ROI for scrubbers boosted by price gap between low- and high-sulphur fuel oil

China-based Zhejiang Energy Marine Environmental Technology (ZEME) and Zhejiang Energy Group Industrial Research Institute have released a report entitled “Analysis and Prediction of Oil Price between High and Low Sulfur Marine Fuel and Economic Analysis of Installing Desulfurization System” which analyzed the trend of the price difference between high-sulphur and low-sulphur fuel oil over the past three years since the implementation of the 3.5% limit under INO 2020.

The analysis forecast a difference of at least $150/tonne and an average of $170/tonne over the next two years.

ZEME said that, since the implementation of the IMO 2020 standard, low sulphur oil had become the main fuel source in the marine industry.

It noted that the pricing of high sulphur oil, which ships that have installed EGCS systems (scrubbers) can use, was mainly dependent on residual oil, while pricing of low sulphur oil was mainly anchored on marine diesel. The cost benefit of installing a scrubber depends on the relationship[ between the fixed cost of the installation and the variable benefit of the price differential.

In April 2020 the global pandemic caused a sharp drop in crude oil prices, which narrowed the price difference between low- and high- sulphur oil. As the economy recovered worldwide, the demand for crude oil and refined oil increased and the price difference expanded. The difference remained above $150/tonne, even as crude oil prices fell.

ZEME predicted that, due to the recovery of the global demand for crude oil and refined oil after the pandemic, coupled with a decline in refining capacity and a shortage of diesel fuel, over the next two years, the average price difference would be around $170/tonne. It claimed that there had been insufficient upstream investment, which had caused a shortage for diesel fuel in particular.

ZEME said that its customer base currently preferred the open loop system due to its lower cost, simplicity, and shorter installation time. It also noted that medium and large ships were preferred for retrofitting because of the high fuel consumption for cost recovery purposes.

ZEME’s profit and loss analysis showed that installing open loop EGCS under a price difference of $170/tonne would yield a “considerable return on investment”

A body with less interest than ZEME in the success of scrubbers as a business model is the International Energy Agency (IEA), which has predicted that the price difference between low and high sulphur oil would be not less than $150/tonne over the next two years.