Competing on Price - Platts on Price: Making LNG as a Bunker Fuel Commercially Viable Platts 16th...
Transcript of Competing on Price - Platts on Price: Making LNG as a Bunker Fuel Commercially Viable Platts 16th...
IMPORTANT / DISCLAIMER: This presentation is prepared by Fearnley Securities, an Astrup Fearnley company.
For relevant definitions, methods, risks, disclosures on potential conflicts of interests etc. and disclaimers (including U.S. specific
disclaimers) please see www.fearnleysecurities.com. All research reports and investment recommendations should be reviewed in
conjunction with the information therein.
Competing on Price:Making LNG as a Bunker Fuel
Commercially Viable
Platts 16th Annual LNG Conference – 10th February, 2017
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Fearnley LNG – Company Overview
All information is given in good faith but without guarantee
350+ employees in the Astrup Fearnley Group. Fearnleys is one of the largest international ship broking
companies in the market today.
Company dates back to 1869. Fearnleys has been a leading full service ship brokerage house for
decades and has almost 150 years of shipping experience.
LNG Involvement since early 1970’s. Fearnleys contracted and chartered one of the first purpose built
LNG carriers which was built at the Moss/Rosenberg yards in Norway.
Extensive LNG Shipping Services. Fearnley LNG is active in: Vessel Contracting, Chartering, Sale &
Purchase, Ship Financing and LNG Advisory & Consulting.
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Fearnley LNG – Company Overview
All information is given in good faith but without guarantee
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Contents
All information is given in good faith but without guarantee
• Overview of Global LNG Prices
• Historical Gas & LNG Curves
• Indices (HH vs Oil Linked)
• Oil Products (HFO & MGO)
• Forward Curves / Forecasts
• CAPEX for LNG as a fuel
• Conversion Costs for existing vessels
• Newbuild Costs for LNG propulsion
• Alternative: Scrubbers
• Conclusion
• When and how LNG does and does not
work
• Where we can bunker LNG today
• Where could we bunker LNG in 2020?
• LNG vs Scrubber vs LSMGO
• Case Study: LNG Bunkering in Rotterdam
• Voyage Calculation – Fuel Comparison:
o LNG vs Scrubber vs LSMGO
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Overview of Global LNG Prices
All information is given in good faith but without guarantee
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Historical Global Oil, Gas & LNG Prices
All information is given in good faith but without guarantee
Source: EIA & Fearnley LNG
US
$ p
er
bb
l
US
$ p
er
MM
btu
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5
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Brent Weekly (LHS) HH (RHS) NBP (RHS) Asia DES LNG (RHS)
Brent Crude (LHS)
vs HH, NBP and
Asia DES LNG
(RHS)
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Historical Oil, HFO and MGO
All information is given in good faith but without guarantee
Sources: Fearnley LNG, EIA
0
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Singapore HFO ($/PMT) - LHS Brent Crude ($/BBL) - LHS MGO "Approximate" ($/PMT) - RHS
HFO (LHS) and
MGO (RHS) in $
per metric tonne,
Brent (LHS) in $
per bbl
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LNG Indices: Oil Linked
All information is given in good faith but without guarantee
• The original formula in the world of LNG pricing is based on oil linkage and, not
withstanding efforts in recent years to “break the link”, convenience dictates
that this index still has many years of life left in it
• The formula commences with the indexation (XX%) to Brent or JCC and in
recent short term tenders, this number has even fallen below 12% (from the
traditional 14.85% of previous term contracts)
P ($/MMbtu) = XX% x Brent / JCC ($/bbl) + Z
• In addition to the indexation (called the “slope”) there is also a constant value
(Z) that was traditionally added to cover shipping. This number is now often
where the trading occurs as some buyers have started to mandate the slope
itself in their short term tenders
• The convenience of dealing with the Oil Linked formula is that it provides a very
liquid market against which to hedge ones risks (for both buyers and sellers)
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LNG Indices: European Gas (NBP and TTF)
All information is given in good faith but without guarantee
• The second pricing formula to consider involves a fixed link to a liquid European
Hub, plus a constant
• NBP (the UK’s National Balancing Point) has historically been the more liquid hub
in Europe and accordingly, it gained favour as the preeminent index for those
favouring a hub-linked pricing formula
P ($/MMbtu) = NBP / TTF ($/MMBtu) + Z
• As the hub link itself is fixed, all the negotiation takes place around the constant
and this is where the sellers need to make back their storage, reload, shipping
and opportunity costs
• Notwithstanding the head start that NBP was afforded, TTF (Title Transfer Facility)
located in the Netherlands now enjoys greater liquidity and being the pricing point
for reloads out of both GATE and Zeebrugge terminals, is the more natural
European index to consider going forward
