[PPT] - The COSTA Project - The Financials of LNG as Fuel Dr. Panayotis PowerPoint Presentation

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COSTA Project – The Financials of LNG as Fuel

The COSTA Project - The Financials of LNG “as Fuel”

Dr. Panayotis Zacharioudakis

Senior Researcher NTUA R&D Consultant OceanFinance – COSTA Greek Member State Coordinator SNAME seventh technical meeting

6 March 2014

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COSTA Project – The Financials of LNG as Fuel

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 Introd roduct ction

n

 The Persp spective ective of LNG “as Fuel”  COSTA TA Project ect @ a a Glance ce  Facts ts and Figures res for LNG Financials ncials  Ports ts / Terminals minals  Short rt Sea Shippin ing  Transi nsiti tion

n to the LNG Era

 Conclusions lusions

Presentation Outline

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COSTA Project – The Financials of LNG as Fuel

 LNG Fuelled Vessels

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Intr troduct

ductio

ion

LNG as Fuel Perspective

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COSTA Project – The Financials of LNG as Fuel

 LNG Indust stry ry Has an an Excel ellen ent t Safety ety Record rd

LNG has been Safely Delivered Across the Ocean for
Over 40 years
Over 45,000 LNG Carrier Voyages
More than 100 Million Miles,
Without Major Accidents or Safety Problems either in Port or at Sea
We should Follow a Mindful Approach for LNG as Fuel

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Intr troduct

ductio

ion

LNG as Fuel Perspective

An Accident Would Set Back the Planning for LNG as Fuel for Decades!!!

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COSTA Project – The Financials of LNG as Fuel

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Intr troduct

ductio

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LNG as Fuel Perspective

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COSTA Project – The Financials of LNG as Fuel

 Sulphur Cap Regulations

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Intr troduct

ductio

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LNG as Fuel Perspective

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COSTA Project – The Financials of LNG as Fuel

 EU Directives

 COM(2013) 17. Clean Power for Transport: A European alternative fuels strategy: Union strategic approach must build on a comprehensive mix of alternative fuels  COM(2013) 18. DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

n the deployment of alternative fuels infrastructure. All maritime and inland ports and roads
f the TEN-T Core Network wil be equipped with LNG refuelling points. It also requires

providing a sufficient number of CNG refuelling points.( by 31/12/2020)

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Intr troduct

ductio

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LNG as Fuel Perspective

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COSTA Project – The Financials of LNG as Fuel

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 The Use of LNG as Fuel Mainly y Depends ds on:

LNG Spread over HFO and MGO
Financial Feasibility of LNG-as-Fuel Projects:
Retrofitting Existing Ships
New Buildings
Availability of a Critical Mass of LNG Bunkering Facilities

Intr troduct

ductio

ion

LNG as Fuel Perspective

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COSTA Project – The Financials of LNG as Fuel

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 Intera eractio ctions ns Betwe ween n Shippi ping g Syste stem, m, LNG Industry, ustry, National

nal and

Europe pean n Instituti stitution

ns
Major Driving Factor for Ports and Ship Projects is LNG Spread
National & EU Support is a Catalyst in Initiating & Promoting LNG Use.

Simultaneously, Green Face of LNG Justifies National & EU Support.

The Rest is a “Chicken and Egg” Situation:
Supply point of View: Number of Available Facilities & Port Surcharge on

LNG Price are Critical for LNG Vessel Projects

Demand Point of View: Number of LNG Fuelled Vessels Influences

Investment in LNG Facilities.

Intr troduct

ductio

ion

LNG as Fuel Perspective

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COSTA Project – The Financials of LNG as Fuel

 COSTA - EU Co-funded Project

 COSTA Project CO2 Transport emissions Abatement by LNG (2012 – 2014). Development

f an LNG adoption Masterplan in the Mediterranean Sea.

