Scrubbers: Do the numbers stack up? Views from CMA Shipping

Scrubbers: Do the numbers stack up? Views from CMA Shipping

The financial case for using scrubbers to comply with the global sulphur cap seems compelling, but so far restricted uptake means HSFO supply infrastructure will probably also be limited and there won’t be much of a HSFO spot market. The advice from the supply side to owners is to secure term contracts. Meanwhile, figures for current and predicted scrubber installations by 2020 remain notoriously difficult to pin down.

There were two conference sessions dedicated to the International Maritime Organization’s global 0.50% sulphur cap in 2020 at the Connecticut Maritime Association Shipping 2018 event. Both sessions had presenters talking about the role of exhaust gas cleaning systems (EGCS), or scrubbers, as a compliance option. This will allow ships to continue to burn high sulphur fuel oil (HSFO), which is expected to become so cheap compared to low sulphur marine fuel that the payback period will be quick. The views, as always, varied, but the trend is clear: the number of ships expected to have scrubbers in 2020 is so small that demand will not justify a large HSFO supply network.

How many ships with scrubbers?

The base case in the official availability study for the IMO predicted that 3,800 ships would be ready to comply with sulphur regulations by using scrubbers in 2020, burning some 36 million metric tonnes (mt) of HSFO accounting for 11% of total global marine fuel demand. That figure now seems overly optimistic unless installations pick up dramatically.

And they are, according to Arlie G. Sterling, President, Marsoft Inc. who spoke in a session entitled “The Economic Calculus of 2020” on Tuesday. “Right now there is more going on than in the last five years,” he said, adding that there had been more deals closed for scrubber installations in the last three months than in the previous 15 months. Asked by IBIA how many ships he thought would be ready to use scrubbers in 2020, he said maybe 2,000 to 3,000 ships, meaning a “significant role” for HSFO.

On Wednesday in the CMA Bunker Session, Dr. Vis, Founder, Visa Lab, suggested there will be around 2,000 ships with scrubbers by 2020, which would put demand for HSFO from ships with scrubbers at 11 million mt. He was promoting a horizontal scrubber unit developed by his company and concluded his presentation by saying: “One year from now you will all be lining up outside my office to order scrubbers!”

Michael Green, Global Technical Manager – Bunker Fuel Testing, Intertek ShipCare Services, who takes over as Chairman of IBIA on April 1, 2018, summed up the numbers in his presentation.

As for current installations, he said Clarksons’ Shipping Intelligence Network pegged the number at 240 while figures from ECGSA suggested 600 units in use as of December 2017. A headline from Bunkerworld at the end of February 2018 said there are 400 units in use or on order.

Working with 400 as the current figure, Green pointed out that for the number of ships fitted with scrubbers to reach 2,000 by 2020; approximately 67 vessels need to be fitted every month between now and then. For the number to reach 4,000 by 2020, this figure rises to 162 per month. That begs the question: Would dry docking schedules permit this level of increase?


Scrubbers will be money-makers, according to both Sterling of Marsoft and Dr. Vis of Viswa Lab.

The payback period once we get to 2020 would be 14-16 months, or maybe even as little as six months depending on the price differential between HSFO and low sulphur fuels. The differential “will be at least $200” per mt, Dr. Vis predicted.

Indeed there are several other predictions suggesting refiners will be desperate to find and outlet for a sudden surplus of HSFO which could put the price on parity with coal to compete in the power generation market. Some even suggest they will be giving it away.

John R. LaRese, Marine Fuels Technical Advisor, ExxonMobil Marketing & Refining, told the “2020 economic calculus” panel that the amount of residual fuels left over in 2020 is “staggering” and a real concern for refiners. Meanwhile, when looking at anticipated demand for transport fuels both on land and at sea, he said ExxonMobil sees the biggest growth in the segment for trucks, and that is concern as they will compete with ships for the middle distillates.

Dr. Vis was puzzled that owners are so hesitant in making the decision because to his mind, the financial case is so good that “fitting a scrubber is a no-brainer”. He added: “If you [the shipowners] don’t install it, the oil company will make the money, not you,” because they will make a profit from the low sulphur fuel premium.

Sterling, meanwhile, concluded his presentation by saying that when looking at the economic calculus for 2020, putting a scrubber on a ship may make more economic sense than buying the ship in the first place.

HSFO supply in 2020

There is no doubt that HSFO will be still be abundant in 2020, but that’s not the only issue.   “The concern is logistics,” said LaRese from ExxonMobil.

John LaRese speakig at CMA 2018

The question for bunker suppliers is, “Can we isolate storage tanks, barges etc. to supply this small volume. You need separated logistics,” he pointed out. His said that owners fitting scrubbers therefore need to go to suppliers and secure term contracts for ongoing HSFO supply. This message was reiterated by John Stirling, Marine Technical Quality Manager, World Fuel Services. He said there will be a variety of fuels on offer in 2020, but not all ports will have them all, and that HSFO availability will disappear from many ports unless you secure your supplies.

The question of HSFO availability came up during the Petrospot Bunker Surgery as well, where IBIA’s IMO Representative, Unni Einemo, offered the opinion that HSFO will continue to be available in major bunkering hubs with plenty of storage options and sufficient barges to have dedicated supply, but that the need for segregated supply infrastructure means suppliers cannot justify maintaining supply in smaller ports. As a result, there probably won’t be much of a spot market for HSFO, and ships that want HSFO outside the major bunkering hubs would need to arrange term contracts.

Good or bad?

While the economic case for scrubbers seems compelling, there’s no denying that a lot of scepticism remains. Green noted that opinions are very mixed; with some saying they are great, others say it is not a smart solution.

This point was also picked up in the 2020 economic calculus session, where it was suggested that the publicly listed company Cargill might get negative publicity from choosing scrubbers because they will carry on using “dirty HFO”. The answer, according to Sterling, was that they need to look at whether their ships are competitive, and that is where scrubbers come in.

Scrubbers might be good for business, but it is also an option that comes with other challenges such as limited supply infrastructure (at least for a while); generation of waste that means ships need access to port reception facilities that are equipped to deal with it (also limited); and possibly a poor public profile.

The next 12-15 months will be critical in finding out just how the installation numbers stack up for 2020, as that will also be a determining factor in how the HSFO supply infrastructure will look.

The session entitled “The Economic Calculus of 2020” was moderated by Neville Smith, Director, Mariner Communications, while the CMA Bunker session Chairman & Moderator was Llewellyn Bankes-Hughes, Managing Director, Petrospot Ltd.

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