The Shearer Group and Wartsila North America ECONOMICS Shearer Riverboat from Workboat Prof... ·...
Transcript of The Shearer Group and Wartsila North America ECONOMICS Shearer Riverboat from Workboat Prof... ·...
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1 © Wärtsilä
LNG Fuel Towboat Design & Economics:
The Shearer Group and Wartsila North America
ECONOMICS
Inland Waterways Conference Great Lakes Maritime Research Hyatt Regency At the Arch 5 March 2015 St. Louis, MO
John Hatley PE
LNG Initiatives ( MBA, MSE)
Americas VP Ship Power
Wartsila North America, Inc.
Cell 281 221 4209
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Shipper Rates on Inland Rivers
Saving of
15 ¢ per ton
= Millions $ Logistics Savings
2 © Wärtsilä
LNG fuel Z drive towboats capture competitive advantage;
save millions for cargo shipper while generating higher
investment returns across majority market scenarios.
Source: The Shearer Group, Inc.
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Shippers save
millions annually
@ 15 ¢ per ton…
Business Case
illustrates added
potential
How So ?
Business Line Advantage from Low cost LNG fuel
Boosts after tax returns
& Lowers Shipper Rates
Technical Efficiency Advantage from Z Drive All Around 360 Degree Thrust
Improves Push/Pull and Turning Performance
& adds to annual round trips
Environmental Emissions Advantage from clean LNG fuel
Reductions across board
& enhances Brand image
3 © Wärtsilä
Triple Competitive Advantage: Business Gains, Increased
Efficiency, and Emission Reduction = Game Changer
Source: The Shearer Group, Inc.
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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
LNG Application
Business Case Returns
Jones Act Coastwise ATB
Cargo, Investor, Banker Views
Oil Price Shock ! Business Case: Robust or Fragile?
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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
LNG Application
Business Case Returns
Jones Act Coastwise ATB
Cargo, Investor, Banker Views
Oil Price Shock ! Business Case: Robust or Fragile?
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3 Pillars LNG Fuel Vessels
19 March 2015
6
ECONOMICS
SAFE &
RELIABLE
ENVIRONMENT
SUSTAINABILITY
Proven LNG systems... reduce risk for yard, owner, & banker...
extends LNG value proposition to end customer
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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
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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
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Logic… Economics !
19/03/2015
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
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Fuel Prices on Energy Basis
19 March 2015 10
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…
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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
August 2011 …LNG captures compelling fuel
savings …. nearly half cost of diesel
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How much does LNG cost ?
12 © Wärtsilä
June 2014… LNG captures compelling fuel
savings …. nearly half cost of diesel
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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
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Major Global Shale Basins
19 March 2015
14
Source: http://www.eia.gov/analysis/studies/worldshalegas/
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Global Gas Production
19 March 2015
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
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Emission Control Areas
16
More Emission Control Areas “ECA” likely soon
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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
19 March 2015
ECA and SECA mandates force timely choices…
options 1,4 invoke business reset … LNG OPEX Savings
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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
LNG Application
Business Case Returns
Jones Act Coastwise ATB
Cargo, Investor, Banker Views
Oil Price Shock ! Business Case: Robust or Fragile?
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Shale Gas Plays
19 © Wärtsilä
Shale …. huge reserves natural gas; nearly century supply
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Abundant Gas Supply
20 © Wärtsilä
Paradigm shift to shale gas; now 42% of supply... future @ half
SHALE GAS
TIGHT GAS LOWER 48
ONSHORE CONVENTIONAL
LOWER 48 OFFSHORE COALBED METHANE ALASKA
Source: http://www.eia.gov/forecasts/aeo/mt_naturalgas.cfm
40
30
20
10
0 1990 2000 2010 2020 2030 2040
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US 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
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Emission Control Area “ECA” US & Canada
19 March 2015
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
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No. Am. ECA Fuel Sulfur Limit
23 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
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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
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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
LNG Application
Business Case Returns
Rivers Towboat
Cargo, Investor, Banker Views
Oil Price Shock ! Business Case: Robust or Fragile?
