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Great Eastern Shipping explains scrubber market fundamentals

28 Nov 2018

Scrubber installations favour bigger vessels, says G. Shivakumar, Chief Financial Officer of India’s largest private sector shipping firm The Great Eastern Shipping Co. Ltd (GES).

The company will be spending about USD $20 million to retrofit scrubber systems on seven of its largest oil tankers by calendar 2019, in time for IMO 2020 when the compulsory use of 0.5% sulphur limit marine fuels take effect.

“This, therefore, works much better in bigger ships which sail for more days and so we are fitting this onto our biggest ships basically the large crude tankers where we are fitting these scrubbers. The larger ships are Suezmax, Aframax size vessel,” he said in a recent earnings conference call.

Shivakumar estimated a Suezmax to consume between 9,000 to 10,000 metric tonnes (mt) of bunker fuel per annum and a price differential of about $300 per mt between high sulphur fuel oil and 0.5% sulphur marine fuel.

“Now, if you have a saving of about $300 per tonne, you will end up at $2.5 million to $3 million of savings in a year,” he explains.

“But let us say, you have about $2.5 million of savings on account of the lower fuel cost and your cost of fitting a scrubber is say $4 million then you have got a payback period of less than two years.

“So, that is why it makes sense […] so, that is where the economic rationale comes in.”

Shivakumar, meanwhile, notes that funding is available for shipping firms to install scrubbers.

“A lot of the listed shipping companies have announced that they will raise 60% to 70% debt funding from shipping banks for funding these scrubbers. So, there is enough funding available,” he notes.

“The point is that if you can get a payback of two years then you can always raise funding. If you can show that payback period, somebody will give you the funding for it.”

Moving forward, he notes of availability issues from the major scrubber manufactures and installation slots at shipyards to affect scrubber retrofit projects.

“The big guys, the European manufacturers essentially are sort of full up at least until the end of 2019 some of them probably also for part of 2020. But I do not think people are full up all the way through 2020. And there are a few small manufacturers who still have capacity,” says Shivakumar.

“So, there are smaller manufacturers who will provide it and people will go to these smaller manufacturers if they are keen enough to install a scrubber. The bigger constraint may be getting a yard slot to go and fit the scrubber.

“Because you need to go into a yard typically to go and do the last bit of piping at least for doing the scrubber fitment so that is another constraint which would come up in 2019.”

He estimates 5% of the overall international fleet, with about 20% of the bigger vessels such as Capesize, VLOC, VLCCs, to be fitted with scrubbers by 2020.

Published: 28 November, 2018

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