Scorpio Shows How Scrubber Installation Pays Off Despite Dry Dock Delays!

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According to Platts report written by Marieke Alsguth, Scorpio Tankers has reported strong fourth-quarter returns for clean tankers across all regions last Wednesday, especially for ships installed with scrubbers to comply with the International Maritime Association’s lower sulfur bunker fuel mandate.

What is it?

Long Range 1, Long Range 2, and Medium Range clean tankers saw time charter equivalent earnings (TCEs) — the daily earnings on a given ship’s voyage — very high compared with recent years, the company said on its earnings call.

Vindicating Scrubber Use

Scorpio showed that tankers with scrubbers — gas-exhaust systems designed to “clean” the higher sulfur bunker fuels — earned higher returns than tankers that ran on the now-compliant very low sulfur fuel oil or marine gasoil bunker fuels.

How Scrubber Installed Tankers Benefited?

  • Average TCEs for Scorpio scrubber and non-scrubber fitted tankers through Q1 so far were around $25,000/day for LR2s, $19,000/d for LR1s and $22,000/d for MRs, the company said. 
  • Within these TCEs, tankers with scrubbers earned a premium because of lower bunker costs from using high sulfur fuel oil.
  • LR2s earned a premium of around $5,300/d, LR1s $5,400/d and MRs $2,800/d.

The higher earnings for LR1s over other vessel classes results from regional bunker pricing for January, and was likely to change, a Scorpio spokesman said.

In the Americas MR market, market sources talked TCEs for a modern, fuel-efficient ECO MR ship trading on the 38,000 mt US Gulf Coast-trans-Atlantic run around $6,000/d at Worldscale 90, while an ECO MR with a scrubber would earn over $9,500/d at the same rate.

Healthy HSFO VLSFO Spread?

Cameron Mackey, chief operating officer and director of Scorpio Tankers, said Wednesday that Scorpio expects a healthy spread between HSFO and VLSFO bunkers continuing into 2020, with the spread remaining “wider for longer” and well above $200/mt.

The HSFO price discount to VLSFO bunkers has tightened since the start of 2020, to $154/mt Wednesday from $320/mt January 3, S&P Global Platts data shows.

China Slowdown Didn’t Effect?

Mackey said that despite a slowdown in dry dock work in China on scrubber installations, the company did not expect any cancellations nor force majeures at dry dock as a result of coronavirus impacts in the region.

“Risks in shipyards in China are still low as far as the effect of the coronavirus on the coastline. That being said, a consequence of that risk being low is the government’s restriction of workers returning from Chinese New Year. That slowdown [in January] has persisted for several weeks, and that has a knock-on effect of the timing of a particular scrubber installation to the tune of several weeks,” Mackey said Wednesday.

Despite current delays, Mackey said a Scorpio tanker had just finished its dry docking Tuesday and another entering dry dock in a few days, with little risk of work completely stopping. The pace of work in those dry docks has started to pick back up, with workers returning after having sat through extended quarantines, Mackey said.

Scorpio tankers has scheduled their entire fleet of 136 owned and bareboat chartered tankers to have scrubbers installed, with 55 systems installed as of Wednesday. Ships without the systems will continue to run on marine gasoil because of concerns of compatibility of VLSFO blends, according to the company.

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Source: Platts

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