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2 December 2014
26 © Wärtsilä
Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=8352:abs-
approves-lng-fueled-z-drive-towboat-design&Itemid=231
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The Route… New Orleans to St Louis
30 Barge Tow… Emission
Control Area “ECA” Bound…
1000 mile distance…
6.8 days up and 4 days back
Source: http://www.portworld.com/map/
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Tow Vessel Particulars
Z Drives… for increased maneuvering & thrust
30 Barges @ 1500 Tons, utilization @ 85% capacity
Speed 7 mph with margin, 353 Operating Days / year
Total propulsion power 6300 HP ( 4700 kW )
Manning 8
USCG load line
28 © Wärtsilä
Speed provides 30 annual round trips from New
Orleans to St Louis… vessel size and tow yields
competitive low cost delivery economics
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Then… 5 August 2014 Diesel Prices
29 Wärtsilä
Prices: LSMGO 0.1% 971 $/mt = diesel @ $3.12 gallon diesel
Source: http://www.bunkerworld.com/prices/port/us/hou/
LNG @ $1.39 Diesel Gallon Equivalent ( as BC Ferries )
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Cargo Owner Transport safely at optimal cost reliably
30 © Wärtsilä
Strong cargo unit savings for vessels running on LNG
fuel: Z drives add 1 trip per year over conventional
Illustrates
Savings
@ 30 ¢ ton
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Cargo Owner Transport safely at optimal cost reliably
31 © Wärtsilä
LNG choice captures $1.1 million to $1.7 million transport
savings per tow = competitive advantage over five years
Illustrates
Savings
@ 30 ¢ ton
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Vessel Owner A fair return capturing risks of 5 Aug 2014
32 © Wärtsilä
Compelling fuel payback for vessels running on
LNG fuel; an initial investment screening tool
Illustrates
Savings
@ 30 ¢ ton
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Vessel Owner A fair return capturing risks
33 © Wärtsilä
LNG Competitive Advantage: Investor finds risk adjusted
superior returns while preserving millions in shipper cost
savings benefits.
Illustrates
Savings
@ 30 ¢ ton
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Vessel Owner A fair return capturing risks
34 © Wärtsilä
Years
EBITDA $15
$10
$5
$0
Diesel Z
Conventional
LNG Z
Millions
LNG fuel has strongest EBITDA… + $4.8 Million over
Conventional and + $3.9 Million atop Diesel Z drive.
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Banker Are risks understood & I’m repaid !
35 © Wärtsilä
Debt cover is strongest on LNG choice over alternative
fuels, banker loan has greater security with LNG.
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Banker Are risks understood & I’m repaid !
36 © Wärtsilä
Years
EBIT $15
$10
$5
$0
Diesel Z
Conventional
LNG Z
Millions
LNG has strongest EBIT… Depreciation 10 Year MACRS ½
Year Convention… Loan term 10 years
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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
LNG Application
Business Case Returns
Jones Act Coastwise ATB
Cargo, Investor, Banker Views
Oil Price Shock ! Business Case: Robust or Fragile?
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Recall Shale Gas
38 © Wärtsilä
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North America Shale Oil Plays
19 March 2015 Source: http://www.ogj.com/articles/print/vol-110/issue-
12/processing/us-refining-outlook-rosier-than.html
US shale crude revolution… reserves exceed 120 billion BBL
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US Shale Crude Production
40 © Wärtsilä
Source: http://www.usfunds.com/investor-library/frank-talk/one-of-the-most-
notable-stories-of-the-year-energy-renaissance-in-the-usa/
5% CAGR
14% CAGR
58% CAGR
Shale crude surging… 2006 growth strong; 2010 frantic
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Brent Crude Oil Prices
41 © Wärtsilä
Source:
http://www.nasdaq.com/markets/
crude-oil-
brent.aspx?timeframe=6m
Case Study Aug 5
THEN
NOW
Crude severe price drop
since June as abundant
supplies face weak demand
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Oil Prices Dropping
Oil down 34% since
August
US WTI crude closes at
multi - year low…
abundant supply amidst
modest demand caused
by oil glut due to…
US shale boom +
Libya restarts it’s largest
oilfield…with
China slowing & EU slight
recession…
42 © Wärtsilä
28 November 2014
Source: http://www.reuters.com/article/2014/11/28/us-markets-oil-idUSKCN0JC1LO20141128
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Discipline Target US or Russia ?
43 © Wärtsilä
Russia suffering
double wammy:
Oil rich Ukraine and
Black Sea burdened
by politics under
imposed sanctions as
oil takes severe price
slide…
Ruble plunges down
40% against USD
1 December 2014
Source: http://online.wsj.com/articles/ruble-hits-
new-low-as-oil-prices-drop-1417441184
Source:
http://www.usnews.com/news/articles/2014/11/10/an-oil-
price-cold-war-with-saudi-arabia-not-so-fast-experts-say
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Source: http://www.businessinsider.com/citi-saudi-arabia-wont-win-this-oil-standoff-2014-11 44 © Wärtsilä
Profits negative…
Severe Pain
Profits squeezed…
Manageable Pain
45 $/BBL
Key Oil Production Cost
49$/BBL
Price of oil about $49 BBL 2 March 2015
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2013 Oil Production
45 © Wärtsilä
Source;
http://en.wikipedia.org/wiki/List_of_c
ountries_by_oil_production
US vaults to
3rd in world
crude
production
end 2013
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Government Breakeven Budgets
46 © Wärtsilä
Severe shortfalls @ prices under 100$/BBL, present oil glut
& soft prices challenge sustainability beyond short run
49$/BBL
Source: https://alfinnextlevel.files.wordpress.com/2014/04/oil_breakeven_deutsche_bank_oct_14.png
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What’s the impact of the steep fall in
oil prices !
47 © Wärtsilä
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Redo Business Case
Is Competitive
Advantage of LNG
Robust or Fragile?
