prices, and longer wait times for freight. 

People and businesses in New Zealand’s largest city would see the cost of their imports go up by $549m if port operations moved to Northland or $626m if port operations moved to Tauranga, the report says. 

But the rest of the country would see the cost of their imports go down if the port’s business was taken up by Port of Tauranga or Northport.

Economist Laurence Kubiak, who authored the report, said this was because other ports, like Centreport in Wellington for example, would import more and goods would have to travel a shorter distance to get to consumers in those areas. 

Anticipating the report’s release 

Both Infrastructure Minister Shane Jones and Upper North Island Supply working group chair Wayne Brown told Newsroom last week they were looking forward to a possible release of the full report this week after Cabinet deliberations.

After details of the report leaked, Auckland’s Mayor Phil Goff has bristled at its reported suggestion POAL could be taken off Auckland Council with only waterfront space as compensation, and Jones has called POAL CEO Tony Gibson a “recreant” – cowardly renegade – after details emerged that Jones warned Gibson not to put his head in a “political noose” by going up against NZ First on the port issue. 

Others have expressed concern at the mode shift that would be required from shippers of freight – who have been favouring trucks in greater numbers – in order to make a Northport option work. 

Supporters have lined up behind moving the port from its current location in Central Auckland too. 

RNZ reported former Prime Ministers John Key and Helen Clark were backing a “Waterfront 2029” to get rid of POAL and The New Zealand Herald reported National MP Nikki Kaye had expressed a preference for moving the port but wanted to explore a number of options including the Firth of Thames.

Steven Joyce: Plan to move port north to Whangārei just doesn’t stack up

Steven Joyce05:00, Nov 24 2019

OPINION: The case for moving the Auckland port to Whangārei is apparently compelling. So compelling in fact that none of us are yet allowed to see it.

The final report of three in what appears to be a very long softening up exercise was received by the Government around a fortnight ago – and it won’t be released until Cabinet has decided on it. In the meantime we’ve been treated to a round of name calling. The study’s lead author is reportedly calling people who disagree with him ‘idiots’ and ‘vested interests’, while chief lobbyist for the idea, Shane Jones, labels the current port CEO a cowardly renegade.

Respected economists NZIER and Castalia have provided critiques of the proposal, based on the earlier reports. While funded by the current port (cue vested interests attack), they highlight many useful questions like the vulnerability of the proposed new land transport corridors, the big increase in transport emissions caused by the shift, and the true costs involved (over $10 billion).

Northport, near Whangārei, could be set for expansion if plans to move Auckland port activity to the northern city.
SUPPLIED Northport, near Whangārei, could be set for expansion if plans to move Auckland port activity to the northern city.

They rightly ask why Whangarei is the favoured location now when just three years ago it ranked 12th most suitable, according to the last port study that used the same set of consultants.

More basically there is a straightforward reason why we shouldn’t attempt to shift Auckland’s port to Whangārei, and that is geography. It is simply the wrong location.

Firstly, it is too far away. The whole point of ports in port cities is to unload and load the freight close to the action, to reduce land transport costs and delays. Much of the freight that comes across the current port is utilised within 20km of it, much of that south of the Waitemata. Being close makes sense. Berthing it hours away and freighting it in by truck and train doesn’t.

Yes, Sydney and Melbourne shifted their ports, but nothing like as far. Sydney’s container port at Port Botany is 15 kilometres from their CBD. Melbourne’s container terminal is 8km from the CBD. If this project went ahead, Auckland’s port would be over 150km from the CBD.

The second geographic problem is the shape of Auckland city. It is built on a narrow piece of land just a few kilometres wide, hemmed in by two beautiful harbours which, as Aucklanders know, already make it hard to get to work each day.

Imagine instead of all the freight landing by sea near the middle of the city and radiating out from there – you land it out the opposite side of the city from where most people live and work and then use trucks and trains to freight it back down from the north and through the narrow isthmus across already over-worked land transport corridors to places like Onehunga, Wiri, and further south.

We would experience a whole new level of road and rail congestion in the north and west, and no reduction in the centre or south.

The third geographic issue relates to the area south of Auckland. Fully half of New Zealand’s population (roughly 2½ million) lives north of Taupō, around a million outside of Auckland. Only 180,000 of those live in Northland. Currently businesses serving the upper North Island have the choice of two ports each roughly 120km from Hamilton, and competition helps keep freight prices reasonable.

Shifting one of them 150km further away over the other side of Auckland would effectively reduce their options to one, and undoubtedly increase their costs.

It simply makes no sense to spend billions of dollars to reduce the competitiveness of Auckland and the upper North Island in this way.

