Posidonia 2018: Owners remain nervous about scrubber investment

Baltic Exchange chief executive Mark Jackson says the Baltic expects most owners to comply to the global sulphur cap by burning MGO instead of using scrubbers or other low-sulphur fuels. Credit: Baltic Exchange
Baltic Exchange chief executive Mark Jackson says the Baltic expects most owners to comply to the global sulphur cap by burning MGO instead of using scrubbers or other low-sulphur fuels. Credit: Baltic Exchange

Faced with uncertainties over the economics of using scrubbers to remove sulphur emissions from ships, many owners are still undecided over how to respond to upcoming legislation capping sulphur pollution from 2020.

The issue dominated a discussion panel at the Baltic Exchange’s Risk Forum, part of the many industry events taking place in Athens as part of the Posidonia maritime get-together.

Amid rumours about the technological capabilities of scrubbers, which remove sulphur pollution from vessel’s exhaust fumes, Roy Yap of Newport Shipping pointed out that the technology is 20–30 years old and should be considered proven. Neither it is especially complicated, he said. “It is basically a shower. The only difficult thing is to measure the discharge.”

Theofanis Anastasiadis from Star Bulk noted that another rumour surrounding scrubbers should also be discounted: that discharging the wastewater from the technology into the ocean was ecologically damaging. “Sulphur in the air is dangerous,” he told the forum. “Yet sulphur in the water is natural. It makes up about 8% of the sea.” Calculations had found that even if all the sulphur from vessels was placed into the ocean, the change in the amount of sulphur would be negligible.

Yet a major concern surrounding the technology relates to the cost, which partly explains why owners have only fitted scrubbers on about 800 vessels globally.

Brian Nixon of Lavinia Bulk said that whether a scrubber would be economically viable depended on the spread between heavy fuel oil (HFO) and marine gasoil (MGO), which is naturally low-sulphur and is expected to be the main route of compliance by shipowners, at least initially.

He calculated that for the larger vessels sizes, installing a scrubber would be likely to result in an overall cost saving, although as the spread is unknown, it remains a risky strategy. “At a USD250/tonne spread, it’s worth it on a Capesize vessel,” he told the forum, although the economics do not stack up for most smaller vessel sizes.

Anastasiadis noted that, as some estimates of the spread have been USD400/tonne and larger, “over the next few years, scrubbers will be the most practical solution.”

This was challenged by Angelica Kemene from Optima Shipbrokers who said that even though the price of HFO was expected to fall significantly, it still needed to be refined to marine standard and supplied to ports on a smaller scale than at present. Therefore shipowners would not necessarily be able to purchase it cheaply. “We don’t know if the spread will be that wide, we have reason to doubt that,” she said in relation to the USD400/tonne figure.

Questions also remain over the availability of HFO once the sulphur cap comes into force, as smaller ports may not have the capacity to stock a fuel that is used by the relatively few vessels that have scrubbers. “Smaller vessels that call at smaller ports may have trouble bunkering with HFO,” said Anastasiadis, “although they can use MGO instead”.

Faced with these difficulties, the panel agreed that most owners were still in the ‘wait-and-see mode’ surrounding their sulphur cap plans. “The dynamics aren’t worked out yet,” Yap said, noting that flag states and port authorities were also still working on their strategies.

The audience also heard that the sulphur cap could also result in a return to slow steaming, as vessel owners looked to reduce their fuel bills, something that would essentially reduce the supply of vessels and could push up rates.

The debate was moderated by Mark Jackson, Baltic Exchange chief executive, who said that as the exchange expected most owners to comply by burning MGO instead of using scrubbers or other low-sulphur fuels, it was likely that Capesize vessels with scrubbers installed would be excluded from the exchange’s pricing indexes.

“At the moment it looks like we will be defaulting to a gasoil vessel with no scrubber,” he said.