ferry business case for lng - interferry · ferry business case for lng ... john hatley pe lng...
TRANSCRIPT
1 © Wärtsilä
Ferry Business Case for LNG
Interferry39th Annual Interferry ConferenceWestin Bayshore4-8 October 2014Vancouver, BC
John Hatley PE
LNG Initiatives
Americas VP Ship Power
Wartsila North America, Inc.
Cell 281 221 4209
Agenda
What ?
Why ? 5 Drivers Set Investment Clock
Conclusions Recent Market Signals
The Future Decade for Gas
Appendix Data
3 Pillars LNG Fuel
Shale Gas Paradigm Shift
ECA Expansion & Vessel Choices
Application Business Case Returns
US Jones Act 150 Car Ferry
Vehicle Driver, Owner, Banker Views
Agenda
What ?
Why ? 5 Drivers Set Investment Clock
Conclusions Recent Market Signals
The Future Decade for Gas
Appendix Data
3 Pillars LNG Fuel
Shale Gas Paradigm Shift
ECA Expansion & Vessel Choices
Application Business Case Returns
US Jones Act 150 Car Ferry
Vehicle Driver, Owner, Banker Views
3 Pillars LNG Fuel Vessels
07 October 2014
4
ECONOMICS SAFE &
RELIABLE
ENVIRONMENT
SUSTAINABILITY
Proven LNG systems... reduce risk for yard, owner, & banker...
extends LNG value proposition to end customer
Pillar... Environmental Sustainability
Methane has the highest hydrogen to carbon ratio = lowest CO2.
Butane
[C4H10]
10:4
(250%)
Propane
[C3H8]
8:3
(267%)
Ethane
[C2H6]
6:2
(300%)
Methane
[CH4]
4:1
(400%)
Natural gas a mixture of hydrocarbon gases associated with
petroleum deposits, principally methane.
MGO 1.86:1 (186%)Natural gas… lowest carbon = cleanest burning fuel
How clean ?
CO2
NOx
SOx
Particulates
DF Natural Gas
Engine
Diesel
Engine
0
20
40
60
80
100
Emission
values [%]-25%
-85%
-99%
-99%
LNG provides
significant
emission
reductions
compared to
traditional
diesel
engines
Logic… Economics !
07/10/2014
Pillar… Economics... it saves money!
LNG provides compelling savings…
Business Cases demonstrate
Payback screen short term … <5 years...
Strong cash flows… Higher ROIC & EBITDA
Competitive Advantage
Fuel Prices on Energy Basis
07 October 2014
Peter H Jantzen8
380 cSt
HFO
1%
MGO
0.1%
diesel
LNG
Japan
LNG
Europe
LNG
USA
0
10
20
30
$ / mmBtu
Fuel price dominates OPEX… America’s gas is
Abundant, available, affordable, & cleanest fuel…
How much does LNG cost ?
The Math LNG x 1.7 = Diesel Gallon Equivalent
= $1.05 x 1.7 = $ 1.78 gallon diesel equivalent
= savings ( $3.37 - $1.78 ) = $ 1.58 per gallon
Source: Zeus LNG Fuel Seminar, August 31, 2011 Houston; Fleet Operators Perspective: Issues the LNG Industry Must Address,
David Moseley, Assist Secretary Washington State DOT
LNG captures compelling fuel savings
…. nearly half cost of diesel
Pillar… Safe & Reliable
Viking Energy 2003
Stril Pioner
2004
Europe’s decade LNG experience began offshore North Sea
vessels… proven path for technology transfer to Americas
Major Global Shale Basins
07 October 2014
11
Source: http://www.eia.gov/analysis/studies/worldshalegas/
Global Gas Production
07 October 2014
12 ©
Wärtsil
USA is world’s #1 gas producer…
US Shale gas production, by itself,
exceeds all nations except Russia
Source: LNG for Marine Transportation USA, Houston TX, June 12, 2013; David Sweet President Natural Gas
Roundtable http://lngmarineevent.com/presentations/2013/David-Sweet.pdf
ECA Vessel Owner Choices
1. Consume compliant Ultra Low Sulfur
Distillate… expensive champagne fuel
2. Switch to alternative fuel: safe, clean,
abundant, affordable, & available
natural gas as LNG
3. Alternative Compliance… install new
technology scrubber … CAPEX, OPEX,
space, weight, complexity, &
operational tradeoffs
4. Abort the Port
07 October 2014
ECA and SECA mandates force timely choices…
options 1,4 invoke business reset … LNG OPEX Savings
Agenda
What ?
