Retrofitting Handy Bulkers IMD... · 18 June 2015 . John Hatley PE VP Ship Power Wartsila No. Am....
Transcript of Retrofitting Handy Bulkers IMD... · 18 June 2015 . John Hatley PE VP Ship Power Wartsila No. Am....
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Marine Money 28th Annual Marine Money Week The Pierre Hotel NY City, NY 18 June 2015
John Hatley PE
VP Ship Power Wartsila No. Am. [email protected]
Retrofitting Handy Bulkers – Business Case & Alternative Financing
Pace Ralli
Co-Founder Clean Marine Energy LLC [email protected]
Agenda
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What ?
History & Competitive Forces Shale Gas, Oil Resources
Oil Price Shock !
Business Case Stress Test
Appendix
Business Case Details
Business Case Handysize Bulker Returns
Financing Alternatives
Agenda
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What ?
History & Competitive Forces Shale Gas, Oil Resources
Oil Price Shock !
Business Case Stress Test
Appendix
Business Case Details
Business Case Handysize Bulker Returns
Financing Alternatives
A history moment…
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Source: http://www.google.com/imgres?imgurl=http://www.gstatic.com/tv/thumb/movieposters/742/p742_p_v7_aa.jpg&imgrefurl=http://google.com/search?tbm%3Disch%26q%3DHow%2Bthe%2BWest%2BWas%2BWon&h=720&w=480&tbnid=kcq_aqWoOuqw4M:&zoom=1&tbnh=160&tbnw=106&usg=__yuSwwygUDbOjmASN9n-Zr_b_Meo=&docid=c47h65w6_PrzpM&itg=1&hl=en
Early Westward Expansion
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Homestead land grab… first settler waves faced severe hardship from land; incumbent natives, many were friendly & some not.
Source: https://thislifeofwander.wordpress.com/2011/04/09/go-west-young-man/
Go West Young Man
Next Wave Westward Expansion
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1860’s Transcontinental Railroad
Waves of settlers rode the rail… many homesteaded the rich western lands, flourished, and prospered.
Source: http://www.pkwy.k12.mo.us/INTRA/PROFESSIONAL/STUDENT_WORK/west_web/scotts.htm
Moral of Story
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LNG Fuel for emissions sensitive coastal & port areas; rare win-win: OPEX savings + emissions reduction.
Source: http://bridgtonhistory.org/Portals/0/photos/narrowgauge/RR%2013%20-%20Full.jpg
Don’t miss the train !
US & Canada 18 LNG Fuel Contracted Vessels… + a number Gas Ready Vessels … exceeds $3.5 Billion CAPEX Commitments
Competition Model Forces
Government Legislation: Political power exercising market influence: Trade Behavior, Emissions
Porter’s 5 Forces + 1… Government Legislation exercises market influence… emissions
Global Non Conventional Shale Gas & Oil
22 June 2015
Source:http://www.eia.gov/analysis/studies/worldshalegas/
Recoverable Gas Resource: 7,796 tcf
Global Recoverable Shale Gas Resource
22 June 2015
Top 5 hold over half of world’s shale gas resource
tcf Source: http://www.eia.gov/conference/2013/pdf/presentations/kuuskraa.pdf
Global Gas Production
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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
BILLION M3
USA is world’s #1 gas producer… US Shale gas production, by itself, exceeds all nations except Russia
US #1 Shale Resources
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1,161 tcf gas & 120 billion barrels oil
Development rapid with technology advances in horizontal drilling, fracking, and computer seismic abilities.
In 5 years US became world’s largest producer of gas
Strong infrastructure & know how
Source:http://www.eia.gov/conference/2013/pdf/presentations/kuuskraa.pdf
China #2 Shale Gas Resource
22 June 2015
1,115 tcf gas & 32.8 billion barrels oil
Development slow despite vast shale gas potential
Geological challenges fundamentally different than US
Water scarcity & environmental concerns
Limited infrastructure & know how
Source:http://www.eia.gov/conference/2013/pdf/presentations/kuuskraa.pdf
Argentina #3 Shale Gas Resource
22 June 2015
802 tcf gas & 27.0 billion barrels oil
Shale Gas: possibly best shale basin outside N. America
Active with mostly vertical gas wells
Source:http://www.eia.gov/conference/2013/pdf/presentations/kuuskraa.pdf
2014 Oil Production
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US vaults to 3rd in world crude production in 2014
Source: http://en.wikipedia.org/wiki/List_of_countries_by_oil_production
Source: http://www.businessinsider.com/citi-saudi-arabia-wont-win-this-oil-standoff-2014-11 18 © Wärtsilä
Profits negative… Severe Pain
Profits squeezed… Manageable Pain
45 $/BBL
Key Oil Production Cost
60$/BBL
Total Liquids Production
Brent Breakeven Price
Government Breakeven Budgets
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Severe shortfalls @ prices under 100$/BBL, present oil glut & soft prices challenge sustainability beyond short run
Source: https://alfinnextlevel.files.wordpress.com/2014/04/oil_breakeven_deutsche_bank_oct_14.png
60 $/BBL
Agenda
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What ?
