The survey suggests that only 500 ships have been equipped with scrubbers. There has been something of a backlash against scrubber technology, most notably from Maersk and Klaveness, who have said they see the technology as being expensive and immature.
Lasse Kristoffersen, CEO at Torvald Klaveness, last year said scrubbers are a costly investment, costing between $2.0 and $4.0m, which can sometimes be greater than the value of the vessel itself.
Other respondents to the ExxonMobil survey said they were concerned that shipping companies would cheat and falsify the sulphur content of their marine fuel. Could this be a tacit admission that port states do not intend to or will not be able to enforce the 0.5% cap in their own waters?
Time is running out to solve these problems. A little over two years remains before the global cap is imposed and shipping companies have few options with which to comply with the new regulation.
Maersk has favoured using alternative fuels to installing scrubbers. It is likely that, rather than investing in abatement technologies, carriers will instead make an en-masse switch to 0.5% gasoil (or 0.5% fuel oil) come 2020. The International Energy Agency in 2015 estimated that around 2.2m bpd in maritime fuel demand would switch overnight to 0.5% gasoil. Separately, the International Bunker Industry Association (IBIA) has estimated the figure at 4.0m bpd.
This poses its own problems: what mix of fuels will be available in 2020 and at what cost for each type? Refiners have not been so forthcoming with information about what new capacity they are adding to deal with the expected rise in demand. If ship operators do switch to gasoil, they will have to compete with truck drivers and SUV owners to buy the fuel, which could drive up prices and possibly lead to shortages in supply.
Meanwhile, there will be a loophole for shipowners in 2020: vessels will be permitted to sail without compliant fuel if none is available, even if they do not have scrubbers installed.
On the other hand, perhaps we’re being too pessimistic. It remains possible that early adopters of scrubbers will have recouped all their outlay by 2020 if the retrofitted vessels have traded extensively in emission control areas before the cap enters into force. And if the price of distillate fuels rises significantly over the next 26 months, there could still be time for early adopters to make their money back.
Any additional costs that are incurred by using ultra-low-sulphur marine fuel (because it certainly won’t be any cheaper than HFO) will need to be shouldered ultimately by the shipper. If significant or volatile price differentials open up between gasoil and crude oil and fuel oil and crude oil, it will be all the more important to use hedging and bunker adjustment factors (BAF) wisely. This will mean that existing freight contracts (like COAs) and new long-term contracts that go beyond 2020 will need to accommodate this.
Although just over two years remain before the sulphur cap deadline, there are no easy answers as to how best to comply but shipping companies should start planning for tomorrow today.