Why ? 5 Drivers Set Investment Clock
Conclusions Recent Market Signals
The Future Decade for Gas
Appendix Data
3 Pillars LNG Fuel
Shale Gas Paradigm Shift
ECA Expansion & Vessel Choices
Application Business Case Returns
US Jones Act 150 Car Ferry
Vehicle Driver, Owner, Banker Views
Annual Shale Gas Production
17% CAGR
41% CAGR
Shale production surge… 2006 frantic… 2010 strong
24% CAGR
Other US
Bakken ND
Eagle Ford TX
Marcellus PA
Haynesville LA
Woodford OK
Fayetteville AR
Barnett TX
Antrim MI, IN
Emission Control Area “ECA” US & Canada
07 October 2014
ECA bubble encapsulates… any flag ships.. 200 nautical miles…
low sulfur fuel (equivalence)… enforceable August 2012 Source: US EPA, Designation of North American Emission Control Area to Reduce Emissions from Ships
Puerto Rico
US Virgin Islands 2014
No. Am. ECA Fuel Sulfur Limit
20 Wärtsilä
Source:http://www.dnvusa.com/industry/maritime/publicationsanddownloads/publications/newsletters/technical_regulatory/2012
/north_american_emission_control_area.asp
Fuel Sulfur 0.10 % limit commences 1 January 2015
5 US Game Changers
Source:http://www.google.com/imgres?imgurl=http://www.canadiansailings.ca/canadiansailings/portals/0/April_13/emissions_area_map.jpg&imgrefurl=http://
EIA March 2010 Shale Gas Plays Lower 48 States
www.lngoneworld.com, www.bunkerworld.com, LR Fairplay
US centuries shale gas supply
Natural Gas bargain
Emissions Control
Area 2012
EPA Engine Emissions
EPA Fuel Standards
5 gas drivers …shale supply + bargain prices + 3
EPA mandates = set Investment Clock
Agenda
What ?
Why ? 5 Drivers Set Investment Clock
Conclusions Recent Market Signals
The Future Decade for Gas
Appendix Data
3 Pillars LNG Fuel
Shale Gas Paradigm Shift
ECA Expansion & Vessel Choices
Application Business Case Returns
US Jones Act 150 Car Ferry
Vehicle Driver, Owner, Banker Views
Ferry Particulars
US Flag Jones Act Ferry
150 Cars / 800 Passengers… Double Ender
Cruise 16.4 knots ( 3 engines online, 1 standby )
…Design 17.5 knots ( 4 online w/margin)
Total propulsion power 8,900 HP ( 4 units @ 1665 kW )
Onboard Crew & Concessions = 24; SOLAS & Class
Rapid Load/offload ~ 40 minutes @ standard berth
23 © Wärtsilä
Cruising @ 4 daily round trips peak weekends & holidays
( 61 days )… 3 RT daily busy season ( 152 days )… 2 RT
daily offseason ( 152 days ) = 1004 RT/ year
24 © Wärtsilä
Case Route: Anacortes - Victoria
Emission Control Area “ECA” bound… nearby access to
densely populated I5 Corridor… 36 Nautical Mile distance
4 Stakeholders
25 Wärtsilä
FERRY OWNER
At fair return
capturing
risks
BANKER
Are risks
understood
& I’m repaid !