9

CO COSTA STA Pr Proje ject ct

@ a Glance

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COSTA Project – The Financials of LNG as Fuel

How much? Demand Analysis Where? Supply Analysis How? Technical and Logistics Solutions Decision Sustainability of the solutions Recommendation CO COSTA STA Pr Proje ject ct

MasterPlan

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COSTA Project – The Financials of LNG as Fuel

 COSTA Political Closure – European Parliament, 19 02 2014 , Brussels

 EU Foresees 2 Regional Projects (2014 - 2015)

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CO COSTA STA Pr Proje ject ct

Continuation

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COSTA Project – The Financials of LNG as Fuel

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 LNG Bunkeri ering g in Med is a Niche Market et but not a Blank k Page anymo more! re!

Results Based on a Comprehensive Model for Macro-Analysis Considering:
Vessel Trends towards LNG as Fuel
Critical Age Limit for Retrofitting
Various types Orderbook and Future Deliveries
Estimation on Refueling Quantities etc.
Obtain Information for Major Hubs, Satellite Ports:
LNG Demand per Site & Annum
Infrastructure Investment Costs
OPEX per Annum
Projects Viability
Required Bunkering Surcharge

CO COSTA STA Project

Facts and Figures

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COSTA Project – The Financials of LNG as Fuel

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 Research arch Activi iviti ties es – Market et & Feasi sibi bility ity Studie ies: s:

Piraeus, Thessaloniki and Patra
Quantify Fleet Profile & Potential Users in 2020 – 2030
Reveal Accordingly LNG Needs in each Port
LNG Flow Simulation and Infrastructure Requirements
Financial Modeling and Investment Evaluation Under Uncertainty
Calculate “Sweet” - Break Even LNG Surcharge by Port

Facts ts & & Fig igures es

Ports / Terminals

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 Market ket Surve vey: y:

Collect Statistical Data
Port Authorities
Statistic Agency

 Construct truct Database base- sea-web eb.com .com

Preliminary Classification based on Vessel Type
Extended Classification based on Vessel Particulars:
Capacity (e.g. Dwt, TEU, berths)
Age
Installed Horse Power (kW)
Service Speed

Facts ts & & Fig igures es

Ports / Terminals

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 LNG Demand nd Assessmen ssment: t:

Assumptions on Vessel Trends towards LNG as Fuel (e.g. Short Sea vs Deep Sea)
Define Age Limit for Retrofitting (e.g Below 10 or 15 years)
Estimate Refueling Quantities per Vessel Type & Route
Select Appropriate Dual Fuel Installations (MAN, Wärtsilä)
Calculate Refueling Demand and Number of Refuelings on a Daily and Yearly Bases.
Assess Seasonality Especially for Cruise and Ro-Pax Vessels

Facts ts & & Fig igures es

Ports / Terminals

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 LNG Storage age Tanks: nks:

Distance from LNG Import Terminal is Critical
Lease Space in Terminal for Bunkering Activities
Offshore Installations, FSRU

 LNG Refuel ueling ng Means: ns:

Assess Logistic Solution and Seek for Optimum Solution
Ships & Terminal Operation Profile (Vessels sequence, arrivals profile etc.)
Estimated Demand for LNG (per Vessel, Day, Year, High Low Season)

Facts ts & & Fig igures es

Ports / Terminals

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COSTA Project – The Financials of LNG as Fuel

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 Piraeu eus: s:

Vehicles Carrier - Car Terminal
716 Port Calls / 202 Vessels
Container Ship - Container Terminal
2.398 Port Calls / 302 Vessels
Cruise Ship - Passenger Terminal
770 Port Calls / 110 Vessels
Ro-Pax Ship - Passenger Terminal
4.293 Port Calls / 31 Vessels

Facts ts & & Fig igures es

Ports / Terminals

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COSTA Project – The Financials of LNG as Fuel

 If not In Piraeus then where?