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LNG Indices: Henry Hub
All information is given in good faith but without guarantee
• Albeit the newest of our the three indexes examined today, Henry Hub is now one
of the most familiar formulas in the market
• It is essentially a cost plus formula based on the known costs of sourcing Natural
Gas and Producing LNG in the US (XXX% x HH), Liquefaction & Terminal CAPEX
costs (Y), plus a realistic shipping cost (Z)
P ($/MMbtu) = XXX% x HH ($/MMBtu) + Y + Z
• Usually 115% of the Henry Hub price, plus ~$3/MMbtu for Liquefaction & Terminal
CAPEX costs, plus shipping based on realistic long term ship charter rates
(assumed $0.9/MMbtu for deliveries into North West Europe in my forecasts)
• The 1.15 factor derives from the requirement to burn approximately 15% of feed
gas as fuel to perform the liquefaction process but this is not rigorous
• Liquefaction (CAPEX) costs are a generic $3/MMBtu, although these can vary too
• In my fuel comparison chart, I have added $0.3/MMbtu for the FOB European
LNG price to account for terminal and reload costs out of Rotterdam
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Forecasts: Brent & HH
All information is given in good faith but without guarantee
Sources: Fearnley LNG, EIA, Bloomberg, NYMEX
pe
r b
bl
pe
r M
Mb
tu
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
$90.0
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Brent ($/BBL) - LHS HH ($/MMbtu) - RHS
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Forecasts: Brent, HSFO, LSFO & MGO
All information is given in good faith but without guarantee
Sources: Fearnley LNG, EIA, Bloomberg, NYMEX
US
$ p
er
me
tric
to
nn
e
US
$ p
er
bb
l
$0.0
$100.0
$200.0
$300.0
$400.0
$500.0
$600.0
$700.0
$800.0
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
$90.0
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Brent ($/BBL) - LHS HSFO ($/MT) - RHS LSFO ($/MT) - RHS MGO ($/MT) - RHS
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Forecasts: European LNG Bunkers, HSFO, LSFO & MGO
All information is given in good faith but without guarantee
Sources: Fearnley LNG, EIA, Bloomberg, NYMEX
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
$18.0
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Delta between LNG & MGO (NWE) HH ($/MMbtu) - RHS
NWE LNG BUNKERS DES HSFO in $/MMbtu
LSFO in $/MMbtu MGO in $/MMbtu
Comparison of forecast oil product prices
vs forecast US LNG being sold as
bunkers DES Rotterdam (to Customer)
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CAPEX for LNG as a fuel
All information is given in good faith but without guarantee
Source: www.naturalgasworld.com
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Vessel Assumptions
All information is given in good faith but without guarantee
Source: www.Alphaliner.com, CMA CGM
• The Capital Expenses (CAPEX) and Voyage Expenses (VOYEX) are based upon
a generic 8,500 TEU Container Ship. Particulars as follows:
• Note: The above particulars are not taken from a specific design but rather are an
EXAMPLE ONLY 8,500 TEU Container Ship based on various industry sources
8,500 TEU Container Ship
Trade Rotterdam to Shanghai // Shanghai to Rotterdam
Speed 23.5 Knots
SFOC 200 tonnes per day
Engine Capacity 52,000 KW
Port Consumption 10 tonnes per day
Bunker capacity Voyage + 3 x Sea Days & 5 x Port days
Voyage Duration 30 days (20 days at Sea, 10 days Waiting / Idle)
Voyages Per Year 12
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Conversion Costs for LNG Propulsion
All information is given in good faith but without guarantee
Source: DNVGL, MAN Diesel, Astrup Fearnleys
• The following outlines the estimated conversion costs associated with
retrofitting DF LNG propulsion to an existing 8,500 TEU Container Ship.
Costs
2 x 4,000 cbm Type C Tanks $8 Million
Engine Parts $5 Million
Docking & Off-Hire $5 Million
Installation & Piping $10 Million
TOTAL CAPEX $28 Million
• Positives:
o Cheapest Fuel
o Compliant at source
o Satisfies all existing and
known future Environmental
restrictions (“Future Proof”)
• Negatives:
o Expensive conversion
o Uncertainty of adequate
supply
o Pricing uncertainty with a
less liquid fuel market
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Newbuild Costs for LNG Propulsion
All information is given in good faith but without guarantee
Source: DNVGL, MAN Diesel, Astrup Fearnleys
• The following illustrates the estimated Total additional CAPEX required for a DF
LNG propulsion system ABOVE that required for a conventional 8,500 TEU
Newbuild Container Ship
Costs
2 x 4,000 cbm Type C Tanks $8 Million
Engine Parts $2 Million
Piping $3 Million
TOTAL CAPEX $13 Million
• Positives (vs Conversion):
o Reduction in cost of Parts as
sourced as part of Newbuild
package
o Labour / Installation costs
absorbed in Newbuild process
• Negatives (vs Conversion):
o Delay to market (subject to
delivery from yard)
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Alternative Options: Cost for Scrubbers
All information is given in good faith but without guarantee
Source: Wartsila, http://www.fathommaritimeintelligence.com, Astrup Fearnleys
• As a basis of comparison, a Wet Scrubber conversion has been considered
with the approximate characteristics and costs as illustrated below.
Costs
CAPEX $3 Million
Docking $2 Million
Installation $3 Million
Consumption ~8 tonnes per day (520 – 1560 kw for 52 MW Engine)
TOTAL CAPEX $8 Million
• Positives:
o Retrofit possible / cheaper
o Continued HFO usage
(lower potential fuel cost)
o Existing Engine and bunker
tank usage
• Negatives:
o Compliance regime Require
100% reliability
o Bi-product disposal an extra
burden
o Stability considerations
o Not “future proof”
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LNG vs Scrubber vs LSMGO
All information is given in good faith but without guarantee
Source: www.worldmaritimenews.com
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Case Study: Bunkering in Rotterdam
All information is given in good faith but without guarantee
Source: Fearnley LNG
Delivered Cost of LNG to the
Customer Vessel
• In this EXAMPLE ONLY, the
supply of LNG to North West
Europe (eg Rotterdam) is
based upon the forecast
landed price for US volumes
to be delivered into the
European terminal DES
PLUS
• The cost of the Terminal to
store & reload the product into
a Bunkering Vessel (~$0.5 /
MMbtu) as well as their “in
tank value” (+5% of NWE
DES)
PLUS
• The bunker vessel cost to
deliver the product to the
Customer Ex-ship (~$1.35 /
Mmbtu) assuming a 7,500
cbm total parcel delivered per
week (from 2020)
Route Delivery Location/ Positioning Fee from NETHERLANDS Rotterdam
Load Port NETHERLANDS Rotterdam
Discharge Port NETHERLANDS RotterdamRedelivery Location/ Ballast Bonus to NETHERLANDS Rotterdam
Vessel LMG 7,500 cbm NB
Charter Rate ($) 23000
Total Costs for Defined Route & BB (US$) 230068US$/MMBtu 1.3561
Parcel Size (m3) 7388
Parcel Size (%) 98.5 %
Position Fee ($) -Ballast Bonus ($) Round Trip
Energy Delivered (MMBtu) 169649
Total Cost Breakdown
Charter Costs 161000HFO Bunker Cost 0
MGO Bunker Cost 0
Port Costs 50000Suez Cost 0
Panama Cost 0Armed Guards 0
Cool Down Cost 0
Positioning Fee 0Ballast Bonus 0
LNG Consumption (US$) 5200Total Cost 230068
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8,500 TEU Container Ship EXAMPLE Calculation
All information is given in good faith but without guarantee
Source: Fearnley LNG
Container Ship - LNG
Newbuild
Container Ship -
MGO
Container Ship -
Scrubber
Container Ship - LNG
Conversion
Size 8,500 TEU 8,500 TEU 8,500 TEU 8,500 TEU
Speed 23.5 23.5 23.5 23.5
Main Engine Consumption (in
tonnes per day)146.4 193.4 200.0 146.4
Scrubber Consumption (in
tonnes per day)8
Idle / Port Consumption (in
tonnes per day)10 10 10 10
Load Antwerp Rotterdam Rotterdam Rotterdam
Discharge Shanghai Shanghai Shanghai Shanghai
Distance (nm) 10664 10664 10664 10664
Sea Days 19.85 19.85 19.85 19.85
Canal / Port days 5 5 5 5
Waiting Days 5 5 5 5
Fuel Consumed - tonnes 3006 3940 4229 3006
Fuel Consumed - m3 6637 4603 4290 6637
Fuel Consumed - US$ 1911210 2154656 1383510 1911210
CAPEX (US$) 13000000 0 8000000 28000000
Per 30 Day Voyage CAPEX cost
(US$) - 5 Years213699 0 131507 460274
TOTAL VOYAGE COST - 5
Years Amortisation2124909 2154656 1515017 2371484
RANKING 2 3 1 4
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Conclusion
All information is given in good faith but without guarantee
Source: www.gCaptain.com
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When and how LNG does and does not work
All information is given in good faith but without guarantee
• The most telling outcome of the voyage calculation is that in a 0.5% Sulphur
Cap World, doing nothing is the least favourable option
• Fuel forecasts are an imprecise science at best but even at today’s prices,
Bunkered LNG would trade at a discount of over $1 / MMbtu to MGO in North
West Europe, and this delta is forecast to grow through the mid to late 2020s
• LNG Conversions are not an especially promising option given the sizeable
CAPEX involved in procuring the bespoke kit for the project, coupled with the
time necessary to take the vessel out of service (loss of hire can be much more
significant than our calculation suggests)
• For existing vessels, LNG Scrubbers provide a very sound option and indeed
they even outperform a Newbuild LNG DF engine in voyage cost terms (basis
our forward pricing assumptions)
• For all new tonnage ordered from today onwards, however, a Newbuild DF
LNG Propulsion offers the most cost-effective long-term solution, especially
considering all existing, planned and potential IMO requirements
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Where we can bunker LNG today
All information is given in good faith but without guarantee
KEY
2017:
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Where could we bunker LNG in 2020?
All information is given in good faith but without guarantee
KEY
2017:
2020+:
IMPORTANT / DISCLAIMER: This presentation is prepared by Fearnley LNG, an Astrup Fearnley company.
For relevant definitions, methods, risks, disclosures on potential conflicts of interests etc. and disclaimers (including U.S. specific
disclaimers) please see www.fearnleys.no. All research reports and investment recommendations should be reviewed in conjunction
with the information therein.