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Implications for the energy industry - the vast
majority of vessels being fitted with scrubbers purchase fuel on
the spot market, so they will rely on HSFO being available at
traditional bunker hubs.
Implications for the shipping industry - for
the largest vessels, scrubbing economics are very favorable and
short payback periods are expected. With container ships now being
lined-up for retrofitting, operators are racing to get their ships
in the queue to be fitted in a bid to remain competitive in the
very intense sector.
As expected 2019 has seen a burst of scrubber-fitted vessels
arriving on the water, as ship owners race to complete fittings
ahead of the fuel specification change on 1st January 2020. This
trend is expected to continue through the remainder of 2019, as the
shipyards begin to see waves of vessels arriving for retrofitting,
whilst an increasing number of new build vessels with scrubbers
fitted rolls out of shipyards.
As of 1st April 2019, the number of ships fitted with scrubbers
in service stood at 602, according to data collected via multiple
sources including vessel tracking by IHS Markit. The next eight
months are expected to be busy, with a further 1,430 ships entering
service ahead of 1st January 2020, according to IHS Markit
forecasts. This is far lower than the 3,800 vessels, which CE Delft
projected in their study undertaken on behalf of the IMO in
2016.
Data collected by IHS Markit indicates that a further 1,674
vessels are stemmed to be fitted with a scrubber (either as a
retrofit or fitted upon entry into service). It is apparent a
number of these will not be fitted before the start of next year,
with some owners already publicly acknowledging that they ordered
the systems too late. This number does not include options, or
"stock" scrubbers which have been obtained by turnkey service
providers.
Scrubbers bans to stem the tide?
Much has been made in the press on the recently announced
"scrubber bans" in certain areas of the world, and the impact this
will have on the scrubber market. The ports of Singapore (announced
in November 2018) and Fujairah (January 2019) both placed bans on
the discharge of effluent from open-loop scrubbers in their waters,
whilst China announced in January that scrubber water discharge
would be banned in its coastal ECAs and rivers. Partial
restrictions on scrubber usage are in place in parts of Germany
(including the Kiel Canal), Ireland, Japan, Belgium, Norway, Abi
Dhabi and US, whilst in April, South Africa went the opposite
direction and announced it approved the use of all types in its
waters. In most cases, the waters where the bans are taking place
are in areas where an open-loop scrubber would not operate
effectively (due to the low-alkalinity of the water), therefore the
vessel would have to switch to closed-loop mode (if it has a hybrid
installation), or simply switch to VLSFO. The areas also form just
a small percentage of the entire voyage, with the ship only
spending a few days (at most) in the areas with the engines
running, therefore most of the engine-running hours will be spent
in areas where the open-loop scrubber can be used.
Bulk carriers and tankers leading the way on scrubber
installation
Of those vessels fitted and operational, over half fall within
the 10,000 - 49,999 gt sector. This is a legacy of the Emission
Control Areas (ECAs) reducing maximum sulfur levels from 1%S fuel
oil to the more expensive 0.1%S bunkers, whereby a number of
vessels with high exposure to these areas were retrofitted with
scrubbers, primarily ro-ro's and ro-paxs. The cruise ship sector
spans the larger segments, the sector being an early adaptor of the
technology, as operators sought to give their vessels as much
operational flexibility as possible. These larger segments are
slowly increasing their share of the fitted-fleet, as owners look
at the higher consuming vessels as best-placed to receive the
greatest returns on scrubber retrofitting. With those scheduled to
enter the fleet scrubber fitted, the two larger segments will
account for 55% of the scrubber-fitted fleet (from 45% currently)
in the coming months.
Since January, data shows the number of scrubber-fitted tankers
has increased by 74 vessels. As of 1st April, the fleet totalled
140 vessels fitted. Another 550 tankers are expected to be added to
this fleet in the coming months, however, like with most ship type
sectors, not all will be on the water before the 1st January 2020,
with those owners who were late in deciding to fit scrubbers
unlikely to have a unit before the fuel change, and therefore
missing out on large price advantages predicted in the early months
of next year.