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Intelligence in Shipping

Intro ntroduction duction

LNG as Fuel Perspective

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COSTA Project – The Financials of LNG as Fuel

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 Piraeu eus s (Container tainer Vessels): sels):

Three Classes:
Class Α (0-1.999 TEU) – Small Feeder Vessels Connecting Hubs with Small Ports
Class Β (2.000-7.999 TEU) – Feeder Vessels Connecting Hubs with Small Ports

Operating in Larger Distances

Class C (8.000+ TEU) – Mother Vessels Performing Transcontinental Routes

Facts ts & & Fig igures es

Ports / Terminals

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 Piraeu eus: s:

Piraeus is a Major Short & Deep Sea Hub
Age Determines Retrofit Potential
Size Determines LNG Demand

Preprocessing Container Vessels:

Intelligence in Shipping

Facts cts & Fi & Figure res s

Ports / Terminals

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 Piraeu eus: s:

Destination and Installed Power are also Critical for LNG Demand

Preprocessing RoPax Vessels:

“Small Ro-Ro/Pax” “Large Ro-Ro/Pax” Number of Arrivals 1132 756 Average Installed Power [kW] 12.735,6 29.090,4 Average Service Speed [ knots ] 22,2 36,0 Average Age 20,4 10,2

Facts ts & & Fig igures es

Ports / Terminals

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COSTA Project – The Financials of LNG as Fuel

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 Piraeu eus: s:

Same Preprocessing Analysis for all Critical Vessel Types
Calculating for Each vessel Category:
Expected Number of Port Calls in 2020 & 2030
Average Refueling Quantity (m3)
Expected Percentage of LNG Fuelled Vessels
Expected Percentage of Vessels Refueling in Port
Expected Number of Annual Refuelings
Expected Annual Demand for LNG (m3)

Facts ts & & Fig igures es

Ports / Terminals

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COSTA Project – The Financials of LNG as Fuel

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 Piraeu eus:LNG s:LNG Demand nd for Indicative cative Vesse sel l Categori egories s ( 2018 – 2020 )

Facts ts & & Fig igures es

Ports / Terminals

Ship type Expected annual No of calls 2020 Average LNG bunker delivery size (m3) Share of fleet that bunker LNG 2020 [%] Share of total calls with Lng bunker operations [%] No of LNG bunker

perations 2020

Annual LNG (m3) 2020 Small Container Ship 1355 92 39 60,00 314 29018,90 Medium Container Ship 697 202 48 60,00 201 40547,35 Small Passenger Cruise 292 143 48 60,00 84 12053,30 Large Passenger Cruise 478 450 71 60,00 202 91024,25 Small Vehicles Carrier 395 77 53 60,00 125 9618,18 Large Passenger Ro-Ro Ship (Vehicles) Piraeus - Crete -Piraeus 708 189 100 100,00 708 133659,18 Small RO-PAX Piraeus - Cyclades - Piraeus 1132 44 74 100,00 836 36630,06 Large RO-PAX Piraeus - Cyclades - Piraeus 756 59 77 100,00 580 34052,60 Large RO-PAX Piraeus - North Aegean

Piraeus

408 132 74 100,00 300 39749,70 Large RO-PAX Piraeus - Dodecanese - Piraeus 274 242 100 100,00 274 66237,46

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COSTA Project – The Financials of LNG as Fuel

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Facts ts & & Fig igures es

Ports / Terminals

 Piraeu eus s 2020: :

200 400 600 800 1000 1200 1400 S m a l l

C
n

t a i n e r

S

h i p

L

a r g e

R
P

a x

C

r e t e

L

a r g e

R
P

a x

C

y c l a d e s

S

m a l l

R
P

a x

C

y c l a d e s

L

a r g e

P

a s s e n g e r

C

r u i s e

L

a r g e

R
P

a x

N
r

t h

A

e g e a n

S

m a l l

C

a r

C

a r r i e r

S

m a l l

P

a s s e n g e r

C

r u i s e

L

a r g e

R
P

a x

D
d

e c a n e s e

Expected

Number

f

Port Calls (2020)

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Facts ts & & Fig igures es

Ports / Terminals

 Piraeu eus s 2020: :

100 200 300 400 500 Large Passenger Cruise Large Ro-Pax Dodecanese Large Ro-Pax

Crete

Small Passenger Cruise Large Ro-Pax North Aegean Small Container Ship Small Car Carrier

