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Exhaust Gas Cleaning SystemsDetermining Economics of Scrubber Systems

Presented to:Lloyd’s Maritime Academy, Practical Guide to Scrubber Systems, North America20 November 2013, Miami

Presented by: Kevin J. Reynolds, PE, The Glosten Associates

Exhaust Gas Cleaning SystemsBusiness Case Drivers

Fuel Cost Savings =+ (ECA Fuel Consumption * Distillate Premium)- (EGCS Capital and Operating Expenses)

Page 2, Glosten Associates © 2013


Key Drivers:• ECA fuel consumption (More than 4,000 tons/year?)• Cost differential between residual and distillate fuel oil

IFO380 $632/MT, MGO $1026/MT, Avg. of 13 ports (19/11/2013 Bunkerworld.com)4,000 MT * (1026-632) = $1.58 million/year savings

(Houston (977.5 – 586) * 4,000 = $1.57 mm)





IFO380 $632/MT, MGO $1026/MT, Avg. of 13 ports (19/11/2013 Bunkerworld.com)4,000 MT * (1026-632) = $1.58 million/year savings

• Fuel cost escalation is CRITICAL (Year 10 at 8% yields $2.86 million/year)• Capital and Operating Expenses are important, but may NOT be primary

drivers!




IFO380 $610.50/MT, MGO $940.00/MT, Rotterdam, 20/01/2013 Bunkerworld.com4,000 MT * (940-610.5) = $1.3 million/year savings

• Fuel cost escalation is CRITICAL (At 8%, year ten $2.9 million/year savings)• Capital and Operating Expenses are important, but NOT primary drivers!









Marine vessels burning at least 4,000 MT within an ECA may appreciate fuel cost savings that overwhelm integration and operational challenges. In fact, adoption of a scrubbing technology could become a competitive necessity.


Exhaust Gas Cleaning SystemsSuggested Material: SOCP Selection Guide


Exhaust Gas Cleaning SystemsSuggested Material: SOCP Selection Guide

http://www.socp.us/article.html?aid=107


Life Cycle Cost AnalysisReview:• Analysis Method: Which

metrics matter?• Fuel cost predictions??• Variables: What can I

control? What can’t I control? Assumptions?

• Example vessels• Sensitivity analysis• Conclusions


Analysis: Impact of Vessel Types Open Loop Scrubber (All Cases)and Trade Routes Container‐ Container‐Amounts in Present Value. ship ship Tankship CruiseshipTotals and sub‐totals rounded to 100,000. Trans‐ US West US West NorthSavings compared to burning distillate in ECA. Pacific Coast Coast America

NET SAVINGS, LIFE CYCLE (1,000 USD) 2,800 18,300 21,000 83,900Operating Savings, Annual (1,000 USD/yr) 1,000 2,600 2,800 10,500

Key VariablesPlant (Prop. & Ship Service) (MW) 39 19 13 47Fuel burned inside ECA (%) 11% 51% 100% 100%

Initial Investment, One Time (1,000 USD) 6,500 5,000 4,500 8,700Equipment (1,000 USD) 4,500 3,500 3,100 5,200Engineer/Review/Training (% equip) 9% 9% 9% 9%Installation (% equip) 50% 50% 50% 75%

Fuel Cost Savings, Life Cycle (1,000 USD) 9,800 24,200 27,200 94,800Fuel cost savings, annual (1,000 USD/yr) 1,124 2,775 3,121 10,865ECA residual/scrubber (m.tons/yr) 3,982 9,829 11,057 38,489Scrubber parasitic load (% fuel) 2.0% 2.0% 2.0% 2.0%

ECA distillate option (m.tons/yr) 3,717 9,173 10,320 35,923Distillate calorie correction (% fuel) ‐4.0% ‐4.0% ‐4.0% ‐4.0%Residual heat & process (% fuel) ‐0.8% ‐0.8% ‐0.8% ‐0.8%

ECA residual baseline (m.tons/yr) 3,904 9,636 10,840 37,734Chemical Expenses, Life Cycle (1,000 USD) 0 0 0 0Chemical expenses, annual (1,000 USD/yr) 0 0 0 0Chemicals (% fuel cost) 0.0% 0.0% 0.0% 0.0%

