IMO2020: Drewry Sees LSFO Premium at $87 in 2023, Falling From $300 in 2020

Drewry predicts a falling LSFO premium. Image Credit: Drewry

The spread for IMO2020 complaint LSFO bunkers vs HSFO will be $300 in 2020, it's peak before narrowing to just $87 in 2023, according to the latest thinking from Drewry Maritime Research.

Along the way, the LSFO premium will fall to $211 in 2021 and $124 in 2022, the consultancy predicts, chalking the narrowing spread down to increases in supply.

It proven true, it would have significant implications for those looking to invest in scrubbers as the payback time for the technology would become much longer only a few years after the new global 0.50% sulfur cap comes into force on January 1, 2020.

This is particularly relevant for those taking a "wait-and-see" approach to their IMO2020 strategy, with several scrubber manufacturers already taking options through to 2023 "to enable ship-owners to secure a position on the installation timetable," as Pureteq CEO, Anders Skibdal, told Ship & Bunker last month.

For Drewry's payback calculations, it assumed that for VLCCs the cost of fitting an open loop scrubber in a newbuild ship is $2.7 million and for a retrofit $4.3 million.

The narrowing HSFO/LSFO spread would mean bunker cost savings for a modern eco-VLCC of $5.7 million in 2020, but only $1.6 million in 2023.

"This suggests that owners opting for scrubber-fitted vessels in 2020 would recover their cost in the first year alone. However, for those who choose to retrofit a scrubber (or take the delivery of a scrubber-fitted vessel) later, the payback period will be longer," says Drewry.

Of course, this calculation presumes the vessel will always be able to lift and burn HSFO.

"The availability of HSFO for scrubber-fitted vessels, particularly at small ports, could be restricted if the overall fleet of scrubber-fitted ships remains small," Drewry warns.

Olivier Jouny, Managing Director of Total Marine Fuels Global Solutions (TMFGS), told Ship & Bunker back in January that when it comes to HSFO supply, "it would seem likely there will be some rationalization of supply, especially outside of the big hubs."

Read Drewry's Latest Thinking in full here: https://www.drewry.co.uk/maritime-research-opinion-browser/maritime-research-opinions/the-dilemma-of-fitting-scrubbers