Large

Ro-Pax Cyclades

Small

Ro-Pax Cyclades Average Refueling Quan ty (m3)

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Facts ts & & Fig igures es

Ports / Terminals

 Piraeu eus s 2020: :

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Large Ro-Pax Dodecanese Large Ro-Pax

Crete

Large Ro-Pax Cyclades

Large

Ro-Pax North Aegean Small Ro-Pax Cyclades Large Passenger Cruise Small Passenger Cruise Small Car Carrier

Small

Container Ship Expected Percentage

f

Vessels Refueling in Port

f

Piraeus

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 Piraeu eus s (Base se Scenario ario – With h EU Co- Fundin ing): ):

20,000 cm Storage Tank - Use of Near

by LNG Import Terminal

1 “bunker vessel” 1.000 m3
5 LNG Tracks 50 m3 each

Facts ts & & Fig igures es

Ports / Terminals

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 LNG Bunkeri ering g in Piraeu eus s Terminal minal

Infrastructure Works (Supply)
Investment Cost 97 m€
Operating Cost 14 m€ per Annum
Bunkering Surcharge for 15 years PBP (Discounted Cash flows)
No EU Funding: 170

170 € per ton

75% EU: 97

97 € per ton

97 m€ 14 m€

20

40 60 80 100 120

Investment Cost

Annual

Opera ng Cost

Piraeus

Terminal Infrastructure Cost

Facts ts & & Fig igures es

Ports / Terminals

LNG Demand: 225,000 tons / 500,000 m3 per Annum (2020)

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 Patra ra:

Ro-Pax Operations in Adriatic Sea Represent a Major Demand Driver
Distance From Revithousa LNG Import Terminal Increase substantially Increases

Cost

Financial Analysis shows
Ιnitial Investment Exceeds 80 m€ (Need for LNG Storage)
Annual Operating Cost for 2020 & 2030 Close to10 m€
A Surcharge of 250 € per ton of LNG is sufficient for a Pay Back Period

(discounted Cash flows) of 15 Years for the Investment of the Port

 Thessa ssalo loniki iki:

Due to Vessel Types Calling at the Port Demand for LNG is Estimated to be Less than

10,000 ton per Year

Facts ts & & Fig igures es

Ports / Terminals

Ports ts Should Seek for EU U Support rt

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COSTA Project – The Financials of LNG as Fuel

 Genova va 2020 2020

initial Investment 85-105 m€
Annual Operating Cost exceeds 15 m€
A Surcharge of 110 € per ton of LNG for a 15 years Pay Back Period

 Napoli 2020

2020

initial Investment 80-105 m€
Annual Operating Cost for 2020 exceeds12 m€
A Surcharge of 150

150 € per ton of LNG for a 15 years Pay Back Period

 Ravenna nna 2020:

initial Investment 30-50 m€
Annual Operating Cost for 2020 about 6 m€
A Surcharge of 250 € per ton of LNG for a 15 years Pay Back Period

 Venez nezia 2020: 0:

initial Investment 30-50 m€
Annual Operating Cost for 2020 about 8 m€
A Surcharge of 150 € per ton of LNG for a 15 years Pay Back Period
Facts

ts & & Fig igures es

Ports / Terminals

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Intelligence in Shipping

Po Poseido idon-Med

Facts and Figures

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 Research arch Activi iviti ties es – Market et & Feasi sibi bility ity Studie ies: s:

Various Ship Types
Focused on Greek and Mediterranean Needs (100% ECA Operation)
Quantify LNG as Fuel Retrofit Cost
Financial Modeling and Investment Evaluation on 3 Alternatives
LNG
MGO
HFO and Scrubbers
Calculate Pay Back Period and other Major Financial Criteria

Facts ts & & Fig igures es

Short Sea Shipping

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 LNG Solution tion Compariso rison with other er Alternative ernative Fuels

Indicative Cost to Comply with Sulphur Cap Requirements (e.g. Large RoPax Vessel)
MGO < 1 m€
Scrubber Approx. 5 m€
LNG Approx. 8 m€
Consider also the:
Alternative Fuels Spreads
Reduction of the Specific Fuel Consumption with the Use of LNG (Save as you

