Scrubber economics improve for newbuilds

Date: Monday, January 18, 2021
Source: Lloyd's List

At a price spread of $50, payback for an exhaust gas scrubber order is achievable within five to six years, which still justifies applying the technology to a shipbuilding project, claims one expert

SCRUBBER economics are shaping up in favour of investments for newbuildings rather than vessels in operation even as the fuel oil price spread moves in support of applying the abatement technology.

By one estimate from a bunkering expert, the cost of installing a scrubber on a newbuilding comes up to approximately two-thirds that of retrofitting on an existing vessel.

Adrian Tolson, director of Blue Insight, further suggested with this estimate, that scrubber investments will break even sooner for newbuildings.

Scrubbers can take longer to install on board vessels that have entered into operation.

The time taken for retrofits has also increased since the coronavirus backdrop hit operations at shipyards around the world.

Scrubber retrofits now take 50 to 60 days to complete, up from 30 days at the end of 2018, according to DNV.

The number of vessels undergoing retrofits has however, plunged to just 31 to date, declining consistently from a peak of more than 300 at the start of the past year, data furnished by the class society showed.

Still, the abatement technology remains highly attractive for newbuilding projects, particularly among container players.

Cosco, Evergreen and Mediterranean Shipping Co are three major container lines expected to order more scrubbers to go with new ship orders being placed at yards.

Mr Tolson highlighted one indicator backing scrubber investments.

The price spread between 0.5% sulphur fuel oil, or very low sulphur fuel oil, and 3.5% sulphur fuel oil, or high-sulphur fuel oil, has widened from a low of $50 per tonne seen late in the past year.

“At $50 per tonne, shipowners can expect to break even on a scrubber retrofit in five to six years. The payback will be shorter for newbuildings.

“That will justify scrubber investments for newbuildings, but of course most decisions were made with the assumption that the spread would widen quickly.”

A rebound in VLSFO prices since the height of the pandemic has contributed to the widening spread.

Taking in the forward curve from the futures market, Mr Tolson expects the spread to trend in the low to mid-$100s.

Scrubber-fitted ships made up 31.2% of the shipbuilding order book as of November, Clarksons Research data showed.


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