PUBLIC
Ultimate
Environment
Safety
Transport
safely at
optimal cost
reliably
VEHICLE DRIVER
Vehicle Driver Transport safely at optimal cost reliably
27 Wärtsilä
Lowest fare cost per car ( driver + 1.5 passengers ) for vessels
running on LNG fuel… fuel surcharge becomes LNG rebate !
Vehicle Driver Move it safely at optimal cost reliably
28 Wärtsilä
LNG fuel provides millions in transport savings…
compelling LNG fuel savings over diesel or scrubbers
Ferry Owner At fair return capturing risks
29 © Wärtsilä
Competitive Advantage; LNG risk adjusted return is
highest & yet preserves vehicle driver savings from fuel.
Ferry Owner At fair return capturing risks
30 ©Wärtsilä
LNG fuel has strongest EBITDA… + $0.6 Million above
HFO+ Scrubber and + $1.3 Million atop MDO.
Years
EBITDA$25
$20
$15
$10
$5MDO Fuel
HFO +
Scrubber
LNG Fuel
Millions
Stress Test
BASELINE LNG
Revenue $23.95 M / yr
CAPEX $122.0 M
LNG Price 550 $/mt
Crew $4.788 M / yr
Sensitivity RankingsRevenue
CAPEX
Crew
LNG Price
31 © Wärtsilä
Shows relative impacts to return on invested capital;
business case = robust across scenarios.
Deviation
ROIC
Banker Are risks understood & I’m repaid !
32 Wärtsilä
Debt cover is strongest on LNG choice over alternative
fuels, banker loan has greater security with LNG.
Banker Are risks understood & I’m repaid !
33 Wärtsilä
$15
$10
$5
$0
($5)
($10)
LNG FuelMillions
Years
HFO +
Scrubber
MDO Fuel
LNG has strongest EBIT… US IRS Depreciation 10 Year
MACRS ½ Year Convention… Dry docking years 5,10,15,20
EBIT
Agenda
What ?
Why ? 5 Drivers Set Investment Clock
Conclusions Recent Market Signals
The Future Decade for Gas
Appendix Data
3 Pillars LNG Fuel
Shale Gas Paradigm Shift
ECA Expansion & Vessel Choices
Application Business Case Returns
US Jones Act 150 Car Ferry
Vehicle Driver, Owner, Banker Views
5 August 2012 TOTE Promises LNG Adoption
7 October 2014
First mover TOTE: 2 US Flag Jones Act RORO
vessels to retrofit LNG fuel technology
07/10/2014
10 June 2013
Harvey Gulf Orders 6th LNG boat for US GOM based on
European experience… Wartsila LNGpac kit reduces risk
Source: STX US Marine Design
Source: STX US Marine Design
11 September & 12 November 2013
07 October 2014
41
SEACOR orders 2 + optional 2 tankers... LNG ready
2 Oct 2013
42 Wärtsilä
Society Gas Marine Fuel... Inaugural meeting for Houston 18
November... Memberships now open
Source: http://www.socgmf.org/
25 November 2013
07 October 2014
44 ©
Wärtsil
Crowley orders 2 box ships... World’s 1st LNG fuel ConRo’s
7 January 2014
45 Wärtsilä
Source: http://www.worldlngfuels.com/news/more-than-40-lngfueled-ships-planned-in-north-america-world-lng-fuels-conference-to-examine/
LNG Fuel
SCORECARD
17 Ferries
12 Tankers & Bulkers
6 Offshore Vessels
6 Container Ships
1 Articulated Tug Barge
North America’s marine LNG fuel launch… eclipses Europe !
14 February 2014
07 October 2014
46
Source: http://www.bizjournals.com/jacksonville/print-
edition/2014/02/14/why-is-jacksonville-suddenly-lng.html?s=image_gallery
3 LNG players pursue Jacksonville: Pivotal LNG + WesPac
Midstream, Clean Energy, and SEMPRA US Power & Gas
14 February 2014
47 © Wärtsilä
Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=6264:harvey-gulf-breaks-ground-for-
lng-fueling-facillity&Itemid=227 .
