Scrubberless tankers may face accelerated fleet exit

A growing figure for scrubber uptake in the tanker market may lead to non-scrubber vessels facing increasing competition, making them unlikely to be able to offer discounts to the same extent, according to Braemar ACM. That may lead to accelerated scrapping of non-scrubber-fitted tankers

The adoption of scrubbers will lead to higher demand for high-sulphur fuel oil, which may lead to a narrower spread between high- and low-sulphur fuel types

OLDER tankers without scrubbers may be forced out of the fleet quicker than vessels fitted with the technology, according to research by Braemar ACM.

The brokerage estimates that 124 very large crude carriers and 74 suezmaxes will be retrofitted with the exhaust gas cleaning systems by mid-2020, while 66 VLCC and 38 suezmax newbuildings will be delivered with the technology built-in.

That represents about a quarter of the fleet.

Braemar ACM’s global head of research Henry Curra said: “We think that competition in the spot market between scrubbered vessels starts to make life more difficult for non-scrubbered vessels, which may not be able to afford to discount to the same extent. Over time, this would accelerate scrapping of older higher-consuming units.”

In addition, more vessels with scrubbers will create higher demand for 3.5% sulphur fuel oil, which would “in theory” cut the price discount with the low-sulphur fuel type, which has been capped at 0.5% by the International Maritime Organization starting in January, he told an industry event this week.

If there is some discrimination against open-loop scrubbered ships due to environmental concerns, and a narrowing of the sulphur spread, that could make life more challenging for scrubbered ships, said Mr Curra.

According to Freight Investor Services senior fuel oil broker, the spread between high- and low-sulphur fuel oil has narrowed to $175 per tonne to $185 per tonne from a difference of $200 at the end of 2018.

The move has been a bit of a surprise for the market, which had expected a widening of the spreads towards the start of the IMO implementation period. The narrowing spread will mean that payback on scrubber investments will take longer.

Tanker earnings expectations

Average earnings for a VLCC were expected at about $30,000 per day this year, moving up to $40,000 per day in 2020.

Weakness expected out to the second quarter due to refinery maintenance and oil production cuts will give way to a stronger market gearing up for the fuel switch.

On the supply side, 27 VLCCs are expected to be delivered this quarter alone. easing quite quickly after that.

There is also a genuine pool of scrapping candidates developing, with 12 VLCCs expected to leave the fleet in 2019, he estimates. That increases to 23 units in 2020, and 24 vessels in 2021.

A rise in bunker costs might also incentivise removals beyond those numbers, he said, adding that rising newbuilding costs are deterring fresh orders.

Meanwhile, tanker demand is being supported by rising crude volumes from the US, which is making its way to Europe, with European shipments heading to Asia.

The Baltic Exchange, which publishes market benchmarks, will be launching five new tanker routes on March 1 with a focus on US Gulf loadings.

There may be some routes that have scrubber-fitted vessels dominating trades, which may prompt it to look into dual time-charter equivalent indices. Most tanker trades are voyage charters, which do not take into account fuel type