Northland definitely needs infrastructure investment. It was shamefully ignored for decades. The last government started with the four-laning of State Highway 1 to Warkworth (under construction) and Wellsford (currently abandoned). There was the much-maligned replacement of one-way bridges – four of which have been or are being built, and upgrades to the highways north of Whangārei.

The infrastructure required in Northland doesn’t rely on the excuse of an ill-conceived plan to shift Auckland’s port. The most significant project, the four-laning of State Highway 1 to Whangārei needs to happen anyway, especially through the vulnerable choke points of Dome Valley and Te Hana. Building that over the next 10 years would unlock massive development opportunities for all of Northland, just as the Waikato Expressway has done for its region.

So I have a suggestion. Let’s re-start the Northland expressway project and maybe even start shifting the Navy up to Whangārei (which has far fewer ramifications for the wider economy). Let’s build the third main railway line at Wiri, sort out the Grafton interchange with the current port, and crack on with a third harbour crossing. Then come back and talk about the port again in a decade’s time. There is a lot to get on with now without this hugely expensive poorly argued diversion.

Steven Joyce is a former minister in the last National government.
STUFFSteven Joyce is a former minister in the last National government.

Northland port study mocked as inadequate

An economic analysis backing the move of the Port of Auckland to Northland has been panned as inadequate, poorly drafted, and full of padding.

AUCKLAND - JULY 12 2018:Freight ship in Ports of Auckland. its New Zealands largest commercial port handling more than NZ$20 billion of goods per year

Ports of Auckland. Photo: 123RF

The final report of a working party looking into the proposal was delivered to the government last week, giving its backing to a $10 billion move to Whangārei’s Northport, with the economic justification for the move contained in a report by advisory firm EY.

But Auckland’s port company has had the EY report put under the microscope by two economic consultancies – the New Zealand Institute of Economic Research (NZIER) and international firm Castalia.

Both studies said the EY report was short on numbers, made simplistic assumptions, and underestimated the costs of the plan while overestimating the benefits.

“The first and the most obvious point to make is that the report entitled ‘Economic Analysis of Upper North Island Supply Chain’ is nothing of the kind as it provides absolutely no information on how the supposed benefits are estimated,” the Castalia report said.

“The report is poorly drafted and contains almost no supporting evidence.”

WHANGAREI,NZ - Ship, wood logs and cranes in Northport

Northport in Whangarei. Photo: 123RF

Castalia said the EY study appeared to underestimate the cost of shifting the Port of Auckland to Northland by up to $3bn, while it overstated the benefits to Auckland City from freeing up waterfront land, and seemed to ignore that a shift north would likely see importers and exporters in the region put their business through the Port of Tauranga.

The NZIER analysis said the EY study was full of padding and speculation.

“The report has failed to address the feasibility question with sufficient transparency to provide a credible basis for advice to ministers.”

It also noted that EY had been involved in a 2017 report on the future of the port, which concluded the Firth of Thames or Manukau Harbour were best options for relocation and ranked the Northport option lowly.

Head of the Upper North Island Supply Chain working group, Wayne Brown, said the counter-review by the Ports of Auckland was “rubbish” and about “job preservation”.

The report given to the government relied on much more than the one EY report, with the group consulting 80 organisations, he said.

And he disputed the suggestion that carbon emissions would be greatly increased, saying Northport was closer for ships to get to and would use more rail and less roading than Auckland.

Ports of Auckland management declined to be interviewed but it a statement said the reviews spoke for themselves.

“They [the reviews] show that there are major problems with the EY study and that the idea of moving Auckland’s port to Northland is seriously flawed,” a port spokesman said.

Shipping is overtaking aviation in emission reductions

in International Shipping News 14/10/2019

Shipping and aviation emit more than 5% (pdf) of the world’s greenhouse gases, not to mention black carbon, sulfur dioxide, and nitrogen oxides. Left unchecked, their emissions could eat up nearly a third of the world’s “carbon budget,” the allowable emissions to keep the Earth’s climate below 2°C of warming this century.

It has left a giant hole in the world’s climate strategy because the industries don’t fall under any single country’s jurisdiction. But the aviation and shipping sectors, seeing a low-carbon future, have begun to act.

Aviation went first.

In 2010, international aviation said it would halt emissions growth after 2020 and committed to 2% annual fuel efficiency improvements starting in 2021. It set up an offsetting scheme to reduce emissions as it transitioned away from fossil fuels.

Shipping, as late as 2016, did little despite being responsible for more than 3% (pdf) of global emissions and set to hit 17% by 2050.

