Ferry Business Case for LNG - Interferry · Ferry Business Case for LNG ... John Hatley PE LNG...

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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

[email protected]

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

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Source: http://www.eia.gov/analysis/studies/worldshalegas/

Global Gas Production

07 October 2014

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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

Emission Control Areas

13

More Emission Control Areas “ECA” likely soon

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 ?




Appendix Data

3 Pillars LNG Fuel






Shale Gas Plays

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Shale …. huge reserves natural gas; nearly century supply

Abundant Gas Supply

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Paradigm shift to shale gas; now 25% of supply... future @ half

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

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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 ?




Appendix Data

3 Pillars LNG Fuel






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

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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

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Case Route: Anacortes - Victoria

Emission Control Area “ECA” bound… nearby access to

densely populated I5 Corridor… 36 Nautical Mile distance

4 Stakeholders

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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

Recall ?

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Vehicle Driver Transport safely at optimal cost reliably

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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

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LNG fuel provides millions in transport savings…

compelling LNG fuel savings over diesel or scrubbers

Ferry Owner At fair return capturing risks

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Competitive Advantage; LNG risk adjusted return is

highest & yet preserves vehicle driver savings from fuel.

Ferry Owner At fair return capturing risks

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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

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Shows relative impacts to return on invested capital;

business case = robust across scenarios.

Deviation

ROIC

Banker Are risks understood & I’m repaid !

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Debt cover is strongest on LNG choice over alternative

fuels, banker loan has greater security with LNG.

Banker Are risks understood & I’m repaid !

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$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 ?




Appendix Data

3 Pillars LNG Fuel






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

3 December 2012

07/10/2014

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Americas early adopter … 1st LNG DF ferry North America

4 December 2012

07/10/2014

Americas early adopter … CAPEX $360 Million + 3 Options

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

9 August 2013

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Crowley 1st of 4 New tankers LNG ready…

4 options likely LNG fuel

11 September 2013

07 October 2014

STQ orders 2 ship sets Wartsila fully integrated LNG packages

11 September & 12 November 2013

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SEACOR orders 2 + optional 2 tankers... LNG ready

2 Oct 2013

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Society Gas Marine Fuel... Inaugural meeting for Houston 18

November... Memberships now open

Source: http://www.socgmf.org/

7 November 2013

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Matson orders 2 box ships... LNG ready

25 November 2013

07 October 2014

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Crowley orders 2 box ships... World’s 1st LNG fuel ConRo’s

7 January 2014

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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

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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

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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

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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

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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

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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

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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

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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

http://www.marinelog.com/index.php?option=com_k2&view=item&id=6580:lockheed-martin-delivers-lng-tank-for-harvey-gulf-newbuild&Itemid=231

17 April 2014

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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

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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

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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

APPENDIX

Business Case Details

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Financials

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Key Values

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Recent 2014 Fuel Prices

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Recent Prices: LS180 1% 699 $/mt… LSMGO 0.1% 1050 $/mt

Source: http://www.bunkerworld.com/prices/port/us/hou/

Key Values

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Fuel Attributes

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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...

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Existing US Routes to Vancouver Island

Anacortes to Sidney or…

Coupeville – Port Townsend + then Port Angeles – Victoria

Red Route: Inter-island to Sidney

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Standard Vehicle & Driver + 1.5 Passengers

WSF…

total $92.38 + concessions

Anacortes to Sidney BC

Yellow Route: Puget Sound

then Straits to Victoria

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Standard Vehicle & Driver

+ 1.5 Passengers…

WSF + Black Ball …

total $106.52 + concessions

Keystone to Port Townsend

Port Angeles to Victoria

Port Distances

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Agenda

What ?




Appendix Data

3 Pillars LNG Fuel






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