BIMCO tires to abridge the issue to facilitate decision-making when operating in an ECA
Ship-owners are faced with a number of important decisions in terms of investment and trading if they want to do business within the future sulphur limits of Emission Control Areas (ECAs). The deciding factors influencing the investment decision for installation of a scrubber are the fuel cost spread and the time spent in an ECA. In this article, BIMCO has tried to abridge the issue to facilitate decision-making.
The core issue is that the sulphur content of bunkers used by ships sailing in North American and Northern European ECAs is limited to 1.00% m/m until 2015, where the limit will be lowered to 0.10% m/m. As a consequence, vessels sailing inside ECAs are required to either use distillate fuel, which is sold at a clear mark-up over normal heavy fuel oil (HFO) or find other ways of being compliant.
If the chosen solution is the fuel option it means that vessels sailing in ECAs are required to use low sulphur fuel oil (LSFO) until 1 January 2015, which is currently approximately USD 12 per mt more expensive than HFO, and after 2015 arerequired to use the much costlier marine gas oil (MGO) representing a current mark-up of USD 258 per mt over HFO.
Instead of paying a fuel premium for distillate fuel, the ship-owner has the option to invest in an LNG solution or a scrubber; the latter enables him to use the cheaper HFO fuel. LNG appears for most circumstances too expensive, while scrubbers could be seen as a real alternative. There is some debate regarding the efficiency of scrubbers, but in the following analysis we assume that the scrubber will be fully compliant on selected ship types such as MR tankers and most bulk carriers. In this debate it has also been brought forward that on board other ship types, such as very large container ships and some ferries, it is not possible today to use scrubbers. We will not go into any details here but simply note this debate and focus on the trades where scrubbers positively could be applied. The scrubber requires a significant upfront cost as well as slightly elevated OPEX, but the savings in fuel expenses may outweigh the installation costs, depending on the actual time spend in ECAs and the fuel cost spread. In addition to this the remaining commercial life of the vessels is highly relevant to consider prior to the decision-making.
Chief Shipping Analyst at BIMCO, Peter Sand, says: “The oldest vessels in the fleet are not candidatesfor a scrubber installation due to inability of repayment of the investment before the end of its commercial life. But for many newer vessels, installing a scrubber could help you save money if you plan on trading a significant amount of time in ECAs. For a ship with 10 years of commercial life left, the vessel should sail in an ECA 33% of the time for a scrubber to break even”.
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Source: BIMCO