Harvey Gulf Port Fourchon LNG fueling facility operational 2015
48 Wärtsilä
18 February 2014
2 Vessels… total 94mW = North America’s largest LNG
conversion undertaken !Source: http://www.motorship.com/news101/lng/tote-goes-with-
wartsila-four-strokes-for-lng-conversions
24 February 2014
49 Wärtsilä
MARAD Title 11 program expands economic criteria to
include environmental technology… LNG fuel !
Title 11: US Government Loan Guarantee…
term 25 years, 12.5% equity… provides Ship Owners
US Treasury Borrowing Rates + premium
25 February 2014
50 © Wärtsilä
Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=6310:tote-cuts-steel-for-lng-fueled-
containership&Itemid=227 .
1st LNG fuel containerships commence construction @ NASSCO
11 March 2014
51 © Wärtsilä
Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=6373:elliott-bay-design-group-gets-
aip-for-lng-bunker-barge&Itemid=225 .
LNG bunker barge designs moving industry forward
16 April 2014
52 Wärtsilä
Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=6580:lockheed-martin-delivers-lng-tank-for-
harvey-gulf-newbuild&Itemid=231
Americas industrial base expanding supply of key LNG enablers
17 April 2014
07 October 2014
53
Source: http://www.caribbeanbusinesspr.com/prnt_ed/crowley-extremely-positive-about-
lng-units-growth-prospects-9768.html
Safe, clean, low cost LNG fuel from US shipments may lower
power costs…
16 June 2014
54 © Wärtsilä Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=6853:nassco-books-another-jones-
act-tanker-order&Itemid=223 .
American Petroleum Tankers “APT” orders another LNG
ready tanker from NASSCO
25 June 2014
55 © Wärtsilä
Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=6905:crowley-seeks-title-xi-guarantees-for-lng-
fueled-conro-pair&Itemid=223 .
Crowley and TOTE filing for MARAD Title 11 Loan Finance
Guarantees
3 July 2014
56 © Wärtsilä Source: https://www.bcferries.com/bcferries/faces/attachments?id=856428
Now 6 LNG fuel ferries for Canada as BC Ferries (3) follows STQ
57 Wärtsilä
15 July 2014
Source: http://maritimeintel.com/maersk-warns-sulphur-regulation-will-cost-us250-million-annually/
Prohibitively
expensive
compliant
diesel inside
ECA in 2015 !
More
Traditional
Pain =
More LNG
Gain
Drivers = Decade Shift to Gas
07 October 2014
Mid decade market tipping point
Source: US EPA web sites, Hatley capture various sources
Geographic emissions bubble encapsulates US/Canada
Tight sulfur limits stress supply
After treatment burdens diesels
Paradigm shift to gas 1st on economics 2nd on emissions
Early adopters moving ahead… soon early followers !
Mandated Emissions & Fuel Restrictions
2015 Fuel Sulfur 1/10% = Stress
Recent 2014 Fuel Prices
62 Wärtsilä
Recent Prices: LS180 1% 699 $/mt… LSMGO 0.1% 1050 $/mt
Source: http://www.bunkerworld.com/prices/port/us/hou/
Fuel Attributes
64 © Wärtsilä
Utilize fuels specific for regional case... As fuels vary significantly, the
historic dollars per ton or gallon is challenging to use as different
fuels host widely varying different energy content, density, value...
65 © Wärtsilä
Existing US Routes to Vancouver Island
Anacortes to Sidney or…
Coupeville – Port Townsend + then Port Angeles – Victoria
Red Route: Inter-island to Sidney
66 Wärtsilä
Standard Vehicle & Driver + 1.5 Passengers
WSF…
total $92.38 + concessions
Anacortes to Sidney BC
Yellow Route: Puget Sound
then Straits to Victoria
67 © Wärtsilä
Standard Vehicle & Driver
+ 1.5 Passengers…
WSF + Black Ball …
total $106.52 + concessions
Keystone to Port Townsend
Port Angeles to Victoria