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20-02-2019

About 8% of bunkers consumed in 2020 likely to be scrubbed – MECL MD

Despite recent announcements by some ports to ban wash water discharge from open-loop scrubbers in their waters, about 8% of total bunkers consumed in 2020 will be scrubbed to meet compliance with the International Maritime Organization’s global sulfur limit rule for marine fuels, Robin Meech, MD at Marine and Energy Consulting Limited said.

This is consistent with an estimate provided last year by Meech, who has been involved in the reduction of sulfur emissions from the marine sector for over three decades.

In January, the Port of Fujairah issued a notice banning the use of open-loop scrubbers in its port waters.

Singapore is set to implement the ban from January 1, 2020, while China has already done so from January 1, 2019 in its emission control areas covering inland waters and most of its coastline, including Bohai Bay waters.

Open-loop scrubbers have also been banned much earlier in many other regions.

“Banning EGCS [exhaust gas cleaning systems or scrubbers] in ports and territorial waters will only reduce their viability by a small amount,” Meech said in an interview with S&P Global Platts.

“EGCS are viable on most vessels consuming more than 12,500 tons/year of main engine bunkers. These vessels are long haul and the ban reduces consumption of HSFO [high sulfur fuel oil] by a very small amount,” he added.

Globally, there also would not be sufficient 0.5% sulfur compliant fuel to meet demand in 2020, Meech said, adding that distillate prices are likely to escalate while HSFO prices will be heavily discounted, encouraging owners to use it.

Lower fuel costs, favorable economics, greater flexibility to carry HSFO, reduced or avoiding use of incompatible 0.5% fuels still make them a viable compliance option, Meech said.

This is also supported by the fact that many shipowners are still maintaining their initial strategy of investing in scrubbers.

Scorpio Tankers this month said it will continue to install scrubber systems on 75 of its tankers as economic factors supported its choice.

It projected savings of $908,400/year for a Medium Range tanker with a scrubber system, a time charter equivalent saving of $2,489/day while Long Range 1 vessels with scrubber systems were projected to save $1,017,450/year, a time charter equivalent saving of $2,788/day, Platts reported in February.

The projections were based on the spread between marine gasoil and HSFO prices.

Star Bulk Carriers, after having procured a green loan last year to retrofit scrubbers, is also advancing its plans.

With a difference of about $250-$300/mt between HSFO and 0.5% sulfur compliant fuel oil prices, “we may be able to repay the scrubbers within a year or so,” company CEO Petros Pappas said this month.

According to Meech’s estimates, the spread between 0.5% and 3.5% sulfur fuel oil prices would likely narrow to about $176/mt in 2025, from around $279/mt in 2020.

However, Meech lowered his current estimate of scrubbers uptake for 2025 to be equivalent about 29% of total bunker demand from about 33% projected last year.

“The reduction in the 2025 estimate is a review of perceived future prices with today’s view that the average 0.5%-HSFO differential will be smaller over the period 2020 to 2025 reducing the uptake in retrofits,” Meech said.

Still, even after 2025 large new builds get their capital cost back in less than five years with the most pessimistic price difference of $70/mt between 0.5% and HSFO, he said.

Meech also said that it was desirable for shipowners opting for scrubbers to enter long-term HSFO contracts.

“A long-term contract reduces some of the non-availability issues but I would advise to try for assistance with financing a retrofit in conjunction with the supply contract. Doing so may be more difficult with new builds but the nature of the shipping industry is changing, and relationships are becoming more complex,” Meech said.

Meanwhile, shipowners should consider some key issues before installing scrubbers, Meech said.

They should assume that HSFO will only be available for 85% of stems, cannot be used in port, try to gain a better understanding of each vessel’s trading pattern and negotiate a premium from charterers beforehand, he said.

Among other things, shipowners should also ensure a robust installation schedule before committing to timing and costs associated with installing the technology, try and schedule retrofits with dry docking, include commissioning, training and six months back up in the contract with scrubber manufacturers and look to the myriad of financing options, he added.
Source: Platts

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