Shipping's Next Fuel of Choice Could be High Sulfur Fuel Oil

The ongoing global oil crunch has also hit the shipping industry. In June, VLSFO (Very Low Sulphur Fuel Oil) prices skyrocketed at major bunkering hubs in the world recording a stark difference to HSFO (High Sulphur Fuel Oil) prices.

Most important was the record price differential between HSFO and VSLFO, which nearly crossed $500 per ton. In fact, HSFO prices have been declining, partially driven by increased Russian flows. On the other hand, the cost of VSLFO has surged as more feedstock is refined into gasoline.

The prospect could not be more appealing for ships already fitted with scrubbers. In fact, with indications showing that fuel crisis might persist in coming months, some analysts predict the current HSFO price discount might prompt more ship owners to install scrubbers, which roughly costs $2 million - $5 million depending on the size of a ship. Shipowners with large vessels that consume a lot of VLSFO might lead the trend.

Scrubbers rose into prominence in 2020 after IMO started to implement a new global sulfur cap of 0.5 percent, reduced from the 3.5 percent standard for bunker fuel. To meet the target, the global shipping fleet had to switch to low-sulphur fuel (VLSFO).

However, ships with scrubbers can run on cheaper HSFO, which typically has 2-3 percent sulfur content.

According to estimates by Drewry, some 19 percent of all container ships are fitted with scrubbers, the highest proportion among different types of ships, followed by tankers and break carriers at around 13 percent.

If the prediction of more scrubbers getting into the market is accurate, some environmental campaigners are concerned that the shipping industry would be solving the problem of air pollution at the expense of the ocean.

Scrubbers, located in the exhaust stacks of ships, mainly use seawater to spray or “scrub” sulphur contaminants from the engine’s exhaust. Most vessels use an open-loop system where, instead of the water being stored in a holding tank for later disposal at dedicated port facilities, the ships dump the acidic wash into the ocean.

The International Council on Clean Transportation (ICCT) estimates that 10 gigatonnes of scrubber washwater is discharged into the oceans annually.

But investing in scrubbers to enjoy discounts with cheap HSFO is characteristic of the long way shipping industry has to go in cutting off dependence on fossil fuels. Although there are immense efforts by shipping stakeholders to transition to cleaner fuels, multiple challenges still abound.

In a recent interview with CNBC, Maersk decarbonization chief Morten Bo Christiansen noted that although the company had ordered 13 ships to run on green methanol, the vessels will arrive prior to the fuels, which is of course not ideal.

“It is a chicken and egg situation. When we ordered the vessels, there was no supplier (of the fuel) whatsoever. One of the points of ordering the vessels was actually to put a demand signal in the market so that fuel production will start,” said Christiansen.

Beginning next year, IMO will require ships to calculate their annual carbon intensity and show that it is progressively falling. With uncertainty persisting on which clean fuels will be used in the long-term, most ships will be left with the option of moving slower. Studies show that a 10 percent drop in cruising speeds could slash fuel usage by up to 30 percent.

Currently, only about five percent of the world’s fleet runs on clean fuels, although more than 40 percent of new ship orders have an option for clean fuel, according to data from Clarksons Research.