As the 2020 low sulphur deadline closes in, scrubber retrofits on box ships have escalated due to the wide price gap between HFO and MGO
The price difference between diesel and marine gas oil has led to a surge in scrubber retrofits within the container market.
A blog by S&P Global Platts said if the global container fleet, which burns around 100M tonnes of fuel annually, was to switch from 3.5% IFO 380 fuel to compliant marine gasoil the extra bunker costs would be US$34Bn a year, based on the current price of gasoil futures in 2020.
Wärtsilä director of exhaust gas cleaning Sigurd Some Jenssen told Container Shipping & Trade that while work had picked up very rapidly in the newbuild sector within the last few years, since the start of this year there had been a rapid increase in scrubber retrofit orders, particularly on the container side. “The retrofit market is really growing, and there is a lot happening on the container side. This has happened even more strongly than we had anticipated.”
He explained the looming 2020 deadline for low sulphur fuel was a main driver. “2020 is moving closer, there is now a common realisation among players that it does take time to install and get systems up and running, there is a lead time on equipment and shipowners need to secure capacity with the shipyard. If there are a lot of ships to retrofit, you cannot expect to do all of them in December 2019.”
The gap between the price of diesel and marine gas oil is a huge factor in the push to retrofit box ships with scrubber systems. Wärtsilä director Jan Othman told Container Shipping & Trade “Increasingly owners see a very, very strong business case in using scrubber technology rather than switching over to MGO. This is driving a lot of investment across all vessel segments.”
He said the driving factor is the spread in price between HFO and MGO.
One reason that scrubbers make a strong business case for container ships is that container ship operators pay the fuel bill themselves and hence, they also get the benefit of the reduced fuel bill rather than the charterer, as is the case in some other segments of shipping.
Wärtsilä launched a new scrubber design late last year that is suited to large container ships which have big engines and a lot of exhaust that needs to be treated; the scrubbers have up to 70 MW of power and can provide more if needed.
He singled out that most scrubber activity tended to be for ships sized 8,000 TEU and upwards, as due to the greater use of fuel, the return on investment was better.
Mr Othman warned “Lots of owners are coming to the same realisation at the same point in time [to install scrubbers] and the challenge is to secure yard slots in the not too distant future.”
HFO versus MGO cost
Meanwhile, the president of a scrubber manufacturing business has predicted the differential between the cost per tonne of low-sulphur fuel and high-sulphur fuel in 2020 will be more than many estimated.
Citing a Wall Street Journal forecast in his presentation to the Sulphur Cap 2020 Conference in Amsterdam in April, CR Ocean Engineering president Nicholas Confuorto said the current price differential of US$250 would pale in comparison to that of 2020, when IMO regulations limiting sulphur in fuels come into force in less than two years.
“The differential now is about $250. However, that’s not even close to what it’s going to be in 2020,” he said.
He also claimed an estimated price differential of US$420 that he attributed to a Wall Street Journal report was “conservative”.
“I think we’re going to be in a $600 differential by 2020,” he said, noting the gap in prices “may only be for a few years, but if you invest [in scrubbers] early enough, you can take advantage … and still have something very valuable going forward.”
Mr Confuorto said his family business had been installing scrubbers since the 1950s and the timeframe for installing scrubbers was less critical than his concerns around fuel cost.
“There will be fuel,” he said. “It’s not an issue of whether there will be, it’s an issue of how much it will cost.”