“For want of a nail the kingdom was lost” – Proverb
Long-haul trucking is one of those industries that everybody relies on, but few spend much time thinking about. The men and women who crisscross our highway systems to deliver critical cargo are among the unsung heroes of our economy. Without them, our entire just-in-time economic system would quickly collapse.
And almost all of them drive diesel trucks.
Diesel is the engine of choice for long-haul truckers because it provides superior torque at low RPM, which is critical for pulling heavy loads. Diesel engines are also more efficient, reliable, and durable. More than 97% of all Class 8 trucks currently on the road in the US are powered by diesel, a number we don’t expect will change any time soon.
Diesel does have one major drawback – or at least it did. Left untreated, a diesel engine emits an enormous amount of soot, known as diesel particulates, as well as nitrogen oxides (NOx), which cause all manner of undesirable environmental damage. We’ve all observed the black clouds of nastiness that sometimes explode out of the exhaust of diesel trucks.
Because of its serious toxicity profile, the US Environmental Protection Agency (EPA) has made eliminating NOx emissions a top priority for decades. Here’s how the online science news aggregator Phys.org describes some of the issues with NOx:
“NOx has direct and indirect effects on human health. It can cause breathing problems, headaches, chronically reduced lung function, eye irritation, loss of appetite and corroded teeth. Indirectly, it can affect humans by damaging the ecosystems they rely on in water and on land—harming animals and plants.”
Beginning in 2008, the EPA mandated that diesel particulate filters be installed on all trucks larger than three-quarter-ton. By 2010, a new technology designed to substantially reduce NOx emissions – diesel exhaust fluid (DEF) with selective catalytic reduction (SCR) – was ready for commercial deployment, and the EPA quickly mandated its use, as did many governments worldwide. The wide-scale adoption of DEF/SCR technology is undoubtedly one of the most impactful and positive environmental accomplishments of our time. Here’s an explanation of how the technology works courtesy of MMM Freight Corp, along with a simplified diagram:
“The purpose of the SCR system is to reduce levels of NOx (oxides of nitrogen emitted from engines) that are harmful to our health and the environment. SCR is the aftertreatment technology that treats exhaust gas downstream of the engine. Small quantities of diesel exhaust fluid (DEF) are injected into the exhaust upstream of a catalyst, where it vaporizes and decomposes to form ammonia and carbon dioxide. The ammonia (NH3) is the desired product which in conjunction to the SCR catalyst, converts the NOx to harmless nitrogen (N2) and water (H2O).”
The use of DEF is so important that new trucks incorporating the technology are designed to stop working if the DEF fluid runs dry. They literally become undriveable bricks. That’s clearly a huge inconvenience for an individual driver, although the vehicles are designed to give plenty of warning ahead of time. But what would happen if an entire country ran out of DEF fluid? Amazingly, we might be about to find out.
As regular readers of Doomberg will know, we’ve been flagging huge disruptions in the fertilizer market – and the inevitable consequences that will follow – for some time. The natural gas crisis in Europe became a full-blown energy crisis that bled into China, and since natural gas is the critical input into the production of fertilizer and countless other high-value goods, the crisis has quickly morphed into a food and manufacturing crunch. Well, as luck would have it, DEF is nothing more than liquid fertilizer.
DEF fluid – which is sometimes referred to as AdBlue, in the way that tissues are referred to as Kleenex – is a mixture of 32.5% urea and 67.5% distilled water. Urea can be thought of as a solid form of ammonia (it is manufactured by reacting ammonia with CO2), and it is used the world over as a nitrogen-rich fertilizer. Since ammonia is produced via the Haber Process using natural gas, we can now connect the dots from Europe’s energy blunders to potential wide-scale bricking of diesel trucks. And nowhere is that risk more acute than in Australia. For details, we turn to the Australian Broadcasting Corporation (emphasis added throughout this piece):
“Diesel trucks and the people who drive them are often described as the lifeblood of Australia – almost everything we buy in this country spends some time on the road. Now, the transport industry is warning of a potential crisis that could see the nation's diesel trucks grind to a halt. There's a looming shortage of an important chemical used to remove pollution from the exhaust of diesel trucks. Without it, the trucks can't run.
‘In most of the modern diesels, there's a chemical added to the system called AdBlue,’ Warren Clark, from the National Road Transport Association, told the ABC. ‘A lot of the AdBlue, or the chemical that goes into making it, is imported from China. The supply of that chemical urea has dried up from China. And hence, there's now a massive shortage of AdBlue In this country.’”
Mr. Clark went on to warn of the dire consequences that Australia risks suffering in as soon as a few weeks:
“I had a member call the other day. They've got 250 prime movers. So they're a big organisation, a lot of their fuel they buy in bulk — they are basically out of AdBlue next week. If this is not solved by then, then we have a major problem. So you're not got anything getting delivered to supermarkets, you've got power not being generated. In South Australia, you've got tractors that can't harvest, you've got hospitals that don't have back-up generators, all this sort of thing. So it's a major problem, if it doesn't get solved.”
Until recently, Australia imported nearly 80% of its urea from China. A few weeks ago, China banned the exports of urea to keep homegrown fertilizer prices under control. We’ve previously highlighted ongoing trade tensions between the two countries, and although there’s no evidence China’s urea export ban was specifically targeted at Australia, there’s no denying the critical blow China’s move has delivered to the land Down Under. An updated report published Monday indicates widespread panic buying of DEF is underway, further exacerbating the crisis and accelerating the potential day of reckoning.
Will Australia’s economy come to a grinding halt? Probably not – we assume some combination of securing new urea supply and figuring out ways to allow diesel trucks to pollute again will be implemented. Are they much closer to the abyss than most could have imagined even a few weeks ago? You bet. But not everybody is surprised. We leave you with a quote from Starvation Diet, a piece we wrote nearly two months ago:
“We’ve written extensively about how the market for energy in Europe broke and how the ripple effects will snap through our delicate supply chains like a whip. When the supply of critical goods goes short, countries implement protectionist policies in a futile attempt to minimize the impact at home. A cascading series of retaliatory moves usually follows, leading to economic vapor lock.”
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