DHT expects to spend $55m on 12 scrubber retrofits

'Confident' it will be able to finance most of the project; further scrubber installations not discounted.

Image credit: DHT Holdings

Updated on 09 Aug 2018 17:08 GMT

Tanker vessel owner DHT Holdings says it expects to spend $55 million on its previously announced project to retrofit exhaust gas cleaning systems (or 'scrubbers') on 12 of its VLCCs built between 2004 and 2012. These 12 Alfa Laval systems - all set to be installed in 2019 - will be in addition to the two being installed on the newbuilds DHT Bronco and DHT Mustang, which are slated for delivery later this quarter from Hyundai Heavy Industries. As a result, DHT is set to have a total of 14 VLCCs equipped with scrubbers when the IMO's global sulphur cap is implemented on January 1, 2020. $55m cost breakdown Discussing the $55m due to be spent on the 12 scrubbers, co-CEO Svein Moxnes Harfjeld explained that it would roughly break down into 40 percent of the cost allocated towards the scrubber systems, 40 percent going to the shipyard and the remaining 20 percent for engineering and ancillary expenses. This means around $44m of the expenses is to be equally divided between the scrubbers and the shipyard, with approximately $11 spent on engineering and ancillary expenses. Time out of action Of the 12 ships due to be retrofitted next year with scrubbers, three already have natural dry dock days next year, whilst the other nine vessels look set to be out of action for around 30 days so that the work can be carried out. Further scrubber installations not discounted On the possibility of fitting other ships in the fleet with scrubbers in the future, Harfjeld did not discount the option, explaining that DHT has primarily been focusing on converting its older vessels - or so-called "low-hanging fruit" - first. "We looked at predominantly the older end of our fleet first as they are the ships that consume more fuel, and that's where the benefit also is the greatest," he remarked. "We have not excluded ourselves from doing further projects. But for now, we're committed to retrofit 12," he continued. All of DHT's ships are less than 16 years old. The oldest vessel, DHT Sophie, was built in 2003. 'Super profits' with scrubbers fitted In terms of consumption, co-CEO Trygve Munthe explained that the firm's so-called 'Eco' VLCCs consume less fuel than the older ships. Whilst the Eco tankers burn 11,000-13,000 metric tonnes of bunker fuel per annum, the 10-year-old ships use between 17,000 and 19,000 tonnes a year. As a result, once the aforementioned 12 ships have been fitted with scrubbers, Harfjeld noted that this "will potentially create a super profit through their ability to consume regular heavy fuel oil versus [more expensive] compliant fuels". Using current Bunker Index Rotterdam price data as an example, the price of compliant MGO is around $176 per tonne more expensive than high-sulphur 380 cSt, whilst in Fujairah the differential is roughly $274 per tonne. Whilst the fuel savings potential for the older ships on time charter will clearly be greater, Harfjeld posited that a scrubber installation on an ECO ship would still be a "meaningful benefit", even though the payback would be less. "But what you don't want to have is, really, a non-Eco ship without a scrubber in January 2020. That's been our approach," Harfjeld stressed. Scrubber project financing Harfjeld said the company is "confident" that it will be able to arrange financing for "the majority of the project at attractive terms". "We have received numerous proposals to finance the project, and this is currently work in progress. We have a whole host of avenues available to us," he revealed. "We have investors keen to get in on the economics, customers willing to fund through employment as well as commodity traders and fuel suppliers offering various structures," he divulged. Partnership with Alfa Laval Discussing DHT's partnership with manufacturer Alfa Laval for the scrubber installations and enquiries received from customers, Harfjeld explained that clients were "keen on understanding the credibility and the quality of the supplier". "I think you cannot just come into the room with any sort of yard or manufacturer equipment with no track record and get business from the really big customers. They want to ensure, of course, that the equipment that they're going to also use - say through a time charter - will operate," he said. "Alfa Laval is the leading supplier of shipboard exhaust gas cleaning systems with more than 100 scrubbers in operation. Alfa Laval's track record offers credibility with respects to timely project execution and reliable operations," Harfjeld added. 'The more experienced and credible suppliers' sold out for 2019 Co-CEO Svein Harfjeld explained that the company has been preparing for IMO's 2020 sulphur deadline since 2017. "We've been working on this for quite some time and managed to secure equipment from a leading supplier [in a] very timely [manner]," he said, regarding the company's business relationship with scrubber manufacturer Alfa Laval. And Harfjeld suggested that it may now be difficult for other shipping firms to replicate a project of this magnitude before 2020. "We... see that the more experienced and credible suppliers are now basically sold out for 2019," he remarked.