DHT Holdings: Scrubber Economics Firm despite Bans

The recent move by various countries to ban the use of scrubbers in their ports and coastal areas would not damage the economics of installing the equipment on DHT Holdings’ VLCCs, the company informed in its fourth quarter 2018 earnings call.

Namely, the company’s Co-Chief Executive Officer, Svein Moxnes Harfjeld, said that the announcements about the ban “do not change our expected economics for these investments.”

“We have concluded on the depreciation profile that we will use for our scrubbers; each individual system will commence depreciation upon actual installation and carry through 2022. We believe this to reflect a realistic, yet conservative expectation of economic benefits.”

By 2020, the company plans to have 18 of its 27 very large crude carriers (VLCCs), the third of DHT Holdings’ fleet, fitted with exhaust gas cleaning systems (EGCS). The number comprises of two newbuildings and 16 retrofits, all of which would be fitted with open-loop systems.

DHT Holdings added that the systems can be converted into hybrid systems, however, “we do not expect this to be a likely scenario.” 

Harfjeld explained that several years ago, in anticipation of IMO 2020, the shipowner launched a project whereby it configured the ships’ fuel tank lay-out allowing all the vessels to carry various grades of fuels in segregation.

“Our operating mode then facilitates flexibility consume – to consume compliant fuels with 0.5% or less sulphur content, when in emission control areas or ports that do not permit operations of scrubbers. Our assumptions and our configuration was in anticipation of countries implementing stricter rules related to the use of scrubbers when ships operate in their respective near seas and ports,” according to Harfjeld.

The company confirmed the expected economics for the investments after a number of countries adopted the scrubber ban in January 2019, while some other announced their plans to implement the ban starting from January 2020.

The scrubber ban

A number of countries earlier announced stricter measures as the contents of the released water include heavy metals and poly-aromatic hydrocarbons, potentially posing a risk to marine life.

China banned the discharge of wash water from open-loop scrubbers in coastal waters as part of an update of the country’s domestic emission control area (DECA) regulations, which took effect from January 1, 2019, Reuters cited an official from China’s Maritime Safety Administration (MSA).

The ban applies to wash water used to strip hazardous sulfur emissions from engine exhaust gases, and affects inland ECAs, port waters under coastal DECA and the Bohai Bay. The official however said that the ban would not be extended to all of China’s territorial waters because of the increased costs for the shipping industry.

A similar measure was unveiled by Singapore in November 2018, when the port said it would prohibit the discharge of wash water from open-loop exhaust gas scrubbers in its waters when the International Maritime Organization (IMO) 2020 fuel oil sulphur limit enters into force.

As a result, ships fitted with open-loop scrubbers calling at Singapore would be required to use compliant fuel, while ships fitted with hybrid scrubbers would need to switch to the closed-loop mode of operation.

UAE’s Port of Fujairah decided to follow the steps of its fellow bunkering major in banning the use of open-loop scrubbers in its waters. In its notice dated January 22, 2019, the port said that “ships will have to use compliant fuel once the IMO 2020 sulphur cap comes into force.”

Separately, Irish Port of Waterford informed that as of the start of January 2019, the discharge of exhaust gas scrubber wash water is prohibited within the limits of the Port of Waterford Company. Upon entering port limits any vessel fitted with exhaust gas scrubbers must run on a “closed loop system” for the duration of the port stay, the company said.

Furthermore, a coalition of non-governmental organizations, including Naturschutzbund Deutschland (NABU), France Nature Environnement (FNE), BirdLife Malta and others, recently called for a ban of heavy fuel oil and a ban of scrubbers in European emission control areas (ECAs).

The NGOs also urged the designation of the Mediterranean Sea as a combined Emission Control Area for sulphur (SECA) and nitrogen (NECA) by 2020, cooperation of EU states with non EU coastal states to establish a Mediterranean ECA, and a harmonized and effective control and enforcement scheme.

“While it is certain that switching to low sulphur fuels results in a significant reduction of air pollutant emissions, scrubbers are questionable as they produce residues and prolong the use of toxic heavy fuel oil,” the NGOs concluded.

World Maritime News Staff