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Analysis

Moore Stephens: Owners facing dilemma on scrubbers

Costas Constantinou applies some ‘mathematical logic’ to help owners make an appropriate decision.
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8 years ago

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Imagine walking into a car rental company in order to take delivery of a car you booked for your holidays. The employee greets you, takes you to the parking space, shows you two identical cars and lets you know that one car burns normal fuel while the other a special type of fuel that not only is it more expensive but also harder to find. Which car would you take if you had the choice? And wouldn’t you be willing to pay more for the conventional fuel car? If choosing the conventional car appears reasonable, why should charterers behave any differently when they are faced with a similar choice after the implementation of IMO’s regulation for reduced Sulphur emissions in two years’ time?

Compliance with this regulation can be achieved in two ways –either by switching to Low Sulphur content fuel or by installing a system of pollution control devices that removes Sulphur from the exhaust fumes and therefore enables the vessel to continue consuming normal Sulphur fuel. The first choice is expensive as the price of this new type of fuel is currently approximately $250 per ton higher than that of conventional fuel and the second needs substantial capital investment and is also disruptive as the vessel will need to go into a shipyard for major retrofit works. With this kind of price differential however, the additional total fuel bill is not going to be an immaterial amount and because fuel costs are borne by Charterers the answer to their question “do I charter a vessel burning expensive and hard to find Low Sulphur Fuel or should I charter one with a Scrubber installed?” seems to be quite obvious.

From the Owners’ perspective however, the decision of how to comply with the regulation is not as straight forward. Firstly, the potential benefit cannot be safely quantified as it depends on the price differential between the two fuel types in the future which is currently unknown and unpredictable. At the moment nobody can say with certainty what will happen to this differential, not just immediately after the implementation of the regulation but in the medium term after that, as this will depend on the future supply and demand curves of the two different fuel types. Due to the nature of the fuel market, there is a long lead time for supply to adjust to demand and also for demand to find a new equilibrium following the decisions that will be made by thousands of owners around the globe. So even if in the long-term supply will match demand, the short and medium term are most probably going to be volatile.

In addition, in contrast with the other environmental regulations Owners had to comply with, the impact of this decision is greater on the profitability, and therefore behavior, of their counterparty, the Charterer, rather their own. It appears that the Owners need to take on the business risk of the decision, for the Charterer to benefit and whereas Charterers have the luxury of waiting to see how the price differential will move and then make their choice, the owners must act a lot sooner as retrofitting a scrubber is not something that can be done quickly, making this difficult choice even harder.

I set out below my personal thoughts on the issue and try to apply some “mathematical logic” to this difficult problem hoping that this process will enlighten this complicated issue and help owners make an appropriate decision.

The Owner has to make one of the following choices:
A) Install a Scrubber or
B) Do nothing,
the financial outcome of which will depend on the future movement of the bunker price differential which may

1) Stay the same or
2) Equalize,
giving us four different outcomes A1, A2, B1 and B2 as follows:

A1-Scrubbers are installed and the differential does not fall
Vessels equipped with a scrubber will be able to consume the cheaper high Sulphur fuel and will have a substantial competitive advantage compared to vessels that will need to buy the more expensive fuel. Charterers would be willing to pay a premium to charter a vessel that will save them money and therefore demand and surely charter rates are bound to increase for these vessels.

A2-Scrubbers are installed and the differential equalizes
The owner will lose as he will be unable to take advantage of his vessels ability to burn low cost fuel. The investment he made will be worthless as he will be in no better position to the owner that chose to do nothing. His losses will be equal to the cost of the investment (capital and financial).

B1-Scrubbers are not installed and the differential does not fall
The owner will have to buy the more expensive low Sulphur fuel making his vessel quite unattractive to charterers who would not prefer to charter a vessel that has to burn expensive fuel. Charterers are likely to push back part of their costs to the owner by way of reduced charter rates or select ships with scrubbers.

B2-Scrubbers are not installed and the differential equalizes
There will not be a change from what we have today and there will be no change for either charterer or owner.

