LNG as Fuel - Intertanko · lng as fuel intertanko north american panel (nap) ... source: gm/abs ... usa 10.2 us$/mmbtu 497 us$/t

LNG as Fuel

INTERTANKO NORTH AMERICAN PANEL (NAP) 34th MEETING

William Sember Energy Project Development

Houston, Texas

29 October 2014

2

Outline

Projects

Drivers for LNG as a Fuel

Options and considerations

LNG Ready

Cost-benefit considerations

Conclusions

3

Projects

Existing LNG regulations

leveraged for application to

non-LNGC ship-board gas-

fuel systems

MAN Diesel 2-stroke ME-GI engine – First order for 3100TEU Container Carrier

IMO Res. MSC285(86) Interim

guidelines for natural gas

fueled engines

Under Development

IMO International Code for Safety for Ships

Using Gases or Other Low Flashpoint Fuels

(IGF Code)

4

LNG as a Fuel Gaining Momentum

5

Current Fleet Statistics

Ships with dedicated tanks installed for LNG to be used as

propulsion fuel

Excludes:

‒ Vessels using LNG for other purposes (e.g. FPSO power)

‒ Ships using boil off from cargo (LNG carriers)

‒ Barges using LNG for other purposes (power or bunkering)

Approximately 149 ships with total 2,389,548 GT

60 ships (341,730 GT) in service

89 ships (2,047,818 GT) under construction/conversion

‒ Of which 14 vessels are conversions

(280,967 GT)

‒ 16 vessels are LNG-ready

(605,402 GT)

Source: GM/ABS – 23 June 2014

6

Drivers for LNG as a Fuel…

Emission Regulations – a global shipping industry challenge 2015 – New legislation to limit sulfur emissions in North America and

Northern Europe

2020 – Global legislation to limit sulfur emissions

LNG as a fuel is a potential solution – Reduced CO2 emissions by 30%

– Virtually no sulfur content

– Combustion produces low NOx compared to HFO and MDO

LNG is not only cleaner – it has significant economic advantages On a calorific value basis even high Asian LNG prices, fuel costs are lower

than global bunker fuel prices

However, LNG as a fuel faces a number of challenges Capital Investment

– Investment required in ships propulsion, fuel handling systems and LNG tanks

– Bunkering infrastructure – storage and distribution

Global Distribution Network – Large scale and small scale LNG availability

Development of new international safety regulations

7

Options & Considerations

Use Distillate Fuels

Future cost & availability

Required engine modifications

Availability of fuel-fuel switching

Use Scrubbers

Conversion kits available and costs

Operating/maintenance costs

Waste disposal

Use LNG as Fuel

Conversion or newbuild cost

Fuel storage

Future fuel costs

Bunkering infrastructure

LNG ready

8

Further Considerations

Availability of LNG fueling terminals

Ship-to-ship transfer

Sufficient storage space

Suitable redundancy

Emissions

Local regulations

GHG – methane slip

Aftertreatment

Gas spec – methane number

Transient response

Low power performance

Crew training

9

LNG-ready

Approval-in-Principle (AIP)

Cost-Benefit Analysis

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LNG-ready: Elements Determining Scope