So far 36 VLCCs have been fitted and are on the water; around 5%
of the operational fleet. The sisters DHT Raven and
DHT Lake are the oldest vessels in the sector to have been
fitted, both were built in 2004. The retrofits on this pair is an
indication of how confident owners are on scrubbers providing a
favourable return, even on vessels which are likely to leave the
fleet for recycling in the next four to five years. These tankers
are recorded as consuming around 90 tonnes a day; with a
scrubber-fitted, these tankers which would typically consume 24,000
tonnes annually, could see an annual saving of $4.7 million on a
differential of as low as $200 per ton between VLSFO and HSFO, far
outweighing the cost of the scrubber, which in the current market
is estimated to be around $3 million.
The tanker sector has the largest share of the scrubber-fitted
vessels on the water, followed very closely by cruise ships,
accounting for 23% of the fleet. Until the start of the year the
cruise ship sector had the largest number of scrubber-fitted
vessels, with the sector being early adopters of the technology. In
Q1-2019, the number of cruise ships on the water fitted with
scrubbers increased by 15, and there are only a handful of vessels
expected to be fitted in the coming years, most of which are still
under construction.
A significant number of retrofits are expected to be seen in the
bulk and container markets in the coming months. The number of
scrubber-fitted ships in the bulk carrier fleet more than doubled
between January and April, increasing from 29 vessels to 63 vessels
on the water. According to IHS Markit data, 13 capesize bulk
carriers and large ore carriers fitted with scrubbers are now in
service, with a further 360 vessels confirmed to be scrubber-fitted
in the future. Currently over 500 bulk carriers are confirmed to
enter the market, fitted with units in the coming months.
Container operators have been reported to be offering incentives
to owners who are willing to retrofit units to their ships, with
guaranteed increases in charter rates. Since January, a further 64
container ships have been confirmed as been earmarked for
retrofitting; whilst the number of scrubber-fitted container ships
on the water increased by eight, to 40. The 16,000 TEU,
French-owned sisters, CMA CGM Alexander von Humboldt and
CMA CGM Jules Verne are the largest container ships
retrofitted so far, with the work being undertaken near Shenzhen in
the later months of 2018. These leviathans are expected to be
joined by vessels from the major operators' fleets in the coming
months, as they attempt to take advantage of the lower fuel costs.
It is reported, MSC, Hapag-Lloyd and COSCO are all lining up large
container ships for retrofitting, whilst similar-sized newbuild
projects for Hyundai Merchant Marine, Evergreen and Yang Ming are
all stemmed to be delivered with scrubbers fitted.
The container sector seems to have acted slower than the bulk
carrier and tanker markets. This could be due to concerns that
there is a chance of losing revenue generating space onboard the
vessels, with the units spreading into areas which would have been
used for cargo. Whilst the recent retrofits to the CMA CGM
container ships seems to have been done utilising the vessels' wide
beam avoiding any cargo space loss, retrofits to similar sized
vessels have not been so efficient, though owners now appear to be
willing to take the drop in overall capacity over lower fuel costs.
A prime example is the 400-metre-long Ever Govern which
will be delivered in May. She is the eighth unit in a series of 11
20,800 TEU container ships for Evergreen Merchant Marine, though it
is the first in the series to be fitted with a scrubber. The unit
spreads ahead of the funnel-casing forward over a 40-foot cargo bay
- effectively reducing the ships intake by around 200 TEU, compared
to the earlier vessels of the series.
The roll-on, roll-off (ro-ro) sector was another group of
vessels which saw early adoption of a large portion of the fleet,
due to the operational nature of the vessels in northern Europe
seeing a high ECA exposure. Between January and February, a further
14 vessels were added to the number of vessels due for fitting,
whilst the number of fitted-vessels on the water increased by 17 in
Q1.
Q1 saw over 160 vessels leave shipyards and into service fitted
with scrubbers. Alongside this, 300 additional vessels were
confirmed as to be fitted with scrubbers. Not all these will be
installed before the 1st January deadline, with some owners now
being happy to just be in the queue for an installation after the
IMO regulations come into force. One thing is for sure; shipyards
will be kept busy over the coming months as ship owners scramble to
ensure their ship can operate on the "cheaper" fuel come 1st
January - the next question is, will the cheaper fuel be available
to them?
Posted 22 April 2019 by Krispen Atkinson, Consulting Principal , IHS Markit