Scorpio reverses course, opts for scrubbers

Scorpio, the world's largest owner of oil product tankers and a major dry bulk operator, will retrofit the vast majority of its fleet with scrubbers to comply with the IMO 2020 sulfur emissions regulations, ditching previous plans to comply by using low sulfur fuel.

"Having cautiously and patiently evaluated various risks associated with this disruptive change to our industry, we are now confident that substantial savings can be realized and that — with this investment in our vessels — our fleet will remain the most competitive in our marketplace," company chairman and chief executive said Emanuele Lauro today.

The company operates a fleet of 109 product tankers, from Medium Range (MR) size up to Long Range 2 (LR2) size, and a fleet of 57 dry bulkers, all of which are Ultramax or Kamsarmax sizes. Lauro said "approximately" 90 of the tankers and "substantially all" of its dry bulkers will be equipped with scrubbers.

In June of this year, Scorpio said it was opting to run its fleet on lower sulfur fuel starting in 2020 to meet the IMO's requirement to lower vessels' sulfur emissions content to 0.5pc, citing the regulatory, technological, and supply/pricing risks of equipping its fleet with scrubbers.

The scrubbers, which will remove sulfur from ship emissions, will be installed between the second quarter of 2019 and the third quarter of 2020, said Scorpio. This implies that the company will have to purchase higher cost low sulfur fuel for some of its vessels after 1 January 2020, the onset of the regulation's implementation, and prior to scrubber installation.

With a scrubber-fitted fleet, Scorpio will be able to capitalize on the price spread between high and low sulfur fuel. Although the extent of the spread is uncertain, it is expected to widen starting 1 January 2020 as demand for low sulfur fuel will rise as most vessel operators will have to purchase it to remain compliant.

The total number of merchant vessels that will be fitted with scrubbers by the deadline is expected to be in the 1,500-1,550 range, representing only about 3pc of the global fleet, said an executive of Wartsila, the world's largest scrubber manufacturer, at an industry event last week.

Scorpio said the scrubbers and their installation will cost between $1.5mn-$2.2mn per vessel, and the company anticipates that 60pc to 70pc of these costs will be financed.