Shipping has not only caught up, it has exceeded aviation, says Ned Harvey, who manages the heavy-industry program for the nonprofit Rocky Mountain Institute (RMI). “Eighteen months ago, shipping was the laggard,” he said in an interview. “Now it’s leading.”

In 2018, the International Maritime Organization agreed to emission reductions of 50% below 2008 levels by mid-century. Financiers are adopting an emissions standard for shipping to assess their climate risk. Perhaps even more important is the launch of a carbon-neutral fleet of commercial ships starting in 2030. By that time, say scientists in the Intergovernmental Panel on Climate Change, emissions must have begun their steep decline toward net-zero by 2050 to avert catastrophic warming.

While neither sector’s emission targets will meet the 1.5°C goal agreed upon in the Paris climate agreement in 2015, shipping is now far closer than aviation. The airline industry lacks a clear plan to cut absolute emissions before 2030 or an accelerated program to wean itself off high-carbon fuels. That’s likely to exert enormous pressure on the aviation sector.

Why shipping?
Three factors have come together to accelerate shipping’s ambitions. First, pressure in the supply chain is driving cargo ship operators to clean up their act. Companies such as Amazon are committing to make their operations carbon neutral (or negative), and turning screws on companies that don’t help them comply.

Second, technology favors emission reductions in shipping. Whereas design tolerances for aircraft are tight, ships can more easily be modified for new fuels, larger batteries, and new hull designs. Hydrogen fuels, for example, may substitute for fossil fuels. Today’s (updated) ships could be retrofitted, while aircraft would need to be entirely redesigned at a cost of many billions of dollars. “We can (and are) building engines that can burn zero-emission fuels,” states the Global Maritime Forum, which is testing fuels derived from biomass, hydrogen from renewable electricity, and natural gas combined with carbon capture and storage.

Finally, banks are already moving to identify the highest emitters in the shipping industry, and evaluate them against international climate targets. That may restrict their access to capital in the future as banks seek to reduce their exposure to climate risk. The Poseidon Principles, announced this June, is the first shared standard for banks to measure and disclose climate risk in shipping, or any sector for that matter, says RMI, which helped negotiate it over two years. Eleven banks with $100 billion in shipping debt have now agreed on an emission baseline to assess climate risk and companies’ ability to meet international targets.

The Poseidon Principles, argues RMI, solve a central problem for global emission reductions: collective action. Any one firm (or country) acting alone is ineffective, even putting it at a competitive disadvantage. To succeed, firms need to compete on the same playing field. By giving banks leverage, transparency, and accountability to enforce emission targets and reduce their portfolios’ “carbon exposure” and risks related to climate regulation, laggards are pressured to catch up. A quarter of the shipping industry’s senior debt is now held by banks in the Poseidon agreement, a share that should rise to more than half by the end of the year, says RMI.

The industry’s “moon shot” goal is to float a commercial deep-sea zero-emission vessel by 2030 as a prelude to decarbonizing the fleet. Last year, the International Maritime Organization agreed to cut GHG emissions 50% below 2008 levels by mid-century, putting it, theoretically, within reach of emissions reduction consistent with the Paris Agreement temperature goals. In the meantime, the industry is exploring a suite of options, including slowing down ship speeds by 30% to save fuel (supported by chief executives of at least 107 shipping companies) and alternative fuel sources (biofuels, ammonia, hydrogen, or batteries). Little time is left to act. Given the 30-year lifespan of modern container ships, the next 18 months will be crucial for investors, ports, and shipyards to develop new marine fuels, propulsion, and infrastructure for a carbon-free transition.

Warming skies
The aviation industry isn’t idle. US airlines’ fuel efficiency rose 130% between 1978 and 2018, according to the trade association Airlines for America, allowing the industry to transport 42% more passengers and cargo while only releasing 3% more emissions.

But its early ambitious goals are now behind the science calling for a world with less than 2°C warming. The rise in the number of air passengers, set to double by 2035, has swamped efficiency gains by a factor of three in recent years. Cutting back emissions has become harder as efficiency improvements yield less gains over time (most were from normal turnover of aging aircraft). Flying, which already accounts for more than 2% (pdf) of global CO2 emissions, could soar to nearly a quarter of global GHG emissions by mid-century.

Unlike shipping, aviation doesn’t have an clear path to give up fossil fuels in the foreseeable future. The industry has agreed to keep emissions at 2020 levels, but to meet its goal of zero-carbon growth it must invest in emission reductions in other sectors. It’s relying on a combination of better technology, efficiencies such as satellite aircraft control, and offsets. Lots of offsets.

