For decades, the heavy fuels used in maritime shipping have made the sector a major source of air pollution. Now the shipping industry is cleaning up its act, generating business for gas scrubber companies.
Evaluating the Marine Gas Scrubbing Market
Gas scrubbers are specialist devices that remove pollution from exhaust gases, developed to meet demand for cleaner air and to tackle global pollution. Until recently, the marine gas scrubbing market remained relatively limited, but this has changed.
As expensive, specialist pieces of machinery, gas scrubbers don’t sell in huge numbers, but the sales they make have surged in the past six years. 67 were sold in 2013. By 2016, it was up to 468 – a nearly seven-fold increase in only three years. It’s been estimated that, by 2023, the industry will sell 3254 units in a year.
That’s an extraordinary prediction. But even the more conservative calculations show an industry in impressive health, with a predicted compound annual growth rate of 20.4% over the next nine years. This will create an $11.1 billion industry by 2028, from a value of just $500 million in 2017.
Why is the Marine Gas Scrubbing Market Growing?
The immediate driver behind this change is IMO 2020, a set of regulations from the International Maritime Organisation. This reduces the limit on the level of sulphur dioxide allowed in ships’ emissions from 0.5% to 0.1%. In the process of cleaning up the air, IMO have inadvertently given a huge boost to the gas scrubbing sector, because of the economics of fuels and engines.
The most obvious way to reduce sulphur emissions is with low sulphur fuels, but there is a wide difference in price between these and the more established heavy sulphur fuel oils. While the difference varies with oil prices, it has consistently stayed above 30%. Refineries are not yet ready to meet the demand for low sulphur fuel that a transformed market would create.
Additionally, low sulphur fuels have been found to not be as environmentally friendly as first thought.
This gap between supply and demand, together with the increased costs of creating low sulphur fuel, is reflected in the fuel’s higher prices.
For many shippers, it is therefore more cost efficient to take a different approach. Instead of buying low-sulphur oil and ships fitted to use it, they are sticking with old ships and heavy sulphur fuel but adding scrubbers to bring their emissions within IMO limits.
Forecasts for Investment Types
Global shipping fleets will mostly still be using high sulphur oil when IMO 2020 comes into force in January 2020. So for investors, the question is less about whether to invest in scrubbers and more about which ones to invest in.
Wet scrubber systems, which purify fumes by forcing them through liquid or spraying them to remove particles, make up most of the market. They are expected to represent 90% of the market by the end of 2028.
It’s cheaper to install a scrubber into a new ship than to retrofit it onto an old one, and new build installations are expected to grow faster than retrofitting. However, the sheer number of pre-existing vessels means that retrofitting will remain the largest part of the market for the next decade. It is expected to be worth $6.8 billion by the end of 2028.
A further important division is between open and closed loop scrubbers. Open loop scrubbers release the neutralised treated water into the sea - several studies have shown this process is not harmful to the oceans. This is also cheaper and so more popular – it was used in 988 out of 1,561 scrubbers by mid-2018.
The Attractions of Naked Scrubbers
Another option with growing potential is the “naked scrubber”. This is a lightweight hybrid scrubber, which can use either an open or a closed loop, balancing cost efficiencies against meeting regulations.
The main benefit of this scrubber is that it’s a relatively lightweight machine, which significantly reduces the weight of infrastructure for the installation.
The need to strengthen a ship’s structure before installing the scrubber is obviated and the installation time is shorter. With lower costs for both installation and docking, it’s a cheaper way to install a scrubber, with a shorter payback period and lower operating costs.
With IMO 2020’s arrival, scrubber companies already look attractive to investors. Innovations such as naked scrubbers will reinforce investor attraction.
Power Plant Scrubbers
The boom in scrubbers extends beyond the maritime market. In 2016 alone, coal-fired power plants emitted 19.7 million tons sulphur dioxide. As countries look to clean up their air, increasing regulation is forcing power plants to remove pollutants from their emissions.
As a result, there is a massive market for power plant scrubbers, which is expected to exceed $27 billion by 2025. In western countries, coal power is being replaced by renewable energy, but in emerging markets such as India, coal is needed to increase energy output while keeping prices down.
Governments in these markets aren’t ignorant of the problems of air pollution. Those in China and India are battling to reduce air pollution while increasing energy generation. India plans to improve air quality by forcing coal plants to scrub 95% of the sulphur dioxide from emissions by 2022, some of the toughest standards in the world. That’s going to drive huge demand for scrubbers.
China has also initiated a huge drive to reduce harmful emissions from its power plants.
Currently, the Americas remain the biggest market for gas scrubbers. The sheer scale of the oil and gas industry in the region means that the battle for clean air will fuel the scrubber market in the Americas for a generation.
The imminent arrival of IMO 2020 has focused gas scrubber companies on the maritime trade.
But with efforts to clean up the air both on land and at sea, and with the disadvantages inherent in using low sulphur fuel for the marine industry, scrubber companies have a bright future in cleaning up the entire global economy.