Innovative Financing Solutions for Emissions Compliance :

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1 Slide 1 Introduction Innovative Financing Solutions for Emissions Compliance : Pace Ralli, Co-Founder Introduction June 11 th, 2014

2 Slide 2 Introduction Ship owner reaction to change Ship owner Regulation 8 years

3 Slide 3 Introduction Ship owner faces several challenges Traditional investment is financially irrational Risks of Payback Split Incentive Debt Constraints Capital Efficiency

4 Slide 4 Introduction General risks of emerging LNG market Regulatory Risk Planning for compliance in an uncertain/early stage regulatory environment Regulatory risk of Coast Guard / classification societies Extension of the deadline for emissions compliance for ship owners Lack of enforcement that leads to widespread non-compliance Market Risk Increasing cost of gas feedstock; decrease of spread commodity spread Escalating costs of ship building for bunker barges due to increased demand Meeting increasing service level requirements with increased competition Bankruptcy of ship owner clients; lower demand due to market downturn Technological Risk Engineering design of bunker barge is flawed; transportation accident Ship conversion not feasible due to space requirements on board Uncertainty of cost of conversion equipment / engine / storage tanks Unforeseen events (e.g. weather/storms) that could impact production of LNG

5 Slide 5 Introduction CME mitigates ship owner risk of payback Technology Risk: mitigate risk that the LNG fueling technology will not work Risk of Payback Risk of LNG Supply: mitigate risk that the LNG supply will not be available in time Risk of LNG Bunkering: mitigate risk that LNG bunker infrastructure will not be ready Commodity Risk: mitigate risk that the commodity spread could decrease

6 Slide 6 Introduction Agenda 1. Background 2. Ship Owner Challenge 1. Emissions Compliance Service Agreement

7 Slide 7 Introduction Ships facing increasing global regulation

8 Slide 8 Introduction Ships in ECA need solution by 2015

9 Slide 9 Introduction Three viable options for ECA compliance Low Sulphur fuel (MGO) Scrubber Installation Most ocean-going ships currently use heavy fuel oil (HFO) for propulsion, mainly due to its lower cost. Small amounts of Marine Diesel Oil (MDO) is also used principally by smaller ships such as highspeed vessels and ferries. Both HFO and MDO contain high sulphur content, usually above 2% and are not available with <0.1% sulphur content. Marine Gas Oil (MGO) is currently the only distillate fuel that can comply with this regulation. MGO ($1100/mt) currently trades at a premium of ~$400 per tonne to HFO ($650/mt), and is project to rise to $1300-$1500/mt with increased demand after 2015, due to limited refinery capacity. Common exhaust cleaning system similar to inert gas systems in tankers. Working: Direct contact of HFO exhaust with the scrubbing liquid (sea water/ caustic solution of sea water/fresh water) causes sulphur compounds to be absorbed into a solution. Allows for the use of HFO and MDO fuel within ECA limits. Average cost of scrubber installation is between $[3m] and $[10m] per vessel. LNG propulsion Liquefied Natural Gas (LNG) is natural gas converted to liquid form for ease of storage and transport which has no Sulphur content. Marine Gas and Duel-fuel engines\ currently available in the market permit use of LNG for marine propulsion. Current LNG ship propulsion restricted to short sea shipping in Norway and is not readily available as a European alternative. To the extent that it becomes feasible, it is an additional opportunity for CME given our experience in the US market.

10 in Tonnes/year in Tonnes/year in Tonnes/year in Tonnes/year Slide 10 Introduction Environmental benefits are significant Exhaust components Compliance options SO x NO x CO2 Particulate matter LNG ~0 HS Fuel + Scrubbers LS fuel SO x NO x LNG HS Fuel + Scrubbers 5 5 LS fuel LNG HS Fuel + Scrubbers LS fuel CO2 LNG HS Fuel + Scrubbers LS fuel Particulate matter 0 3,6 LNG HS Fuel + Scrubbers 5,6 LS fuel Applicable for a typical general cargo ship 3300 kw installed Sources: LNG World, Bunker World

11 Slide 11 Introduction LNG provides 20-40% savings on annual fuel costs EIA Projections for Fuel Price Spread Ultra Low Sulfur Diesel Heavy Fuel Oil NATURAL GAS and the spread is expected to increase after 2015.

12 Slide 12 Introduction Economic & regulatory forces for change Fuel Cost Spread Emissions Regulation Widespread LNG Conversion & Scrubber Installation Ship Owners Need a Catalyst to Invest

13 Slide 13 Introduction Adapting the building EE financing model 25% savings $1-5M Projects ~5 year payback $5-$10M Projects ~30% savings ~2-5 yr payback 3 rd Party Funds 3 rd Party Funds

14 Slide 14 Introduction Agenda 1. Background 2. Ship Owner Challenge 1. Emissions Compliance Service Agreement

15 Slide 15 Introduction Priorities as a Ship Owner HIGHER CHARTER RATE LOWER FUEL COSTS Higher Asset Value ECA COMPLIANCE

16 Slide 16 Introduction CFO focus on capital resource efficiency Increases income and IRR with customary investments Increases cost-basis, not revenue producing capital will always flow to quicker payback projects.

