Scrubber-fitted VLCCs to gain from sulfur cap

Sep 10 2018

Shipping crude oil and petroleum products is expected get significantly more expensive for charterers from 2020, due to new low sulfur cap.

Charterers are expected to foot the majority of these costs.

For example, VLCC charterers on vessels operating on marine gas oil (MGO) to comply with the new regulations will need to pay a 33% premium come 2020, when compared to VLCCs fitted with scrubbers, Poten & Partners said in its tanker report.

The report looked at the potential impact of IMO 2020 on a number of tanker segments and calculated the expected freight costs. The estimates were based on the average 2016 tanker rates - a TCE of $38,520 per day for VLCCs.

On this basis, an VLCC owner consuming low sulfur MGO, costing $657 per tonne, would need to charge a charterer $14.87 per tonne to move a cargo from the Arabian Gulf to the Far East.

However, the owner of a vessel equipped with scrubbers only needs to charge $11.14 per tonne to generate the same TCE, as it he or she can bunker these ships with much cheaper HFO, costing $326 per tonne, Poten said.

The analysis used the average prices for 3.5% sulfur fuel oil FOB Rotterdam barge and 0.1% Gasoil FOB Rotterdam barge in 2020 based on today’s forward curve.

The differentials for the other segments are also significant, ranging from 16% for MRs on the UK/Continent – US Atlantic Coast route to 41% for LR2s on the Arabian Gulf – Far East route, with Suezmaxes and Aframaxes somewhere in between, the report said.

The premium is expected to be higher on longer haul routes.

It is expected that a small percentage of vessels will be equipped with scrubbers by 1st January, 2020 when the new IMO rules come into effect.

We expect that tanker rates will initially be negotiated based on the assumption that vessels use low sulfur MGO, Poten said.

This could provide a windfall to vessels that are equipped with scrubbers. Assuming that charterers are indifferent to whether vessels have scrubbers or not, a VLCC could generate a TCE of $51,000 per day, a $12,500 premium based on the same freight of $14.87 per tonne.

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