Bulk carrier scrubbers outpace tankers

Less than 15 months remain until the IMO 2020 sulphur cap

regulations come in to force and with this date looming, ship owners who have
yet to address the situation are being forced to make prompt decisions in order
to comply and continue to trade come January 2020 and beyond. Compliance
options are to install scrubbers, to switch to LNG or another compliant fuel or
face non-compliance and any penalties that this could entail. With some reports
indicating that the penalties for non-compliance are low compared and potentially
cheaper than the economic incentives such as switching to scrubbers or cleaner
fuels.

According to our analysis, Bulk Carrier have outpaced
tankers with scrubber installation, with around 30% of vessels with scrubbers
in the bulk carrier sector either on order or already installed, compared to
just 18% for tankers. Perhaps this outcome is surprising, considering that vessels
fitted with scrubbers are currently able to command a premium over standard
vessels and with tanker rates still at relatively low levels by historical
standards. We have calculated that on average, scrubber installed tankers are
earning around 10% more on five-year timecharter rates. After an initial investment of between $2-8
million per ship with the return on investment is thought to be from 1-3 years.

In it’s latest World Energy Outlook, OPEC predicts that due
to uncertainties surrounding the implementation of IMO regulations, the rate of
non-compliance could be around 75% in 2020, gradually increasing to 90% in
2023, in line with the increasing number of vessels with on-board scrubbing
facilities.

Charterers will have the benefit of cost saving in the case
where the vessel is fitted with a scrubber and operating on a “cheaper” heavy
fuel rather than using MDO or other potentially expensive compliant fuels.
Reportedly some owners have even received financial backing from charterers to
install scrubbers. There have also been instances where scrubber fitted vessels
have an advantage when securing financing and Goldman Sachs reportedly sought
to help owners finance scrubbers.

Indications from owners suggest that they see scrubbers as
only a short-term solution if compared to the alternatives which provide a more
structural and profound long-term solution. However, the economic case behind them is
strong, particularly in larger vessels.

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