The above outcomes need to be quantified and to do so we need to primarily consider:

  1. Cost for retrofitting the Scrubber system (both direct and indirect)
  2. Additional operating costs to operate the Scrubber system
  3. Estimated annual consumption of fuel irrespective of whether the vessel is chartered on a voyage or time charter basis as illustrated by the car rental example.

Using data obtained from Clarksons (*) for a Capesize vessel (as of March 2017):

  • Cost of Scrubber: $5,000,000
  • Additional Opex : $100,000
  • Annual consumption: 12,900mt
  • Current differential: US$250 per mt.
  • Difference in fuel costs: 3,225,000 p.a.

And assuming, for simplicity purposes, that the benefits fully accrue either to the owner or to the charterer, we get table 1 (Amounts in US$)

Table 1:

    Yr0 Yr1-Yr4 Yr1 Yr2 Yr3 Yr4  
  Price differential Investment Opex p.a. Additional Fuel Cost Total
Install Scrubber Falls to Zero -5,000,000 -100,000 NIL NIL NIL NIL (5,400,000)
Difference remains -5,000,000 -100,000 3,225,000 3,225,000 3,225,000 3,225,000 7,500,000
Do not install Scrubber Falls to Zero NIL NIL NIL NIL NIL NIL NIL
Difference remains NIL NIL (3,225,000) (3,225,000) (3,225,000) (3,225,000) (12,900,000)

And plotting the above to a grid we get table 2.
Table 2:

  Fuel Price differential
Same Falls to zero
Choices A – Install Scrubber 7,500,000 -5,400,000
B – Do nothing -12,900,000 0

where we can see that by making Choice A, the owner could either gain US$7.5million or lose US$5.4million whereas with Choice B he could either lose US$12.9million or gain nothing depending on what will happen to the current price differential.

Just by looking at the numbers we see that the installation of a Scrubber, caps the potential loss to a known amount, avoids the worst-case scenario of trading with an uncompetitive vessel and opens the possibility for substantial gains. Not doing anything on the other hand has a best-case scenario of zero, rules out the possibility of gains and makes the owner vulnerable to substantial losses.

The above looks a lot like the Prisoners Dilemma Game studied in Game Theory and like the game, the choice the owner will make will depend on his individual risk profile and game strategy.

Real life however is not a simple game and in order to make such an important decision the owners need to consider other factors such as:

  1. Technical ability to install scrubber – Not all vessels are suited for the installation of scrubbers as these are physically quite substantial machines. There are many technical issues that need to be resolved.
  2. Time into the future to perform the analysis. A newer vessel has more leeway to recover the cost than an older vessel approaching retirement age.
  3. Individual to the Owner cost of capital to the company in order to discount the time series.
  4. The above example, for simplicity purposes, assumes a 50:50 probability of the movement of the price differential. Best estimates on the probabilities and fuel prices must be ascertained as they materially affect the choice.
  5. The opportunity to make financial profits or avoid making large losses depends on what the rest of the competitors do. On one extreme, if the owner of the example is the only one installing scrubbers and finds his vessels able to consume $250 per ton less than the competition then he will be able to claim a large portion of the savings for his own account. If on the other hand all owners install scrubbers then this saving will probably benefit just the Charterers. Who the “competition” is must be clearly defined and examined.
  6. Timing of the installation. The later this is left and the clearer the option of installing scrubbers becomes, the higher the probability that the shipyards that are able to perform this retrofit will not have the capacity to accommodate more vessels and therefore the cost of the installation may increase.
  7. Geographical areas of operations in order to consider the possibility of non-availability of low Sulphur fuel meaning that bunkering will be for much larger quantities with a negative impact on cash flows and, perhaps more importantly, place serious limits on the readiness of the vessel to capitalize on good chartering opportunities. If the vessel is already trading in ECAs then benefits will accrue before the IMO deadline.

In conclusion, it is very important to note that every shipping company has different operations and strategies and therefore there is no “one size fits all” solution to this problem. Each owner must “play his own game” by estimating and quantifying all parameters, preparing cash flow projections based on those individual to the company parameters, enter them into mathematical decision theory models so that they can commit to a decision earlier than their competition and get into beneficial agreements with Bankers, Shipyards, Charterers and Fuel Suppliers in order to get out of the ‘Low Sulphur Fuel prison trap’ unscathed.

