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Euronav highlights scrubber concerns

Large tanker owner Euronav has reiterated its concerns over scrubbers outlining three areas of concern in its Q3 results including that they are and “likely to facilitate non-compliance” with the 2020 sulphur cap.

While scrubbers have become a popular option with large vessel owners, such as John Fredriksen’s Frontline, given the potential cost savings of being able to burn cheaper high sulphur heavy fuel (HSHFO) and low sulphur fuel oil (LSFO), Euronav warned of economic and regulatory uncertainties.

The shipowner questioned the price assumptions being with the Marine Gas Oil (MGO) price being used as a basis to forecast the price of compliant low sulphur fuel oil, and the lack of visibility of returns for an investment of up to $5m for a VLCC.

“Some refiners including Sinochem have recently confirmed that they will sell clean compliant fuel at a price likely to be half the difference between dirty HFO and MGO. So the investment case now has half the returns being promoted and it is still 14 months before implementation and nothing suggests this price gap will not further narrow in that time,” the company warned.

Most of the scrubbers fitted to-date have been open loop systems and Euronav highlighted pollution and regulatory risks, although in terms of forward orders the majority of owners are now reported to be opting for hybrid systems.

“Open-loop scrubbers (OLS) use seawater brought on board to remove sulphur from exhaust gases, but the wastewater produced contains a toxic cocktail of sulphuric acid constituents, polycyclic aromatic hydrocarbons and heavy metals which are pumped into the open ocean, essentially transferring pollution from air to sea,” Euronav stated.

Risks include greater regulation of scrubbers in future, operational risks such as corrosion and lack of long term scrutiny of the technology.

“Promoters of this technology argue that the open oceans dilute waste water, rendering it harmless. But the solution to pollution is not dilution. Like plastic contamination over the years, we don’t know what the cumulative effect of this waste water will be or how it will interact with existing seaborne pollutants, particularly in congested sea-lanes like the English Channel, Malacca Straits or Baltic Sea,” the company said.

The third concern raised the tanker owner is over regulatory compliance and how this will be enforced. “So far flag states appear ill-equipped to ensure regulatory compliance. Installing a scrubber enables regulatory compliance with the continued use of non-compliant high sulphur fuel. But weak regulatory oversight means non-compliance in the open sea, whether through breakdown or malfeasance, cannot be effectively controlled,” it said.

Euronav concluded it wanted a universal adoption of the 2020 low sulphur regulations without delay. “Refiners and oil producers have increasingly made clear that sufficient compliant fuel will be available. Scrubbers are therefore a loop hole which makes enforcement of the sulphur ban extremely complex, difficult to enforce and likely to facilitate non-compliance.”

 

The popularity of scrubbers as a way to comply with the IMO’s 2020 sulphur cap has grown rapidly over the last six months with over 1,000 systems ordered in that period, according to classification society DNV GL.

In a webinar on Wednesday DNV GL said that 1,850 vessels had either been fitted with scrubbers or had installations confirmed a steep rise from numbers in the region of 1,300 being quoted just a month ago. In the last six months over 1,000 systems have been ordered primarily for retrofits.

The biggest three manufacturers – Wartsila, Alfa Laval and Yara Marine - hold over a 50% share of the market, but as the orderbook grows and lead times get longer some of the smaller manufacturers have started to receive major orders the classification society noted. By ship type bulkers make 38% of orders, tankers 20% and containerships 14%. With concerns over possible restrictions on open-loop scrubber use the majority are opting for hybrid systems that can operate in both open and closed modes.

While scrubbers can make a good choice for owners to comply with the sulphur cap, with improved reliability and designs of scrubbers, DNV GL highlighted a number of areas owners need to be aware of and consider in the decision making process.

The driving force behind scrubber uptake has been the expected fuel price spread between high sulphur fuel oil (HFSO) and low sulphur compliant fuels come 2020. The bigger the spread the higher the cost savings and the shorter the payback period.

