Article original published by ship.energy on February 25, 2021. Author Rhys Berry.
Scrubbers are buying shipping operators valuable time while they ponder their decarbonisation decisions
For all the talk of IMO 2020 – and everything that has happened since – it is easy to forget that shipowners and operators in North America and northern Europe have been working within even stricter parameters since 2015. In many ways, the introduction of 0.10% sulphur emission control areas (SECA) more than six years ago served as a dress rehearsal for the main event. And according to Sigurd Jenssen, Director of Wärtsilä Exhaust Treatment, the insight provided by the regional measures was invaluable.
‘It will have been very difficult to do 2020 without having gone through 2015 first,’ he says. ‘2015 was a much smaller change than the 2020 one. The business cases were a lot more varying depending on your specific trade. Obviously, if you solely traded in a SECA then it was fairly straightforward but for shipowners that went in and out, then the whole calculation or equation became very difficult to run.’
He adds: ‘Obviously, it allowed us the opportunity to develop some supplier base and find out how we could ramp up [supply] if or when the boom came.’
And, according to Jenssen, this boom did come soon after the IMO confirmed the 1 January 2020 date for the 0.50% regulation back in 2016.
‘They [shipowners] were lining up everywhere to buy scrubbers, to find slots at the shipyards [to fit them] and I think it’s fair to say that many of the repair yards struggled with the capacity,’ says Jenssen. ‘They hadn’t gone through that same learning curve that we had in terms of understanding what it takes to put a scrubber on board. It’s not rocket science, but still, there are some stumbling blocks, and you learn along the way.’
But industries and economies throughout the world often find themselves at the mercy of global oil prices – and shipping is no different. It is worth remembering that in the months leading up to the introduction of the SECAs in 2015, oil prices plummeted. Beginning the year comfortably above the $100 per barrel mark, by December 2014, Brent had fallen sharply, to below $60 per barrel. This was significant. Developers of new ultra-low sulphur fuel oils (ULSFO) had banked on a healthy price differential with marine gasoil. This did not materialise, and for many shipowners unfamiliar with – and perhaps a little wary of – these 0.10% sulphur fuels, the decision was effectively made for them.
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Fast forward five and a half years and the scrubber market experienced an equally untimely oil price fluctuation. Having enjoyed a healthy HFO/VLSFO margin of around $350 per metric tonne (mt) at the turn of 2020, by April, this had shrunk to below $100 per mt. Was this cause for concern among scrubber manufacturers?
‘Concern is perhaps the wrong word,’ says Jenssen. ‘We expected that to be a temporary thing and I think we’ve been proven largely right. For sure, we didn’t get a whole lot of retrofit orders last year – that’s not a secret – but it didn’t dry up completely.’
In fact, according to Jenssen, that vessel owners were not totally deterred by such negative market conditions is a reflection of the robustness of the scrubber business case.
‘Even with the spread as low as $50-$60, as it was for a while, scrubbers would still be a reasonable investment, it just wouldn’t be a fantastic investment like it was in 2019 and the first months of 2020.’It was not just oil prices threatening to derail demand for exhaust gas cleaning systems, though. Even before the introduction of IMO 2020, a growing list of major ports outlawed the use of open-loop scrubbers, which will have likely impacted the confidence of shipowners mulling scrubber-related CAPEX decisions.
‘It’s fair to say that we were a bit frustrated at the lack of scientific foundation for those decisions,’ says Jenssen. ‘All of the work and the studies we have seen from various third parties indicate that it is safe to discharge open-loop washwater and the environmental impact is minimal and no worse than the alternatives.’
Jenssen continues: ‘Banning a single technology based purely on sentiment seemed a bit premature to us. But having said that, banning open-loop discharges in the Port of Singapore – it’s a very small area – makes no impact on the business case or rationale for installing a scrubber.’
Indeed, the business case for scrubbers is becoming increasingly well understood, says Jenssen.
Scrubbers can play an important role in getting to wherever it is we’re getting to. I think there are lots of benefits of scrubbers beyond the removal of sulphur. We also remove a lot of the particles. The way we see it, it’s a stepping stone and it has lots of potential.
As Jenssen points out, regulation is ‘only going one way’ and Wärtsilä is currently developing its exhaust gas cleaning system portfolio to address particulate matter and NOx emissions. The aim is to provide solutions which help to future-proof vessels for at least 10 years.
‘We can build on what we have and ensure that the assets the shipowners have won’t be obsolete and can actually continue and trade with it,’ he says.
While Jenssen will not be drawn on specific order book numbers, he says the company has seen ‘healthy interest’ from customers, ‘especially on the newbuild side’. This number is also expected to grow if vessel contracting picks up. Moreover, Wärtsilä anticipates the widening HFO/VLSFO spread to jump-start the retrofit market.
‘We see that there is more activity in the market for sure, both on the newbuilding and retrofit [sides] without putting a number on it,’ says Jenssen.
In the years leading up to IMO 2020, of all the potential challenges for the scrubber market, it is fair to say that a global pandemic was not predicted. While Wärtsilä has been able to meet its contractual obligations, getting service engineers onboard ships has proven to be more problematic.
‘The travel restrictions have added to the workload,’ concedes Jenssen. ‘Getting the tests done and arranging the traveling has been a lot more complicated.’
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