Favourable scrubber economics driving the crude tanker orderbook

As long as the scrubber economics are favourable, we will see the domination of scrubber-fitted crude-carrying vessels in the orderbook. Currently, the orderbook comprises 201 tankers with the majority being Suezmaxes (as of July 2024). A substantial number of the ships being built (i.e. ~59%) will run on HSFO (IFO 380) as their primary fuel and will be fitted with scrubbers to manage their SOx emissions as per IMO 2020 regulations. Of the vessels running on HSFO, 44% will be “ready” to run on either of the cleaner fuels – LNG, methanol, or ammonia.

Analysing the orderbook, we find that about 60% of the vessels are scrubber-fitted, indicating the reluctance of the shipping industry to move away from HSFO to VLSFO. Shipowners are rather preferring to invest in scrubber devices.

We believe the future will unfold in either of the following three scenarios – S1, S2, and S3, where S1 denotes the low-case scenario, S2 base-case and S3 high-case. We assume the price differential between VLSFO and HSFO is at $50 per tonne in S1, $100 per tonne in S2 and $200 per tonne in S3. S1, being the low-case scenario, has crude oil prices on the lower side of the spectrum due to which the spread between VLSFO and HSFO prices narrows. Coming to S2, it is a business-as-usual scenario with future prices remaining similar to the present values. The price differential at present ranges from $100 per tonne to $150 per tonne; we assume it to be $100 per tonne for our calculations ahead. Meanwhile, in S3, we assume crude oil prices will go much higher than the current prices. When crude oil prices increase, VLSFO prices increase more sharply than HSFO, widening the price gap between the two.

From the above figure, Drewry infers that whenever the price differential between VLSFO and HSFO increases, the shipping industry reacts to it by ordering a higher number of scrubber-fitted vessels, albeit with a lag of 6-12 months.

Economics of scrubber technology

The cost of installing a scrubber device in a new vessel ranges from $2-$5 million.

Assumptions by Drewry:

Cost of installing a scrubber device in a new vessel: ~ $3 million

Vessel utilisation: 80%
1. Voyage charter:

Fuel consumption of a vessel on an average assumed to be: 80 tonnes per day

In the case of a time charter, TC rates will affect the payback period.
The difference in TC rates between scrubber-fitted and non-scrubber-fitted vessels (VLCC Eco) ranges from $3,500 to $6,500 per day.

TC rate difference between vessels due to scrubber presence assumed to be: $5,000 per day
After a span of 2 years, shipowners can continue to benefit from the differential between TC rates for scrubber-fitted and non-scrubber-fitted crude tankers until the end of the scrubber’s lifespan.

Conclusion

From the above analysis, Drewry considers scrubbers’ payback period attractive. Hence, it would be prudent for shipowners to opt for scrubber-fitted vessels. Besides having an attractive payback period, scrubbers can also be adapted to capture carbon emissions from ships. With mounting pressure from regulations governing emissions from the shipping industry, it is best for the stakeholders to be prepared to manage carbon emissions as well. This adds to the financial attractiveness of scrubbers.
Source: Drewry (https://www.drewry.co.uk/maritime-research-opinion-browser/maritime-research-opinions/favourable-scrubber-economics-driving-the-crude-tanker-orderbook)