Braemar Seascope’s estimate of scrubber-equipped VLCCs in mid-2020 equates to a quarter of the VLCC fleet
Speaking at the Tanker Freight Derivatives Forum, hosted by the Baltic Exchange and the FFA Brokers Association, Braemar Seascope head of global research Henry Curra noted that there is an issue with the scrubber proposition.
“We are now getting to the point that we may have over-cooked it on the scrubber front,” said Mr Curra.
“We estimate 124 VLCCs will be retrofitted with scrubbers in 2019 or 2020, on top of the 50 newbuilding VLCCs that are due to be delivered with scrubbers.”
In his opinion, by mid-2020 a scrubber-fitted VLCC could turn up in the Middle East Gulf and compete directly with other scrubber-fitted VLCCs, rather than being the unique option among VLCCs burning IMO 2020 compliant fuel.
“I don’t think this scenario is fully priced in when assessing the fitment of scrubbers,” he said.
In the Suezmax fleet, Braemar Seascope estimates the scrubber take up will be close to 20%. “This is not what IMO was expecting when the regulation was drafted.”
The larger than expected take up of scrubbers could narrow the price spread between the compliant and high sulphur marine fuel, diminishing the returns built into the scrubber calculations.
Scrubbers also have a cost that may not have been priced in by those who are only now looking at retrofits.
“We note that the days – the window – for turning up for a drydock is being reduced from two or three weeks to a matter of days… we are already seeing vessels foregoing their spot cargoes so as not to miss their drydock dates.”
Therefore, the expense is not just the acquisition and fitment cost of the scrubber, but the loss of revenue from the unaccomplished spot voyages.
He also queried the reality of bunkering small vessels equipped with scrubbers – will they be able to find high sulphur fuel oil in the smaller ports that they trade where tank farm and barge capacity is limited? Will that not mean the bunker supplier will be able to charge a premium delivered price for the available fuel, thus demeaning the advantage upon which the fitment of scrubbers was predicated?
Commenting on the above story, Exhaust Gas Cleaning Systems Association (EGCSA), director Don Gregory said “The decision ... on whether to opt for an alternative compliance method to meet the 0.5% sulphur limit will be affected by how [the compliance method] fits with the ship’s operational and physical needs and will, of course, be based on a commercial assessment.”
“At the end of the day, all other things like safety and vetting being equal, then the charterer’s decision is likely to be determined by a combination of the lowest hire cost and fuel cost to transport his or her goods,” Mr Gregory said.
"In the scenario where two ships are chasing a spot charter, does the fact that one ship bought its EGCS later than the other and has thus got a slightly higher return on investment cost mean that it is able to compete for the charter on an even footing on the day? The decision lies with the owner. Even if the ship is more expensive to the owner, that does not prevent him or her from offering it at the same rate as the ship which fitted the scrubber earlier, in order to get the business. That is still better than the ship lying idle."