Main objectives

Fuel cost

Regulatory compliance

Associated operation

ECAs only or full time gas use

Expectations driving conversion decision

e.g. possible high LSFO to LNG fuel cost ratio

Expected time frame of conversion

Payback periods versus vessel life

Drawbacks

Regulatory uncertainty

LNG bunkering infrastructure

Adoption rate and future pricing

11

Levels of LNG Readiness

Due to the high CAPEX, levels of LNG Readiness varies from

Space only

Partial preparation

LNG readiness shall be supported by a full engineering design study

Class review scope can be determined by the

client but the following is suggested

General arrangement

Engine selection

Gas system equipment selection

Hazardous areas plan

LNG fuel containment type

Tank location and supporting structure

Fuel gas and ventilation systems routing plan

Electrical load analysis and switchboard/MMC availability

Bunkering operation philosophy

Equipment ready

Fully ready

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Risk Assessments

Draft of the IGF Code states, a risk

assessment shall be conducted…

documented to the satisfaction of the

Administration

Tank arrangement

Redundancy

13

Risk Assessments

Depending on proposal, risk assessment would consist of a

simplified HAZID and the required systems and engine FMEAs

Physical layout to address tank location relative to collision, high

fire risk areas, accommodations, and means of egress to lifesaving

arrangements

Containment system including boil-off and vapor release

Bunkering systems and procedures

Operation of the gas system and engines

Automation, monitoring, safety and shut-down arrangements

Maintenance

Inspection

14

Current LNG-ready Ship Projects in USA

Five new construction LNG-ready Product Carriers for American

Petroleum Tankers being built by NASSCO, San Diego, CA

Three new construction LNG-ready Product Carriers for Seabulk

Tankers, Inc. being built by NASSCO, San Diego, CA

Four new construction LNG-ready Product Carriers for Crowley Maritime

Corporation being built by Aker Philadelphia Shipyard, PA

Two new construction LNG-ready Product Carriers for Philly Tanker

being built by Aker Philadelphia Shipyard, PA

Two new construction LNG-ready

3,600 TEU Containerships for

Matson Navigation being built

by Aker Philadelphia Shipyard, PA

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LNG-ready: Cost-Benefit Considerations

Fleet profile

Operational areas, time spent in an ECA, etc.

LNG availability

Infrastructure – export facility, bunkering vessels, tank trucks, etc.

CAPEX for LNG adoption

Price spread of LNG and other alternative fuel

Opportunity cost due to LNG storage onboard

LNG fuel system maintain cost

Note: Above are a few major considerations but not all inclusive

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Energy Pricing Assumptions

HFO 603 US$/t

MDO 943 US$/t

LNG pricing excluding distribution and bunkering cost

Europe 9.7 US$/mmBTU

Asia 13.4 US$/mmBTU

USA 4.4 US$/mmBTU

LNG distribution & bunkering cost estimated at

5.8 US$/mmBTU at distribution onset stage

2.0 US$/mmBTU with a mature distribution network stage –

anticipated 5+ years down investment

LNG total price - at distribution & bunkering onset

stage,

Europe 15.5 US$/mmBTU 755 US$/t

Asia 19.2 US$/mmBTU 937 US$/t

USA 10.2 US$/mmBTU 497 US$/t

LNG total price - with mature distribution & bunkering

network




* ShipandBunker.com Sep 13 ** Gas Review Hamburg Dec 13 – 1mmbtu=0.0205 ton

Source - Pace Global – SNAME Paper Feb 2013 – LNG Bunkering Opportunities

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LNG Price Sensitivity

Dec 13 LNG Price – LNG distribution & Bunkering Onset Stage




When LNG price < 15.8 US$/mmbtu, LNG is cheaper than

HFO+MDO at 5% ECA

When LNG Price > 16.7 US$/mmbtu, HFO+MDO at 15% ECA is cheaper than LNG

Fuel Cost for HFO+MDO @ 5% ECA

Fuel Cost for HFO+MDO @ 15% ECA

Asia LNG bunkering is currently the highest

price however LNG pricing expected to evolve

with

Singapore acting as an LNG Hub for Asia

North America shale gas export to Asia with

2 years + horizon

Japan methane hydrates extraction with

5 years+ horizon +

China Shale Gas = 1.5 x US Shale Gas ++

Worldwide LNG pricing will eventually converge

HFO price is likely to increase at a faster rate

than LNG. HFO & MDO price spread % may

increase in the longer term

Key to LNG as a Fuel adoption is

LNG pricing

LNG Bunkering infrastructure

North America

Asia

+ The Australian Mar 14, 13 Japan Methane Gas Trials / TCE Frozen Assets May 13 ++ TCE The Shale Revolution May 13

15.8 16.7

Europe

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Typical Analysis Assumptions

Comparative estimate of the Heavy Fuel Oil (HFO), Marine Diesel Oil (MDO) and LNG consumptions for

a vessel engaged in worldwide trade.

