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LIGUE MARITIME BELGE  asbl.

Koninklijke Vereniging - Société Royale

DOSSIER

 

Charterers prefer scrubbers


Tankers charterers (operators) are prepared to pay significant premium in order to secure tonnage fitted with scrubber technology, ahead of IMO’s 2020 rule, shipbroker Gibson said.

One of the most hotly debated subjects in the shipping markets this year has been the approaching IMO global sulfur cap of 0.5% on marine bunker fuels in 2020. In particular, a lot of discussions were focused on scrubbers. Many owners appeared sceptical and hesitant to embrace the technology and for very good reasons, as the technology is largely unknown and unproven.

According to BIMCO, only around 450 vessels have scrubbers installed – less than 1% of a global merchant fleet of around 60,000 ships. The costs of installation are also sizeable, at around $2.7 mill for an open loop scrubber on a newbuilding VLCC, according to a South Korean shipyard. Retrofit costs could be considerably higher, depending on the ship’s specification.

Another concern is that the environmental legislation could also evolve over time, possibly making the investment in scrubbers obsolete. For example, suggestions have been made that open loop systems could face further regulations in Europe, as they discharge waste sulfur directly into the sea. Finally, there are question marks about high sulfur fuel oil availability in distant and small ports, with limited storage capacity, said Gibson.

Despite these concerns, charterers are showing strong interest to timecharter tonnage fitted with this technology. Recently, there have been several T/C deals with oil majors, where a notable premium has been paid for tonnage fitted with scrubbers compared to tankers without the technology on board.

A new trend is starting to emerge where newbuild tankers are being ordered fitted with scrubbers or being ‘scrubber ready’, meaning that the equipment could be installed at the later stage. Three major tanker owners have recently declared their commitment to install scrubbers on some of their existing vessels and newbuilding tonnage.

DHT Holdings has revealed plans to install scrubbers on a sizeable number of its VLCCs (including several of their older units).

Frontline has also announced its investment in a scrubber manufacturer, with plans to install scrubbers on the company’s VLCC fleet. TORM has also confirmed that scrubbers will be fitted on some of its product tankers.

At present, over 30% of the current VLCC orderbook has been reported to include scrubbers, while another 9% is ‘scrubber ready’. However, the actual number of vessels being fitted with scrubbers could be even higher as some deals have been concluded privately.

Gibson thought the the latest announcement by two major VLCC players could well be the game changer when it comes to owners’ perception and strategy going forward with regards to the approaching IMO global sulfur cap.


Financial sense

On paper, installation of scrubbers makes perfect financial sense. Not only are charterers willing to pay a significant premium over prevailing market rates to secure tonnage ready for 2020 but also the cost of a VLCC scrubber retrofit could be repaid in under 18 months, if the spread between high sulfur fuel oil and compliant 0.5% sulfur bunker fuel is at $200 per tonne.

The repayment period will be even shorter if the price differential is at 3.5% and 0.5% sulfur bunker fuel is over $200 per tonne. After the cost of investment is repaid, an owner can achieve significant savings, enjoying a strong competitive advantage compared to tonnage without scrubbers.

This of course represents an attractive investment case but only if an owner can secure a slot at a shipyard for installation/ retrofit over the next couple of years. Longer term there are other concerns, such as a potential narrowing of the spread between high and low sulfur bunkers.
Also, uncertainty surrounds the ongoing issue of CO2 emissions – how they will be addressed and what new regulations the shipping markets will then have to face?


Favoured fuel

Agreeing with this scenario, Marc Sima, founder and CEO of Germany-based FuelSave said; “High sulfur fuels will remain the industry’s favoured fuel until methanol and hydrogen-based alternatives have attained commercial viability. Until then, the pursuit of LNG is just throwing good money after bad.”

He cited the cases of more shipowners opting to install marine exhaust gas cleaning systems (scrubbers) on their fleets, together with the publication of a UMAS report, which puts paid to the notion that LNG is a viable way of meeting emissions rules.

Agreeing with the UMAS findings that there would be no significant reduction (if not a potential increase) in CO2 emissions through the wider take-up of LNG, he refutes the suggestion that low sulfur fuels will become the industry’s primary fuel source by 2020.
“I really can’t see the global fleet switching across to low sulfur fuel in little under two years’ time. Not only would shipowners have to make sure their engines are compatible with the fuel in time, but assuming they are, they would also have to revise their supply chains, evaluate compatible lubricating oils, and then sit back and watch their operating costs increase.

“It just won’t happen. Low sulfur fuels may be today marginally more expensive than LNG, but should the industry make the switch en masse, what are the refiners going to do, reduce the cost? I doubt it,” he said.

To meet the 2020 global sulfur cap, Sima advocated the continued use of HFO/ MDO/MGO with the appropriate emissions abatement technology – a scrubber – as the only cost-effective and proven solution for emissions reduction. If a scrubber is opted for, its economic and emissions-reducing efficiency can be further optimised by using FuelSave’s patented FS Marine+ solution, he claimed.

This is ostensibly a fuel additive that can be used with almost any type of 2- and 4-stroke engine running on HFO, MGO or MDO. It uses an on board hydrogen synthgas generator to inject a gas and liquid water/ methanol solution into an engine’s combustion chamber to significantly improve efficiency. In pilot tests aboard a heavy lift type ship, fuel consumption was reduced by 25% equating to net savings of 15%.

“When a scrubber is used in concert with FS Marine+, higher fuel efficiencies can be achieved since the scrubber has less work to do, which equates directly to a greater reduction in fuel consumption. With a scrubber working with our process, we found shipowners can reduce the amortisation rate for the scrubber which, currently does not provide a great return on investment. FS Marine+ provides a real solution to emissions reduction, and without the kind of high investment the use of LNG or low sulfur fuels would require.”

It is also thought that use of the FuelSave solution could allow for the installation of a smaller scrubber, due to the improved exhaust gases, reducing installation volume and costs. This makes it possible to install a scrubber on ships where space is limited.

As a simple-to-install retrofit solution, with or without a scrubber, FuelSave is claimed to add a different dimension to the emissions debate, providing shipowners with an alternative solution.

In addition, the system has shown to have a beneficial impact on engine performance, as it cleans up the combustion process, resulting in fewer carbon deposits and a reduced lubricating oil requirement.

This has been confirmed by Hamburg-based engine service company Carl Baguhn, which reported less soot on engine cylinders and less wear and tear, due to the cleaner combustion process.

Following the FS Marine+ installation on board the SAL heavy lift ship, Carl Baguhn technical advisor Carsten Körbelin, said: “It is a matter of fact. We have been maintaining the owner’s Mitsubishi auxiliary engines for some years. They run on MDO, have always been well maintained and operated under normal conditions. But since we installed the FuelSave system, the engine has become much cleaner. There is no visible soot and engine running is much smoother, with reduced levels of noise and vibration. The improvement is astonishing. This is something very special.”

Use of FS Marine+ also extended the times between lubricating oil changes from 500 hour to 1,500 hours, thus reducing engine maintenance and service costs.

 

 

 

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