MARINE LNG FUEL: CHALLENGES & OPPORTUNITIES€¦ · EEDI Adopted EEDI Phase 0 EEDI Phase 1 SEEMP Mandatory US Caribbean ECA EU Monitoring, Reporting, & Verification BWMC Ratified

© Wärtsilä

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

[email protected] Hatley PE LinkedIn

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

17-19 SEPTEMBER 2019HOUSTON, TEXAS

mailto:[email protected]

© Wärtsilä

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.

© Wärtsilä

Challenges


© Wärtsilä

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

???

© Wärtsilä

Competition Model Forces


Government

Legislation exercises

market influence…

emissions

© Wärtsilä

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

© Wärtsilä

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.

© Wärtsilä

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

2008.

© Wärtsilä

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

© Wärtsilä

Regional Air Emissions, Environment, & Health


CO2Carbon Dioxide

Greenhouse

Gas

NOxNitrogen Oxide

Ozone

SOxSulphur Oxide

Respiratory

PMParticulate

Matter

Carcinogen

Low emissions = Anatomical… Human Health Global Warming

© Wärtsilä

Regional Air Quality & Global Warming


Anatomical… clean fuel promotes

better health and longer life…Global… is regional aggregated

REGIONAL

AIR QUALITY

GLOBAL

AIR QUALITY

© Wärtsilä

Disruptions


© Wärtsilä

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

4 -

0 -

2 -

6 -

8 - Pre 2020 Studies

2020 Studies

© Wärtsilä

IMO 2020 Sulfur Cap Disruptive Fuel Shift


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

MGO &

LSFO

1.9 mb/d

MGO & LSFO

3.7 mb/d

HSFO

3.7 mb/d

HSFO

1.1 mb/d

HSFO NonCompliants

0.8 mb/d

MGO &

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.

6

5

4

3

2

1

0

4

3

2

1

0

© Wärtsilä

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

$/mt

300 -

250 -

200 -

150 -

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

© Wärtsilä

Opportunities


© Wärtsilä

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, …

© Wärtsilä

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

© Wärtsilä

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

© Wärtsilä

Equivalent Annual CO2


Least CO2

Ethane 21% < HFO

LNG 26% < HFO

Hydrogen 100% < HFO

Ammonia 100% < HFO

Renewables

Decades

Away!

© Wärtsilä

Fuel Energy & Density vs. HFO


Outliers

Hydrogen

Methanol

Ammonia

DME

Less Space &

Weight

vs. HFO

Greater Space &

Lighter Weight

vs. HFO

Less Space &

Greater Weight

vs. HFO

Greater Space

& Weight

vs. HFO

© Wärtsilä

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

© Wärtsilä

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

© Wärtsilä

Adoptions


© Wärtsilä

Marine Substitution Sail to Steam

Percent

25 © Wärtsilä

Year

?

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

adapted by JFH

Steam 1830 @ 10%... Why delay ?

© Wärtsilä

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

© Wärtsilä

Marine Substitution Sail to Steam

Percent

27 © Wärtsilä

Year

3

Decades

85 Year

Adoption

Rate

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

© Wärtsilä

US Railroad Substitution Steam to Diesel

Percent

28 © Wärtsilä

Year

13 Year

Adoption

Rate

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

© Wärtsilä

Take aways…


© Wärtsilä

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


© Wärtsilä

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.

© Wärtsilä

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

© Wärtsilä

APPENDIX


© Wärtsilä

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

© Wärtsilä

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

© Wärtsilä

IMO guideline Annex page 32


Volume relates to Mass by “Density”

© Wärtsilä

ABS Fuels Presentation Data Reference


Source: ABS Presentation SGMF Port Canaveral 2 May 2019

© Wärtsilä

Calculation Spreadsheet


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

Documents

MARINE LNG FUEL: CHALLENGES & OPPORTUNITIES€¦ · EEDI Adopted EEDI Phase 0 EEDI Phase 1 SEEMP Mandatory US Caribbean ECA EU Monitoring, Reporting, & Verification BWMC Ratified