LNG Bunkering & Training Challenges LNG INVESTMENT ASSESSMENT SCHEME Eleni Filippi Glasgow September 2015
CONTENTS 1. Overview of the OTMW-Network 2. Ocean Finance Ltd. as part of OTMW-Network 3. LNG Investment Overview 4. LNG Investment Assessment Model 5. LNG Investment Critical Parameters 2
Involved Partners: THE ONTHEMOSWAY NETWORK (OTMW-N) Given the foreseen upcoming increase on the demand of Liquefied Natural Gas (LNG), as a cleaner marine fuel in the maritime industry, mainly due to the expected restriction on emissions and the prices opportunities, there is a clear training and building capacities need and interest from the sector's stakeholders. Specific indicative objectives of the projects are: Understanding the pros and cons of LNG s use as a marine fuel. Developing a new culture in all the actors in understanding their role to the safe operation of LNG fueled ships. Bridging the different perspective that the crew on-board and at the port have, creating a common understanding. Bridging the gap in the existing training procedures and the different perspectives on the use of LNG for bunkering. 3
OCEAN FINANCE LTD AS PART OF OTMW-N Activity 4: Communication & Capitalisation Sub-Activity 4.1: Stakeholders platforms Deliverable D4.1: Follow-up of the existing platform Our collection process included 18 European countries with waterborne activities. Following taxonomy used for each country: LNG Terminals Ports Shipping Companies Agents Bunkering Services Shipyards Logistics Companies Some Examples, LNG Terminals: Adriatic LNG Regasification Terminal (Italy), Barcelona LNG Regasification Terminal (Spain) Ports: Port of Malmo (Sweden), Port of London (UK) Shipping Companies: Damaco D.o.o. (Croatia), Maritec N.v. (Belgium) United Kingdom; 5 Spain; 7 Belgium; 1 France; 4 Greece; 1 Italy; 2 Lithuania; 1 Portugal; 1 Netherlands; 1 Number of LNG Terminals per EU Country 4
OCEAN FINANCE LTD AS PART OF OTMW-N Sub-Activity 4.2: Clustering with relevant projects and initiatives Deliverable D4.2.1: Southern Europe LNG project clustering The Southern Clustering Event was postponed and it is planned to take place during the Poseidon Med Stakeholders Conference (possible date between 10-20 October). Deliverable D4.2.2: Northern Europe LNG project clustering The North Clustering Event took place during the TEN-T Days 2015 Exhibition in Riga (22-23 June 2015). Around 40 TEN-T projects participated in this Exhibition. You can download report from here: http://www.onthemosway.eu/on-the-mosway-network-northern-clustering-event/ 5
OCEAN FINANCE LTD AS PART OF OTMW-N Sub-Activity 4.3: Final Conference Sub-Activity 4.4: Creation of a formal association of Stakeholders for the promotion of MoS and training A working group will be established by involving industries, universities and training institutions to promote cooperation and a European dimension in the maritime education. (Executed by University of Strathclyde) 6
OCEAN FINANCE LTD AS PART OF OTMW-N Module #1: LNG Fueled Vessels Design Training We took part in this module as a lecturer, with the lecture title Decision Support Tools For Alternative Fuels Installations. Module #5: Propulsion and Power Generation Training of LNG Driven Vessel Along with Environmental Protection Engineering EPE, we will be responsible for organizing and delivering the final module of the Action. 7
LNG INVESTMENT OVERVIEW The LNG investment refers to either a retrofit of an existing ship or a newbuilding. Converting an existing ship run on LNG requires (a) a retrofit of the main engine, or (b) a new engine (re-engine), along with a fuel system. Apart from the main engines conversion, the indicative following are also needed: LNG/Inner gas system Auxiliary systems LNG storage tanks Fuel supply systems Existing piping/equipment removal Generally, a complete LNG system includes tanks, bunker station, gas line and gas preparation, ATEX compatible electrical system, double-wall pipes, etc. 8 Tank Engine Indicative illustration of a retrofitted bulk carrier
LNG INVESTMENT OVERVIEW All these conversions have a significant initial investment cost for the shipping company. Their quotation included equipment installation, commissioning and startup for approximately 7,4 million. The removal of the existing equipment, also requires the vessel remain idle for a period. This means an extra off hire cost depending on the number of days that the vessel will be taken off hire. The manufacturing company requires the vessels to be taken off hire for 110 days. The installation of the LNG tanks on-board implies a reduction of payload, based on vessel type. The crew costs are higher, but maintenance costs are lower due to an extension of periods between overhauls. During our analysis we inquired a manufacturing company to provide us with a proposal for the conversion of 2 main engines of a passenger ship with around 67.000 kw combined engine power. 9
LNG INVESTMENT OVERVIEW A significant change also occurs to the Fuel Consumption Cost. The Fuel Consumption Cost highly depends on the following three: the Specific Fuel Consumption, the Engine Service Power Rate, and the Fuel Price. In our analysis we assume the following average fuel prices (bunkerindex.com, 2014): Fuel /Tonne $/Tonne HFO (Max 3.5% Sulfur) 508,04 568,65 10 $/MMBtu + 10% MGO (Max 1.50% Sulfur) 866,42 969,78 LNG 454,38 512,93 10
