TradeWinds recently argued that those shipowners and charterers using scrubbers “will go down on the wrong side of history”. However, history is very long and there are several facts that were overlooked while making this point.
Come 1 January 2020, the majority of vessels will be using marine gasoil (MGO) and, to a lesser degree, 0.5% low-sulphur fuel oil (LSFO).
Scrubber users are not using a "loophole" to comply with the new rules. They are looking at the surplus high-sulphur fuel oil (HSFO) that remains and are spending significant amounts of money on a business plan that will help the oil market get rid of that HSFO while it is being phased out.
Without scrubbers, where is the world’s HSFO going to go?
In Georgia [in the Caucasus] during the early 1900s, the Rothschild's oil production only took out about 10% of the entire oil fraction for kerosene. The other 90% was poured down the valley floor, which gave Joseph Stalin cause to organise his men against the ruling elite.
Where do you propose the legacy HSFO goes today?
Marine fuel
In the 1990s, fuel oil stopped becoming a common utility feedstock and is now almost exclusively a marine fuel.
If we send cheap HSFO to a restored power-generation market, the sulphur will continue to pollute the planet.
Can nations such as Iraq, Iran, Venezuela and Mexico afford to fork out $1bn for a residue fuel catalytic cracking refinery unit that converts only 60,000 barrels per day?
Russia has been upgrading its refineries steadily since Vladimir Putin came to power in 2000. But refinery upgrades take time and are expensive.
Only when the price of HSFO gets cheap enough will the economic incentives exist for these HSFO producers to secure financing for refinery upgrading to extract value from residue.
The scrubber industry is a time-limited strategy to mop up the HSFO surplus that will certainly exist come 2020. However, it is risky.
Obsolete upon upgrades
Too many scrubbers and not enough HSFO will make the investment lose money. Once refiners fully upgrade, scrubbers will become obsolete.
As many have noted, it makes more sense to take the sulphur out at the refinery. And this will be the case — eventually. No one will be installing scrubbers in seven years' time.
The surplus HSFO cannot easily go back into the power market, although some of it will. Nor can it be pumped back into the ground or into lakes next to the refinery.
The regulators who approved the IMO 2020 measures had no concept of how the industry works when they chose the 0.5% sulphur limit for the Marpol Annex VI rule.
If the IMO did understand the oil industry, then it would have chosen 1% sulphur and not 0.5%.
Scrubbers are bridging the gap between the IMO's environmental policy and the realities of the oil industry.
