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Tanker Shipping & Trade

2020 fuels spread could give scrubber-fitted tankers advantage in charter market

Tue 23 Oct 2018 by Jamey Bergman

2020 fuels spread could give scrubber-fitted tankers advantage in charter market
VLCC owners could see savings of more than US$40,000 per day (photo: Public Domain via Wikimedia Commons)

Time-chartering vessel owners opting for scrubbers stand to benefit as IMO’s 2020 global cap on sulphur in marine fuels comes into force, according to study data.

An 80-page study by AXSMarine’s tanker market analysis arm Alphatanker predicted that VLCC owners with scrubbers fitted on their vessels could see savings of more than US$40,000 per day over competitors without them, as Tradewinds reported.

The changeover to low-sulphur marine gasoil (MGO) necessitated by the IMO sulphur cap could create a lasting tightening in supply for MGO, raising prices significantly, while drastically reducing prices of the high sulphur fuel oil (HSFO) that will be glutting the market, according to the report.

The report said each per-tonne increase of US$50 in the price differential between MGO and HSFO would work out to a saving of US$3,000 per day for VLCCs with scrubbers.

The report’s projections are based on a scarcity of VLCCs with scrubbers installed and predicted that 1,550 vessels of all kinds globally will have scrubbers installed by 2020.

In early October 2018, DNV GL estimated the number of vessels that would have scrubbers installed by 2020 to be 1,250. The DNV GL study also said more than 1,000 scrubbers had been ordered in the six months between April and September 2018.

Scorpio Tankers recently agreed to retrofit 15 of its LR2 tankers with scrubbers and signed letters of intent to do the same on a further 75 of its LR2, LR1 and MR tanker fleets, totalling 90 likely scrubber orders for that company, alone, all to be completed before Q2 2020.

A 2016 study prepared for IMO by CE Delft used a model that included a range of outcomes between 1,200 and 3,800 ships with scrubbers installed by the 1 January 2020 sulphur cap implementation date. The EGCSA said in July that total scrubber installations completed or on order in the global commercial shipping fleet were nearing 1,000 vessels.

In another report, research and consultancy firm Maritime Strategies International (MSI) said dry bulk vessels that added scrubbers early would be rewarded with premium charter rates, but the competitive advantage would not last forever.

“As long as significant fuel price differentials remain between HFO and low sulphur fuel oil, vessels with scrubbers installed will attract a charter premium,” said MSI analyst Will Fray.

“As more and more ships fit scrubbers, and over time as the finance is collectively repaid, vessels without scrubbers will face steep discounts and will become increasingly uncompetitive.”

MSI calculated that in 2020, the value of the time charter premium for a Capesize vessel fitted with a scrubber will be US$12,100 per day, for a Panamax vessel it would be US$6,800 per day, Ultramax US$6,300 per day and Handysize US$5,100 per day.

The consultancy said the daily-equivalent cost of a financing, fitting and operating a scrubber is a fraction of this, creating a strong financial incentive to fit a scrubber.

MSI also predicted increased asset values for tankers with scrubbers.

“The strong cost savings potential will have a positive impact on values of assets with scrubbers fitted as long as a timecharter premium exists. Theoretically, the value of a scrubber being installed can be calculated as the net present value of all future cash flows of the scrubber, including revenue, costs and terminal value,” Mr Fray said.

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