OM&R Expenses, Life Cycle (1,000 USD) 500 900 1,700 2,200OM&R expenses, annual (1,000 USD/yr) 83 145 274 358Operating engineer (% position) 15% 30% 60% 60%M&R of equipment (% equip cost) 1.0% 2.0% 4.0% 4.0%Investment Terms Analysis based on NIST Handbook 135, published 1995Base (Analysis) Date 11‐Jan‐13 Residual (19 Nov 2013) 632Construction Date 4‐Jul‐14 Differential (Distil l . vs. Residual) 55%Service Date 1‐Jan‐15 Rate of Inflation 3.0%Service Period (years) 10 Discount Rate 10.0%Operating Engineer (1,000 USD/yr) 250 Energy & Chemical Escalation 8.0%








OM&R Expenses, Life Cycle (1,000 USD) 500 1,000 1,800 2,400OM&R expenses, annual (1,000 USD/yr) 83 145 274 358Operating engineer (% position) 15% 30% 60% 60%M&R of equipment (% equip cost) 1.0% 2.0% 4.0% 4.0%Investment Terms Analysis based on NIST Handbook 135, published 1995Base (Analysis) Date 19‐Nov‐13 Residual (19 Nov 2013) 632Construction Date 4‐Jul‐14 Differential (Distil l . vs. Residual) 55%Service Date 1‐Jan‐15 Rate of Inflation 3.0%Service Period (years) 10 Discount Rate 10.0%Operating Engineer (1,000 USD/yr) 250 Energy & Chemical Escalation 8.0%


indicators matter?• Fuel cost predictions??• Variables: What can I




Life Cycle Cost AnalysisAnalysis Method

Why NIST 135:• Highly vetted methodology• Developed for evaluating high value options for

energy and water conservation.Review:• Economic model accounting for owning,

operating, maintaining, and disposing.• When comparing options within project, LCCA

identifies the most cost-effective solution.• When considering different projects, LCCA

supports which project should be taken on first.• More complex than “Simple Payback,”

considering discounted cash flow, constant vs. current dollars, and price escalation rates.

Benefits:• Incorporates long-run cost consequences• Clarifies which opportunities are profitable



Analysis Metrics:Do operational savings justify the investment?

Distillate? Natural Gas? Scrubber?• Net Savings: What is “today’s value” of the

one-time and recurring costs, when compared to a base case?

• Savings to Investment Ratio: Which approach is most cost effective, assuming limited funds?

• Adjusted Internal Rate of Return: Will project meet my minimum acceptable rate of return?

• Discounted Payback: How long will it take to return my investment in today’s dollars?



Only metric suitable for comparing or ranking mutually non-exclusive options over life of project.

Use other metrics as supplementary measures.

Analysis Metrics:Do operational savings justify the investment?

Distillate? Natural Gas? Scrubber?• Net Savings: What is “today’s value” of the

one-time and recurring costs, when compared to a base case?

• Savings to Investment Ratio: Which approach is most cost effective, assuming limited funds?

• Adjusted Internal Rate of Return: Will project meet my minimum acceptable rate of return?

• Discounted Payback: How long will it take to return my investment in today’s dollars?



Net Savings = Present Value Alternative –Present Value of Baseline

• Present Value and Discount Rate (What is tomorrow’s money worth to you today?)

• One-time Capital Expenditure• Annual Maintenance and Repair at “Real”

Inflation Rates• Annual Energy Costs at Predicted Escalation

Rates







Rates


Investment TermsBase (Analysis) Date 1‐Nov‐13Construction Date 4‐Jul‐14Service Date 1‐Jan‐15

Service Period (years) 10Rate of Inflation 3.0%Discount Rate 10.0%Energy & Chemical Escalation ???