Due to the results sensitivity to energy price and SFOC and SFGC values used for the analysis,

sensitivity analyses are performed to assist in interpreting the results in view of various future scenarios

Ship Data Assumptions

Worldwide trade

Average Operational speed knots

Utilization %

Sailed distance / year NM

ECA distance / year NM i.e. 5% – conservative assumption

SFOC Assumptions

Main Engine Model No

MCR kW

NCR kW

SFOC – HFO @ NCR g/kWh

DHFOC t/day

SFOC – MDO @ NCR g/kWh

DMDOC t/day

MDO used in ECA areas

SFOC based on typical shop tests data with LCV corrections

SFGC Assumptions

SFGC – LNG g/kWh

SFGC – LNG based on

Mfgr literature

10% HFO in dual fuel mode for

pilot and low speed operation

* Low Load Tuning + EGB

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Investment Payback Period

Assumptions

Two scenario for LNG as a fuel upgrade cost

– US$15m for 5,000NM range & US$25m for 11,000NM range

LNG tank outfitted on deck with no change in cargo carrying capacity

HFO-MDO price ratio = 1:1.5

Sensitivity analysis - Annual saving between LNG and HFO based on model

assumptions – Positive value indicates LNG cheaper than HFO expenditure HFO - US$/t 400 450 500 550 600 650 700 750 800 850 900 950 1000

MFO - US$/t 600 675 750 825 900 975 1050 1125 1200 1275 1350 1425 1500

LNG -US$/mmBTU

3.1 5.38 6.37 7.37 8.36 9.36 10.36 11.35 12.35 13.34 14.34 15.33 16.33 17.32

4.3 4.47 5.47 6.47 7.46 8.46 9.45 10.45 11.44 12.44 13.43 14.43 15.42 16.42

5.5 3.57 4.57 5.56 6.56 7.55 8.55 9.54 10.54 11.53 12.53 13.52 14.52 15.51

6.8 2.67 3.66 4.66 5.65 6.65 7.64 8.64 9.63 10.63 11.62 12.62 13.61 14.61

8.0 1.76 2.76 3.75 4.75 5.74 6.74 7.73 8.73 9.72 10.72 11.71 12.71 13.70

9.2 0.86 1.85 2.85 3.84 4.84 5.83 6.83 7.82 8.82 9.81 10.81 11.80 12.80

10.5 (0.05) 0.95 1.94 2.94 3.93 4.93 5.92 6.92 7.91 8.91 9.91 10.90 11.90

11.7 (0.95) 0.04 1.04 2.03 3.03 4.02 5.02 6.02 7.01 8.01 9.00 10.00 10.99

12.9 (1.86) (0.86) 0.13 1.13 2.13 3.12 4.12 5.11 6.11 7.10 8.10 9.09 10.09

14.1 (2.76) (1.77) (0.77) 0.23 1.22 2.22 3.21 4.21 5.20 6.20 7.19 8.19 9.18

16.7 (4.66) (3.66) (2.67) (1.67) (0.68) 0.32 1.31 2.31 3.30 4.30 5.29 6.29 7.28

18.0 (5.56) (4.57) (3.57) (2.58) (1.58) (0.59) 0.41 1.40 2.40 3.39 4.39 5.38 6.38

19.2 (6.47) (5.47) (4.48) (3.48) (2.49) (1.49) (0.50) 0.50 1.49 2.49 3.48 4.48 5.47

20.4 (7.37) (6.38) (5.38) (4.39) (3.39) (2.40) (1.40) (0.41) 0.59 1.58 2.58 3.58 4.57

19.8 (6.91) (5.92) (4.92) (3.93) (2.93) (1.94) (0.94) 0.05 1.05 2.04 3.04 4.04 5.03

21.0 (7.82) (6.82) (5.83) (4.83) (3.84) (2.84) (1.85) (0.85) 0.14 1.14 2.14 3.13 4.13

22.3 (8.72) (7.73) (6.73) (5.74) (4.74) (3.75) (2.75) (1.75) (0.76) 0.24 1.23 2.23 3.22

23.5 (9.63) (8.63) (7.64) (6.64) (5.64) (4.65) (3.65) (2.66) (1.66) (0.67) 0.33 1.32 2.32

At HFO US$600/t and MDO US$900/t and at LNG price US$8.0/mmBTU, annual savings are US$5.74m

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Summary

Emissions will continue to drive solutions

Low sulfur fuels

Scrubbers

LNG/gas

LNG ready

Regulatory requirements

Cost-benefit analysis

LNG as fuel can provide cost savings

Still some uncertainty

– Fuel costs

– Waste disposal facilities and costs

Bunkering infrastructure is still in the early stages

www.eagle.org

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LNG as Fuel - Intertanko · lng as fuel intertanko north american panel (nap) ... source: gm/abs ... usa 10.2 us$/mmbtu 497 us$/t