SHIPPING & OIL PRICES 
FOSSIL ENERGY IS GETTING MORE EXPENSIVE

Our planet’s fossil and exhaustible energy reserves – coal, oil, gas and uranium – are limited. As demand and production costs (e.g. because of peak oil) continue increasing, so too do the prices for these resources. According to IEA estimates, oil production will reach 104 million barrels per day by the year 2030. The additional production volume needed to compensate for rising demand and declining production rates until that time is 64 million barrels per day. This figure represents six times the current capacity of Saudi Arabia, the largest oil-producing country in the world.

Over the past 25 years before the current economic crisis, crude oil prices have risen continuously – between 1982 and 2007 by 11% on annual average. Since its low in March 2009 the price of oil has once again increased to far over 100 USD. Experts expect oil prices to go up even further in then next few years. The International Energy Agency (IEA) assumes that the price of oil will rise once more to 200 USD by the year 2013.

As a consequence, there is an increase in the cost of ship fuels (bunker oil) as well. This development places tremendous financial pressure on the shipping industry as fuel costs often account for more than half of a ship's operating expenses already at only 500 USD per ton of bunker fuel. And prices are much higher today.

Limited Refining Capacity as Oil Price Driver

Experts believe that fuel prices will go up once more by enacting the ban on heavy fuel oil. The reason is that refinery capacities are too limited to cover the demand. And when it comes to the demand for fuel it’s important to keep in mind that ships will be competing with cars, trucks, heating oil and all other onshore oil consumers in the future.

Modern refineries are designed to produce less heavy fuel oil and more high-quality (and high-priced) refined products. As a result of this, trade associations believe that refineries are not able to cover the additional demand. And for the shipping industry, the situation is already making a turn for the worse over the short term: Since refineries are producing less heavy oil, the prices for heavy ship fuels are rising disproportionately even today.

Disproportionate Increase in Fuel Costs for Shipping Companies

All in all these developments imply that fuel costs for shipping companies will double or even triple in the future compared to today’s level. Thus ship operating costs will predominantly be determined by the cost of fuel in the future.