LNG INVESTMENT ASSESSMENT SCHEME Eleni Filippi Glasgow September - PowerPoint PPT Presentation

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 Glasgow – September 2015 | LNG Bunkering & Training Challenges Ocean Finance Ltd. 2

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. Involved Partners: Glasgow – September 2015 | LNG Bunkering & Training Challenges Ocean Finance Ltd. 3

OCEAN FINANCE LTD AS PART OF OTMW-N Activity 4: Communication & Capitalisation Some Examples, LNG Terminals: Adriatic LNG • ▪ Sub-Activity 4.1: Stakeholders platforms Regasification Terminal (Italy) , Barcelona LNG Regasification Terminal (Spain) ▪ Deliverable D4.1: Follow-up of the existing platform Ports: Port of Malmo (Sweden) , Port of • London (UK) Our collection process included 18 European ▪ Shipping Companies: Damaco D.o.o. • countries with waterborne activities. (Croatia) , Maritec N.v. (Belgium) Following taxonomy used for each country: ▪ Belgium; 1 United Kingdom; 5 LNG Terminals Bunkering ▪ ▪ France; 4 Services Ports ▪ Shipyards ▪ Shipping ▪ Greece; 1 Companies Logistics ▪ Italy; 2 Companies Agents ▪ Spain; 7 Lithuania; 1 Netherlands; 1 Portugal; 1 Number of LNG Terminals per EU Country Glasgow – September 2015 | LNG Bunkering & Training Challenges Ocean Finance Ltd. 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-mos- way-network-northern-clustering-event/ Glasgow – September 2015 | LNG Bunkering & Training Challenges Ocean Finance Ltd. 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) Glasgow – September 2015 | LNG Bunkering & Training Challenges Ocean Finance Ltd. 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. Glasgow – September 2015 | LNG Bunkering & Training Challenges Ocean Finance Ltd. 7

LNG INVESTMENT OVERVIEW ▪ The LNG investment refers to either a retrofit of an existing ship or a new- building. ▪ 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 Tank ▪ Auxiliary systems ▪ LNG storage tanks ▪ Fuel supply systems Engine Indicative illustration of a retrofitted bulk carrier ▪ 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. Glasgow – September 2015 | LNG Bunkering & Training Challenges Ocean Finance Ltd. 8

LNG INVESTMENT OVERVIEW All these conversions have a significant initial investment cost for ▪ the shipping company. Their quotation included equipment installation, commissioning and start- ▪ During our analysis up for approximately € 7,4 million. we inquired a The removal of the existing equipment, also requires the vessel manufacturing ▪ remain idle for a period. This means an extra off hire cost depending company to provide on the number of days that the vessel will be taken off hire. us with a proposal for the conversion of The manufacturing company requires the vessels to be taken off hire for ▪ 2 main engines of a 110 days. passenger ship with around 67.000 kW The installation of the LNG tanks on-board implies a reduction of ▪ combined engine payload, based on vessel type. power. The crew costs are higher, but maintenance costs are lower due to ▪ an extension of periods between overhauls. Glasgow – September 2015 | LNG Bunkering & Training Challenges Ocean Finance Ltd. 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 MGO (Max 1.50% Sulfur) 866,42 969,78 10 $/MMBtu LNG 454,38 512,93 + 10% Glasgow – September 2015 | LNG Bunkering & Training Challenges Ocean Finance Ltd. 10

LNG INVESTMENT ASSESSMENT Partial Retrofit MGO Retrofit Alternatives Full Retrofit LNG Partial Re-Engine Re-Engine Dual Fuel/ HFO & Scrubber Gas only Full Re-Engine Glasgow – September 2015 | LNG Bunkering & Training Challenges Ocean Finance Ltd. 11

LNG INVESTMENT ASSESSMENT ▪ The HFO & Scrubber alternative solution requires also a retrofit: ▪ New funnel layout ▪ Scrubber Scrubber System ▪ Installation of scrubber auxiliary machinery ▪ Installation of sludge tanks ▪ Steel work ▪ 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. Glasgow – September 2015 | LNG Bunkering & Training Challenges Ocean Finance Ltd. 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). 1. Considering the difference in OPEX, The difference in OPEX is higher almost 6 times between HFO- MGO and almost 3 times between 20% ECA YES LNG HFO-SCRUBBER, than the Operation difference between HFO-LNG. $ $ The MGO high SCRUBBER HFO YES (?) $ price/tonne directly $ influences its OPEX $ making it a non- feasible solution MGO NO Glasgow – September 2015 | LNG Bunkering & Training Challenges Ocean Finance Ltd. 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 3. HFO & SCRUBBER vs MGO 2. LNG vs MGO Glasgow – September 2015 | LNG Bunkering & Training Challenges Ocean Finance Ltd. 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 Glasgow – September 2015 | LNG Bunkering & Training Challenges Ocean Finance Ltd. 15