Based on a 20MW scrubber with a price spread of $175 per tonne between HFO and low sulphur fuel DNV GL said the payback period would be 1.3 years for an open loop scrubber and 1.7 years for a hybrid unit. Should the fuel spread drop to just $40 per tonne there would be no business case for a 20MW scrubber, while a $100 spread would see a payback period of less than two years.

It is worth noting a scrubber system would increase a vessel’s fuel consumption by around 2%. There will also be increased maintenance costs one of the biggest challenges scrubbers coming from corrosion with the low pH wash water highly corrosive. For closed loop systems there will also be the costs of sludge disposal.

Despite these additional costs a 40MW scrubber could see accumulated cost savings of $13.3m over five years versus using compliant fuel and $5.1m in cost savings for the same period for a 20MW scrubber.

Another factor DNV GL highlighted was the complexity of managing the large scale retrofitting of fleet of ships saying, “Installing one scrubber in 1.5 years is easy, installing 32 in 1.5 years is difficult”. The latter example of 32 ships in four sister series could see the owner dealing with 11 different stakeholder across the manufacturer, design house, class and shipyard.

As to whether scrubbers were a long-term solution this remains an unknown, but over the next five – 10 years DNV GL they could significantly reduce cost of compliance with the sulphur cap and were a safe solution.

For owners still sitting on the fence on whether to install scrubbers the classification society said “the decision to invest should be made yesterday.

 

Owners warned of operational and regulatory challenges with scrubbers

 

Scrubbers have become flavour of the month for large vessel owners to comply with the 2020 sulphur cap, however, ensuring compliant operations could prove difficult with Euronav chief Paddy Rodgers drawing a parallel with the oil water separator record book issue in the US.

The issues of having compliant scrubber operations and concerns over open loop scrubbers, the type fitted by most shipowners, were highlighted at seminar entitled – 2020: Challenge or opportunities – held by ABS in Hamburg on Monday.

For the shipowner hoping to simply fit a scrubber and then be able to burn high sulphur heavy fuel oil wherever they like with no questions asked there were warnings it would not be that easy.

“This isn't a type approval, this isn't a license to burn heavy fuel oil,” stated Euronav ceo Paddy Rodgers. “You are obliged to monitor and ensure that your emissions are maintained on three or four parameters at all time and a failure to keep a record is itself a non-compliance.

“I think we are headed to a territory that to my mind is a lot more like the oily water seperator book where a lot of people running scrubbers may find they get detained in port. and they could get detained in port because actually the computer recording instruments failed during the voyage, not the actual scrubber stopping functioning,” he warned.

The result could be an owner being hit with a penalty simply because records were wrong regardless of what the actaul level of emissions were. In the case of the oily water separator record book owners and managers have found themselves slapped with hefty penalities in recent years.

Questions were also raised on possible restrictions of open loop scrubbers with the German Shipowners Association (VDR) highlighting restrictions in an increasing number of ports.

Wolfgang Hintzsche said, “We are getting more and more inputs from owners that there are increasing restrictions for open loops, at least in the ports... there is an increasing list in North European, if you look at Norway, Sweden, Germany.”

Although owners can switch to using compliant fuels in port this was not seen as ideal solution. “For sure you could be compliant by using MGO (marine gas oil) but most of the owners we talk to are looking forward to only having one fuel, which would be the best alternative for long term discussion.”

Euronav's Rodgers also questioned whether open loop scrubbers would really be acceptable if looked at closely by the world at large rather than just the IMO.

Lars Robert Pedersen, deputy secretary of Bimco responded that, “One would expect what comes out of IMO in terms of what is criteria is actually acceptable to those countries or else I would not expect them to approve it.”
He added: “We have a wash ater criteria from IMO, yes it can be changed over time, but I don't think it will be changed that it will basically outlaw open loop scrubbers.”

 

 

 

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