Life Cycle Cost AnalysisFuel Futures

Key Factor: Cost Difference Between Residual and Distillate Fuel Oil

Different Factors – Different Impacts• World economy continues to grow,

increasing distillate demand• Shift towards shale gas and ‘clean’

coal, reduces distillate demand• New refining capacity, particularly in

Middle East, increases distillate supply

• Marine vessels switching to distillate, complying with ECA, greatly increases distillate demand

• Marine vessels, installing scrubbers, eases distillate demand increases

Apply Past Trends to Today’s Prices(One of Many Approaches)• Select escalation rate, based on past ten

years of residual prices.• Select residual price, based on average

of last three months.• Select differential percentage, based on

past ten years of residual to distillate prices.


Investment TermsResidual (19 Nov 2013) (USD/m.ton) ???Differential (Disti l l . vs. Residual) ???Energy & Chemical Escalation ???

ExamplesIFO 380 (USD/MT)

MGO (USD/MT)

Differential(%)

December 2008 222 529 138%February 2012 744 1,025 38%

Base Case 632Calc from Differential 55%

Life Cycle Cost AnalysisFuel Futures

Key Factor: Cost Difference Between Residual and Distillate Fuel Oil

Apply Past Trends to Today’s Prices(One of Many Approaches)• Select escalation rate, based on past ten

years of residual prices.• Select residual price, based on average

of last three months.• Select differential percentage, based on

past ten years of residual to distillate prices.

• Round off as reasonable, avoiding implied accuracy.

• Tends to under-estimate potential future increases in distillate (makes calculations conservative)

• Use your own company’s fuel futures if available


Investment TermsResidual (19 Nov 2013) (USD/m.ton) 631Differential (Distil l . vs. Residual) 55%Energy & Chemical Escalation 8.0%










indicators matter?• Fuel cost predictions??• Variables: What can I




Life Cycle Cost Analysis

Variables and Example Vessels

Key Variables• Review Routes and

Logistics• Focus on Port vs. At Sea

Times, Different Consumption Factors

Containership Transpacific

Containership US West Coast

Tankship US West Coast

Cruise Ship North

AmericaShip Speed (knots) 23 20 14.5 19.75Port Name Shanghai Tacoma Anacortes Seattle

Latitude (degree) 31.20 N 47.27 N 48.52 NLongitude (degree) 121.50 E 142.21 W 122.61 W

Distance from Last (n.miles) 5345 1453 1117 70non‐ECA (n.miles) 5345 726.5 0 0ECA (n.miles) 0 726.5 1117 70

Transit Timenon‐ECA (days) 9.68 1.51 0.00 0.00ECA (days) 0.00 1.51 3.21 0.15

Port Time (days) 2.00 0.25 0.75 0.50Port Name Los Angeles Anchorage Long Beach SitkaDistance from Last (n.miles) 5643 1453 1117 804non‐ECA (n.miles) 4882 726.5 0 0ECA (n.miles) 761 726.5 1117 804

Transit Timenon‐ECA (days) 8.84 1.51 0.00 0.00ECA (days) 1.38 1.51 3.21 1.70

Port Time (days) 1.00 0.42 0.75 0.25Port Name Oakland Victoria, BCDistance from Last (n.miles) 374 743non‐ECA (n.miles) 0 0ECA (n.miles) 374 743

Transit Timenon‐ECA (days) 0.0 0.00ECA (days) 0.68 1.57

Port Time (days) 1.0 0.25Trip Total (days) 24.6 6.7 7.9 4.4Transit Timenon‐ECA (days) 18.5 3.0 0.0 0.0ECA (days) 2.1 3.0 6.4 3.4

Port Time (ECA) (days) 4.0 0.7 1.5 1.0Page 21, Glosten Associates © 2013



Key Variables• Estimate Fuel

Consumption Rates• Review Machinery

Plant Efficiencies• Review Propulsion,

Cargo, Hotel Loads Separately

• Estimate Fuel Consumptions

Containership Transpacific

Containership US West Coast

Tankship US West Coast

Cruise Ship North America

Installed EquipmentPropulsion (kW) 1 x 36,000 1 x 16,000 1 x 10,100 3 x 10,520

(gr/kW‐hr) 170 175 175 175Auxiliary (kW) 3 x 1,000 3 x 1000 3 x 1,000 2 x 7,500

(gr/kW‐hr) 185 185 185 175Annual Ops (days) 320 320 320 320

Transit (kW) 30,200 14,700 9,000 24,668Non‐ECA (hours/yr) 5,788 3,459 0 0

Fuel (MT/yr) 29,714 8,899 0 0ECA (hours/yr) 643 3,459 6,225 5,939

Fuel (MT/yr) 3,299 8,899 9,805 25,638Ships Service (kW) 1200 800 350 9,000Non‐ECA (hours/yr) 5,788 3,459 0 0

