Asian shipowners and oil refiners join forces on scrubbers

Joint approach to meeting incoming sulphur rules could create a template for rest of the industry to follow

Japan’s MOL is among several Asian owners working with oil companies to jointly fund the ­installation of scrubbers to time-­chartered VLCCs, to comply with 2020 emissions regulations.

The moves, which involve retrofits of vessels already on the water, could provide a blueprint for owners that have long-term charter arrangements with local oil firms.

An agreement has reportedly been struck to retrofit several younger tankers in MOL’s fleet of 31 VLCCs, and the company is working closest with Japan’s leading refiner, the JXTG Group, market sources said.

Comment was not available from MOL before press time.

In South Korea, oil companies GS Caltex and SK Group are said to be working on similar deals with owners.

The Japanese VLCC trading model makes the capital expenditure calculation easy. Western spot operators trade both east and west to a variety of countries, whereas Japanese oil companies’ long-term chartered tonnage tends to shuttle between the ­Middle East and Japan — a 35-day round trip taken, on average, seven times a year.

The potential savings of fitting a scrubber depend on the price differential between marine gas oil (MGO) and heavy fuel oil, weighed up alongside fuel consumption.

Estimates vary, but the cost of retrofitting a scrubber to a VLCC can range from $3.5m to $5m. A rough calculation suggests that, based on MGO costing $150 to $250 per tonne more, and VLCCs burning on average between 80 tonnes and 100 tonnes per day, the savings would justify the investment.

Even at the lower fuel consumption range, it would equate to a saving of $4.9m annually at a price gap of $250 per tonne, covering the cost of installation in the case of both retrofits and newbuildings in one year.

38092c993a6790dc35a7424c2ae3a82b South Korea’s GS Caltex is reportedly pushing ahead with a scrubber scheme with SK Shipping Photo: Bloomberg

At the lower fuel price range, the differential of $150 per day would result in annual savings of $2.9m.

The decision makes more commercial sense for large tankers because of their high fuel consumption. Oil companies can also guarantee the future supply of heavy fuel oil.

The marine fuel market is likely to be dominated by MGO and blended low-sulphur heavy fuel oil in the coming years.

The Japanese model could equally be applied to dedicated VLCCs trading between the Middle East and South Korea and China.

TradeWinds understands GS Caltex is working with Hong Kong’s Oriental Ship & Investment along similar lines on two 2017-built VLCCs, while SK Group is working with SK Shipping for one to two vessels.

Shipowning sources in Asia also suggest that Shell and BP have shown interest in developing similar schemes with shipowners. Neither company responded to ­requests for comment before press time.

Not only would it help oil companies hedge the financial risk of compliance, it would also buy time while they increase the production of distillates to meet the 2020 requirement.