Potential for LNG Bunkering Presented by Valery Nemov, Gazprom Export Courtesy of Pace Global Energy Services Porto, September 13 th, 2011 ZMB 1
Agenda Context and Market Overview Key Drivers and Major Challenges Commercial Opportunity ZMB 2
Potential for LNG as Ship Fuel New ship emissions limits in Europe and elsewhere will present ship owners with one of three options: 1. Secure low sulphur Marine Gasoil Increased refining costs could raise the cost of low sulphur fuels significantly Production of low sulphur fuels is likely insufficient to meet the surge in demand 2. Install exhaust scrubbers for sulphur and Selective Catalytic Reduction ( SCR ) for nitrogen dioxide ( NOx ) emissions High capital and operating costs of scrubbers 3. Adopt LNG as ship fuel LNG is considered the more environmentally and commercially attractive option ZMB 3
Key Drivers for the Development of an LNG Bunker Fuel Market Regulations on ship emissions Natural gas is the only fuel which meets new ship emissions limits (without requiring scrubbers or SCRs) Fuel pricing and maintenance costs LNG offers fuel cost advantage and lower operating costs* vs. traditional bunker fuels Technological advances in LNG bunkering Ship, engine and tank technology for LNG-fuelled ships are available and proven Ship emissions limits in Emission Control Areas ( ECAs ) Fuel pricing and sulphurabatement costs Technological advances in small-scale LNG * When cost of installing SOx and NOx control technologies is considered. ZMB 4
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Key Driver #1: Opportunity to Reduce Environmental Impact from Maritime Traffic New IMO regulations on ship emissions in ECAs in 2015/2016 in Europe and elsewhere Sulphur limit in ECAs reduced to <0.1% 80% reduction in NOx for new ships LNG fuel has the lowest ship emissions compared with traditional bunker fuels: NOx emissions are reduced by 85 90% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Limits on Sulphur Content in Marine Fuels Global Baltic Region Baltic & North Sea SOx and particles are reduced by nearly 100% Net GHG emissions may be reduced by 15 20% New emission limits pose challenges for ship owners, but represent a business opportunity for LNG suppliers Fuel Type SOx (g/kwh) NOx (g/kwh) PM (g/kwh) CO2 (g/kwh) Residual oil, 3.5% sulphur 13 9-12 1.5 580-630 Marine diesel, 0.5% sulphur 2 8-11 0.25-0.5 580-630 Marine gasoil, 0.1% sulphur 0.4 8-11 0.15-0.25 580-630 LNG 0 2 ~0 430-480 Sources: Magalog study, GL and HELCOM. ZMB 5
Fuel Price ( /metric tonne) Key Driver #2: LNG Offers Significant Fuel Cost Advantage to Traditional Marine Fuels 1,000 900 800 700 600 500 400 300 200 100 0 Average Monthly Bunker Fuel Prices HFO MGO LNG At 365/tonne, the spot price for LNG is almost half the price of MGO HFO 380 Great Belt HFO 380 Rotterdam MGO Great Belt MGO Rotterdam Rotterdam MGO trades at 651/tonne compared with HFO 380 ( 436/tonne) Limits on refining capacity mean using 0.1% sulphur MGO could imply a cost increase of 70%-90% compared with HFO 380 (1.5%) o This would entail a significant increase in ship costs Note: Rotterdam prices are generally accepted as a base to price oil products in northern Europe. Spot prices are depicted as these represent physical delivery of the fuel and therefore limit the speculative aspects that can influence forward prices. Sources: Bloomberg, Bunker Index, Platts. ZMB 6
Key Driver #3: Technological Advances Promote LNG as Bunker Fuel Ship & Engine Design Bunkering Process LNG Storage Ice-breakers, cruise ships, ferries, and military, coast guard and platform supply vessels are all currently running on LNG in Norway LNG feeder ships to supply satellite terminals Satellite terminals can be onshore or barge-based Refuelling at terminal via truck Ship-to-ship transfer via barge or tanker Development of new containment systems for storage on-board Boil-off gas handled by pressure increase, reliquefaction or dual fuel gas consumption ZMB 7
Major Challenges to Development of an LNG Bunkering Market Key Risk Factors Lack of infrastructure to serve growing market Small-scale LNG terminals, distribution networks, storage, LNG feeders and fleets of LNGfuelled vessels are all required Ships running on HFO can be retrofitted with scrubbers and SCRs to lower sulphur and NOx emissions This is likely to be the main competitor to LNG Delivered LNG price must be competitive with MGO, MDO and HFO Lack of operational protocols in the LNG bunkering industry LNG ships require around 20% more in capital costs compared with traditional builds Retrofitting of ships to run on LNG is not expected to be competitive, due to the additional space required for LNG storage, so market is largely limited to new builds only The industry needs to work together to address these challenges ZMB 8
LNG Bunkering Will Become Viable in Regions Implementing Strict Ship Emissions Standards Target markets feature high-density short-sea traffic and strict ship emissions standards Industry leaders in the marine power sector expect 10% of ships calling at ECAs will be running on LNG by 2015 - a 10x increase from today After the Baltic & North Sea region (ECA Zone 1), North America (ECA Zone 2), the Mediterranean (ECA Zone 3) and Singapore (ECA Zone 4) are considered potential future LNG bunkering markets Longer term, ocean-going vessels and inland water transport may be viable targets Sources: FGE, EMC. ZMB 9
THANK YOU FOR YOUR ATTENTION ZMB 10