Scorpio tankers postpones 19 scrubber installations amid deteriorating economics
Scorpio Tankers is postponing the installation of 19 exhaust gas cleaning systems, or scrubbers, as the spread between 0.5% sulfur fuel oil and scrubber-worthy 3.5% S FO narrows, the company said Wednesday.
The installation of these scrubbers is now expected to begin not earlier than 2021,” Scorpio said in an earnings report.
Vessels not equipped with scrubbers cannot burn fuel with a higher sulfur content of 3.5%, as mandated by the International Maritime Organization. The IMO-compliant fuel commands a premium over high sulfur fuel oil.
Shipowners planning to install scrubbers on their vessels are contending with the prospect of worse payback economics. The price difference between 3.5% and 0.5% bunker fuel — a key indicator of the investment payback for scrubber installations — averaged $58/mt on a delivered basis Rotterdam in April, S&P Global Platts data showed. This is a drop of $176/mt or 75% from January’s average, blowing many expectations out of the water in the year that the International Maritime Organization’s 0.5% limit on sulfur content took effect.
“Bearing in mind now the fuel cost difference is only $50/mt, payback times are four years for open looped scrubbers and more than six years for closed-loop scrubbers [while] at the beginning of the year, payback times were one year,” said Fabian Kock, maritime chief for environmental certification at DNV GL, a Norwegian risk management company.
New conversion orders for engines retrofitted with scrubber installations were heard to be still coming inm but at really low levels, Kock said in a recent interview with Platts.
“In January [the fuel price difference] was about more than $300/mt and, based on that, it was a big advantage if shipowners had installed scrubbers,” he said.
As oil markets around the world grapple with the prospects of reduced demand and supply overhangs in the wake of the pandemic, S&P Global Platts Analytics has revised down estimates for scrubber installations expected by the end of this year following delays and cancellations to retrofits.
“Platts Analytics previously projected 3,500 scrubber installations globally by the start of 2021, but this will likely not be met with disruptions from coronavirus and cancellations due to the narrowing price spread between high- and low-sulfur fuel,” senior analyst Alexander Yap said.