The article above is written by Costas Constantinou, Managing Partner, Moore Stephens Chartered Accountants A.E. (Reproduced with permission). The original version can be viewed here.

Photo credit: EGCSA
Published: 3 August, 2018
 

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Bunker Fuel Quality

FOBAS report warns of growing operational risks from ISO-compliant bunker fuels

LR’s latest FOBAS Fuel Quality Report reveals that the biggest fuel quality risks are no longer confined to off-specification fuels, with some compliant fuels creating operational challenges.
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1 week ago

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July 15, 2026

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New FOBAS report warns growing operational risks from ISO-compliant bunker fuels

Classification society Lloyd’s Register (LR) on Tuesday (14 July) warned that ship operators are facing a growing risk from fuels that appear compliant under routine ISO 8217 testing but still present operational risks once onboard.

According to LR’s latest Fuel Oil Bunker Analysis and Advisory Service (FOBAS) Fuel Quality Report, covering the first half of 2026, off-specification fuels remain a persistent challenge. 

However, some of the most disruptive cases now involve fuels that pass routine compliance testing but show poor stability or compatibility, or contain non-conventional blend components that are only identified through more detailed investigative analysis.

Several incidents investigated highlighted this trend. In March and April, a number of vessels reported operational difficulties after bunkering fuel in a major bunkering hub. Further forensic analysis found that many of the fuels contained elevated concentrations of Estonian shale oil, in some cases estimated to be around 10-15%.

While shale oil is recognised within ISO 8217 as an acceptable blend component, FOBAS investigations found that higher concentrations can be associated with fuel instability and operational issues affecting filters, separators and fuel pumps.

The report also shows that fuel quality variability remains stubbornly high. Off-specification cases remained elevated throughout the first six months of 2026, suggesting that quality issues are no longer isolated events but a more persistent feature of today’s marine fuel supply chain.

The most common recurring issues included sulphur exceedances, excessive water content, sediment and stability problems, elevated catalytic fines, sodium contamination and low flash point distillate fuels.

At the same time, biofuels (especially FAME blends) are continuing to grow without being a primary source of quality issues. Where issues occurred in blended fuels, they were generally associated with the conventional VLSFO component rather than the FAME fraction.

The report concluded that operators will need to adopt a more proactive approach to fuel management as marine fuels become more diverse and fuel quality risks become harder to identify through routine compliance testing alone.

Greater emphasis on fuel stability, compatibility and understanding fuel composition will be critical to reducing operational disruption and maintaining vessel performance.

Murray Kirkwood, Fuel Specialist Consultant, Lloyd’s Register, said: “The findings from our latest report show that fuel quality risk is evolving. The challenge is no longer simply identifying fuels that fail specification. Increasingly, operators are encountering fuels that meet the required limits but still create operational difficulties once they are stored, handled and used onboard.

“As fuel blending becomes more complex, the distinction that matters is increasingly not between on-spec and off-spec fuel, but between fuels that are operationally resilient and fuels that are operationally fragile. Understanding that difference is becoming essential for shipowners and operators.”

The latest findings reinforced FOBAS’ long-standing view that effective fuel management increasingly depends on understanding fuel behaviour rather than relying solely on pass-or-fail specification testing.

By combining routine fuel quality monitoring with forensic investigation of operational incidents, FOBAS provides shipowners with a clearer understanding of emerging fuel quality risks as the industry continues its transition to a more diverse and complex fuel landscape.

Note: The FOBAS Fuel Insight: Fuel Quality Report H1 2026 is available at FOBAS Fuel Insight: Fuel quality reports | LR

 

Photo credit: Lloyd’s Register
Published: 15 July, 2026

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Interview

Interview: Alkagesta navigates risk from bunkering ops during turbulent times

As the industry navigates this period of uncertainty, the key question is no longer ‘what will fuel cost?’ but rather ‘will fuel be available?’, highlights Mithat Çiftçioğlu.
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3 months ago

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May 7, 2026

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Mithat MT

Mithat Çiftçioğlu, Marine Fuels Director at Alkagesta, shared his opinion on risk management for bunkering operations under current geopolitical tensions through the April edition of shipping magazine Deniz Ticaret.