17 Slide 17 Introduction LNG Pilot Great Lakes Trader 40,000 dwt dry bulk carrier MDO = $1050 /mt = $23 /mmbtu = ~$8.1m fuel cost ULSD = $1300 /mt = $29 /mmbtu = ~$10.3m fuel cost LNG = $650 /mt = $14 /mmbtu = ~$5.1m fuel cost LNG conversion ~$10m estimate 2-3 year payback

18 FCSA STRUCTURE Slide 18 Introduction Outfitted per ABS & USCG guidelines The Vessel will be outfitted with the following major items: 1. LNG bunkering manifold 2. LNG bunker filling line 3. LNG storage tank (300 cubic meters) 4. LNG vaporization system 5. LNG tank venting system 6. LNG tank pressure and level monitoring system 7. Gas pressure control system 8. Top end engine conversion to accept gas on the intake 9. Gas manifold to each bank of the engine 10. Double wall piping 11. Secondary wall air sweeping system with gas detection 12. Gas ventilation system 13. Engine room gas detection system 14. Exhaust gas rupture disc system 15. Engine load monitoring and control system 16. Lube oil tank batch system 17. Oil sump gas detection system 18. Oil vent gas detection system 19. Upgrade to the IAS system to encompass the additional systems 20. Vent mist separator system for each engine

19 Slide 19 Introduction Options to finance LNG conversion Option 1: self-finance using ship owner s own capital Option 2: raise additional debt for conversion cost only Option 3: refinance entire vessel including conversion Option 4: utilize third-party funds to cover conversion cost

20 Slide 20 Introduction Agenda 1. Background 2. Ship Owner Challenge 3. Emissions Compliance Service Agreement

21 Slide 21 Introduction NEXT STEPS Value Proposition Clean Marine Energy offers a proprietary financial mechanism called the Emissions Compliance Service Agreement (ECSA) to eliminate the barrier of large upfront capital requirements of LNG conversion or installing scrubber technology on to existing vessels.

22 2015 Annual Fuel Cost FCSA STRUCTURE Slide 22 Introduction Fuel cost before Jan 1 st, 2015 LSMGO MDO $25 mmbtu $23 mmbtu HFO $14 mmbtu

23 2015 Annual Fuel Cost FCSA STRUCTURE Slide 23 Introduction Fuel cost after Jan 1 st, 2015 Future LSMGO $29 mmbtu LSMGO MDO $25 mmbtu $23 mmbtu Immediate 40% increase HFO $14 mmbtu

24 2015 Annual Fuel Cost FCSA STRUCTURE Slide 24 Introduction Fuel cost after increase in LSMGO Future LSMGO $29 mmbtu LSMGO MDO $25 mmbtu $23 mmbtu Eventual 80% increase HFO $14 mmbtu

25 Annual Fuel Cost Conversion FCSA STRUCTURE Slide 25 Introduction Fuel Cost with ECSA ECSA is a capital efficiency solution that leverages 3rd party capital to fund capex investments without adding to the ship owner s cost-basis, by transitioning capex to opex LSMGO LNG ECSA Ship owner pays no upfront capital for ECA compliance Fuel payer continues to pay what they would have paid anyway, with some immediate shared savings during ECSA After the ECSA term, the ship benefits from 100% of the fuel cost savings for the remaining life of the asset Year Compliance becomes a NPV positive activity with no capital requirement ship owner can use it s capital for other more accretive investments

26 Slide 26 Introduction CME financing mechanism Clean Marine Energy Shipowner Emissions Compliance Service Agreement (ECSA) SPV Project & fuel management Upfront cost Equipment supplier Fuel payment Bunker Supplier Fuel cost + Fixed premium Bunker payment Bunker Barge Conversion equipment Delivered Fuel Premium is to be fixed at the contract signing being a proportion of the difference between ULSD and actual LNG cost Adapted from a proven model that has been adapted from the real estate sector

27 Slide 27 Introduction Competitive benefits for ship owners A holistic solution for compliance A simple and flexible structure with standardised arrangements and documents Ships run on low cost fuel. They will therefore either be more competitive or ship owner can take surplus benefit from lower costs Provides greater fuel certainty - protecting themselves from future rising costs of low sulphur compared to high sulphur fuel No upfront costs to them and therefore no need to find additional finance No need to expensively rearrange their current finance arrangements, and could be off balance sheet altogether Costs are directly paid from the financial benefit they receive with risks transferred

28 Slide 28 Introduction Eliminate barriers to ship owner action Conversion Technology LNG Supply Infrastructure LNG Distribution

29 Slide 29 Introduction Mission to fund 50 ships in five years Start with the low-hanging fruit with technological feasibility & quick payback

30 Slide 30 Introduction NEXT STEPS THANK YOU Pace Ralli Cell: