THE LNG FUEL TIPPING POINT AND THE COMPETITIVE ADVANTAGE JOHN HATLEY PE GASTECH EXHIBITION & CONFERENCE COMMERCIAL SERIES 4-7 APRIL 2017, CHIBA TOKYO, JAPAN 1 Wärtsilä 5 April 2017 The LNG Fuel Tipping Point And The Competitive Advantage
Agenda What? Competitive Market Phases Emissions & Abatement Why & How? Environmental Stewardship Why Clean LNG Fuel Business Case Japan s Global Car Exports Ship Car Carrier Investment Returns Fuel Tipping Point & Competitive Advantage Conclusions Environmental Currency 2
Agenda What? Competitive Market Phases Emissions & Abatement Why & How? Environmental Stewardship Why Clean LNG Fuel Business Case Japan s Global Car Exports Ship Car Carrier Investment Returns Fuel Tipping Point & Competitive Advantage Conclusions Environmental Currency 3
Competition Model Forces Porter s 5 Forces + 1 Government Legislation exercises market influence emissions Key Suppliers Competition arising from suppliers exercising power Substitute Products Competitive forces coming from market attempts of outsiders to win buyers Rivalry amongst Sellers Competition arising from rivals jockeying for market position and competitive advantage Buyers Competition from buyer s exercising bargaining power and leverage New Entrants Competition coming from new rival threat of entry Government Legislation Political power exercising market influence: TradeBehavior, Emissions 4
GOVERNMENT LEGISLATION Emission Control Area Expansions Existing Possible future ECA 5
Sulphur limit (%) Stepwise sulphur reductions & 2020 Global Marine Fuel Sulphur Cap 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.1 World -67% -78% -71% -97% -86% Eca California EU waters outside ECAs EU in ports 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 6 Wärtsilä 5 April 2017 The LNG Fuel Tipping Point And The Competitive Advantage
Competition Model Forces New Entrants Competition coming from new rival threat of entry Substitute Products Competitive forces coming from market attempts of outsiders to win buyers Key Suppliers Competition arising from suppliers exercising power Rivalry amongst Sellers Competition arising from rivals jockeying for market position and competitive advantage Buyers Competition from buyer s exercising bargaining power and leverage New Entrants Competition coming from new rival threat of entry Government Legislation Political power exercising market influence: TradeBehavior, Emissions 7
NEW ENTRANTS Major Shale Gas & Oil Basins Disruptive New Entrants Shale gas & oil. 8
Competition Model Forces Substitute Products Competitive forces coming from market attempts of outsiders to win buyers. Key Suppliers Competition arising from suppliers exercising power Substitute Products Competitive forces coming from market attempts of outsiders to win buyers Rivalry amongst Sellers Competition arising from rivals jockeying for market position and competitive advantage Buyers Competition from buyer s exercising bargaining power and leverage New Entrants Competition coming from new rival threat of entry Government Legislation Political power exercising market influence: TradeBehavior, Emissions 9
SUBSTITUTE PRODUCTS Engine Emission Abatements Diesel + SCR HFO + SCR + Scrubber LNG 10
Agenda What? Competitive Market Phases Emissions & Abatement Why & How? Environmental Stewardship Why Clean LNG Fuel Business Case Japan s Global Car Exports Ship Car Carrier Investment Returns Fuel Tipping Point & Competitive Advantage Conclusions Environmental Currency 11
EMISSIONS, ENVIRONMENT, & HEALTH Sustainability for future generations CO 2 NO x SO x PM Carbon Dioxide Nitrogen Oxide Sulphur Oxide Particulate Matter Greenhouse Gas Ozone Respiratory Carcinogen 12
Emissions LNG provides significant emission reductions compared to traditional diesel fuel engines Emission values [%] 100 80 60 40 20-25% -85% Gas = ULTRA CLEAN 0 CO₂ NOₓ DF Natural Gas Engine Diesel engine SOₓ -99% -99% Particulates 13
Agenda What? Competitive Market Phases Emissions & Abatement Why & How? Environmental Stewardship Why Clean LNG Fuel Business Case Japan s Global Car Exports Ship Car Carrier Investment Returns Fuel Tipping Point & Competitive Advantage Conclusions Environmental Currency 14