History & Competitive Forces Shale Gas, Oil Resources
Oil Price Shock !
Business Case Stress Test
Appendix
Business Case Details
Business Case Handysize Bulker Returns
Financing Alternatives
Handysize Route… Baton Rouge to Veracruz
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Mostly Emission Control Area route “ECA” Bound…
Foreign Flag Vessel & US Corporation
37,000 DWT Capacity
Speed 13 knots… single Screw … 2 Stroke Power 6,625 HP ( 4,940 kW )
Manning & SOLAS Compliant
Certified Major Class Society
Source: http://www.dnv.com.cn/Binaries/Green%20Dolphin%20-%20brochure_tcm142-518925.pdf
Then… 5 August 2014
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Recent Prices: LS180 1% 636 $/mt… LSMGO 0.1% 971 $/mt
Source: http://www.bunkerworld.com/prices/port/us/hou/
Cargo Owner Transport safely at optimal cost reliably
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Shipper captures competitive advantage, compelling $1.4 Millions savings every 5 years per ship
Ship Owner A fair return capturing risks
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Investor Competitive Advantage… LNG returns highest & preserves cargo owner savings = capture market share
Vessel Stress Test
BASELINE LNG Revenue $8.8 M CAPEX $31 M Bank Interest 5.0 % LNG Price 431 $/mt Engine M&R $67K / yr
Sensitivity Rankings Revenue CAPEX LNG Price Bank Interest Rate
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Main investment attributes focus executive attention where it matters most.
Deviation
ROE
Banker Are risks understood & I’m repaid !
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Banker finds debt cover is weakest on MDO fuel, LNG is strongest.
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Years
EBIT
MDO Fuel
HFO + Scrubber
LNG Fuel
Banker Are risks understood & I’m repaid !
LNG has strongest EBIT… Depreciation 10 Year MACRS ½ Year Convention… Dry docking years 5,10,15,20
Agenda
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What ?
Competitive Forces Shale Gas Resources
Oil Price Shock !
Business Case Stress Test
Appendix
Business Case Details
Business Case Handysize Bulker Returns
Financing Alternatives
Brent Crude Oil Prices
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Source: http://www.nasdaq.com/markets/crude-oil-brent.aspx?timeframe=1y
THEN
Crude severe price drop past year as abundant supplies face weak demand
Nadir
Nadir… 26 January 2015
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Prices : LS180 1% 430 $/mt… LSMGO 0.1% 613 $/mt
Source: http://www.bunkerworld.com/prices/port/us/hou/
Owner At fair return capturing risks of oil fall 26 Jan 2015
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LNG competitive advantage retains millions savings for shipper but returns narrow for investor amidst oil glut steep price dive.
Recent Nadir 26 Jan 2015
Fuel Stress Test
THEN 5 August 2014
11.3% @ LNG 475 $/mt 7.3% @ MDO 971 $/mt 8.5% @ HFO 636 $/mt
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Deviation
ROCE
Nadir 26 January 2015
11.7% @ LNG 431 $/mt 12.4% @ MDO 613 $/mt 11.3% @ HFO 430 $/mt
LNG returns robust despite steep drop in MDO and HFO: oil irrational conditions not sustainable in long run! Greatest volatility MDO, least volatility LNG.
Agenda
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What ?
History & Competitive Forces Shale Gas, Oil Resources
Oil Price Shock !