Fuel (MT/yr) 1,285 512 0 0ECA (hours/yr) 1,892 4,221 7,680 7,680

Fuel (MT/yr) 420 625 497 12,096Cargo Support (kW) 800 800 2000 0ECA (hours/yr) 1,250 762 1,455 1,741

Fuel (MT/yr) 185 113 538 0Fuel Total Fuel (MT/yr) 34,903 19,046 10,840 37,734Non‐ECA Fuel (MT/yr) 30,999 9,410 0 0ECA Fuel (MT/yr) 3,904 9,636 10,840 37,734





Key Variables• Estimate Equipment

Costs Using General Factors

• Equipment Quotes• Review Scope of Quotes• Estimate Installation,

Design, O&M, Repair, Mid-Life Refit



Key Variables• Estimate Equipment Costs

Using General Factors• Equipment Quotes• Review Scope of Quotes• Estimate Installation, Design,

O&M, Repair, Mid-Life RefitAnalysis: Impact of Vessel Types Open Loop Scrubber (All Cases)and Trade Routes Container‐ Container‐Amounts in Present Value. ship ship Tankship CruiseshipTotals and sub‐totals rounded to 100,000. Trans‐ US West US West NorthSavings compared to burning distillate in ECA. Pacific Coast Coast America

Plant (Prop. & Ship Service) (MW) 39 19 13 47Fuel burned inside ECA (%) 11% 51% 100% 100%Equipment (1,000 USD) 4,500 3,500 3,100 5,200Engineer/Review/Training (% equip) 9% 9% 9% 9%Installation (% equip) 50% 50% 50% 75%Distillate calorie correction (% fuel) ‐4.0% ‐4.0% ‐4.0% ‐4.0%Residual heat & process (% fuel) ‐0.8% ‐0.8% ‐0.8% ‐0.8%Operating engineer (% position) 15% 30% 60% 60%M&R of equipment (% equip cost) 1.0% 2.0% 4.0% 4.0%

Redline for Open Loop Scrubber


Life Cycle Cost AnalysisBaseline Cases:• Net Savings• Looking good >4,000

MT/year








OM&R Expenses, Life Cycle (1,000 USD) 500 1,000 1,800 2,400OM&R expenses, annual (1,000 USD/yr) 83 145 274 358Operating engineer (% position) 15% 30% 60% 60%M&R of equipment (% equip cost) 1.0% 2.0% 4.0% 4.0%Investment Terms Analysis based on NIST Handbook 135, published 1995Base (Analysis) Date 19‐Nov‐13 Residual (19 Nov 2013) 632Construction Date 4‐Jul‐14 Differential (Distil l . vs. Residual) 55%Service Date 1‐Jan‐15 Rate of Inflation 3.0%Service Period (years) 10 Discount Rate 10.0%Operating Engineer (1,000 USD/yr) 250 Energy & Chemical Escalation 8.0%Page 25, Glosten Associates © 2013










MT/year





Initial Investment, One Time (1,000 USD) 6,900 5,300 4,700 9,200Fuel Cost Savings, Life Cycle (1,000 USD) 10,000 24,600 27,700 96,400Fuel cost savings, annual (1,000 USD/yr) 1,124 2,775 3,121 10,865ECA residual/scrubber (m.tons/yr) 3,982 9,829 11,057 38,489

Chemical Expenses, Life Cycle (1,000 USD) 0 0 0 0OM&R Expenses, Life Cycle (1,000 USD) 500 1,000 1,800 2,400OM&R expenses, annual (1,000 USD/yr) 83 145 274 358


