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Moore Stephens: Owners facing dilemma on scrubbers

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

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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

Singapore: Bunker sales volume raises to year record high of 4.88 million mt in May

Bio-blended variants of marine fuel oil jumped 671.7% to 40,900 mt when compared to figures seen in May 2024.

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SG bunker performance May 2025

Bunker fuel sales at Singapore port inched forward by 1.1% on year in May 2025, the highest volume seen in 2025, according to Maritime and Port Authority of Singapore (MPA) data.

In total, 4.88 million metric tonnes (mt) (exact 4,878,100 mt) of various marine fuel grades were delivered at the world’s largest bunkering port in April, up from 4.83 million mt (4,826,800 mt) recorded during the similar month in 2024.

Deliveries of marine fuel oil, low sulphur fuel oil, ultra low sulphur fuel oil, marine gas oil and marine diesel oil in May (against on year) recorded respectively 1.89 million mt (+8.6% from 1.74 million mt), 2.45 million mt (-7.2% from 2.64 million mt), 1,200 mt (from zero), 1,700 mt (-88% from 14,300 mt) and zero (from zero).

SG bunker port performance May 2025

Bio-blended variants of marine fuel oil, low sulphur fuel oil, ultra low sulphur fuel oil, marine gas oil and marine diesel oil in May (against on year) recorded respectively 40,900 mt (+671.7% from 5,300 mt), 95,800 mt (+97.9% from 48,400 mt), 700 mt (from zero), zero (from zero) and zero (from 300 mt). B100 biofuel bunkers, introduced in February this year, recorded 1,900 mt of deliveries in May.

LNG and methanol sales were respectively 45,000 mt (-7.8% from 48,800) and zero (from 1,600 mt). There were no recorded sales of ammonia for the month and so far in 2025.

Related: Singapore: Bunker fuel sales increase by 4% on year in April 2025
RelatedSingapore: Bunker fuel sales increase by 0.5% on year in March 2025
Related: Singapore: Bunker fuel sales down by 8.1% on year in February 2025
Related: Singapore: Bunker fuel sales down by 9.1% on year in January 2025

A complete series of articles on Singapore bunker volumes reported by Manifold Times tracked since 2018 can be found via the link here.

 

Photo credit: Maritime and Port Authority of Singapore
Published: 16 June 2025

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Bunker Fuel

Panama bunker sales volume up 13.9% on year to 453,397 mt in May 2025

Total bunker sales at Panama was 453,397 metric tonnes (mt) in May 2025, compared to sales of 398,964 mt during the similar period in 2024.

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RESIZED Panama

Bunker fuel sales at Panama increased by 13.9% in May 2025, according to the latest data from La Autoridad Maritima de Panama, also known as the Panama Maritime Authority (PMA).

Total bunker sales at Panama was 453,397 metric tonnes (mt) in May 2025, compared to sales of 398,964 mt during the similar period in 2024.

In May 2025, the Pacific side of Panama posted bunker sales of 368,419 mt; 213,589 mt of VLSFO, 117,297 mt of RMG 380, 1,538 of marine gas oil (MGO), and 35,995 mt of low sulphur marine gas oil (LSMGO) were delivered.

The similar region saw total marine sales of 323,084 mt a year before in May; with VLSFO sales at 184,761 mt, RMG 380 sales at 112,011 mt, MGO sales at 2,199 mt, and 24,113 mt of LSMGO being sold.

Panama’s Atlantic side, meanwhile, recorded total bunker fuel sales of 84,978 during May 2025; the figure comprised 63,318 mt of VLSFO, 8,575 mt of RMG 380, 1,987 mt of MGO, and 11,098 mt of LSMGO.

It saw total sales of 74,980 mt in May a year before; with VLSFO sales of 59,855 mt, RMG 380 sales of 6,508 mt, 1,545 mt of MGO, and LSMGO sales of 7,072 mt.

 

Photo credit: George Keel
Published: 16 June 2025

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Research

GCMD presents key learnings from ammonia STS transfer trial at Pilbara, Australia

Findings share operational recommendations for both bunker tankers and receiving vessels for ammonia bunkering operations.

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GCMD path to zero carbon shipping

The Global Centre for Maritime Decarbonisation (GCMD) on Friday (13 June) launched its Path to Zero-Carbon Shipping – Insights from ammonia transfer trial in the Pilbara report.

The document captures key learnings from a pilot involving the ship-to-ship transfer of liquid ammonia between two gas carriers — the Green Pioneer and the Navigator Global — at anchorage off Port Dampier in the Pilbara, Western Australia.

The trial demonstrated that ship-to-ship ammonia transfer at anchorage can be both safe and practicable, provided that recommended safeguards and operational controls are implemented.

To share these crucial learnings with the industry, the report offers quantitative insights from executing the trial, forming a reference for future pilots and eventual commercial-scale operations.

The report offers:

Project background and objectives: An overview of the trial’s goals and operational context

Detailed safety studies covering four key areas:

  • Feasibility: Response motions and mooring analysis
  • Risks: HAZID and HAZOP findings and mitigations
  • Consequences: Computational Fluid Dynamics (CFD) plume dispersion modelling
  • Response: Emergency Response measures and protocols

Operation execution overview: A detailed account of the actual transfer operation, including the Joint Plan of Operations (JPO), assets deployed and a timeline of key events.

Optimising ammonia bunkering: Operational recommendations for both bunker tankers and receiving vessels, covering aspects such as transfer system setup, manifold arrangement, sample collection and more. A checklist of ERP resources required onboard is also included.

“In the past, bunkering guidelines took years to develop and were typically derived from experience with actual operations,” said Professor Lynn Loo, CEO of GCMD.

“In this case, guideline development is preceding actual commercial-scale operations, making it all the more important that these trials are as informative and comprehensive as possible so they can serve as a relevant reference for industry bodies in refining safe handling procedures, emergency response plans, and operational guidelines.”

Note: The full report of Path to Zero-Carbon Shipping – Insights from ammonia transfer trial in the Pilbara can be downloaded here.

 

Photo credit: Global Centre for Maritime Decarbonisation
Published: 16 June 2025

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