As some large shipping companies proclaim their commitments to scrubbers in preparation for the more stringent emissions requirements of the IMO 2020 mandate, shipping sources continue to break down the market expectations for demand of high-sulfur and low-sulfur bunker fuel.
Some banks have noted the recent accelerated adoption of scrubbers by some shipping companies, supporting a greater use of high-sulfur bunker fuel after 2019 at the expense of the new 0.5% sulfur marine fuel.
However, shipping sources discounted that market perception after digging deeper into the recent company announcements on scrubber adoptions. Some banks and oil companies are monitoring the rate of scrubber adoption to gauge the projected demand for low-sulfur bunker, which would use 80% of ULSD and 20% of high-sulfur fuel oil for blending.
Sources remained conservative with their estimates on scrubber adoption. They said that the estimated scrubber adoption rate is unchanged at about 5%-10% of the global shipping fleet in terms of number of ships. That estimate may change slightly in terms of ship capacity.
At least 80% of the global shipping fleet is expected to rely on the new 0.5% sulfur bunker fuel, with potential non-compliance at 5%-10%.
Firstly, the recent scrubber announcements are confined to mostly large shipping companies. Of these large companies, most are oil tanker companies.
Some large tanker companies announced plans to use scrubbers on between 20%-30% of their fleet in terms of number of ships, which is considered a significant conversion rate.
It is noted Maersk, the largest containership company in the world, has also pledged to use scrubbers on some of its ships.
Despite these eye-popping numbers, shipping sources pointed out that these large companies' market share in total makes up only a very small percentage of the global shipping world, which includes tankers, dry bulkers, containerships, roll-on roll-off ships and passenger vessels.
"There are many, many more smaller shipping companies in the world, compared with the few large ones," a source said.
Secondly, some large shipping companies, which had announced a relatively high percentage of fleet conversion to use scrubbers, own shares in scrubber production companies, sources said.
These large shipping companies include Frontline, Scorpio Tankers and Torm.
These large shipping companies have a vested interest to invest in their own scrubber companies by converting more ships in their fleets, they said.
Those companies without an ownership in scrubber companies are not seen rushing to adopt scrubber technology onboard their ships, sources said.
Scrubbers are seen as mini sulfur removal equipment installed onboard ships, and they allow ships to continue to use high-sulfur bunker. There would be an upfront cost for scrubber installation, but shipping companies could benefit from an expected widening of high-sulfur and low-sulfur bunker prices in 2020.
Scrubber adoption is not a slam-dunk business move for ship owners due to the upfront cost and the current down business cycle in the shipping market.
Smaller shipping companies may not have the financial means or credit facilities to pay for scrubbers upfront.
Also, it is noted the Emission Control Area shipping restrictions in North America and Europe already require ships to burn 0.1% sulfur bunker within 200 nautical miles from shore, which may have an impact on the scrubber adoption rate.
OPIS reported in September that shipping companies around the world have several potential solutions to consider in order to meet the more-stringent bunker fuel standards in 2020, but cheating or purposely being non-compliance with the new fuel requirement is the elephant in the room.
Some banks and analysts downplayed possible non-compliance and cheating, estimating it at about 10% of the global bunker market volume, while some bunker players and tanker analysts say it could be slightly higher than 10%,depending on which ship class is involved. OPIS notes that there is no science behind estimates on non-compliance as the shipping market covering all regions and all ship segments is massive.
However, some analysts and bunker players zeroed in on two particular shipping segments for the highest potential for non-compliance with the new fuel standard. These two shipping segments are the top two largest single shipping sectors in the world, based on the total number of ships. These two segments are the general cargo vessels and dry bulk ships. They come in all sizes and are used around the world.
General cargo and dry-bulk ships make up more than half of the total global shipping fleet in terms of number of ships. It is noted that these general cargo and dry-bulk ships are mostly smaller in size and capacity when compared with ships in other shipping segments such as oil tankers and containerships.
Shipping sources said that there are 16,957 general cargo ships in the world,
11,139 dry-bulk vessels, 7,244 crude tankers, 5,418 chemical and products tankers, 5,147 containerships, 4,428 Ro-Ro/passenger ships, and 1,850 gas carriers as of Jan. 1, 2017.
Copyright, Oil Price Information Service