Eagle Bulk Shipping still considers exhaust gas scrubbers to be a worthy investment, despite spending millions to cash in on fuel price spreads that fell well short of expectations.
Dozens of shipowners rolled the dice last year as IMO 2020 neared, expecting to save about $300 per tonne on bunkers by using high-sulphur fuel oil (HSFO) with scrubbers instead of very low-sulphur fuel oil (VLSFO).
They thought the spread would last at least through the first quarter of 2020 to enable a two-year investment pay-off, but that did not happen.
By late April — after Russia and Saudi Arabia had conspired to flood the oil market — the spread had narrowed to $55 per tonne with Singapore VLSFO commanding only $210 per tonne, according to Ship & Bunker.
That gap has not widened much, coming in at $64 per tonne as VLSFO reached only $350 on Monday.
'A meaningful contribution'
US-based Eagle Bulk is still satisfied with spending $88.1m on retrofitting scrubbers on 37 ships because it expects a good investment return.
It also bought four scrubber-fitted bulkers last year as part of a deal for six ultramaxes costing $122m.
A price spread of about $90 gives almost $20m in annualized cash flow for a four-year payback period, chief executive Gary Vogel said during a recent earnings call.
Eagle Bulk would not disclose how much it spent on financing its scrubber investment, which included $300,000 in spare parts.
"While the outbreak of Covid-19 and the subsequent Opec price war have negatively impacted fuel spreads, by our calculations, we've generated more than $20m on our scrubber investment in just the first six months," Vogel said on the 7 August all.
"While this is less than our original expectations, it's a very meaningful contribution, especially given the global pandemic and its impact to fuel pricing."
'Still an attractive investment'
Provided 41 scrubber-fitted ships each burn 5,000 tonnes of HSFO per year, Eagle Bulk said it expects future oil prices will allow for a price spread that will earn $35.4m in annualised cash flow for 2020.
"As you know, the fuel market is very dynamic, and as oil prices recover and demand for middle-distillates return, there may be upside beyond the forward curve," Eagle Bulk told TradeWinds.
"Even if payback takes a couple of years more than expected, it’s still an attractive investment.
"This is after taking into account the impact of the unforeseeable global pandemic and the steep drop in crude pricing."
This story has been amended to reflect actual scrubber earnings.