Sale)

Various Technical Problems of Non-LNG Alternatives
Economies of Scale will Decrease Retrofitting cost

Facts ts & & Fig igures es

Short Sea Shipping

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 LNG Price ce Spread ad (e.g.

g. Port

t of Piraeus) eus)

LNG CIF price: 10 € / Mmbtu
≅ 512 € per ton LNG
Bunker selling Price 609 € per ton
LNG - MGO Spread approx 111 € per ton
LNG – HFO Spread approx -169 € per ton

512 609 720 440 100 200 300 400 500 600 700 800 LNG CIF LNG MGO HFO

Alterna ve Fuels €/ton

LNG CIF LNG MGO HFO

111

169
200
150
100
50

50 100 150 MGO-LNG HFO-LNG

Alterna ve Fuels Spread

MGO-LNG HFO-LNG

Facts ts & & Fig igures es

Short Sea Shipping

Surc rchar arge ge: 97 97 € per ton

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Spread MGO-LNG

Aprox. 8

Years Pay Back For a RoPax For 10 € per MMbtu for LNG MGO-LNG Spread is 111 € per ton

Facts ts & & Fig igures es

Short Sea Shipping

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Spread LNG-HFO

Aprox. 2

Years Pay Back For a RoPax For 10 € per MMbtu for LNG LNG-HFO Spread is 169 € per ton

Facts ts & & Fig igures es

Short Sea Shipping

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 High and/or

r Volati

atile le LNG Price ce

Lead to Almost Zero LNG Fueled Orderbook in Future
Make Retrofitting of Middle Aged Vessels not Feasible in Financial Terms
Turn Existing LNG Fueled Projects to “Toxic Investments”

 Sustai taina nabil ility ity

The Use of LNG as Fuel will Increase Demand and Sooner or Later the Price.

Some Say that LNG Production Might not Meet Demand by 2030.

Uncertainties on LNG Price and Spread are Present

Transition to the LNG Era

Treats

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 Ability ity to Manage e LNG Pri rice ce and Spread ad

Political Means to Manage LNG & LSF Spread
Use of Risk Management Tools. Risk Management can do very Little to Reduce

Variability, but can be very Effective in Reducing Uncertainty for those Involved in Risk-Taking Decisions

 Sustai taina nable le Financi ncing g is the Answer: wer:

Know & Avoid Catastrophic Risks
Impugn Greed For Profits Or Phobic Attitudes!!!
Technocratic Criteria In Financing
Establish Formal Procedures For Rating Corporate Performance and Investment

Evaluation

Transition to the LNG Era

Possibilities

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 By 2020:

Hopefully Economy will Recover Starting a New Shipping / Shipbuilding Cycle
Economies of scale and widespread of LNG would reduce Equipment Cost
There is Time to Solve all Technical Issues and Train an adequate Number of

Skilled Seafarers

Transition to the LNG Era

Possibilities

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 LNG is the Dominant nant Scenario ario Among ng the Alterna rnative tive Fuels  Mandato atory ry Regulatio ations s in 2020:  Directive ctive for LNG Bunkerin kering Stations tions @ Core Ports ts (Supply) ly)  Low Sulphu hur Cap in Med (Demand) and)  EU Member er State ates s Approval

val (Spain,

ain, Portu tuga gal, l, Greece ece, , Italy, ly, Cyprus us etc)  Transfe nsfer r and Adapt pt Know-How How from m the Baltic ic / Singapore apore in Techni nica cal, l, Regulato atory ry and Safety ety Issue ues

Co Conclu lusion sions

Towards the LNG Era in East Med

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 Infrastructu rastructure re Works: ks:  Huge Investme estment nt Costs ts  EU Co-Fu Fund nding ng Portf tfol

lio
(TEN

EN-T, , Regional

nal & Cohesion

sion Funds, ds, EIB, B, Innova vative tive Financial cial Instru strume ments ts - PPP) PPP)  Vesse sels ls Retrofittin rofitting: g:  High Initial tial Cost  Lack of EU Supportive

rtive Measures

ures (only y Pilot t Actions) ions)  But Positive itive Cash-flo flows ws

Co Conclu lusion sions

Towards the LNG Era in East Med

Private vate & Public ic Sector tor Financi ncial l Problems blems in S. Europe pe

