Shipowners face narrowing scrubber savings

The economic incentive for shipowners to install exhaust-gas scrubbers has reduced lately, because the price difference between low- and high-sulphur bunker fuels has narrowed and time charter revenues have risen. At current levels, it would take just over four years to recoup the cost of fitting a scrubber on a very large crude carrier (VLCC), including the earnings lost during installation.

The spread has been narrowing ever since the 1 January enforcement of the International Maritime Organisation (IMO) sulphur cap, which gave shipowners the choice of using compliant bunkers or installing scrubbers that would allow the continued use of 3.5pc sulphur fuel oil.

Limited bunker storage and delivery barges allocated to 3.5pc product have supported its price against the IMO-compatible 0.5pc sulphur product. The difference between the two was $34.75/t on 23 March, the lowest since Argus began assessments in October 2019.

Based on the month-to-date average spread of $66.40/t at Rotterdam, installation of a scrubber on a VLCC would pay for itself in four years and 10 days, based on fitting costs of around $6.4mn. This includes lost revenues of as much as $3.2mn — average revenues for a VLCC in a time charter are around $80,000/d, and the fitting process takes around 40 days.

A VLCC consumes around 65 t/d, so would benefit by $4,316/d by using a scrubber against burning 0.5pc sulphur product.

This is a significant difference since January, when the spread between HSFO and LSFO averaged $218.96/t. The aggregated cost for the shipowner back in January was considerably lower because average time charter earnings were then $35,000/d. Lost earnings during installation were therefore around $1.4mn and the payback time for the investment was just 10.5 months.

By Nikos Kokolinakis