Japan s Car Exports Hundreds of thousands of cars from factory to ship & across Pacific ocean to US West Coast Markets Source: http://www.qatar-gulfnews.com/wp-content/uploads/inamxrryzeki1.jpg 15
TRADE ROUTE JAPAN TO US WEST COAST North Pacific trade route, 27 day round trip, 13 annual voyages with weather allowance. 16
16 March 2017 US West Coast Fuel Prices $ / ton IFO380 314.50 MGO 501.50 LNG 400.00 $ / mm BTU IFO380 7.85 MGO 11.67 LNG 8.56 17
VESSEL COMPARISON: WHAT S DIFFERENT IFO380 VS. LNG? HFO Fuel + Scrubber + SCR LNG Fuel + Cyrogenics Equivalent Annual Cost @ 10% rate -$9,962,934 -$10,167,909 Equivalent Annual Savings -$204,975 Annual Values CAPEX OPEX CAPEX OPEX Annual Totals $9,000,000 $8,552,434 $17,200,000 $8,147,603 LNG tankage Displaced Cars Lost cars 355 % Lost Cars Percent 4.6% Revenue Loss $ / yr $398,692 Contribution Margin to Bottom line Percent 40.0% Annual Cost of Lost Cars $ / yr $0 $159,477 Annual Fuel Fuel Price $ / ton $314.50 $400.00 Annual Fuel Cost $ / yr $7,337,941 $7,657,925 Diesel Pilot Price $ / ton $501.50 Annual Diesel Cost $ / yr $0 $115,552 Annual M&R Engines $ / yr $403,447 $228,391 Equivalent Annual Uniform Cost @ 10% Discount Rate March 2017 savings disappearance LNG benefit slips away $0.2M USD annually added cost versus IFO380 18 Wärtsilä 5 April 2017 The LNG Fuel Tipping Point And The Competitive Advantage
COMPARISON ( CONTINUED ) HFO Fuel + Scrubber + SCR LNG Fuel + Cyrogenics Annual Values CAPEX OPEX CAPEX OPEX HFO Scrubber Capex install $ 5,000,000 NaOH OPEX $ / yr $186,536 NaOH Residue Disposal $ / yr $45,900 Scrubber M&R Annual $ / yr $52,606 Scrubber Parasitic Fuel Load $ / yr $146,759 Selective Catalytic Reactor Capex install $4,000,000 UREA OPEX $ / yr $125,866 SCR M&R Annual $ / yr Catalyst Drydock Renewals $ / 5 yr $900,00 $180,000 SCR Parasitic Load Fuel Load $ / yr $73,379 19
COMPARISON ( CONTINUED ) HFO Fuel + Scrubber + SCR LNG Fuel + Cyrogenics Annual Values CAPEX OPEX CAPEX OPEX LNG Cyrogenics Capex install $ / yr $18,000,00 LNG M&R Annual $ / yr $34,259 HFO Systems storage tanks, boiler heating -$800,000 system, pumps/piping & transfer system, purifiers, day tanks, settling M&R HFO Support System $ / yr -$48,000 20
$ / ton $ / mmbtu Historical Prices Past Decade US West Coast Years Years IFO380 MDO LNG IFO380 MDO LNG Average $ / ton IFO380 527.91 MDO 844.81 LNG 515.98 Average $ / mm BTU IFO380 13.18 MDO 19.66 LNG 11.04 21
Equivalent Costs Comparison: March 2017 vs. Past Decade March 2017 savings dissipate LNG fuel deficit $0.2M USD annually versus IFO380 Average decade prices show strong LNG fuel savings exceed $2.6M USD annually vs. IFO380 Equivalent Annual Cost @ 10% rate HFO Fuel + Scrubber + SCR LNG Fuel + Cyrogenics -$9,962,934 -$10,167,909 Equivalent Annual Savings -$204,975 Annual Values CAPEX OPEX CAPEX OPEX Annual Totals $9,000,000 $8,552,434 $17,200,000 $8,147,603 Equivalent Annual Cost @ 10% rate HFO Fuel + Scrubber + SCR LNG Fuel + Cyrogenics -$15,091,613 -$12,467,427 Equivalent Annual Savings $2,624,186 Annual Values CAPEX OPEX CAPEX OPEX Annual Totals $9,000,000 $13,681,113 $17,200,000 $10,447,122 22 Wärtsilä 5 April 2017 The LNG Fuel Tipping Point And The Competitive Advantage
Competitive Advantage Tipping Point LNG captures compelling investment saving returns over the decade horizon. Equivalent Uniform Annual Cost LNG $ / ton $800 $700 $600 $500 $400 LNG Benefit $ Decade Average @ LNG 515.98 Same Cost EUAC @ LNG = 389.29 Decade Average IFO @ 527.91 $300 March 2017 IFO380 @ 314.50 $200 $200 $300 $400 $500 $600 IFO380 $ / ton 23
Agenda What? Competitive Market Phases Emissions & Abatement Why & How? Environmental Stewardship Why Clean LNG Fuel Business Case Japan s Global Car Exports Ship Car Carrier Investment Returns Fuel Tipping Point & Competitive Advantage Conclusions Environmental Currency 24
CONCLUSION Environmental Currency & Why LNG Fuel? Car Maker Brand Boost: Cleanest Logistics Environmental Currency & Sustainability Economics wax & wains with energy flows remains compelling over decade horizon ship investments last decades! It s the right thing to do 25 Wärtsilä 5 April 2017 The LNG Fuel Tipping Point And The Competitive Advantage
THANK YOU