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A third of scrubber orders will miss IMO cap deadline

Scrubber uptake in the shipping industry has been increasing to meet new sulphur requirements that take effect from January 1, 2020. But up to a third of orders placed will not be completed in time

Up to 1,000 units will not be fitted on vessels until next year, says an industry expert, with lead times for new orders in some cases standing at 40 to 50 weeks 

WHILE scrubber uptake in the shipping fleet is increasing as a means of complying with new sulphur limits set by the International Maritime Organization, around one-in-three orders will not be completed in time, according to an industry expert.

About 2,000 to 2,500 installations will be completed by the end of the year, said Donald Gregory, director of the Exhaust Gas Cleaning Systems Association. Of that figure, 10% will be retrofits on cruise ships, while there have been indications that at least 200 large container vessels will be equipped with the technology over the coming months.

As many as 1,000 additional scrubbers are on order, but they will not be delivered this year, he told Lloyd’s List on the sidelines of an International Petroleum week session in London.

Time to fit the necessary equipment at the yards varies from as little as two days to as many as five weeks if combined with other work such as ballast water treatment systems, he said, adding that lead times for new scrubber orders is increasing, in some cases, to 40 to 50 weeks.  

The IMO sulphur cap will be introduced on January 1, 2020. Vessels that have scrubbers on board will be allowed to continue to burn fuel with 3.5% sulphur, known as high-sulphur fuel oil.

A shortage of materials, such as seawater pumps, are contributing factors to the delayed lead times. This is combined with a shortage of specialist skilled workers, such as pipe layers or welders, to install the equipment while vessels are in motion for those ships that have chosen to continue trading.   

There is also an ongoing class society approval issue, he added, without elaborating.

The debate about methods of compliance to the IMO rules has been raging for a number of years, with arguments for the adoption of scrubbers at vast expense juxtaposed with using the more expensive low-sulphur fuel.  

Maersk Tankers was the latest company to signal its move on Friday, announcing that it will be installing scrubbers on an existing long range two product tanker and three newbuildings. It also stands ready to “handle scrubbers for the vessels” that are operated in its commercial pools.

It said installing scrubbers on smaller-sized tanker vessels was “not currently deemed financially viable”. It will therefore predominantly resort to using low-sulphur fuel to comply with the regulations.

“We have carried out extensive analyses while also consulting with industry specialists and relevant regulatory bodies,” said chief technical officer Tommy Thomassen. “Based on that, installing scrubbers on selected larger-sized product tanker vessels is assessed to be a financially viable solution while combining it with the use of compliant low-sulphur fuel on the majority of the fleet.”

“However, we also recognise a need for gaining a deeper understanding of the regulations’ overall implication on the global product tanker industry.” 

Many companies are expecting a positive trend for product tanker and crude tanker earnings ahead of IMO 2020 due to new trading patterns and added tonne-miles.

Major ban

But a ban on open-loop scrubbers at some major bunkering ports such as Singapore and Fujairah may be a deterrent to widespread adoption. 

“There is no reason to ban open-loop scrubbers,” said Mr Gregory from the scrubber association. Closed-loop scrubbers will also have to discharge wastewater into the sea at some point when the tanks get full while on voyage.

In addition, market participants do not like the closed-loop system because it necessitates the use of caustic soda.

“If the discharge is too high, then the IMO needs to change the limit,” he noted.

Prompted by the European Union, the IMO will discuss potentially drafting new rules for scrubber discharge

According to Concawe, a European Refining Association focused on environmental science, marine fuel is clearly the cleaner option.

It estimates that 27m tonnes per year of 0.5% sulphur marine fuel may be produced in 2020, of which 50% to 70% will come from middle distillates and 30% to 50% from blending of heavy fuel components. About 3m tonnes per year will constitute high-sulphur refinery runs next year, which may increase the sulphur content from an average of 2.9% to 4.2%.

While the refining system can cope with the expected demand, full compliance with the 0.5% sulphur cap by 2020 is not straightforward, a preliminary study by Concawe found.

That is because the main conversion and hydro-treating units need to be maintained at a high throughput, while there also needs a to be a strong incentive for supplies to the maritime industry. 

Wood Mackenzie assumes high, but not full, global compliance, with the new rules.

The energy consultancy sees the shipping sector swapping 1m bpd of high-sulphur fuel oil demand by a similar volume of marine gas oil. 

“Our analysis of the refining sector suggests the refining system will absorb the displaced high-sulphur fuel oil volumes as feedstock and will then largely supply the necessary distillate,” it said in a note. “However, prices would change, rewarding those shipowners that have invested in scrubbers.”

“Given the legislation comes into force on January 1, shipowners will need to take action soon,” WoodMac’s refining analyst Alan Gelder said in the note. “We are expecting to see this new market reality emerging late in the northern summer, but legislative clarity will not appear until early in the fourth quarter, as that will be the last meeting of the IMO at which a compromise could be adopted.”

The International Bunker Industry Association echoed some of the views, stressing the need for shipowners and charterers to be prepared for the change.

There is enough refining capacity to meet the 0.5% sulphur limit, said the IBIA’s director Unni Einemo. 

According to a report by AlixPartners, IMO 2020 is weighing heavily on the container industry, which is struggling to generate sustained profitability.

It estimates container lines could be looking an additional $10bn in fuel costs, based on 2018 prices for low-sulphur fuel oil to comply with the cap.

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