The Carbon Offsetting and Reduction Scheme for International Aviation, properly administrated, say groups like the Environmental Defense Fund, could tamp down emissions, but a few details have to be ironed out. If not well designed, or kept cheaper than alternatives, the industry will never be incentivized to develop low-carbon synthetic fuels. Such solutions are years (perhaps decades) away from leaving the ground. While electric and hybrid aircraft are taking off (Sweden and Norway plan to eliminate fossil fuels for all short-haul flights by 2040), they won’t be suitable for longer flights for the foreseeable future.

Yet pressure is building. If governments don’t act, customers will. “Flight shaming” is spreading from Europe to the US, convincing travelers to forgo air flights and ratcheting up pressure on the industry to move faster. In Sweden, flights have fallen by 9% this year, in part due to flygskam, or flight shame. Germany is proposing taxing airlines and subsidizing rail. “Unchallenged, this antiflying sentiment will grow and spread,” Alexandre de Juniac, head of the International Air Transport Association, told Bloomberg. “Politicians aren’t sticking up for us.”
Source: QZ

One month on from Saudi oil facility attack and motorists are still paying more at the pump

Petrol prices in New Zealand are yet to return to levels experienced prior to an air strike on a Saudi Arabian oil facility a month ago.

On September 15, drones were used to attack oil processing facilities in eastern Saudi Arabia causing the price of Brent crude, one of two global benchmark prices for oil, to jump US$6.45 (NZ$10.23) to trade at US$66.67 a barrell (159 litres).

In response BP and Z Energy increased the price of petrol and diesel in New Zealand by 6 cents a litre. The petrol companies said the hike was due to the Saudi attacks and currency movement. The New Zealand dollar had softened against the US at the time.

One month on from the attacks and New Zealanders are still paying more for petrol despite oil prices dropping below pre-attack levels weeks ago. On Saturday Brent crude traded at US$60.69.

Larry Green from petrol price comparison app Gaspy said before the attack the national average price of 91 unleaded in New Zealand was $2.16.

The drone attacks on Saudi Arabia's oil plants roughly halved the country's oil output for a time.
The drone attacks on Saudi Arabia’s oil plants roughly halved the country’s oil output for a time.

After the attack it spiked to $2.22. On Monday the national average was $2.19.

Green said petrol companies were quick to hike their prices in response to the attack but slow to return them to pre-attack levels.

“Price rise very quickly and are very slow to come down,” Green said.

Gaspy co-founder Larry Green says petrol prices are dropping, just much slower than they increased.
SUPPLIEDGaspy co-founder Larry Green says petrol prices are dropping, just much slower than they increased.

Z and BP said there were a number of factors that influenced the price of fuel, oil prices being just one of them.

Z spokeswoman Victoria Crockford said its prices were determined by a range of factors that changed daily, including but not limited to the cost of crude oil, foreign exchange rates, the cost of transport, the cost of site infrastructure and maintenance and local competition in the area.

“So, while Brent Crude is a natural indicator for people to look to, and one we use in our overall equation, it is by no means a ‘cent for cent’ process in terms of our everyday pricing – neither when prices go up, nor when they go down,” Crockford said.

Petrol companies hiked petrol prices by 6 cents a litre immediately after an attack on a Saudi oil facility.
GETTY IMAGESPetrol companies hiked petrol prices by 6 cents a litre immediately after an attack on a Saudi oil facility.

She said the cost to freight crude oil from the Middle East to New Zealand had increased up to 3 per cent off the back of US sanctions on Iran that implicated a large Chinese shipping company which shipped 3 per cent of global freight.

BP spokeswoman Anna Radich said its prices were reviewed every day to ensure they were as competitive as possible.

BP explains fuel pricing on its website.

AA petrol spokesman Mark Stockdale said tracking petrol price movements was difficult because there was such variation across the country.

“There’s just so much regional price disparity,” Stockdale said.

Automobile Association petrol spokesman Mark Stockdale says petrol prices are more closely linked to competition than oil prices.
KENT BLECHYNDEN/STUFFAutomobile Association petrol spokesman Mark Stockdale says petrol prices are more closely linked to competition than oil prices.

“The market is much harder to monitor than it used to be as a result of the increasing level of price competition within regions and between regions.”

In some parts of the country prices hadn’t changed since before the Saudi attack, he said.

The price of refined petrol was disparate from the commodity price, he said.

“It’s much more closely linked to competitive behaviour.”

The Ministry of Business Innovation and Employment carries out weekly monitoring of importer margins for petrol.

The importer margin is the gross margin available to fuel retailers to cover domestic transportation, distribution and retailing costs in New Zealand, as well as profit margins.

The provisional weekly average importer margin for the first week of October was 27.62 cents per litre, compared to 27.95c per litre a month ago, showing margins had dropped slightly since the Saudi oil strike.

Stuff