RE: Old EDISON Report Nov 202027 Jul 2022 23:06
Worth just reminding ourself how large the market is
Fuel accounted for the largest proportion of a fleet’s operating costs, typically c 70% for container ships, prior to the collapse in oil prices caused by the coronavirus pandemic, so switching from HFO to a lower-cost fuel such as MSAR represents an attractive option. Management estimates that, based on the spread value stated earlier, which determines the level of discount to HFO that refineries can offer, converting a very large container ship consuming 25,000 tonnes of fuel annually to MSAR would cost c $400k and save up to $650k/year. These savings arising from switching from HFO to MSAR are a potential way of offsetting the cost of installing scrubbers that enable a vessel to continue to use heavy sulphur fuel, which could be either a high sulphur fuel oil (HSFO) or high sulphur MSAR variant, while meeting IMO 2020 sulphur emission requirements. The main alternative to scrubbers for a shipping line is to switch to very low sulphur fuel oil (VLSFO), which is more expensive than HSFO and can be hypersensitive to mixing with other fuels on board, resulting in the precipitation of particles that can block filters and fuel injection systems, potentially causing loss of power. Prior to the introduction of the low sulphur cap, there was some concern as to whether there would be sufficient VLSFO available. Given the depressed demand for HFO from shipping at present, there is no visibility of whether this concern is justified. Switching to a low sulphur variant of marine MSAR is also an option.
At the moment the prices of VLSO and HSFO are at a level where the economics do not favour scrubber installation. In June, Lloyd’s List noted that with a difference in price between HSFO and the compliant fuel oil of only $52 per tonne in north-west Europe, the payback period for a scrubber on a capesize bulk carrier had extended beyond five years, and beyond three years for a very large crude carrier. In contrast, at the end of 2019 the difference between VLSFO and HSFO was over $300 per tonne ahead of the implementation of the lower sulphur cap, resulting in payback times of less than a year for a very large crude carrier and just over a year for a capesize bulk carrier. Technavio expects the market to normalise between Q321 and Q122 and as it does, the economic case for switching to MSAR and scrubbers could be reinstated. Until then, there is still a material proportion of vessels that already have scrubbers installed and are able to benefit from the cost savings available from adopting high sulphur MSAR variants. As of June 2020, Lloyd’s List estimated that over 2,750 operational vessels totalling nearly 329m deadweight had scrubbers installed, representing less than 3% of all vessels by number but 16.4% of the trading crude tanker fleet, 12.2% of bulk carriers, 12.7% of containerships and 7.5% of product tankers when measured by deadweight tonnes.
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