The common factor is that both tanker owners have taken a stake in scrubber manufacturing companies. Both companies are also members of the cross-industry Clean Shipping Alliance 2020, although there is no word on the tanker specific scrubber pool idea.
In June 2018, Frontline announced it had taken a 20% stake in Feen Marine Scrubbers, the company supplying its fleet.
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.
Torm has ordered 16 scrubbers with ME Production and signed a letter of intent for additional 18 scrubbers with the new joint venture.
With these orders, Torm has committed to installing scrubbers on 21 vessels and potentially up to 39 vessels, or roughly half of TORM’s fleet.
“Our long-standing relationships with GSI and ME Production helped to facilitate this unique joint venture at a time when demand for scrubbers is expected to increase significantly. This strategic move provides us with a substantial economic interest in a venture that has the potential to be a large-scale international scrubber manufacturer. It will also result in Torm obtaining attractive prices for the scrubber investments that already have a short payback time,” said Torm executive director Jacob Meldgaard.
On one level, investing in a key supplier could reduce the capex on a major item and according to Torm, the capex on the confirmed scrubber orders was on average estimated below US$2M per scrubber including installation costs.
However, there is another side to the story, and the clue is in the Torm statement that “it expects to be able to obtain financing for a significant portion of this investment”.
Taking a stake in another company is an investment which is treated differently in the accounts compared to a huge one-off outgoing to fit the fleet with scrubbers.
As an investment there is the potential to sell on the stake later. If there is a rush for scrubbers, this could produce a healthy return.
However, not everyone is convinced by the scrubber story, and there is the long-term potential that as the public becomes aware of the difference between open and closed loop scrubbers, an update to the regulations may be required.
Business, operational and technical issues impacting the crude, product and chemical tanker trades will be discussed in London at the Tanker Shipping & Trade Conference, Awards & Exhibition, 20-21 November 2018.