Alternatives LNG INVESTMENT ASSESSMENT Partial Retrofit MGO Retrofit Full Retrofit LNG HFO & Scrubber Re-Engine Dual Fuel/ Gas only Partial Re-Engine Full Re-Engine 11
LNG INVESTMENT ASSESSMENT The HFO & Scrubber alternative solution requires also a retrofit: New funnel layout Scrubber Installation of scrubber auxiliary machinery Installation of sludge tanks Steel work Scrubber System During our analysis a manufacturing company provided us with a proposal for the conversion of a passenger ship main engines (around 67.000 kw combined engine power). Their offer for retrofitting all engines is approximately 4,5 million. Similarly to the LNG investment, the vessel taken off hire time is 55 days. We assume a 5% fuel consumption increase, compared to typical HFO. Maintenance costs of the system are higher, and annually calculated. 12
LNG INVESTMENT ASSESSMENT To assess the LNG Investment we have developed a tool that calculates basic financial and economic indicators and promotes the most suitable solution, based on scenarios (pairs of solutions). 20% ECA Operation 1. Considering the difference in OPEX, LNG YES The difference in OPEX is higher almost 6 times between HFO- MGO and almost 3 times between HFO-SCRUBBER, than the difference between HFO-LNG. HFO SCRUBBER MGO YES (?) NO $ $ $ The MGO high $ $ price/tonne directly influences its OPEX making it a nonfeasible solution 13
LNG INVESTMENT ASSESSMENT 2. Considering the different scenarios (pairs of solutions), LNG and HFO & Scrubber are both preferred over MGO, despite their higher investment cost (Average NPV = 4.833.973 ). The Payback Period for LNG and HFO & Scrubber over MGO are both less than a year. The Payback Period for LNG over HFO & Scrubber is around 9 years. 1. LNG vs HFO & SCRUBBER 2. LNG vs MGO 3. HFO & SCRUBBER vs MGO 14
LNG INVESTMENT CRITICAL FACTORS Time spent within ECAs Vessel remaining lifetime Fuel price differences between LNG and HFO & Scrubber or MGO LNG Bunkering Logistics Cost in Refueling Terminal Investment cost for LNG technology Access to financial incentives 15
Payback Period LNG INVESTMENT CRITICAL FACTORS 10 9 8 Time spent within ECAs & Price differences 7 6 5 4 3 2 1 0 $-245 $-145 $-45 $55 $155 $255 $355 HFO is cheaper Spread HFO & Scrubber vs LNG LNG is cheaper SECA 0 SECA 25 SECA 50 SECA 75 SECA 100 Payback Period of LNG vs HFO Scrubber Spread SECA 0 SECA 25 SECA 50 SECA 75 SECA 100 $ -245 0 0 0 0 0 $ -145 0 0 0 0 0 $ -45 0 0 8,88 5,8 4,29 $ 55 0 7,18 3,48 2,29 1,7 $ 155 0 4,83 2,42 1,55 1,16 $ 255 0 3,63 1,78 1,18 0,88 $ 355 0 2,90 1,43 0,95 0,71 16
LNG INVESTMENT CRITICAL FACTORS Vessels lifetime pays a crucial role, as it is impossible for an old ship, with a little remaining operational life to payback the investment on LNG or even Scrubber. In our analysis we considered two sister vessels for a period of 25 years; the first one is 18 years old, so LNG DOES NOT payback during its estimated operational life, while the second one is 14 years old, so LNG DOES payback during its estimated operational life. Regarding the LNG Bunkering Logistics Cost in Refueling Terminal, we should consider that: LNG Final Price = Market Price + Surcharge for Bunkering Logistics. For small ports the bunkering logistics are around 2 $/MMBtu and 3,5 $/MMBtu. With the cost for facilities being around 1,5 $/MMBtu and for truck transportation around 2,2 $/MMBtu (depending on the loading point). For larger ports the costs are lower, but they require a higher initial investment on infrastructure. 17
LNG INVESTMENT CRITICAL FACTORS LNG Investment Cost: The proposal of the manufacturing company for the retrofit of the 2 main engines of a passenger ship was approximately 7,4 million. Scrubber Investment Cost: The proposal of another manufacturing company for the retrofit of all main engines of the same passenger ship was approximately 4,5 million. This significant difference in the investment costs of these two alternatives, turn LNG to a less attractive solution. However, it is expected that LNG will eventually become more attractive, through the potential economies of scale. 18
LNG INVESTMENT CRITICAL FACTORS For this reason it is important for the shipping companies to have access to financial incentives. The EU has identified the development of LNG as a marine fuel as key to its transport strategy for 2020. Funding mechanisms have been developed for studies and infrastructure investments. CEF 2014-2020 Co-funding Possibilities include: 26,25 billion from the EU s 2014-2020 budget to co-fund TEN-T projects in the EU Member States 30% for Works in MoS 50% for Studies 50% for Pilot Cases, etc. Example: For studying the potential of building a bunkering station in the port, the Port of Dunkirk has been granted 1 million. It is estimated that the Dunkirk LNG terminal will have an annual regasification capacity of 13 billion m3 of gas, representing around 20% of France and Belgium's annual natural gas consumption. This will make it the largest terminal in Europe (Scheduled for the end of 2015). 19
THANK YOU! Eleni Filippi Business Development efilippi@oceanfinance.gr Ocean Finance Ltd. 23 Psarron Street, 185 46 Piraeus, Greece www.oceanfinance.gr Glasgow September 2015 LNG Bunkering & Training Challenges Ocean Finance 20 Ltd.