Scrubber benefits emerge as bunker fuel spread widens

Scrubber benefits emerge as bunker fuel spread widens

Ships with scrubbers will, at least initially, be filling up with fuel that is half the price of the very low-sulfur variety, giving them a cost advantage over rivals. Photo credit:

Low-sulfur fuel remains more than double the price of its high-sulfur heavy oil counterpart, and should the spread remain the same through 2020 it will give carriers with a greater number of scrubber-fitted vessels a distinct operating cost advantage.

On Monday Nov. 4, the price of very low-sulfur fuel oil (VLSFO) rose to $510 per ton from the Friday price of $496, more than $173 per ton (51 percent) above that of high-sulfur fuel oil (HSFO). The price of low-sulfur fuel dropped in early October into the high $400-per-ton range, but the differential has been above 50 percent since then, almost reaching 70 percent by the end of the month.

As carriers prepare their vessels for the International Maritime Organization’s (IMO's) 2020 sulfur cap, carriers have three paths to compliance: use VLSFO, fit vessels with exhaust cleaning scrubbers, or use an alternative low-emission fuel such as LNG. The majority of the container shipping fleet will burn low-sulfur fuel, but a large percentage — as high as 20 percent, according to estimates — will be fitted with scrubbers, allowing these vessels to continue burning the traditional bunker fuel that is currently selling at a 50 percent discount to compliant fuels.

Heavy exposure

Japan-based container carrier Ocean Network Express (ONE) — which, according to maritime analyst Alphaliner, will not have a single ship fitted with scrubbers by 2020 — will be the most heavily exposed to this price disparity of all the major lines. In its half-year results report released last month, ONE confirmed it was still studying the feasibility of installing scrubbers on some of its larger container ships and would rely on compliant low-sulfur fuel to meet the requirements of the IMO 2020 regulations in the short term.

Alphaliner data shows that ONE is the only Top-10 carrier that will not have scrubbers on any of its container vessels by 2020. By contrast, rivals Mediterranean Shipping Co., Evergreen Line, and Maersk Line have confirmed orders to have about 250, 150, and 140 ships fitted with scrubbers, respectively, including on both owned and chartered ships.

Should 0.5 percent low-sulfur bunker fuel continue to trade at such a large premium over heavy fuel oil, carriers without scrubbers would bear a heavier burden from increased fuel costs.

“ONE in particular will be exposed to the higher cost of low-sulfur fuel, due to its reluctance to move ahead with scrubber orders,” Alphaliner said.

Predicting the price differential between high- and low-sulfur fuel in the months ahead is difficult and will remain so until demand and trading activity rises as carriers begin to fill up their ships with LSFO from mid-November.

Negating the competitive advantage of operating ships with scrubbers is a potential reduction in the high-low fuel price spread, and IHS Markit, parent company of, has highlighted mounting concerns over the future supply of HSFO.

“Despite clear evidence that some product and crude markets are increasingly ‘pricing in’ an IMO 2020 impact, there remains significant uncertainty around future pricing levels, and recent HSFO supply concerns have added greatly to this uncertainty,” IHS Markit noted in a recent report.

“The recent tightening in HSFO markets has been caused, to a large extent, by a notable reduction in the supply of HSFO, particularly from Europe. There has also been a sharp reduction in HSFO inventory levels in both Singapore and at various European ports as storage operators clean out tanks formerly dedicated to HSFO storage, in order to store 0.5 percent fuels and blend components instead.”

Contact Greg Knowler at and follow him on Twitter: @greg_knowler.