With less than 100 days to go until the IMO 2020 fuel transition, Tanker Shipping & Trade looks at the various strategies available to public tanker companies
There are approximately 30 public limited tanker companies trading on the world’s stock exchanges. Each of these has a management team that must justify its decisions to shareholders. At this point in time, there are fewer bigger decisions for a management team than which IMO 2020 strategy to adopt. The choices are:
Potential investors in public tanker companies will be aware of the IMO 2020 fuel transition and may include this in their investment risk analysis. TST has examined company reports, statements and presentations from the management of public tanker companies to discern their strategies towards IMO 2020 (see table).
Some companies have made frequent and direct statements regarding their IMO 2020 fuel transition intentions. Where there does not appear to be a clear company policy, it has been necessary to examine the individual vessel using VesselsValue data to ascertain if the vessel is fitted with a scrubber. This methodology does not capture vessels that have been earmarked for scrubber retrofits.
Our research suggests that 53% of public tanker companies have opted to retrofit and/or have modern vessels in their fleet fitted with scrubbers. Just over one-third of public tanker companies seem to favour the compliant fuel route. The remaining 10% do not have a discernible IMO 2020 fuel transition policy.
One such company is American Shipping Company, an investment vehicle for a US Jones Act fleet. It only has two full-time employees and it does not have an IMO 2020 policy.
Ardmore Shipping chief executive Mark Cameron is a former chief engineer and has expressed doubts about what he perceives as scrubbers limitations.
Capital Product Partners fleet is now part of the Diamond S Shipping, which has retrofitted scrubbers to five Suezmax tanker and has earmarked five more for remedial surgery. The company has allowed 20 to 30 days for the installation of scrubbers.
Concordia Maritime has chosen to hedge its bunker requirements ahead of IMO 2020 and will be burning compliant fuel on its vessels.
D’Amico International Shipping’s IMO 2020 policy is compliance through the installation of scrubbers, as is that of VLCC operator DHT Holdings.
Euronav is a company with a clear, if more complex, strategy to IMO 2020. It has formed its own bunker trading company to buy low-sulphur fuel direct from refineries, which is stored on its own ULCC. Should the price of high-sulphur fuel crash post-2020, Euronav has the option of filling another ULCC with cheap fuel and installing scrubbers.
Frontline has also chosen to directly purchase marine fuel through a joint venture with commodity trader Trafigura. Frontline Management AS’ chief executive Robert Hvide Macleod, and Golden Ocean Management’s chief executive Birgitte Ringstad Vartdal, jointly commented: “It is anticipated that IMO 2020 will create logistical marine fuel supply issues for shipowners globally…our participation in the JV will ensure our ability to source and acquire marine fuels at competitive prices on a continuous basis.” In June 2018, Frontline announced it had taken a 20% stake in Feen Marine Scrubbers, the company supplying its fleet.
From an investor point-of-view, IMO 2020 is an interesting shipping IPO story and Hunter Group is one of the companies at the centre of this strand of the VLCC business, ordering and then selling scrubber-equipped VLCCs.
Grindrod of South Africa has a less obvious fuel policy; according to VesselsValue, none of the current Grindrod tankers are equipped with scrubbers, and there does not seem to be a public statement on the company’s intentions, although that may change before the end of the year. KNOT Offshore Partners has a similar level of opaqueness, but as a company that operates shuttle tankers in the Norwegian North Sea, the fleet has to conform to stringent environmental regulations.
Less clear is the situation with Kyoei Tanker Company of Japan, which appears to have no scrubber-equipped vessels, although there is believed to be one scrubber-equipped Kyoei VLCC on order. Similarly, there are scrubbers on the new Navios tankers that are order, but it is not known if the older vessels will be retrofitted.
Danish operator Norden reports it is undertaking the retrofit of scrubbers to 31 vessels, but has also tested using a carbon neutral fuel. It should be noted that privately-owned Scandinavian tanker operator Erik Thun AB, a member of the Gothia Tanker Alliance, has progressed a long way down the road towards carbon neutral shipping using bio-mass derived LNG.
Some companies committed to an IMO 2020 strategy early on; in 2018 Odfjell’s chief executive officer Kristian Mørch stated that it was not a shipping issue, but a refining issue. He has not changed his mind. In its Q2 2019 results report, Mr Mørch said: “In Odfjell we have taken a very clear decision that we do not believe that scrubbers are the way to go. We are going to follow the intention of the rules and only burn low-sulphur fuel oil.”
He noted the forward price of very low-sulphur fuel oil has been falling and is now close to the five-year average price of high-sulphur fuel oil. “What that means is that if you are a customer of ours, and carrying the cost of the increase through the bunker adjustment surcharge, the situation is not as scary. We believe the market will adjust and we will be able to purchase low-sulphur fuel oil at a reasonable price and pass that cost on to the customer.”
Torm has announced a joint venture which sees it taking a 27.5% stake in ME Production alongside Guangzhou Shipyard International (GSI), part of the China State Shipbuilding Corporation group. The size of the GSI stake in ME Production is not reported.
Among Greek owners there is an ambivalence to IMO 2020. Back in 2018, Angeliki Frangou said she was agnostic toward scrubbers, but since then the company has ordered four VLCC newbuildings at Imabari. These are to be fitted with scrubbers. It is not known if the older tankers are to be fitted with scrubbers.
Teekay Tankers of Canada was also an early mover on declaring a clear fuelling strategy and opted to change to distillate fuels. Teekay is also in the midst of an LNG-fuelled shuttle tanker programme; currently, LNG is the favourite fuel to bridge the gap between low-sulphur compliant fuels and the future zero carbon tanker of 2050, but other bridge fuels are available.