Scrubber Super Profits: DHT Goes In-Depth on its $55M IMO 2020 EGCS Plans

DHT says the average earnings boost for its scrubber-equipped VLCCs to be $12,000 per day. Image Credit: DHT

DHT Holdings, Inc. (DHT) has given further details on a scrubber strategy it hopes will provide a "super profit" for the tanker owner.

Last month DHT ordered twelve exhaust gas cleaning systems (EGCSs) from Alfa Laval, and in comments today during the earnings call for its Q2 2018 results, CO-CEO Trygve Munthe said the total budget for the retrofits is $55 million - or about $4.6 million per scrubber.

While CO-CEO Svein Moxnes Harfjeld declined to give too much additional detail on the cost breakdown, he said it was roughly a "40-40-20 type of calculation" for the scrubber, shipyard, and then engineering and ancillary expenses.

At this price along with the expected "super-profits", DHT expects the ROI for the project to be "well short of one year."

"When we talk about super-profits, the current theoretical spread of $250 per tonne, you're looking at $12,000 a day on average VLCC, on say a standard Middle East, Far East out," said Harfjeld

Munthe added that bunker consumption of 11,000-13,000 tonnes per year would be typical for its ECO ships, and 17,000 to 19,000 tonnes per year for its 10-year old ships.

Working with a projected $250/mt premium for IMO 2020 compliant fuel over HSFO, such consumption would translate into annual savings for scrubber equipped vessels of between $2.75 million (for the lowest consuming ECO ship) and $4.75 million (for the highest consuming non-ECO ship).

"But, also, I think there are expectations that this spread could widen … as such, the payback is certainly well short of one year given these economics," Harfjeld added.

DHT says it has received "numerous proposals to finance the project" including offers from customers willing to fund through employment "as well as commodity traders and fuel suppliers offering various structures."

"As such, we are confident to finance the majority of the project at attractive terms," Harfjeld said.

All the ships are expected to be retrofitted during 2019 and be ready for the IMO 2020 start date of January1, 2020.

In terms of deciding which vessels to retrofit with scrubbers, Harfjeld said DHT had looked predominantly at the older end of its fleet first.

"They are the ships that consume more fuel, and that's where the benefit also is the greatest. So, that was sort of the low hanging fruit, so to speak," he said, adding that it had not ruled out further retrofits at a later date.

"What you don't want to have is a non-ECO ship without a scrubber in January 2020. That's been our approach."

Others seemingly agree, with DHT saying it has already had enquiries from customers wanting to secure tonnage with scrubbers.

DHT is just one of a several tanker owners who have reveiled plans to invest in the technology, a list that in recent weeks has included Navig8, Frontline, and Overseas Shipholding Group (OSG).

Despite this, and an apparent overall momentum for the technology across all sectors, DHT reiterated that the reality come January 1, 2020 is the vast majority of vessels will be burning IMO2020 compliant 0.50% sulfur fuel.

"When January 2020 comes around, the vast majority of tankers are going to show up without the scrubber," said Munthe.

"Whether it's going to be 10-90, or 20-80, that percentage, it's difficult to tell. We just don't see it [as being] possible that we'll see the majority being fitted over the next 17 months."

* Quotes from earnings call transcript by Seeking Alpha