London — Scrubber investments will soar in preparation for the International Maritime Organization's 0.5% global marine sulfur cap in 2020, according to analysts at investment bank Goldman Sachs in a report published Wednesday.
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"We think the economics of installing scrubbers makes sense and forecast 3,125/4,450 scrubber installations for 2020/2022," the analysts said in their report, 'IMO 2020 -- Challenging but Solvable.'
They consider there to be few barriers to entry to scrubber manufacturing, predicting an a uptick in new start-up companies to meet the growing demand.
A scrubber is an exhaust gas cleaning system which reduces sulfur and nitrogen emissions when burning high sulfur fuel oil used for powering tankers. Scrubbers are one way that shipowners are hoping to meet the new IMO rule that from January 2020 the maximum sulfur content in marine fuel will be 0.5%, compared with the current maximum level on the high seas of 3.5%.
Goldman Sach's estimate for scrubber demand is higher than some others and assumes considerable growth from 2018. S&P Global Platts Analytics estimated in March that only about 360 vessels had already installed scrubbers from 17 different vendors as of early 2018.
An IMO study (base case) assumed that by January 1, 2020, scrubbers will be installed on 3,800 vessels consuming 36 million mt/year of 3.5% sulfur fuel, representing an 11.3% share of the global marine fuels market.
Platts Analytics' reference case assumes that scrubbers are installed on just 1,700 vessels by 2020. However, after 2020, with greater clarity on availability and more certainty on price spreads, Platts expect scrubber installations will increase -- with 8,200 installations by 2025 and 13,000 by 2030, translating to high sulfur bunker demand of around 1.4 million b/d and 2 million b/d respectively.
Goldman Sachs said the ability to amortize the investment of a scrubber rises with the size of the engine. Fuel consumption is concentrated among large vessels, and the bank considers the number of scrubbers on order understates the actual size of the HSFO market and expects scrubbers to consume 1 million/1.4 million b/d of HSFO by 2020/2025.
The question of a level playing field and compliance continues to hang over the industry, and the Goldman analysts expect a base case of compliance at 80% in 2020, gradually rising to 95% by 2024.
Based on the scenario of 80% compliance in 2020, Goldman Sachs estimated that scrubbed vessels and non-compliance would preserve around 1.05 million b/d and 650,000 b/d of bunker demand respectively, down from total HSFO demand of 3.3 million b/d in 2017.
The demand for scrubbers and assumed compliance level had also translated into a stronger HSFO crack, the report said.
"On the supply side, we estimate that low-cost refining solutions should create 1.35 million b/d of compliant LSFO supply via capacity additions and crude and fuel oil flow optimization," the analysts said. "This leaves the refining system having to source an incremental 800,000 b/d of distillate/blended marine fuel supply versus 2017 -- incentivised by product cracks and spreads."
There is a note of caution coming from within the industry, with smaller shipowners continuing to emphasise the difficulty of installing scrubber technology.
"[On a 5,000 dwt vessel] there is just not enough space in the engine room for scrubbers so we have to consider all other options," a shipowner with a small fleet told S&P Global Platts this week.
At the refining end of the market, while some refiners are installing new conversion units in preparation for the new regulations, Switzerland-based commodities trader Gunvor said last week it had "decided to put on hold the construction of a delayed coker unit" at its Rotterdam refinery.
The company said last week that "the price environment and other relevant economics have changed considerably since Gunvor first began exploring the concept a year ago."
Gunvor also said its refining network, which includes sites in Rotterdam, Antwerp and Ingolstadt, "will continue to operate normally."
Fuel oil traders consider Gunvor to be well placed to offer HSFO to shipowners with scrubbers in 2020.
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