INSIGHT: The Growing Role of Scrubbers in the Bunker Market

Scrubbers work by spraying water into a vessel's exhaust, washing out sulfur and other emissions. Image Credit: Wärtsilä

While the bunker industry's attention has been focused on alternative fuels, a quiet revolution has been going on behind the scenes: the return of HSFO.

3.5% sulfur fuel oil had been the dominant grade of bunker fuel up until 2020, when the IMO's global 0.50% sulfur limit shifted the majority of demand to VLSFO. But HSFO was not banned – ships had the choice of installing exhaust gas cleaning systems, or scrubbers, to allow them to continue burning the cheaper high-sulfur product.

Shipping firms have since been installing the systems at pace, with HSFO representing 32.3% of Singapore's total demand last year – up from 29.2% in 2022, 25.8% in 2021 and 21.3% in 2020.

The systems work by spraying water into a vessel's exhaust, washing out sulfur and other emissions and leaving them still compliant with the 0.50% limit while burning cheaper HSFO.

Economic Considerations

The main reason to use a scrubber is to generate savings in fuel bills.

On a global average basis, delivered HSFO has traded at a discount to VLSFO of about $65-405/mt since the start of 2020. Depending on the size and type of ship, scrubbers can cost between about $2 million and $8 million to install.

Operating costs are minimal, with only a small extra power requirement needed to run the system, so the bulk of the fuel savings can go towards paying off the initial capital expenditure.

Installing the systems usually requires the ship to be out of service at a dry dock for two or three weeks, but this can be arranged at the same time as scheduled dry-docking.

Depending on the HSFO-VLSFO price spread, the systems typically pay for themselves within a few years, after which time the fuel-bill savings almost all come as improved profitability.

In 2022, Eagle Bulk said it expected its $100 million investment in scrubbers to have paid off by the end of the year, within two years of IMO 2020.

Environmental Impact

The environmental impact of scrubbers is a contested issue.

The majority of scrubbers in use are open-loop models that discharge their washwater into the sea, rather than retaining it for disposal at ports.

Opponents of the technology regard this as just shifting shipping's sulfur pollution problem from the atmosphere into the oceans, and have raised concerns about the impact on the marine environment.

For its part, the scrubber industry funded research on the environmental impact of washwater in 2021. The report found no toxicity impact for fish, and some short-term effects on algae and crustaceans in high concentrations.

The report characterised the risk to the aquatic environment as acceptable.

One other environmental effect should be considered. Because HSFO requires less energy use by refineries to produce than VLSFO, the use of HSFO with a scrubber comes with marginally lower net GHG emissions than using VLSFO.

Challenges and Risks

The main challenges around using a scrubber are around regulatory risk and HSFO availability.

The regulatory risk concerns the possibility of ships not being allowed to use their scrubbers, meaning they will need to consume VLSFO and forgo the fuel savings.

While the IMO recognised scrubbers as a valid means of sulfur limit compliance, a range of port authorities around the world have banned the discharge of washwater from open-loop models in their waters since 2020, citing environmental concerns.

For most ships, these areas where scrubbers cannot be used represent only a small fraction of their area of operation, meaning that they can still generate enough fuel savings by using the systems, but for some more geographically-confined vessels the bans may have a larger impact.

Over the longer term, some politicians are arguing for a wider ban on the use of scrubbers.

Were a large bloc such as the EU to ban scrubber washwater discharge across its jurisdiction, this would pose a much larger threat to the systems' viability.

A more pressing concern is the availability of HSFO at ports around the world. While HSFO was the dominant bunker fuel grade, it was easily available worldwide, but it has since become more of a niche product at some ports.

Refineries are still producing HSFO in large quantities, but at ports where few scrubber-equipped ships call for bunkers, some suppliers have given up on selling it.

With fewer suppliers competing for HSFO demand at these ports, competition is limited and margins creep up, significantly cutting into the discount for HSFO versus VLSFO.

This can result in a situation as seen in Gibraltar last year, where the HSFO price approached parity with VLSFO in September.

Future Outlook

The future outlook for scrubbers will depend in part on how quick the shipping industry is to abandon fossil fuels altogether.

With any change on that scale looking unlikely for at least the next decade, the systems are probably set to remain a significant presence in the global bunker market for many more years, absent any wider move against them by regulators.

One factor that may keep the systems relevant over a longer period will be their adaptation to cover other emissions.

Scrubber manufacturers are increasingly developing models that combine conventional scrubbers with carbon capture systems – if this technology proves economically viable and is accepted by regulators, the combined systems are likely to become an attractive choice for shipowners wary over the shift to alternative fuels.