When the IMO decided on the 2020 date for introducing the reduction in the global sulphur level in fuels, the CE Delft report on which the decision hinged forecast that 3,800 ships would have systems installed by the deadline.
The Delft report also suggested that most of these would be installed from the second half of this year and through to 2020. The current view of scrubber manufacturers is that the 3,800 ships is now an ambitious target but the reports other finding that scrubbers are cost effective on more than half of the world fleet rising to at least 75% of the fleet of existing and newbuildings with an installed power of 20MW and above. Even smaller newbuildings would find scrubbers a cost-effective solution to the 2020 challenge.
Today, the cost effectiveness of scrubbers could be even better as when the Delft report was published in 2016, bunker prices were $252 for HFO and $452 for MGO. Table 32 in the report forecast the figures for 2018 would be $377 and $552 and for 2020 $466 and $616 respectively. It is difficult to say what the actual figures for 2020 will be but presently the global average for bunker prices stands at $472 for HFO and $732 for MGO already above the report forecast and significantly so as far as MGO is concerned.
For all but the relatively few ships with dual fuel engines, MGO is the only practical alternative to a scrubber if one discounts the promised new fuels that are promised as being almost ready to be made available in time for 2020. The problem for owners is whether or not compliant fuels will be available where they are needed.
Bunker supplier need to be certain of a market for their products, so it is likely that most of the new fuels will be delivered to major bunkering hubs leaving vessels operating away from the likes of Singapore, Rotterdam and Houston with less options and higher priced MGO.
As the deadline draws ever closer and fuel prices seem to be on an upward trend, shipowners will need to decide pretty quickly if the scrubber route is one that they wish to tread. For any owner willing to commit now the chance of being ready for 2020 is almost guaranteed but as time passes so the ability to complete installation in time diminishes.
Exactly how many scrubber sales are taking place is open to question. Often orders are not made public and when they are a long time lapse may have occurred. But there is a definite trend towards acceptance of scrubbers. In June Star Bulk announced in an investors meeting that it was adding to the two scrubbers already installed on its fleet with orders for systems for 22 more vessels. Other owners have also been upbeat about installing scrubbers.
Also in June two financial institutions with large shipping portfolios were talking enthusiastically about scrubbers and their benefits. During Posidonia, DVB’s head of Shipping and Offshore Research Department, Henriette Brent-Petersen said that scrubber-equipped vessels have a competitive advantage and would be attractive for financial support.
A similar sentiment was expressed more recently when Deutsche Bank analyst Amit Mehrotra reiterated a ‘buy’ rating for Star Bulkers partly because of the competitive advantage that its scrubber installation strategy will give it over rivals.
Mehrotra makes the point that as well as the cost saving that running on HFO allows, the freight level that its vessels can achieve on the spot market will be the same as ships which are obliged to cover higher fuel costs if running on distillates. Star Bulk’s own CEO also listed another advantage of scrubbing saying that if necessary the company’s ships can run at higher speeds for the same outlay in fuel thus beating competitors to cargoes or achieving more voyages per year.
One of the arguments frequently made as a possible downside to scrubbers is that refiners may be obliged to limit production of traditional HFO in order to meet the demand for low-sulphur products. It is always a danger that this may happen, but many analysts see things differently. Their argument is that if refiners need to produce more low-sulphur products they will need to refine more crude and that will mean more residual fuel that is virtually unsellable in most of the world other than as fuel for ships.
Newcomer sees big potential
Another indication that scrubbers are becoming more accepted is the number of new players entering the market. One of those, Global marine consultancy Viswa Group, revealed in an interview with Platts last week that it is developing its own scrubbing systems.
Ram Vis, founder and CEO of Viswa Group said in the interview that he believed uptake of scrubbers is likely to see a dramatic rise in the future, with at least 60% of the current ships expected to opt for scrubbers by 2022.
Vis believes that the price differential between HFO and MGO could widen to as much as $500 per tonne by 2022. Even with a differential of just $200 the additional cost for a mega container ship would be $50,000 per day base don a consumption figure of 250tonnes per day. Assuming the vessel sails for 300 days, the vessel will pay an additional $15 million each year for using MGO, he said.
Scrubbers for a vessel of such size cost about $6 million including installation. This translates into a return on investment of only about five to six months should a shipowner opt for scrubbers, he added. "Since the ROI is one year or less depending on the size of the vessel and there are a lot of financing agencies ready to help, we are very positive about scrubbers," Vis said, adding that "if the vessel is owned and operated by the same party, fitting a scrubber is a no-brainer."
Image source: Carnival Corporation