Expectation of Higher Oil Prices Holds Back Scrubber Cancellations: Gibson

Tanker owners may think twice before cancelling their scrubber retrofits. File Image / Pixabay

The possibility of a sharp rebound in oil prices and price spreads between high- and low-sulfur fuels is stopping the cancellation of planned scrubber retrofits from being more widespread in the tanker industry, according to Gibson Shipbrokers.

The spread between high sulfur fuel oil and very low sulfur fuel oil -- a key measure of the savings that can be made by scrubber-equipped ships -- was at $57/mt at Rotterdam on Friday, according to Ship & Bunker pricing, down from $298/mt at the end of 2019.

A prolonged average spread of $60/mt implies a VLCC could pay back the cost of a retrofitted scrubber in 3-4 years, according to Gibson's most recent weekly tanker report.

The lower installation cost and lack of off-hire time involved in fitting the system to a new VLCC means a new ship could still pay off the cost in 18-26 months, the shipbroker said.

Several tanker companies have recently announced delays to some of their scrubber retrofits while freight rates are strong and fuel spreads are narrow. But expectations of an oil rally mean full cancellations of scrubber installations are unlikely, the shipbroker said.

"Oil prices are expected to rebound once the world recovers from Covid-19, whilst OPEC+ is likely to continue its efforts to support oil prices," the company said.

"Further down the line, the upward pressure on oil prices could also intensify due to the major reductions in CAPEX by oil companies seen at present.

"With this in mind, investment in exhaust gas cleaning technology could come back on the agenda.

"Expectation of higher prices in years to come is perhaps one of the reasons why delays to scrubber installations and not outright cancellations are currently the preferred strategy of tanker owners."