Recent VLCC deals struck by European owners have underscored weakening premiums for scrubber-fitted tonnage in the period charter market.
While shipowners have spent millions of dollars installing exhaust gas cleaning kits on their vessels in hope of lower fuel costs, the ongoing oil price war and the coronavirus pandemic appear to be dashing those hopes.
According to market sources, Zodiac Maritime recently chartered the non-scrubber 298,522-dwt White Nova (built 2006) to Koch Industries for six months at $77,500 per day.
Last week, Hunter Group announced that it fixed the scrubber-fitted, 300,000-dwt Hunter Atla, Hunter Laga and Hunter Freya (all built 2019) on six-month charters at $80,000 per day.
US charterer
Koch was reported to be the charterer of the Hunter Atla. The US player also fixed the scrubber-fitted 300,000-dwt Eco Queen (built 2016) from Awilco Eco Tankers for the same period at the same rate.
Looking at the deals, a shipowner said: “If I had to take my fleet out for scrubber installations and get financing, I wouldn’t know how to make business sense for scrubbers at the moment.”
Separately, Awilco fixed out the scrubber-fitted 320,000-dwt Eco Seas (built 2016) for 12 months at $65,000 per day, according to market sources. While brokers reported Clearlake tentatively chartered the scrubber-free 299,999-dwt Sea Leopard (built 2011) from Pantheon Tankers for the same period at $57,000 per day.
A month ago, Clarksons Research estimated that the one-year charter rate for an eco VLCC installed with scrubbers would be $15,000 per day more than for an ordinary, scrubber-free VLCC.
Zodiac and Clearlake declined to comment on the deal. Managers for Koch and Pantheon did not immediately respond to emails seeking comment.
Demand uncertainty
According to brokers and analysts, the smaller premiums for scrubber-fitted tonnage have mainly resulted from a narrower discount of high sulphur fuel oil (HSFO) to very low sulphur fuel oil (VLSFO) amid the ongoing price war among oil producers.
“With the plunge in oil prices, better than expected supply of VLSFO and weak bunker demand because of coronavirus, the spread has narrowed significantly … which in turn will be reflected in time charter rate premium of scrubber-fitted vessels,” Drewry’s lead tanker analyst Rajesh Verma said.
According to Fearnleys, the discount of HSFO to VLSFO in Singapore — the world’s largest bunkering port — was $85 per tonne on Monday, down from $192 per tonne on 21 February.
While the spread may widen again when the oil market stabilises, the period charter market has been dominated by discussions about short-term deals, as oil demand uncertainty continues due to Covid-19.
“The enquiries are mostly short term, between six to 12 months, with no real appetite going past 12 months,” Braemar ACM said.
Moreover, recent period charters often have options for floating storage, and vessels used to store oil at sea consume limited marine fuel. This further weakens the advantage of scrubber-fitted tonnage.
Some believe period charters of longer than a year should still reflect substantial premiums for vessels fitted with scrubbers — but it is uncertain when the appetite for such deals will re-emerge, given the oil demand disruption caused by the virus outbreak.
Bimco chief analyst Peter Sand said medium to long-term charters would still be priced on an HSFO-VLSFO spread of $200 per tonne, which is the same as the pre-pandemic level.
But he added: “In the short-term market, charterers are expecting the trend of lower spread to continue."
Harry Papachristou contributed to the story.