MT/year


NET SAVINGS, LIFE CYCLE (1,000 USD) 1,900 16,300 18,700 76,200Operating Savings, Annual (1,000 USD/yr) 900 2,400 2,600 9,600






OM&R Expenses, Life Cycle (1,000 USD) 600 1,000 1,900 2,400OM&R expenses, annual (1,000 USD/yr) 90 160 304 388Operating engineer (% position) 15% 30% 60% 60%M&R of equipment (% equip cost) 1.0% 2.0% 4.0% 4.0%Investment Terms Analysis based on NIST Handbook 135, published 1995Base (Analysis) Date 1‐Jan‐13 Residual (20 Jan 2013) 650Construction Date 4‐Jul‐14 Differential (Distil l . vs. Residual) 50%Service Date 1‐Jan‐15 Rate of Inflation 3.0%Service Period (years) 10 Discount Rate 10.0%Operating Engineer (1,000 USD/yr) 300 Energy & Chemical Escalation 8.0%

Review Technology:• Consider Baseline

Containership US West Coast• Review Various Technologies





Initial Investment, One Time (1,000 USD) 6,900 5,300 4,700 9,200Fuel Cost Savings, Life Cycle (1,000 USD) 10,000 24,600 27,700 96,400Fuel cost savings, annual (1,000 USD/yr) 1,124 2,775 3,121 10,865ECA residual/scrubber (m.tons/yr) 3,982 9,829 11,057 38,489

Chemical Expenses, Life Cycle (1,000 USD) 0 0 0 0OM&R Expenses, Life Cycle (1,000 USD) 500 1,000 1,800 2,400OM&R expenses, annual (1,000 USD/yr) 83 145 274 358



Estimate Differences:• Parasitic Loads• Chemical Consumption and

Costs• Engineering, Installation,

O&M, Repair, Mid-Life Refit

and …

• And Capital Costs


Apply All Technologies to Containership US West Coast



Apply All Technologies to Containership US West Coast

Analysis: Impact of Various EGCS Containership US West Coast (All Cases)Technologies on Single Vessel Open Closed Hybrid DryAmounts in Present Value. Loop Loop (Open & ChemicalTotals and sub‐totals rounded to 100,000. Scrubber Scrubber Closed Loop) ScrubberSavings compared to burning distillate in ECA. ScrubberEquipment (1,000 USD) 3,500 4,100 3,500 3,500Engineer/Review/Training (% equip) 9% 11% 11% 7%Installation (% equip) 50% 60% 60% 40%Scrubber parasitic load (% fuel) 2.5% 1.0% 2.1% 0.5%ECA distillate option (m.tons/yr) 9,173 9,173 9,173 9,173Distillate calorie correction (% fuel) ‐4.0% ‐4.0% ‐4.0% ‐4.0%Residual heat & process (% fuel) ‐0.8% ‐0.8% ‐0.8% ‐0.8%Chemical expenses, annual (1,000 USD/yr) 0 204 52 407Chemical cost (USD/ton) 0 300 300 350Chemicals consumption (% fuel weight) 0.0% 7.0% 1.8% 12.0%OM&R expenses, annual (1,000 USD/yr) 160 232 220 160Operating engineer (% position) 30% 50% 50% 30%M&R of equipment (% equip cost) 2.0% 2.0% 2.0% 2.0%


Analysis: Impact of Various EGCS Containership US West Coast (All Cases)Technologies on Single Vessel Open Closed Hybrid DryAmounts in Present Value. Loop Loop (Open & ChemicalTotals and sub‐totals rounded to 100,000. Scrubber Scrubber Closed Loop) ScrubberSavings compared to burning distillate in ECA. Scrubber



Fuel Cost Savings, Life Cycle (1,000 USD) 24,300 25,200 24,500 25,400Fuel cost savings, annual (1,000 USD/yr) 2,744 2,835 2,767 2,866ECA residual/scrubber (m.tons/yr) 9,877 9,732 9,841 9,684Scrubber parasitic load (% fuel) 2.5% 1.0% 2.1% 0.5%ECA distillate option (m.tons/yr) 9,173 9,173 9,173 9,173Distillate calorie correction (% fuel) ‐4.0% ‐4.0% ‐4.0% ‐4.0%Residual heat & process (% fuel) ‐0.8% ‐0.8% ‐0.8% ‐0.8%ECA residual baseline (m.tons/yr) 9,636 9,636 9,636 9,636Fuel burned inside ECA (%) 51% 51% 51% 51%

