With a cap on sulphur looming, VLGC shipowners are increasingly considering scrubbers as an attractive option to meet IMO’s low-sulphur regulation, according to shipping consultancy Drewry.
The popularity of scrubbers in the large LPG sector is evident, given that 27 of the 30 VLGCs ordered over the last two years were either fitted with scrubbers or were scrubber-ready. However, in the existing VLGC fleet, the share of scrubber-fitted vessels remains small, with just 19 vessels having scrubbers.
Drewry said that an analysis of time charter fixtures indicates that charterers prefer scrubber-fitted ships for long-term contracts. An evidence of this is the recent fixing of Dorian LPG-owned 2015-built VLGC, scrubber-fitted Concorde, which was fixed at USD 29,000 per day for three years, some USD 3,000 per day higher than charter rates for non-scrubber-fitted ships. The USD 3,000 per day premium can be justified if the bunker price differential is greater than USD 130 per day over the three years, Drewry explained.
“Even when allowances are made for the expected narrowing bunker price differential over time, our figures indicate the potential saving in fuel costs could be upwards of USD 11 million over a five-year charter. Hence, scrubber-fitted VLGCs are likely to attract a rate premium for some time to come,” the shipping consultancy continued.
Drewry believes fitting vessels with scrubbers makes economic sense as it increases the probability of attracting long-term contracts. In addition, the investment of around USD 2-3 million for installing scrubbers could be recovered in two-to-three years, assuming a rate premium of USD 3,000-4,000 per day.
“While the attractiveness of installing scrubbers will be high in 2020 because of the wide gap between the two fuel prices, slots may not be available for retrofitting. Although more slots will be available in later years, there is a risk of significant narrowing of premium for low-sulphur fuel if its supply improves faster than expected,” Drewry concluded.