Business Case Stress Test
Appendix
Business Case Details
Business Case Handysize Bulker Returns
Financing Alternatives
Widespread Shift to LNG
as Marine Fuel
Fuel Cost Spread Emissions Regulation
Short Window of Opportunity to Build the
LNG Infrastructure
LNG fueling driven by economic and regulatory forces
Commodity spread favors LNG, but remains uncertain
• One undeniable fact… Dual-fuel is better than single fuel • Optionality ensures the lowest future fuel costs
Technology Risk: mitigate risk that the LNG fueling technology will not work
Risks of Conversion
Risk of LNG Supply: mitigate risk that the LNG supply will not be available in time
Risk of LNG Bunkering: mitigate risk that the bunker infrastructure will not be ready
Commodity Risk: risk that the commodity spread could decrease
However, the upfront capital requirement remains a barrier, and switching to dual-fuel has payback risks
• These risks can be understood and effectively mitigated • Requires certainty of LNG supply and distribution
CME is a first-mover in LNG infrastructure for ship fuel
• CME has partnered with WesPac Midstream to build a vertically integrated platform, funded by Oaktree Capital
• Ability to tie together supply, distribution and conversion finance into a cost-effective fueling option for ship owners
Best-in-class platform partnership established in 2014
WesPac constructs, owns and operates LNG infrastructure projects in select locations to serve major high horsepower transportation hubs and high-traffic marine ports, guaranteeing LNG supply
CME is the marine arm of WesPac focusing on sourcing demand by converting ships to fuel with LNG, and developing the distribution infrastructure for LNG delivery by building small-scale LNG vessels
Oaktree is the majority owner of the WesPac / CME partnership and has allocated significant capital to the development of LNG infrastructure for marine and transportation purposes
• Founded in 1998 based in Irvine, CA and Houston, TX
• Geographic emphasis on North America, with 40+ employees
• Since 2011 WesPac has focused on LNG liquefaction facilities, storage and transportation
• Projects can be customized and located to meet specific customer requirements
• Capital investment and operational costs are paid through a mid- to long-term tolling arrangement
• Natural gas commodity and transportation costs are a direct pass through to customer
• Founded in 2012, based in South Norwalk, CT
• Affiliate of MidOcean Marine, a US Jones Act ship owning company, with 30 years experience in owning US-flagged vessels
• Leading construction of the first North American LNG bunker barge designed to begin service in 2016
• Offers a proprietary Emissions Compliance Service Agreement (ECSA) to solve ship owner's capital dilemma of funding an expensive LNG conversion
• Completed deal in August 2014 for partnership with WesPac/Oaktree
• $95 billion AUM private equity firm founded in 1995 based in Los Angeles, CA
• The largest single investor in shipping assets worldwide
• Believes in the short window of opportunity to effectively put ‘steel in the ground’ to serve the future of marine fueling and investing in the first phase of infrastructure projects
• Other well-known portfolio companies include Kinder Morgan, Ports America, and Southern Star
• Has committed $300 million to fund WesPac / CME project equity
Distribution – investing in LNG bunkering vessels
Barge Description
Builder Conrad Orange Shipyard
Class XA1 Liquefied Gas Tank Barge, Vessel Type IIG, Oceans
Flag US Flag, unmanned barge
Cargo Tank Gaztransport & Technigaz SAS - Mark III Flex membrane tank
Cargo LNG to -163C temperature, maximum 0.5 specific gravity
Deadweight 1,112 LT
LOA 222’
Beam 49’
Draft 8’
Tank Volume Total net volume @ 100% - about 2,200 cubic meters Total net volume @ 98% filling height: about 2,156
FCSA STRUCTURE
0 1 2 3 4 5 6 7 8 9 10 Year
LSMGO
WesPac/CME offers a capital efficiency solution that leverages 3rd party capital to fund capex investments without adding to the ship’s cost-basis, transitioning capex to opex
LNG Con
vers
ion
Finance Term • Ship owner pays no upfront capital for ECA compliance
• Fuel payer continues to pay what they would have paid anyway, with some immediate shared savings during term
• After the financing term, the ship benefits from 100% of the fuel cost savings for the remaining life of the asset
• Compliance becomes a NPV positive activity with no capital requirement… ship owner can use it’s capital for other more accretive investments
Ann
ual F
uel C
ost
Conversion – providing financing for ships to switch
Currently in Progress – Jacksonville, FL Project Highlights
Lot Size 36 acres
Capacity Up to 300k gallons per day
Expected Commissioning 2Q 2017
Anchor Client TOTE, Inc. - 2 Marlin Class, 3,100
TEU Container ships
Natural Gas Provider AGL Pivotal (NYSE: GAS)
Site Features Marine jetty Bunker barge Trucking manifold Expansion opportunities
Site Information Timing 2nd Quarter 2016
Gas Source
Fortis BC
Volume 250k gpd
Fueling Logistics
Bunker barge
Status In Construction
Currently in Progress – Tilbury, BC
Moral of Story
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LNG Fuel for emissions sensitive coastal & port areas; rare win-win: OPEX savings + emissions reduction.
Source: http://bridgtonhistory.org/Portals/0/photos/narrowgauge/RR%2013%20-%20Full.jpg
Don’t miss the train !
US & Canada 18 LNG Fuel Contracted Vessels… + a number Gas Ready Vessels … over $3.5 Billion CAPEX Commitments