Coronavirus' spread hurts scrubbers outlook in short run: EGCSA
13th April 2020 19:19 GMT

The coronavirus pandemic has created a grim outlook for scrubbers in the short term as some shipowners prepare to divert their capital for other uses while a few defer planned installations either due to a narrowing high/very low sulfur fuel oil spread or a shortage of manpower at shipyards, Exhaust Gas Cleaning Systems Association Director Donald Gregory said in an interview with S&P Global Platts.

The coronavirus situation was the overriding factor just now, dampening world trade and the need for shipping transport as many countries restricted movements to combat its spread, Gregory said late last week, after collecting responses from some of the members.

“Short term it will be very problematic to sell new scrubber systems simply because we cannot travel for sales meetings. Scrubbers are not a commodity that you would buy on the Internet,” Gregory said.

Yards were already facing delays in installations before the coronavirus hit, Gregory said. This is in part due to the surge in orders ahead of the International Maritime Organization’s global low sulfur mandate which started from January 1, sources say.

Although many shipyards “are back up again,” the challenge was now primarily related to sending people out to carry out service and warranty tasks, as most countries had restrictions on the entry of foreigners, Gregory said.

Crew changes were similarly affected, he said.

There were also some postponements at European yards and with installations using a sailing crew, he added.

Moreover, some shipowners were reconsidering their scrubber investment strategy as the narrowing HSFO/VLSFO spread was set to delay a return on those investments.

The Singapore delivered Marine Fuel 0.5%’s premium to delivered high sulfur 380 CST bunker fuel, for example, has narrowed significantly, from an average of $298.90/mt in January to $192.88/mt in February and to about $107.73/mt in March, Platts data showed.

“One can only hope that the owners that still are in a solid financial position will plan for the future and take into account that the spread won’t stay low forever. If one looks at the spread today versus the spread just four months ago, the difference is brutal. Let’s hope that the shipowners see that it can just as well shift back to a relatively high spread in the future,” Gregory said.

Once world trade stabilized again and the oil price normalized, scrubbers would be very viable at levels seen before the coronavirus kicked in, he said.

Scrubbers’ prospects

“Environmentally, there is no better solution and we do not see any in the pipeline for years to come,” Gregory said.

Presently, there was no available or known power source that could replace the marine diesel engine for main propulsion, he said.

“The alternatives are gas turbines (highly inefficient) steam, (highly inefficient) or nuclear (zero emissions at sea but not supported by the EU and some states). Whilst the principle source of mechanical power is sourced from combustion then there is few if any better solutions to meeting air quality targets than exhaust gas scrubbers,” he said.

EGCSA was actively working to inform port authorities on the viability of scrubbers as some ports had banned the wash water discharge of open loop scrubbers in their waters, Gregory said.

“It seems that the impact of air quality in ports takes second place to the effort required to enquire and understand if there are any measurable impacts from the discharge of water from open-loop scrubbers in ports,” he said.

Hybrid systems, which can operate on zero-wash, water discharge when operating in closed-loop mode, were available, Gregory said.

If open-loop scrubbers had to be shut down in port then ships could switch to fuels that were IMO compliant. The amount of fuel burned in port was minimal compared with what was used while sailing, so the economic case for installing an open-loop scrubber wasn’t hurt by this, he added.

HSFO supply

In the long run there would be a surplus of heavy fuel oil as it is an outcome of processing crude oil and in most refineries the residue was not converted to other streams, Gregory said.

With limited alternative demand for residue, it would be affordable compared with many other fuels.

Some of the major shipowners which had installed scrubbers had contracts fixed with bunker suppliers to secure long-term supplies, he said.

“HFO for vessels is still priced at a premium compared to alternative uses/demand, so it’s unlikely that the refineries will cut their supply to the marine bunker market,” Gregory added.

 


Surabhi Sahu,
13th April 2020 19:19 GMT

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