The maritime publication, part of the Turkish Chamber of Shipping (İMEAK Deniz Ticaret Odası), has given Manifold Times permission to republish the article:

Fueling Ships in Turbulent Times

From Oil Shock to Fuel Access Crisis: A New Risk Map for Maritime 2026

The final weeks of the first quarter of 2026 mark one of the most complex periods in recent years for global energy and maritime markets. The sharp rise in oil and refined product prices since February 28 may look like a classic energy shock at first glance, but developments in the maritime sector point to a far deeper structural rupture.

What is being debated in the market today is no longer just oil prices. For traders and shipowners operating in the maritime sector and bunker market, the real issue is not the price of fuel — it is access to fuel. The fundamental question in the market has shifted: not what will the price of fuel be, but will fuel even be available?

In light of the Force Majeure cancellations at Asian ports over the past two weeks, another question must also be considered: Will pre-agreed bunker supply contracts actually be delivered?

From Oil Prices to Logistical Reality

Tensions in the Middle East have created a strong geopolitical risk premium in the oil market. Brent crude briefly surpassed the $100 per barrel mark, triggering a search for a new equilibrium across markets. This will inevitably bring inflation and recession back onto the global agenda in the months ahead.

But the rise in oil prices does not only reflect the risk of supply disruption — it also signals the return of one of the most fragile chokepoints in global energy trade:

The Strait of Hormuz

Approximately one-third of the world’s oil trade passes through this narrow waterway. Around 20 million barrels of oil and petroleum products transit Hormuz daily. Any disruption here would therefore affect not only oil prices, but also global refined product flows and the bunker market directly.

Why Strategic Oil Reserves Are Not the Solution

A commonly proposed solution in energy crises is the release of strategic petroleum reserves. However, releasing these reserves does not directly resolve a bunker crisis. Strategic reserves consist of crude oil. To produce bunker fuel, the following chain must be completed:

Crude oil → Refinery → Product logistics → Bunker port

This process takes time. Strategic reserves can temporarily stabilize oil prices, but they cannot solve the access problem in the bunker market in the short term.

Furthermore, the announced reserve release of 400 million barrels, to be drawn down at a rate of 2.5–3 million barrels per day, can only cover a small fraction of the estimated daily loss from the Middle East — optimistically 8–10 million barrels, pessimistically 18–20 million barrels per day.

A Historic Surge in Bunker Fuel Prices

The per-ton price of VLSFO (0.5% sulfur) bunker fuel has surpassed $1,000, reaching approximately double pre-war levels. This also represents some of the highest prices seen since July 2022.

While prices at bunker hubs such as Singapore and Fujairah are approaching $1,100 per ton, European markets have remained comparatively lower.

The Real Problem Is Not Price — It Is Fuel Access

Obtaining bunker quotes for April has become increasingly difficult, particularly at Asian ports. Even where shipowners and traders can secure quotes, the absence of supply guarantees makes pricing extremely challenging.

A senior executive at Oldendorff Carriers summarized the situation in these words:

“We cannot price cargo because we cannot calculate fuel costs; we cannot calculate fuel costs because there is no supply guarantee.”

The CEO of Maersk has compared the current situation to the pandemic era, stating that companies are attempting to source fuel through methods they have never tried before in order to keep global shipping networks supplied.

While supply is tight and prices are near their peak in Singapore and Fujairah, Rotterdam appears relatively more balanced. However, as the conflict drags on, risk perception in European markets is also rising.

The surge in bunker prices will not only increase costs — it will also affect global maritime transport capacity. Ships are expected to reduce their speeds to conserve fuel. This could lead to a reduction in effective carrying capacity, creating new logistical bottlenecks in global trade.

The importance of working with reliable, long-term partners has never been more apparent than during a crisis such as this.

