ONE theory on exhaust-gas scrubbers is that installations will be somewhat of a one-off event, driven by the timing of the IMO 2020 environmental regulation in January 2020.

That regulation required use of more expensive very low sulphur fuel oil (VLSFO) but allowed continued burning of cheaper high-sulphur fuel oil (HSFO) with scrubbers. According to this theory, the regulatory transition would temporarily inflate the VLSFO-HSFO spread and allow shipowners to pay off the cost of scrubbers, but after that, the spread would narrow, curbing future installations.

One company that heavily invested in scrubbers amid the IMO 2020 transition period was Scorpio Tankers. During the company’s latest quarterly call, Scorpio chief operating officer Cameron Mackey said, “We expect the spread to stay pretty narrow for the foreseeable future. There were regulatory reasons and important timing issues around our investment in scrubbers.

“But our long-term forecasts are for a narrower spread. So, if we had to make that decision again today, it wouldn’t be a great return on investment.”

The rule of thumb is that new scrubber installations require a minimum VLSFO-HSFO spread of around $100 per tonne. According to data from Ship & Bunker on the average differential across the world’s top 20 bunkering hubs, the average spread jumped as predicted following the regulatory change, peaking at $315 per tonne in January 2020.

Then it unexpectedly slumped when the Covid pandemic struck, falling to under $50 per tonne in the second half of 2020. What rescued early scrubber investments was Russia’s invasion of Ukraine, which propelled the spread to a record high of $420.50 per tonne in July 2022, according to Ship & Bunker data.

The spread has been much less attractive this year. The Ship & Bunker average fell to just $76 per tonne on June 5. As of Tuesday, it was at $103.50 per tonne.

And yet, scrubber installations keep coming. It is more cost-effective to install scrubbers on newbuildings than with retrofits, and it is orderbook, not retrofits, that is propelling scrubber penetration ever higher.

The fall of retrofits and rise of newbuildings

Lloyd’s List analysed data from Clarksons on scrubber installations by ship type and by method of installation, comparing statistics as of January 2020, just after IMO 2020 regulatory implementation, to this month.

The numbers show a dramatic shift toward newbuildings versus retrofits, which makes sense given the narrower spread and bearish expectations on the future spread.

Clarksons’ data shows that the number of pending crude and product tanker scrubber retrofits has plunged 92% from January 2020 to August 2024. The number of bulker retrofits has fallen 93%. The number of containership retrofits has declined 90%.

In contrast, the number of newbuildings on order that include scrubbers has surged 94% over the same period for crude and product tankers, 65% for bulkers and 27% for containerships.

Larger vessel classes dominate scrubber installations

There are a total of 5,893 commercial vessels of all types on the water equipped with scrubbers as of this month, according to Clarksons’ data. Including the limited number of pending retrofits and the large number of scrubber-equipped newbuildings, the total is set to rise to 6,836 vessels, an increase of 16%.

The market penetration of scrubbers is much higher for larger vessel classes that spend longer periods at sea.

Including ships on the water, plus pending retrofits and newbuildings, 60% of containerships with capacity of 12,000 teu or more will have scrubbers, versus a share of 24% for all containerships.

In the tanker sector, 59% of very large crude carriers will have scrubbers, versus 18% of all crude and product tankers. In dry bulk, 50% of capesizes will have scrubbers, versus the overall dry bulk average of 15%.

Newbuilding mix favours tankers over containerships

The future market penetration of scrubbers by market segment is set to change. Containership owners appear to be less interested in installing scrubbers on newbuildings than in the past, whereas tanker and bulker owners have been holding roughly steady.

According to Clarksons’ data, 36% of all crude and product tankers on order in August will be equipped with scrubbers, the same share as in January 2020. However, the mix among size categories has changed.

Scrubbers will be installed on 71% VLCCs now on order, much higher than the 49% share in January 2020. That gain has been offset by a lower percentage of scrubber-equipped handy products tankers (which significantly outnumber VLCC orders).

On a nominal basis, the number of scrubber-equipped crude and product tanker orders jumped from 150 in January 2020 to 291 this month. The number of scrubber-equipped tankers newbuildings is being driven up by the growing size of the orderbook, not an increase in scrubber penetration.

Container shipping has seen a massive wave of newbuilding contracts, but in contrast to tankers, scrubber penetration of containership orders sank from 40% in January 2020 to 26% currently.

According to Clarksons’ data, only 29% of containerships now on order with capacity of 12,000 teu or more will be equipped with scrubbers, versus 60% in this category in January 2020. The share for 8,000- to 11,999-teu ships has fallen from 69% to 34% over the same period.

That said, the absolute number of containerships on order to be equipped with scrubbers has still risen, from 142 in January 2020 to 181 this August, with that modest gain driven by the sheer increase in the orderbook offsetting the declining scrubber penetration rate.

Clarksons’ data on dry bulk orders shows scrubber penetration remaining relatively flat at 24% overall, but with a change in the mix among size categories. As with containerships, owners of larger vessels have curiously pulled back, the reverse of the initial trend.

The share of capesizes currently on order equipped with scrubbers is 41%, down from 55% in January 2020. This has been offset by an increase in scrubber penetration for newbuilding panamaxes, now at 34% versus 15% in January 2020, and for handysizes, up from 2% to 18%.

On a nominal basis, the number of scrubber-equipped bulkers on orders has increased over the period from 182 to 300, driven by more scrubber-equipped orders for panamaxes and handysizes, partially offset by fewer installations for capesizes.