Gibson: Up to 40% of VLCC fleet could be scrubber fitted by the end of 2021

Despite a massive drop in premium earnings for ships fitted with scrubbers during 2020, the scope for scrubber cancellations has been limited due to contractual obligations with shipyards and scrubber manufacturers, Gibson Shipbrokers said in its latest weekly report.

This might come as a bit surprise having in mind how the business case for investing into scrubbers has changed over the past year driven by the downfall of the global economy as a result of the Covid-19 pandemic as well as the dramatic fall in oil prices.

Specifically, savings for burning high sulphur fuel oil (HSFO) versus very low sulphur bunker fuel (VLSFO) sunk from $16,000/day in January 2020 to just $3,000-$4,000/day (VLCCs trading TD3C route, slow steaming basis) for most of last year, the report said.

Scrubbers were praised by owners, especially for those of bigger vessels, as an extremely attractive solution for meeting the IMO 2020 regulation on cutting the sulphur content in marine fuel. Payback times from scrubber investments were said to be between 12 and 18 months. Nevertheless, the latest turn of events prolonged this period considerably.

However, it appears that luck might be changing again for scrubber economics.

“The latest upward trend in oil prices has offered some welcome news to those who invested in this technology, with the spread between HSFO and VLSFO widening to around $80 – $100/tonne and scrubber savings climbing above $5,000/day for VLCCs,” Gibson said.

In terms of statistics, the scrubber uptake is the highest in the VLCC fleet, followed by Suezmaxes. Scrubber penetration is considerably lower for smaller size groups.

According to Gibson’s records, scrubbers have already been installed on 31% of the existing VLCC fleet, while another 7% is yet to be retrofitted.

In addition, 32% of current VLCC orderbook is expected to be fitted with the technology. This means that close to 40% of the VLCC fleet could be scrubber fitted by the end of the year.

“The actual penetration of scrubbers in the spot market is expected to be even higher when excluded tonnage (NITC, sanctioned/storage vessels) are accounted for, while the anticipated demolition over the course of this year will also reduce the absolute number of non-scrubber tankers,” Gibson added.

“Although the scrubber uptake is significant for larger crude carriers, we are unlikely to see further exponential growth. Major scrubber manufacturers reported a sizable slowdown in new scrubber orders last year. The regulatory scrutiny is also expected to intensify.”

A number of ports have banned the use of scrubbers in their waters, while some governments are calling for a gradual phase out of the technology (EU) or in extreme cases, like in Canada, an outright ban.

A study commissioned by the Canadian Government is recommending individual governments, including Canada, to take unilateral action to restrict or prohibit scrubber discharges from both open-loop and closed-loop systems.

The report, released by the International Council on Clean Transportation, claims that ships, particularly cruise ships, fitted with scrubbers, were basically ‘cheating the global fuel standard’.

The Kingdom of Saudi Arabia, Oman, Singapore, Suez Canal Authority, and, Malaysia among others, have banned scrubber wastewater discharge in their waters amid environmental concerns.

“It seems inevitable that the list of scrubber restrictions is only going to increase going forward. For now, however, while tanker supply/demand conditions remain severely unbalanced, even a modest scrubber premium could mean staying afloat and earnings above OPEX,” Gibson concluded.