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 Ports ts & Vessel els s Are Expect cted d to Volunta ntary ry Shift ft to LNG as Fuel l due to Significant ificant Benefits fits (prior ior to 2020)  LNG as Fuel will have Enormous “Side Benefits”:  LNG Bunkeri ering g Services vices  Infrastructu rastructure re Constructio truction  Ship & Termi mina nal Equipmen ment  Shipbuildin building & Retrofittin rofitting g Services vices  Synergi rgies s with Mainla land d Energ rgy y & Transportatio nsportation Secto tors rs

Co Conclu lusion sions

Towards the LNG Era in East Med

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 Greece ece-Sp Special ecial Characte acteri rist stics: cs:

Greek Archipelago Requires Ways to Access through Sea a Large Number of

Remote Islands

Greek Authorities Must Ensure Uninterrupted Accessibility and Sustainability of a

Large Coastal Shipping Network

Current Economic Conditions Have Reduced Demand: the System is One Step

before Collapse

Both Aegean and Ionion Archipelaga Are Sensitive Ecosystems Whose Main

Characteristic is a Pristine Environment

LNG Represents a Win-Win and Sustainable Solution: Lower Operating Cost and

Lower Environmental Cost

 But:

Initial Infrastructure Cost is Forbidding

Co Conclu lusion sions

Importance for the Greek State

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 Greek ek Terminals minals Expect ct (from

m the Transi

nsitio tion n to LNG in Shippi ping): g):

Increased Revenues
Improved Environmental Conditions in the Port Area (Including Reduced Noise)
Compliance to Newer Directives and Regulations
Maintain Competitiveness and Ensure Survival
Ability to Serve LNG Fueled Vessels in the Near Future

 Despite ite:

High Initial Investment Cost for Infrastructure

Co Conclu lusion sions

Importance for the Greek State

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COSTA Project – The Financials of LNG as Fuel

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 Greek ek Ship-Owners’ Expectations (from the Transition to LNG in Shipping):

Compliance with EU and IMO Regulations
Stay in touch with Near Future Dominant Scenario
Decreased Fuel Consumption
Expected Positive Cash – Flows – PBP No More than 8 years in 90%
Ability to Provide Shipping Services to the ECA Areas (Seasonal Adjustment)
Improve Corporate “Good – Will” and Eco- Friendly Profile by Using Green Fuel
Take Advantage of LNG Combustion for Reduced Noise Emissions

 Greek Financial Institutions’ Expectations:

Reduce Shipping Portfolio Risk
Finance Sustainable Projects

 Despite: ite:

High Initial Investment Cost for Retrofits and New Buildings

Co Conclu lusion sions

Importance for the Greek State

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 Consider ider the Compreh rehensi nsive ve Network

rk Especia

cially ly in Area with Significa ificant nt Geostrateg strategic ic Role  Help Organize anize an an Effici icient nt Market et for Natural ral Gas to Ensure re Availa labil ility ity at Reasonab

nable

e Prices ces  Reassess sess EU Incen enti tives.

ves. Not only for the LNG Supply

ly (Infra nfrast stru ruct cture re Works) ks) but also for Demand (Vesse sels) ls) . Markets ts are Always ys Demand Driven en

Re Recomme mmendatio ndations ns

Towards the LNG Era in Greece

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 Provi vide de Supportive

rtive Measures

ures for Solutions tions to the Financi ncial l Obsta stacle cles s (such ch as Innovative vative Financi ncial l Instru strumen ments, ts, Pan-Eu Euro rope pean n Accred reditati itation

n

Mechanisms to Reveal “Best and Viable Projects”  Undertake rtake Extende ended Focused sed Studies dies in Each Affecte ected d Region

Re Recomme mmendatio ndations ns

Towards the LNG Era in Greece

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