Hong Kong-based dry bulk shipping company Pacific Basin has ruled out further investments in the installation of scrubbers on its ships despite reporting enviable net savings from the technology worth $23.1 million, representing 38% of its original investment.
The company decided to fit scrubbers on 28 of its owned Supramaxes back in 2019 in order to comply with the IMO 2020 global 0.5% sulphur limit that took effect on January 1, 2020. The rest of the company’s fleet of 117 ships is using low-sulphur fuel.
During the first half of 2020, the company’s ships outperformed Handysize and Supramax index rates by $2,270 and $4,250 per day, respectively. Supramax outperformance was particularly strong, partly due to the significant scrubber benefits that the company realized early in the period.
There was a major hype around the installation of scrubbers over the past two years as owners eyed premium earnings from the technology that allowed them to continue burning much cheaper high sulphur fuel oil (HFO.)
The key driver behind the surge in orders for scrubbers back in 2018 and 2019 was the expected charter premium for ships stemming from significant fuel price differentials between HFO and LSFO.
Bulk carriers have claimed the biggest portion of the total number of installations, with 1,365 ships fitted with scrubbers, according to DNV GL’s March 2020 data.
However, geopolitical developments and the outbreak of COVID-19 have led to a major drop in crude oil prices in 2020, pushing down the price of low-sulphur fuel oil as well. As such, the fuel price spread went from $300 per ton to $60 per ton, undermining the investment case for scrubbers as payback times from one year increased to up to five years.
Speaking in a conference call on the company’s earnings last week, Mats Henrik Berglund , CEO of Pacific Basin Shipping, said the company was happy with the scrubbers it had installed, however, further investments in the technology did not make economic sense.
“We were early with our scrubber decisions and had all of them operational by the year-end. So we were able to take advantage early. But as the fuel price spread has narrowed, we are not planning to install any more scrubbers and neither are many others ,” Berglund added, stressing that the fuel price spread is likely to further widen a bit again as the price of crude goes up.
“The scrubber opportunity, at least the way it looks now, was to be there early and take advantage.”
CEO od Seanergy Maritime, Stamatis Tsantanis said in a recent C-suite interview, organized by Noble Capital Markets, that at the moment scrubbers were totally an uneconomical proposition.
“What was extremely misleading from the beginning was that the scrubber fitting was a paper exercise-you just pushed a certain button and you would lock into certain spreads and make a profit. That is totally not the case,” he said.
Tsantanis added that installing a scrubber was a very complicated endeavor and that maintenance requirements for scrubbers were tremendous.
At a time of travel restrictions imposed worldwide, maintenance can cause headaches for owners as arrival of service technicians on site has been very difficult if not even impossible.
Given the installation and maintenance hurdles as well as lower economical incentive, Tsantanis said he would not be seeking fitting additional scrubbers on any of its additional ships.
Even though certain shipowners had vehemently opposed scrubbers, especially open-loop solutions that release scrubber wash water into the ocean, as a potential danger for the environment, the case for scrubbers was pretty strong last year.
Therefore, nobody could have seen such a downturn in demand coming, as the scrubber market had very high hopes for 2020.
However, in the first half of 2020 scrubber manufacturers like Wärtsilä and Yara Marine reported significant drops in demand for scrubbers due to the impact of COVID-19 and the turmoil in global oil markets.
As a result, Yara Marine is looking to expand its business portfolio beyond scrubbers and look into other green marine industry fields.