What’s today’s
investment returns?
48 © Wärtsilä
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Now… 26 January 2015
49 Wärtsilä
Source: http://www.bunkerworld.com/prices/port/us/hou/
Prices: LSMGO 0.1% 613 $/mt = diesel @ $2.03 gallon diesel
LNG @ $1.27 Diesel Gallon Equivalent ( as BC Ferries )
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50 © Wärtsilä
Owner At fair return capturing risks of oil fall 26 Jan 2015
LNG Z competitive edge: millions savings for shipper & returns holding
despite diesel plunge. Conventional Least Competitive: millions added
expense for cargo shipper and least returns both scenarios !
$ 1.39
DGE $ 3.12
$ 2.03 $ 1.27
DGE
Gallon
Gallon
Illustrates
Savings
@ 30 ¢ ton
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Stress Test
THEN 5 August 2014 LNG $1.39 DGE Diesel $3.12
13.44% LNG Z Drive
9.90% Diesel Z Drive
8.48% Conventional
51 © Wärtsilä
LNG returns robust despite recent steep drop in diesel.
Conventional Least Competitive: last in returns with
millions added cost for cargo shipper on all scenarios !
Deviation
ROCE
NOW 26 January 2015 LNG $1.29 DGE Diesel $2.03
13.82% LNG Z Drive
14.39% Diesel Z Drive
13.70% Conventional
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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
LNG Application
Business Case Returns
Jones Act Coastwise ATB
Cargo, Investor, Banker Views
Oil Price Shock ! Business Case: Robust or Fragile?
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7 January 2014
53 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 !
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14 February 2014
19 March 2015
54
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
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14 February 2014
55 © 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
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56 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
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24 February 2014
57 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
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25 February 2014
58 © 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
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11 March 2014
59 © 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
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16 April 2014
60 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
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17 April 2014
19 March 2015
61
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…
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16 June 2014
62 © 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
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25 June 2014
63 © 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
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3 July 2014
64 © 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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65 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
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19 November 2014
66 © Wärtsilä
Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=8277:seaspan-
orders-two-lng-fueled-ferries&Itemid=230
Now 8 LNG fuel ferries for Canada
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1 December 2014
67 © Wärtsilä
Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=8341:fortisbc-
provides-c$5-million-incentives-for-lng-fueled-ferries&Itemid=231
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2 December 2014
68 © Wärtsilä
Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=8352:abs-
approves-lng-fueled-z-drive-towboat-design&Itemid=231
River towboats 100% ECA bound consider LNG fuel.
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6 January 2015
69 © Wärtsilä
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6 February 2015
70 © Wärtsilä Historic 1st LNG fuel bunkering North America
Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=8703:harvey-
gulf-makes-lng-fueling-history&Itemid=231
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6 February 2015
71 © Wärtsilä
Martin Midstream Partners cryogenic truck loading LNG fuel to
Harvey Energy at Pascagoula Mississippi
Source: Courtesy Harvey Gulf International Inc.
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9 February 2015
72 © Wärtsilä
Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=8703:harvey-
gulf-makes-lng-fueling-history&Itemid=231
6,500 m3 Bunker Vessel for Rotterdam
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5 March 2015
73 © Wärtsilä
Maritime History: 1st Offshore LNG fuel
Vessel for North America enters service
Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=8822:harvey-
energy-starts-working-for-shell&Itemid=231
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Drivers = Decade Shift to Gas
19 March 2015
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
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APPENDIX
Business Case Details
75 Wärtsilä
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Key Takeaways
76 © Wärtsilä
LNG fuel Z towboats capture competitive advantage; save
millions for cargo shipper while generating higher
investment returns across majority market scenarios.
LNG Z returns robust despite recent steep drop in diesel.
Conventional towboats Least Competitive: most expensive
for cargo shipper and last in returns on all scenarios !
Recent oil irrationality not sustainable over long run while
towboats last decades !
Enabling LNG fuel supply coming into play for US heartland !
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Financials
77 Wärtsilä
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Key Values
78 Wärtsilä
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Key Values
79 Wärtsilä
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Fuel Attributes
80 © 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...
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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
LNG Application
Business Case Returns
Jones Act Coastwise ATB
Cargo, Investor, Banker Views
Oil Price Shock ! Business Case: Robust or Fragile?
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Shippers save
millions annually
@ 15 ¢ per ton…
Business Case
illustrates added
potential
How So ?
Business Line Advantage from Low cost LNG fuel
Boosts after tax returns
& Lowers Shipper Rates
Technical Efficiency Advantage from Z Drive All Around 360 Degree Thrust
Improves Push/Pull and Turning Performance
& adds to annual round trips
Environmental Emissions Advantage from clean LNG fuel
Reductions across board
& enhances Brand image
82 © Wärtsilä
Triple Competitive Advantage: Business Gains, Increased
Efficiency, and Emission Reduction = Game Changer.
Source: The Shearer Group, Inc.