FEATURE:
Shipping’s Headwinds – The Drivers for Decarbonisation
The expected widening of the HSFO-LSFO price spread leading into 2020 was a key driver for the scrubber industry, where ships continue to burn HSFO and use technology to remove sulphur onboard. However, the oil price crash brought about by the coronavirus collapsed the benchmark Singapore HSFO-LSFO spread as assessed by S&P Global Platts from more than $300/mt at the turn of the year to a low of around $60/mt in early April. The payback period for scrubbers has now shifted from 2-3 years to 5+ years. Many ship owners are cancelling orders to install scrubbers as the low sulphur fuels are much cheaper than initially projected. They are even forfeiting the advance payments made earlier. High earnings have to a large extent offset the costs involved in installing scrubbers in tankers.
Fears of unavailability of LSFO went largely unfounded as 2019 rolled into 2020. Refiners and blenders were ready and well-equipped to supply the lower-sulphur fuel, making preparations through the second half of 2019. A large amount of LSFO was also put into storage ahead of the transition.
The shipping sector was not in the best of health before COVID-19. Freight rates were falling and operational costs were rising due to IMO 2020. However, lower oil prices have come as a boon for the tankers sector in particular. Cheaper crude has reduced the cost of bunker fuel that the tankers use and increased the number of cargoes that these tankers are now transporting.