The share of the containership fleet fitted with scrubbers exceeded that of the crude oil tanker fleet by the start of July 2020, data from BIMCO shows.
The world’s largest shipowner association said that containerships with a collective cargo-carrying capacity of 5.3 million TEU are now fitted with a scrubber to remove sulphur oxides from the exhaust gasses generated by the combustion processes in marine engines as mandated by the IMO 2020 sulphur cap.
“Choosing the scrubber option to comply with the sulphur regulation was heavily debated as January 1, 2020, approached. But even with the low bunker fuel price spread between high and very-low sulphur fuels in the current market, it is safe to say that the investments are economically sound,” says Peter Sand, BIMCO’s Chief Shipping Analyst.
“However, the payback period on the investment is obviously extended at a price spread of $ 67 per MT, compared to an expectedly normalised price spread in the range of $ 100-$ 200 per MT.”
While the scrubber-fitted fleet of main cargo carrying ship types now counts 2,600 ships, most of the fleet – 20,000 ships – are without a scrubber.
Ships opting for scrubbers are predominantly bigger ships, such as ultra large containerships, very large crude carriers, and Capesize bulkers, as they consume more fuel than their smaller counterparts.
For VLCCs and Capesize sectors, scrubber-fitted ships as a share of the fleet (measured in DWT), currently amount to 30%. By year-end, the share is likely to have grown to 35%.
For Post-Panamax (15,000+ TEU) the share has already exceeded 40% and is likely to reach 50% by the end of 2020.
Some 429 ships, i.e. 56.3% of the current container shipping orderbook, (1.2 million TEU) will have a scrubber onboard when they are delivered, while the pending retrofits of 1.5 million TEU push up the total scrubber count even further.
Adding ongoing and pending scrubber retrofits to those that will be on board newbuilds brings the total scrubber capacity count to 8 million TEU for containerships (31.6%), 141 million DWT for crude oil tankers (30.9%) and 226 million DWT of dry bulker capacity (23.5%) once all is installed.
At any time since the start of 2019, yards have mostly been retrofitting dry bulkers and containerships, whereas crude oil tankers have seen the lion’s share of scrubber installations occur on board newbuildings.
In 2020 alone, the number of days spent on a containership retrofit has averaged 68 days ranging between 56 days in February and 79 days in July. This compares to an average number of days spent on a bulk carrier in 2020 of 46 days and 41 days on a crude oil tanker, according to Clarksons.
Bunker price spread peaked at $353 per MT on New Years’ Eve
The main incentive for scrubber investments has so far been the price differential between high sulfur fuel oil (HSFO) and low sulfur fuel oil (LSFO), as the price of compliant fuel skyrocketed with the entrance into force of the new regulation.
However, the crash of crude oil prices amid geopolitical developments combined with the COVID-19 impact on demand for crude narrowed the spread significantly as price of the compliant fuels dropped.
The bunker price spread is currently just $67 per MT if the fuel is purchased in Singapore, the world’s largest bunkering port.
Local market conditions mean that the comparable spread in other significant bunkering hubs, like Rotterdam and Fujairah, is $46 and $74 per MT respectively as per 11 August 2020.
The narrowing of the price gap between low- and high-sulphur fuels means that the spot market earnings differential (i.e. bunker cost savings) for a capesize bulker on 3 January compared to 7 August this year have declined from $7,626 per day to $ 1,095 per day.
Choosing to comply to the new sulphur regulation without a scrubber installed requires a ship to run on a low-sulphur fuel oil. Since 1 January 2020, the global refinery industry has supplied the shipping sector with mainly low-sulphur fuel oil, with the more expensive distillate, marine gas oil, a distant second.
For the first six months of 2020, the share of total Singapore fuel sales amounted to 18% for heavy-sulphur fuel oil, 71% for low-sulphur fuel oil and 11% for marine gasoil.
“The debate on scrubber economics is all but gone now, as 2020 is in full swing and focus has turned towards COVID-19, and how that impacts the business. What remains are the economic realities and technical obstacles the industry is dealing with daily,” Sand says.
“Cost savings are essential to all, but despite a considerable share of the fleets now being scrubber-fitted, the largest part of the fleet continues to operate without.”