The Widening Price Spread Between Fuel Types

A notable development in the bunker market in recent weeks is the rapid widening of price differentials between different fuel types. Two spreads in particular have expanded significantly:

  • Marine Gas Oil (MGO) – VLSFO
  • VLSFO – HSFO

Rising demand for distillate products, refinery production balances, and regional supply tightness are all contributing to this widening. As a result, bunker purchases have become not merely a matter of price level, but a strategic decision tied to product type and port selection.

An Unexpected Development: Biofuels Becoming Competitive

Another noteworthy development in the bunker market is that biofuels have remained at relatively competitive price levels. This creates two important opportunities for shipowners.

On one hand, biofuels remain competitively priced in certain markets. On the other, they offer a means of compliance with new regulations entering into force in Europe — particularly the FuelEU Maritime and EU ETS frameworks, which require reductions in carbon intensity. In this context, biofuels have become a strategic option for many shipowners.

Conclusion: Active Bunker Management Is The New Normal

The 2026 bunker market presents one of the most complex energy trading environments in recent years. The rise in oil prices, geopolitical risk at the Strait of Hormuz, tightness in physical fuel supply, and widening price spreads between fuel types have made bunker fuel management more critical than ever.

The prevailing view in energy markets is that as long as the risk at the Strait of Hormuz persists, turbulence in the bunker market will persist with it. As time passes, the depletion of commercial stocks may deepen the existing supply tightness further.

For this reason, the current situation is viewed not merely as an energy crisis, but as a new stress scenario testing the logistical infrastructure of global trade.

The view increasingly heard across energy markets is this:

“As long as Hormuz remains closed, it will not be oil prices but fuel access that constitutes the defining risk for global shipping.”

Finally, for shipowners and operators, bunker strategies are shifting away from a passive purchasing approach toward a model grounded in active risk management.

 

Photo and article credit: Deniz Ticaret
Published: 7 May 2026

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Analysis

T&E: Overreliance on traditional bunker fuels costs shipping USD 395 million a day due to Iran conflict

Development has made alternative fuels increasingly more competitive, states Eloi Nordé, shipping policy officer at T&E.
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4 months ago

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April 2, 2026

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The Hormuz crisis adds over 300 million a day to shippings fossil fuels bills

The European Federation for Transport and Environment (T&E) on 27 March highlighted the adoption of green marine fuels would reduce the shipping industry’s exposure to fuel price shocks in future.

It noted shipping companies are spending an extra €340 million (USD 394.74 million) a day in additional fuel costs as a result of the latest conflict in the Gulf.

As 99% of the global fleet runs on fossil fuels, the industry is directly exposed to fuel price volatility and supply disruptions. Efficiency measures, electrification and e-fuels would reduce the industry’s exposure to price fluctuations.

According to T&E, marine fuel prices have escalated rapidly, with VLSFO reaching €941 per tonne in Singapore, up 223% since the start of 2026. At the same time, LNG prices have risen by 72% since early March. Since February 28, shipping companies have incurred more than €4.6 billion in additional fuel costs.

The development has made alternative fuels increasingly more competitive. As fossil fuel prices reach record highs again, the cost gap with e-fuels is narrowing.

T&E’s research shows that the cost gap between marine gas oil – one of the more expensive fossil fuels – and e-fuels has shrunk to near parity (+5%) in some ports.

Hormuz oil crisis boosts potential e fuel competitiveness

While the trend may be temporary, it shows that the volatility of fossil fuel markets offsets much of the structural cost disadvantage of clean fuels.

“Chaos in the Strait of Hormuz is putting global maritime trade under the spotlight. But it’s on the oil markets where its impact will be felt the most. The war is costing the industry millions every day,” said Eloi Nordé, shipping policy officer at T&E.

“Some governments and parts of the industry have spent the last year bashing green maritime measures as being too expensive, yet those costs pale in comparison to this super-disruption.

“If anything, this crisis should be the catalyst for more investment in European e-fuels and greater uptake of energy efficiency measures to avoid fossil fuel shocks in the future.”

 

Photo credit: European Federation for Transport and Environment
Published: 2 April 2026

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