IMO2020: Scrubbers vs. 0.5%S - Not a "Slam-Dunk"

Ara Barsamian, President/CEO, Refinery Automation Institute, LLC. Image Credit: Refinery Automation Institute

The IMO2020 compliance "panic" is starting, and as a consequence, more people are considering scrubbers.

The justification expanded from the lowering direct operating costs, e.g. fuel price differences (IFO380 3.5%S vs MGO) to include:

• World-wide availability and more uniform ISO8217 quality
• Avoid separate storage tanks on vessels
• Avoid fuel switching engine thermal shocks
• Avoid compatibility and stability of comingling aromatic and paraffinic ULSFO's

The latest payback estimates are in the 3 to 6 months range, using the latest scrubber prices of about US$2.5 to 3 millions for relatively small ships. For larger ships with more expensive scrubbers, the return is still in the 8 to 10 months payback.

A case in point are horizontal scrubbers with an innovative, small footprint design and quick installation, minimizing ship time in drydock.

We put together a scrubber Return On Investment (ROI) calculator to help shipowners decide what is the best 2020-compliance economic solution.

The calculator is an Excel spreadsheet with 2 sheets: sheet 1 contains the input to the calculator, and sheet 2 is the actual discounted cash flow ROI calculator.

A. INPUTS FOR Scrubber vs. Fuel Choice Return on Investment CALCULATIONS

There are three parts to the calculations: part 1 includes typical CAPEX and OPEX inputs to the calculator, whereas part 2 calculates the Discounted Cash Flow (ROI) return. The screen below illustrates the input information needed to calculate a scrubber Return On Investment (ROI).
You can use your own CAPEX and OPEX numbers using our guide with "default" numbers, fuel costs, days at sea, etc.

1. CAPEX (Capital Expenditure)

The items making up the capital expenditures include the one time costs such as the actual cost of scrubbing equipment, installation, testing, and getting the various government approvals. Although we account for dry dock time to install and test the equipment, we did not include the procurement lead time value when the shipowner will have to pay for the more expensive fuel until the scrubber paases a site acceptance test.
 
2. OPEX(OperatingExpenditure)

These include recurring costs, such as cost of caustic, electric power for pumps, sludge disposal costs, maintenance, inspection and registration fees, insurance, etc.

3. FUELCOSTS

This part provides a list of current prices in Rotterdam for various marine fuels, such as IFO380 3.5%S, MGO, 0.1%S ECA MGO, 0.5%S ULSFO, and published prices by various suppliers for IMO2020 compliant 0.5%S ULDFO, e.g. CEPSA 200cSt ULSFO.

The user of the calculator has complete freedom to add their own fuels and prices.

Then one has the choice of selecting two fuels, labelled Fuel 1, e.g. IFO380 3.5%S, and Fuel 2, e.g. ECA MGO, and use their prices to calculate the fuel cost differentials to be used in the scrubber ROI calculations.

Fig. 1 - Input Data - View Larger Version

Fig. 1 - Input Data

B. Scrubber vs. Fuel Choice Internal Rate of Return (IRR) On Investment CALCULATOR

Calculator Sheet No. 2 is a standard Internal Rate of Return (IRR) calculator, also known as a Discounted Cash Flow Calculator.

It automatically picks up the info from sheet No. 1 for CAPEX, OPEX, and Fuel Price Differentials.
It also allows the user to select:

Project life; for a scrubber, it is taken as 10 years, but it is user selectable.

Loan interest rate charged by a bank financing the scrubber; the example uses 5%, but it is user changeable

Tax rate: this is government or tax authority tax rate, which depends on vessel flag state. We used 0% as default, but it is user changeable. In US, it was 35%.

The calculator provides the following answers:

• Net Present Value (NPV), in the example, $70,243,836
• Payback period, in years, in the example, it is 0.74 years
• Internal Rate of Return (IRR), in %, the example has an IRR of 132%

Fig. 2 – IRR Calculator Showing Payback of 0.7 years - View Larger Version

Fig. 2 – IRR Calculator Showing Payback of 0.7 years

Given the CAPEX and OPEX amounts involved, it is worthwhile to do this calculations to guide a vessel owner as to what is the optimum solution.

For more info, advice, consulting, and feasibility studies, please contact Ara or Lee at +1-973-644-2270 or send us an email at info@refautom.com