Keeping 2020 options open

Malcolm Latarche
Malcolm Latarche

15 August 2018


With 2020 and the global cap on sulphur in fuels edging ever closer, some shipowners it seems are adopting strategies that keep their options open. With really only thee alternatives on the table – new low sulphur fuels, LNG or HFO and a scrubber – and no sign that the IMO is going to offer any transitional arrangements, operators that adopt the default low-sulphur fuel approach may be holding themselves hostage to fortune when the bunker market finally makes up its mind which way to go.

As ShipInsight has previously reported the number of scrubber sales has accelerated through 2018 with the trend looking to continue through the remainder of this year and next. Whether there is sufficient engineering capacity to allow for much more acceleration is a moot point but even a period of enforced running on low-sulphur fuels immediately after 2020 may be preferable to not installing a scrubber at all.

In the first half of August two shipowners that had previously dismissed scrubbers as being ‘not for them’ seem to be having a rethink. Scorpio which runs both bulkers and tankers had previously said that there were too many risks involved with installing scrubbers to make a compelling case for them but more recently the company has softened its stance and scepticism with COO Cameron Mackey saying Scorpio was still evaluating the position.

Container operator Hapag Lloyd is another owner that has dismissed scrubbers on several occasions but given no clear indication of its future strategy. In its half year report issued in early August, the company said that it would be starting two projects including installing scrubbers on two of its larger vessels and converting one of the 17 ‘LNG Ready’ vessels it acquired during the merger with United Arab Shipping Company last year to run on LNG.

Converting one or more of the UASC vessels to LNG would seem to be a sensible move given that the vessels were obviously intended to be converted at some time but the reversal of the company position on scrubbers was much less predictable. Conceivably it may have had something to do with the rising price of crude oil through 2018 which was mentioned several times in the half year financial report.

The oil price and its impact on bunkers is something that is out of shipowners control but also something that must be considered especially in regard to the payback period for scrubbers. Higher prices and higher differentials between HFO and distillates make scrubbers a more attractive proposition and it cannot be denied that crude prices are significantly up by around 20% in the first half of the year. However, as the US dollar has strengthened through July/August the price of crude has softened noticeably and analysts are now predicting that the price could fall further still and end the year below where it started at around $60.

For shipowners, the yo-yoing of crude prices can make decision making more difficult but the bullet has to be bit soon and if options are to be kept open after 2020, the optimism of scrubber manufacturers is well justified. With big names such as Frontline, MSC, Wallenius, Grimaldi and now Hapag Lloyd either taking the plunge or just dipping a toe into the water, the less pioneering types are sure to follow at some point. The more that do so will surely give a lead to refiners that demand for HFO will remain strong and so convince them to ensure supplies after 2020 and remove one of the worries that shipowners have had over the last few years.