Kassinger: Scrubber Economics Are a "Slam Dunk"

Thursday December 15, 2016

Ship owners should have no need to worry about the financial viability of using scrubber technology as their compliance solution for the upcoming 0.50 percent global sulfur cap on marine fuel in 2020, industry Veteran Rudy Kassinger has told Ship & Bunker.

The comments come in response to reports from earlier this week, noting some ship owners have questioned whether the differential between HFO and more expensive compliant distillate fuel was high enough to warrant investment in the technology that will enable them to continue burning the same residual product they buy today.

"I would challenge that. Let us assume a $70/bbl ($528/mt) Brent price, HFO priced at 65% of Brent - down from today's more typical price of 75% of Brent - and compliant 0.50% max sulfur MGO having a 15% premium over the Brent price, which is similar if not slightly lower than it is today. That means HFO at $344/mt, MGO at 608/mt, and a premium for compliant fuel vs HFO of $264/mt," Kassinger explains.

"For a ship consuming 1,000 mt per month, or 12,000 mt per year, that would see a $3.17 million per year fuel cost saving. But I also think every one of those assumptions is very conservative. I think Brent will be higher, HFO will be even lower, and MGO will have an even bigger premium vs HFO.

"So I think the savings will actually be closer to $5 million per year."

In comparison, Ship & Bunker understands that the cost of a scrubber system for such a vessel, including installation costs, would be around $3 million, meaning the shipowner would see a return on their investment within the year.

"While the economics are a slam dunk for scrubbers, I agree there are still unresolved issues regarding scrubber waste disposal, which aren't trivial, as well as a few other concerns such as scrubber maintenance costs and reliability," he adds.

That said, Kassinger says an often overlooked benefit of scrubbers is that the infrastructure for IFO bunkering is already in place.

Indeed, a report last month by Barry Rogliano Salles' (BRS') Tanker Department concluded that "significant investment in infrastructure is required across the supply chain" to accommodate the expected increase in demand for distillate fuels in 2020.

"One huge plus not even considered is that in 2020 ships will be able to bunker IFO anywhere in the world. Those using scrubbers also will not have to worry about a likely great variation in the properties of 0.50 percent max sulfur fuels," said Kassinger.

As Ship & Bunker has previously reported, quality data from fuel testing agencies shows a direct relationship between the introduction of regulations that lower the sulfur content of marine fuel and an increase in off-specification bunkers.