Chemical Expenses, Life Cycle (1,000 USD) 0 1,800 500 3,600Chemical expenses, annual (1,000 USD/yr) 0 204 52 407Chemical cost (USD/ton) 0 300 300 350Chemicals consumption (% fuel weight) 0.0% 7.0% 1.8% 12.0%

OM&R Expenses, Life Cycle (1,000 USD) 1,000 1,400 1,300 1,000OM&R expenses, annual (1,000 USD/yr) 145 207 195 145Operating engineer (% position) 30% 50% 50% 30%M&R of equipment (% equip cost) 2.0% 2.0% 2.0% 2.0%Investment Terms Analysis based on NIST Handbook 135, published 1995Base (Analysis) Date 19‐Nov‐13 Residual 11/2013 (USD/m.ton 632Construction Date 1‐Jul‐14 Differential (Dist. vs. Residua 55%Service Date 1‐Jan‐15 Rate of Inflation 3.0%Service Period (years) 10 Discount Rate 10.0%Operating Engineer (1,000 USD/yr) 250 Energy & Chemical Escalation 8.0%

Life Cycle Cost AnalysisVarious Technologies:• Net Savings Vary by

less than +/- 10%• Investment Costs Vary

by ~16%• Annual Operating

Savings Vary by ~7%• All Differences are

within Margin of Error








Life Cycle Cost AnalysisSensitivity:• Installation Expenses• Fuel within ECA• OM&R Expenses• Fuel Cost Differential








Life Cycle Cost AnalysisSensitivity:• Fuel Cost Differential• Fuel within ECA• Installation Expenses• OM&R Expenses


Analysis: Sensitivity of Fuel Differential

Amounts in Present Value.Totals and sub‐totals rounded to 100,000. Open Loop Scrubber (All Cases)Savings compared to burning distillate in ECA. Containership US West Coast (All Cases)

Distillate Fuel Premium over Residual 20% 40% 60% 80% 100%Net Savings, Life Cycle (1,000 USD) 200 10,500 20,800 31,100 41,400Operating Savings, Annual (1,000 USD/yr) 600 1,700 2,900 4,100 5,200

Fuel Consumed within ECA by Weight 20% 40% 60% 80% 100%Net Savings, Life Cycle (1,000 USD) 3,300 13,100 22,800 32,500 42,300Operating Savings, Annual (1,000 USD/yr) 900 2,000 3,100 4,200 5,300

Installation to Equipment Cost Percentage 20% 40% 60% 80% 100%Net Savings, Life Cycle (1,000 USD) 19,500 18,800 18,100 17,400 16,800Operating Savings, Annual (1,000 USD/yr) 2,600 2,600 2,600 2,600 2,600

OM&R Expenses as Percentage of EquipmentOperating engineer (% pos i tion) 20.0% 40.0% 60.0% 80.0% 100.0%M&R of equipment (% equip cost) 2.0% 4.0% 6.0% 8.0% 10.0%Net Savings, Life Cycle (1,000 USD) 18,400 17,600 16,700 15,900 15,000Operating Savings, Annual (1,000 USD/yr) 2,600 2,500 2,400 2,300 2,100

Exhaust Gas Cleaning SystemsLife Cycle Cost Analysis - Conclusions


Conclusions:

Conclusions:• Primary Drivers: ECA Fuel Consumption, Fuel Cost Differential• Select Technology for Technical, not Cost, Reasons• Life Cycle Cost is ONLY Reason for Ship Operator to Install

Scrubbers – Evaluate using Net Savings (NS) Metric• Net Savings Become Positive at ~ 4,000 MT/Year within ECA• At Higher ECA Fuel Consumption Rates, Scrubbers (or Natural

Gas) may become a Competitive Necessity



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