To “Scrub or not to Scrub”?: That is the Question for Ship Owners
As the 2020 deadline for the implementation of IMO’s rules of the use of low-sulphur fuels nears, the question among the ship owning community regarding the installation or not of scrubbers seems to intensify. In its latest weekly report, shipbroker Gibson said that “the scrubber debate continues with the same intensity as it did six months ago, although there appear to be fewer announcements for new installations. According to the DNV GL, the number of new bookings for fittings during 2019 decelerated over the past couple of months. It remains to be seen whether this slowdown is attributable to a diminishing appetite for scrubbers or limitations in yard/manufacturing/equipment capacity. On the face it, perhaps the latter is true since the interest in installations over the course of 2020 continues to grow, although absolute numbers are much lower versus 2019 figures”.
According to Gibson, “there has also been a shift in the regulatory landscape, with open loop scrubbers getting more attention. Since the mid-1970s, Belgium has had a law banning any discharge within a 3-mile zone off its coast. Also, washwater discharge is banned in Lithuania, Latvia and in Dublin, Ireland. In the US, open loop scrubber discharge is not allowed in California and Connecticut. More recently, Singapore has announced a ban on open loop scrubbers effective January 1st 2020. China has also started to limit their usage. According to BIMCO, since the 1st January 2019 a ban has been introduced on the discharge of wastewater from scrubbers within China’s inland ECAs, port waters under coastal DECA and the Bohai Bay waters. Furthermore, the expectations are that a full ban along coastal ECAs could be soon introduced. Australia stated it will review its policy on open-loop systems, while Norway is expected to ban open loop scrubbers in its fjords, once all the regulatory procedures are met. The rising trend of scrubber usage bans in coastal waters is a concern for those opting for the technology and/or considering it. However, this largely means adopting the same approach which already exists within Emissions Control Areas (ECAs); in other words, burning LS MGO in ECAs and HSFO elsewhere. For large deep-sea vessels, where most of the scrubber investment has gone, operations in ECAs and hence the extra cost of LS MGO bunkers is marginal considering the typical long-haul nature of trade for these types of ships”.
The shipbroker added that “we are also starting to get the first feel of the spread between HSFO and a compliant 0.5% bunker fuel. Two major price reporting agencies – Argus and Platts have started producing physical assessments of 0.5% sulphur marine fuels, while NYMEX and ICE are introducing future contracts. Separately, in early January CPC published its first general indication for 0.5% LSFO180, which has been priced at a premium of around $100/tonne versus 180 cSt HSFO (in Taiwan). Around the same time, Platts was quoted pricing 0.5% sulphur bunker fuel (barge assessment) at an even lower level – just a $40/tonne premium in Singapore. The current spreads are notably below those expected by the market in 2020 but it is important to note that prompt demand for compliant fuels is yet to emerge”.
Gibson concluded that “the economics of a scrubber retrofit will of course be impacted if the spread between 0.5% sulphur bunkers and HSFO turns to be much smaller than expected. With newbuilds, the picture is not as clear cut, as the cost of installation is much cheaper and without additional down time. As such, the open loop scrubber repayment period will still be fairly short, somewhere between 9 to 16 months, even if the spread in bunkers averages at $100/tonne and the ban on the discharge of scrubber washwater is introduced within coastal waters globally. Yet, the risks remain that regulations may evolve further, open loop scrubbers might see a global ban, the spread may fall to negligible levels or HSFO availability might decline dramatically over time”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide