MARINE LNG FUEL: CHALLENGES & OPPORTUNITIES€¦ · EEDI Adopted EEDI Phase 0 EEDI Phase 1...

MARINE LNG FUEL: CHALLENGES & OPPORTUNITIES

24.9.2019 [Presentation name / Author]1

John Hatley PEGas Initiatives ( MBA, MSE )

Wartsila North AmericaCell +1 281 221 4209

john.hatley@wartsila.comJohn Hatley PE LinkedIn

S2.6 SHIPPING OPTIMISING OPERATIONS & MEETING THE 2020 IMO EMISSIONS CAP

17-19 SEPTEMBER 2019HOUSTON, TEXAS

Future Ahead, structural shifts?

As a vessel owner, all I want to knowwhat fuel strategy…

… regulatory obsolescence… investment returns

… environmental currency

What do I choose to boost my bottom line?

2 © Wärtsilä

A “Commodity Play” on fuel energy costs seeking competitive advantage

for survival & market share.

Challenges

Major Risk Sources, Threats, & Opportunities

A vessel lifetime exceeds far longer

accelerating change frequency…

Key: look for structural changes,

avoid defensive technologies,

comprehend advancing

technologies, and view strategic

adoption as a competitive

advantage.

Environmental

Economic

Regulatory

Political

Technological

Competition Model Forces

Government

Legislation exercises

market influence…

emissions

Watershed 12 December 2015

24.9.2019[Presentation name / Author]6

Paris COP21 nearly 200

nations adopt global pact to

fight climate change, promise

cuts to greenhouse gas

pollution with sanctions for

countries failing to comply.

Source: http://www.cbc.ca/news/world/cop21-climate-change-talks-

saturday-announced-1.3362354

13 April 2018

Source: https://maritime-executive.com/article/imo-agrees-to-co2-emissions-target#gs.4pzG7ZQ

Roadmap began 2016, declares

shipping CO2 initial reductions…

50% by 2050…

strengthening EEDI efficiency…

4th & 5th studies during 2019-2022.

13 April 2018

Source:http://www.imo.org/en/MediaCentre/PressBriefings/

Pages/06GHGinitialstrategy.aspx#

IMO committed to GHG reductions…

Levels of ambition…

implement additional phases EEDI…

40% reduction by 2030…

pursue efforts toward 70% by 2050

compared 2008 levels…

reduce total GHG annual emissions

by at least 50% by 2050 compared to

Environmental Timeline

Regulations beget more regulations

Baltic SECA

No. America ECA

North Sea ECA

EEDI Adopted

EEDI Phase 0

EEDI Phase 1

SEEMP Mandatory

US Caribbean ECA

EU Monitoring, Reporting, &

Verification

BWMC Ratified

0.5 % Global S0x

BWMC Implemented

BWMC Expanded

No. Sea & Baltic N0x ECA

EEDI Phase 2

EEDI Phase 3

Global N0x Tier I

3.5 % Global SOx

1.0 % S0x ECA

Global N0x Tier II

0.1% ECA SOx

N0x Tier III ECA

Regional Air Emissions, Environment, & Health

CO2Carbon Dioxide

Greenhouse

NOxNitrogen Oxide

SOxSulphur Oxide

Respiratory

PMParticulate

Matter

Carcinogen

Low emissions = Anatomical… Human Health Global Warming

Regional Air Quality & Global Warming

Anatomical… clean fuel promotes

better health and longer life…Global… is regional aggregated

REGIONAL

AIR QUALITY

GLOBAL

AIR QUALITY

Disruptions

Marine Annual Fuel Consumption

Source: Scorpio Tankers ( NYSE STNG)

12 February

2019http://www.scorpiotankers.com/~/me

dia/Files/S/Scorpio-

Tankers/STNG%20STIFEL%20Conferenc

e%20Presentation%20_Final.pdf

IMO, EIA, OPEX, IEA, CE Delft, EnSys/Navigistics…

Estimates vary on daily marine fuel demand… 4.7 … 7.0 mm bpd

Recent Consensus…Average 6.0 mm bpd

CE Delft 2020

Million bpd

8 - Pre 2020 Studies

2020 Studies

IMO 2020 Sulfur Cap Disruptive Fuel Shift

Source: http://www.scorpiotankers.com/~/media/Files/S/Scorpio-Tankers/STNG%20Company%20Presentation%20March_Final.pdf

1.9 mb/d

MGO & LSFO

3.7 mb/d

1.1 mb/d

HSFO NonCompliants

0.8 mb/d

LSFO1.8 mb/d

MGO & LSFO

1.9 mb/d

Incremental

Demand

2019 Shifting HFO Bunker Demand 2020 Incremental Boost Strains

to MGO & LSFO MGO & LSFO

2017 2020 2017 2020

Bunkers shift from HSFO to MGO & LSFO…

Demand increase 1.8 mm bpd strains inelastic supplies of MGO & LSFO…

= price leap amidst availability reductions.

Fuel Forward Curve 7 March 2019

Source:

http://www.scorpiotankers.com/~/media/Files/

S/Scorpio-

Tankers/STNG%20Company%20Presentation

%20March_Final.pdf

285 $/mt

235 $/mt

2020 2021 2022

Fuel Spread Deepens

3.5% HSFO - 0.1% MDO

Market anticipates jump approaching 2020 IMO Global Sulfur Cap

Spread Rotterdam 3.5% HSFO vs. 0.1% Gasoil

PRE 2020 2020 - 2022

Rotterdam Spread 3.5% HSFO vs. 0.1% MGO

Opportunities

Perspectives on Tons, Volume, & Co2

Utilize ABS/ IMO agreed calculation for CO2 based upon tons generated per

ton of fuel mass consumed*

Ship Burns 10,000 metric tons HFO per year

= how many tons of LFO, MGO, Ethanol, Methanol, DME,

LPG Butane, LPG Propane, Ethane, LNG, Hydrogen, Ammonia ?

= how much volume m3 per each ?

= how many tons CO2 generated per each ?

* Only fuel properties and assume all other things equal: same efficiency, same ship, same route, …

Equivalent Annual Fuel Burn as 10,000 Tons HFO

Tonnage Outliers

Methanol 2.0 x HFO

Ammonia 1.8 x HFO

Ethanol 1.5 x HFO

DME 1.4 x HFO

Equivalent Annual Volume

Require Largest Volume

Hydrogen 4.3 x HFO

Ammonia 2.5 x HFO

Methanol 2.5 x HFO

DME 2.0 x HFO

Equivalent Annual CO2

Least CO2

Ethane 21% < HFO

LNG 26% < HFO

Hydrogen 100% < HFO

Ammonia 100% < HFO

Renewables

Decades

Fuel Energy & Density vs. HFO

Outliers

Hydrogen

Methanol

Ammonia

Less Space &

Weight

vs. HFO

Greater Space &

Lighter Weight

vs. HFO

Less Space &

Greater Weight

vs. HFO

Greater Space

& Weight

vs. HFO

Landmark GHG Emissions Study 11 April 2019

Definitive GHG Study; uses real engine data for realistic results. Takes into account methane slip and

supply chain fugitive emissions conducted on Well to Wake WtW, Well to Tank WtT, Tank to Wake TtW.

Source: https://info.thinkstep.com/lng-ghg-study?hs_preview=iCocCGSo-8445007461

11 April 2019

Well to Wake… up to 21% Co2 reduction vs. HFO @ 2.5%

Tank to Wake… up to 28% aligns with IMO method

Adoptions

Marine Substitution Sail to Steam

Percent

25 © Wärtsilä

Sources: Challenging the S Curve: Patterns of Technological Substitution, Brice Dattee, Copenhagen, Denmark 18 June 2007

adapted by JFH

Steam 1830 @ 10%... Why delay ?

Clipper Ship Era 1840’s

Large Sails

Remarkable Speed ( 18 mph )

Good Cargo Capacity

Smaller Crew( reduced cost )

26 © Wärtsilä

Sail defensive performance

… brief 3 decade surge

Marine Substitution Sail to Steam

Percent

27 © Wärtsilä

Decades

85 Year

Adoption

Sources: Challenging the S Curve: Patterns of Technological Substitution, Brice Dattee, Copenhagen, Denmark 18 June 2007

adapted by JFH

Steam 1830 @ 10% … 1915 @ 90% dominant

US Railroad Substitution Steam to Diesel

Percent

28 © Wärtsilä

13 Year

Adoption

Sources: Cowles Foundation for Research in Economics, Yale, Intrafirm Rates of Diffusion of an Innovation, Mansfield, 24 May 1962:

adapted by JFH

Diesel 1944 @ 10%.... 1957 @ 90% dominant

Take aways…

IMO 2020 0.5%... Step change… chaos

CO2 reduction… Structural change… beginning

Regional Air Quality… clean gas… better health = longer life

Defensive Technologies… traditional fuels mitigation

Risk: stranded assets… fuel and ships… seize opportunity

Gas is future proof

Future Ahead, structural shifts?

As a vessel owner, all I want to knowwhat fuel strategy…

… regulatory obsolescence… investment returns

… environmental currency

What do I choose to boost my bottom line?

31 © Wärtsilä

A “Commodity Play” on fuel energy costs seeking competitive advantage

for survival & market share.

GHG is a Stock not a Flow Problem

“While LNG may not be the

sustainable homogeneous fuel of

choice for a zero carbon future, we

are not prepared to wait for 100%

compliant solution if we know that,

together with our partners, we can

make significant progress now,”

Rashpal Bhatti, BHP VP Maritime & Supply Chain Mgmt

Source: https://www.lngworldnews.com/bhp-issues-tender-for-lng-fueled-bulk-carrier-freight/

15 July 2019

THANK YOU

John Hatley PEVP Americas Marine Solutions

& Director Market ShapingGas Initiatives ( MBA, MSE

APPENDIX

IMO MEPC 1/Circ. 866 30 January 2017

IMO agreed calculation for CO2 based upon tons generated per ton of

fuel mass consumed aboard vessel, not volume

IMO guideline page 3

The energy content Lower Heating Value “LHV” per mass varies by fuel type…

C02 generated per ton of fuel mass… not volume

IMO guideline Annex page 32

Volume relates to Mass by “Density”

ABS Fuels Presentation Data Reference

Source: ABS Presentation SGMF Port Canaveral 2 May 2019

Calculation Spreadsheet

ABS & IMO data; …. calculation of equivalencies; tons, volume, C02

MARINE LNG FUEL: CHALLENGES & OPPORTUNITIES€¦ · EEDI Adopted EEDI Phase 0 EEDI Phase 1...

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