Disruption to scrubber installations is a key concern for the maritime industry as a result of the coronavirus pandemic, amid a collapsing price differential between high- and low-sulfur content marine fuels, Maritime Head of Section for Environmental Certification at Norwegian risk management company DNV GL Dr. Fabian Kock said in an interview with S&P Global Platts.
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Shipowners planning to install scrubbers on their vessels are contending with the prospect of worse payback economics. The price difference between 3.5% and 0.5% bunker fuel -- a key indicator of the investment payback for scrubber installations -- averaged $58/mt on a delivered basis Rotterdam in April, S&P Global Platts data showed. This is a drop of $176/mt or 75% from January's average, blowing many expectations out of the water in the year that the International Maritime Organization's 0.5% limit on sulfur content took effect.
"Bearing in mind now the fuel cost difference is only $50/mt, payback times are four years for open looped scrubbers and more than six years for closed-loop scrubbers [whereas] at the beginning of the year, payback times were one year," Kock said.
"In January [the fuel price difference] was about more than $300/mt and, based on that, it was a big advantage if shipowners had installed scrubbers," he said.
INSTALLATIONS IN QUESTION
As oil markets around the world grapple with the prospects of reduced demand and supply overhangs in the wake of the pandemic, Platts Analytics has revised down estimates for scrubber installations expected by the end of this year following delays and cancellations to retrofits.
"Platts Analytics previously projected 3,500 scrubber installations globally by the start of 2021, but this will likely not be met with disruptions from coronavirus and cancellations due to the narrowing price spread between high- and low-sulfur fuel," senior analyst Alexander Yap said.
Norway-based shipping and logistics company Wallenius Wilhelmsen has cancelled four scrubber installations to reduce its capital expenditure, among other swift measures, as its gears up for tough market conditions amid the COVID-19 spread, the company said in a statement.
"Wallenius Wilhelmsen is taking decisive steps to prepare for a challenging time ahead," it said in March, adding that as part of the move, the proposed dividend for 2019 is also being withdrawn.
While many analysts debate over whether the blow to the marine fuel spread is here to stay, Kock added that a fuel price difference in the order of $200/mt presents a "reasonable" payback time for scrubber installations.
"From this, our estimations say it'll take between one and two years to pay back."
However despite the worse economics, Kock said new conversion orders for engines retrofitted with scrubber installations were heard to be still coming in but at really low levels.
ENERGY TRANSITION
As the maritime industry now operates in line with the newly implemented IMO 2020 mandate, industry players are now looking ahead to further reductions in its greenhouse gas emissions. DNV GL is keeping a close eye on gas marine fuels as the bridging technology for alternative fuels for new vessels in the future.
"I think the only thing we can agree on is that we'll have a number of different fuels. I don't think we'll have one fuel only," said Christos Chryssakis, business development manager at DNV GL.
"LNG and, to some extent LPG, are the only commercially available fuels right now and I think at least for the next five to 10 years that these are going to be the only commercially available options," Chryssakis said.
"We already see some testing in biofuels, but we cannot expect uptake to a large scale before 2030," he said.
A key committee of the IMO agreed in April 2018 to an initial strategy of cutting the shipping industry's total greenhouse gas emissions by at least 50% from 2008 levels by 2050. In addition, it set a goal of improving the sector's efficiency by at least 40% by 2030, and by 70% by 2050.
In the year that the IMO's low sulfur cap presented the shipping industry with arguably one of the biggest regulatory changes in recent times for the industry, Kock said that, for the most part, things were running smoothly. "There's been no major disruptions since IMO 2020 took effect, the obligation to use 0.5 applies to all vessels and regulations have been known since October 2008."
"Already ship designers and operators have to make decisions on how to reach 2050 CO2 targets, so I wouldn't say the biggest disruption is due to the IMO 2020 sulfur cap...Personally I think 2050 CO2 targets will be a bigger disruption."