Favourable scrubber economics driving the crude tanker orderbook

Figure 1: Orderbook categorisation by vessel size

Source: Drewry Maritime Research, Clarksons WFR

Analysing the orderbook, we find that about 60% of the vessels are scrubber-fitted, indicating the reluctance of the shipping industry to move away from HSFO to VLSFO. Shipowners are rather preferring to invest in scrubber devices.

Figure 2: Orderbook categorisation by primary fuel

Note: Dual fuel represents a vessel that can run on both – traditional fuel and a cleaner fuel like LNG, methanol and ammonia.

Source: Drewry Maritime Research, Clarksons WFR

Figure 3: Orderbook categorisation of dual-fuel vessels by type of cleaner fuel

Source: Drewry Maritime Research, Clarksons WFR

We believe the future will unfold in either of the following three scenarios – S1, S2, and S3, where S1 denotes the low-case scenario, S2 base-case and S3 high-case. We assume the price differential between VLSFO and HSFO is at $50 per tonne in S1, $100 per tonne in S2 and $200 per tonne in S3. S1, being the low-case scenario, has crude oil prices on the lower side of the spectrum due to which the spread between VLSFO and HSFO prices narrows. Coming to S2, it is a business-as-usual scenario with future prices remaining similar to the present values. The price differential at present ranges from $100 per tonne to $150 per tonne; we assume it to be $100 per tonne for our calculations ahead. Meanwhile, in S3, we assume crude oil prices will go much higher than the current prices. When crude oil prices increase, VLSFO prices increase more sharply than HSFO, widening the price gap between the two.

The figure below shows the monthly average price differential between VLSFO and HSFO and the corresponding number of scrubber-fitted vessels ordered every month.

Figure 4: Historical monthly average price differential between VLSFO and HSFO; the monthly trend of scrubber-fitted vessels ordered

Source: Drewry Maritime Research, Clarksons WFR

From the above figure, Drewry infers that whenever the price differential between VLSFO and HSFO increases, the shipping industry reacts to it by ordering a higher number of scrubber-fitted vessels, albeit with a lag of 6-12 months.

Economics of scrubber technology

The cost of installing a scrubber device in a new vessel ranges from $2-$5 million.

Assumptions by Drewry:

Cost of installing a scrubber device in a new vessel: ~ $3 million
Vessel utilisation: 80%

1. Voyage charter:

Fuel consumption of a vessel on an average assumed to be: 80 tonnes per day

Corresponding annual savings and payback periods that will be achieved under the three different scenarios in a voyage charterare tabulated below:

2. Time charter:

In the case of a time charter, TC rates will affect the payback period. The figure below depicts the TC rates for a VLCC Eco vessel with a scrubber compared to a VLCC Eco vessel without a scrubber:

Figure 5: Price differential in TC rates due to scrubber for 1-year charter period

* Denotes the average of months from January 2024 to July 2024 for the current year.

Source: Drewry Maritime Research, Clarksons

The difference in TC rates between scrubber-fitted and non-scrubber-fitted vessels (VLCC Eco) ranges from $3,500 to $6,500 per day.

TC rate difference between vessels due to scrubber presence assumed to be: $5,000 per day

Corresponding annual revenue and payback period that will be achieved is tabulated below:

After a span of 2 years, shipowners can continue to benefit from the differential between TC rates for scrubber-fitted and non-scrubber-fitted crude tankers until the end of the scrubber’s lifespan.

Conclusion

From the above analysis, Drewry considers scrubbers’ payback period attractive. Hence, it would be prudent for shipowners to opt for scrubber-fitted vessels. Besides having an attractive payback period, scrubbers can also be adapted to capture carbon emissions from ships. With mounting pressure from regulations governing emissions from the shipping industry, it is best for the stakeholders to be prepared to manage carbon emissions as well. This adds to the financial attractiveness of scrubbers.

Source: Drewry