VLCCs lead in scrubber ranking

Analysis by shipbroker Gibson has revealed that more than half of the VLCC fleet has been fitted with scrubbers during the four years since the IMO’s global sulphur rules were introduced.

Before the regulations came into force, tanker owners had been weighing up the availability of compliant 0.5% sulphur fuel, the cost of scrubber installations, and the difference between the cost of high sulphur fuel oil (HSFO) and very low sulphur fuel oil (VLSFO), known as the Hi5 spread.

Gibson notes that Hi5 has been volatile, fluctuating between a peak of $485 per tonne and a low of $60 per tonne over the last four-and-half years. The variance has been due to a number of factors, including regional variations in supply and demand, the fallout of the pandemic, oil price swings, and changes in global HSFO flows following the introduction of sanctions on Russia.  

VLCC owners were, from the outset, expected to benefit most from scrubber technology. Their tankers are heavy consumers of fuel and operate on long routes. The broker notes that the scrubber premium on the key TD3C voyage from the Middle East to China has averaged $6,750 a day since January 2020. It has fallen recently to about $5,000 a day, however, owing to a recent slide in the Hi5 spread.

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Not surprisingly, it is the owners of younger VLCCs who have led scrubber investment across the sector: 74% of tankers under ten years of age have scrubber installations. This compares with 47% of VLCCs in the 10-20 year range. Fewer units still have been installed on tankers over 20 years but Gibson points out that many of these are not trading in the conventional market, but are engaged in shipping sanctioned Venezuelan and/or Iranian crude, or used for permanent storage.

VLCC owners who took decisions to install scrubbers during 2020/21 have seen their investments pay off. But for tankers in the smaller sizes, the economics are not as clear-cut.

A significant number of Suezmax and Aframax/LR2s have scrubber installations, but not as many. About 29% of Suezmax tankers have them, and about 23% of the smaller tankers. Only 8% of the LR1/Panamax fleet have them, 17% of MRs, and just 2% of Handies, according to Gibson figures. Clearly, the returns on smaller vessels are less appealing because voyages are shorter and less fuel is used.

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Nevertheless, the scrubber premium on the voyage from West Africa to Europe, TD20, has averaged about $5,000 a day since the beginning of 2020. Meanwhile the delta in timecharter equivalents between tankers with scrubbers and those without among the smaller sizes has ranged between $4,000 a day and $2,750 a day on benchmark trades, Gibson said.

Related:Scrubbers save DHT $14.6m, coronavirus delays further retrofits in China

Scrubbers are not without controversy, in parcticular the open-loop models, and a growin number of countries have banned discharge of waste from open loop scrubbers in their waters.