the costa project - the financials of lng “as fuel”

COSTA Project The Financials of LNG as Fuel

The COSTA Project - The Financials of LNG as Fuel

Dr. Panayotis ZacharioudakisSenior Researcher NTUAR&D Consultant OceanFinance COSTA Greek Member State Coordinator

SNAME seventh technical meeting6 March 2014

COSTA Project The Financials of LNG as Fuel1

Introduction The Perspective of LNG as Fuel

COSTA Project @ a Glance

Facts and Figures for LNG Financials Ports / Terminals Short Sea Shipping

Transition to the LNG Era

Conclusions

Presentation Outline


LNG Fuelled Vessels

2

IntroductionLNG as Fuel Perspective


LNG Industry Has an Excellent Safety Record LNG has been Safely Delivered Across the Ocean for

Over 40 years Over 45,000 LNG Carrier Voyages More than 100 Million Miles,

Without Major Accidents or Safety Problems either in Port or at Sea

We should Follow a Mindful Approach for LNG as Fuel

3


An Accident Would Set Back the Planning for LNG as Fuel for Decades!!!


Sulphur Cap Regulations

5



EU Directives COM(2013) 17. Clean Power for Transport: A European alternative fuels strategy: Union

strategic approach must build on a comprehensive mix of alternative fuels

COM(2013) 18. DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the deployment of alternative fuels infrastructure. All maritime and inland ports and roads of the TEN-T Core Network wil be equipped with LNG refuelling points. It also requires providing a sufficient number of CNG refuelling points.( by 31/12/2020)

6



The Use of LNG as Fuel Mainly Depends on: LNG Spread over HFO and MGO

Financial Feasibility of LNG-as-Fuel Projects: Retrofitting Existing Ships New Buildings

Availability of a Critical Mass of LNG Bunkering Facilities



Interactions Between Shipping System, LNG Industry, National and European Institutions Major Driving Factor for Ports and Ship Projects is LNG Spread

National & EU Support is a Catalyst in Initiating & Promoting LNG Use. Simultaneously, Green Face of LNG Justifies National & EU Support.

The Rest is a Chicken and Egg Situation: Supply point of View: Number of Available Facilities & Port Surcharge on

LNG Price are Critical for LNG Vessel Projects Demand Point of View: Number of LNG Fuelled Vessels Influences

Investment in LNG Facilities.



COSTA - EU Co-funded Project COSTA Project CO2 Transport emissions Abatement by LNG (2012 2014). Development

of an LNG adoption Masterplan in the Mediterranean Sea.

9

COSTA Project@ a Glance


Howmuch?DemandAnalysis

Where?SupplyAnalysis

How?TechnicalandLogistics

Solutions

DecisionSustainabilityofthe

solutions

Recommendation

COSTA ProjectMasterPlan


COSTA Political Closure European Parliament, 19 02 2014 , Brussels EU Foresees 2 Regional Projects (2014 - 2015)

11

COSTA ProjectContinuation


LNG Bunkering in Med is a Niche Market but not a Blank Page anymore!

Results Based on a Comprehensive Model for Macro-Analysis Considering: Vessel Trends towards LNG as Fuel Critical Age Limit for Retrofitting Various types Orderbook and Future Deliveries Estimation on Refueling Quantities etc.

Obtain Information for Major Hubs, Satellite Ports: LNG Demand per Site & Annum Infrastructure Investment Costs OPEX per Annum Projects Viability Required Bunkering Surcharge

COSTA Project Facts and Figures


Research Activities Market & Feasibility Studies: Piraeus, Thessaloniki and Patra

Quantify Fleet Profile & Potential Users in 2020 2030

Reveal Accordingly LNG Needs in each Port

LNG Flow Simulation and Infrastructure Requirements

Financial Modeling and Investment Evaluation Under Uncertainty

Calculate Sweet - Break Even LNG Surcharge by Port

Facts & Figures Ports / Terminals


Market Survey: Collect Statistical Data Port Authorities Statistic Agency

Construct Database- sea-web.com Preliminary Classification based on Vessel Type Extended Classification based on Vessel Particulars:

Capacity (e.g. Dwt, TEU, berths) Age Installed Horse Power (kW) Service Speed



LNG Demand Assessment: Assumptions on Vessel Trends towards LNG as Fuel (e.g. Short Sea vs Deep Sea)

Define Age Limit for Retrofitting (e.g Below 10 or 15 years)

Estimate Refueling Quantities per Vessel Type & Route

Select Appropriate Dual Fuel Installations (MAN, Wrtsil)

Calculate Refueling Demand and Number of Refuelings on a Daily and Yearly Bases.

Assess Seasonality Especially for Cruise and Ro-Pax Vessels



LNG Storage Tanks: Distance from LNG Import Terminal is Critical

Lease Space in Terminal for Bunkering Activities

Offshore Installations, FSRU LNG Refueling Means:

Assess Logistic Solution and Seek for Optimum Solution

Ships & Terminal Operation Profile (Vessels sequence, arrivals profile etc.)

Estimated Demand for LNG (per Vessel, Day, Year, High Low Season)



Piraeus: Vehicles Carrier - Car Terminal

716 Port Calls / 202 Vessels Container Ship - Container Terminal

2.398 Port Calls / 302 Vessels Cruise Ship - Passenger Terminal

770 Port Calls / 110 Vessels Ro-Pax Ship - Passenger Terminal

4.293 Port Calls / 31 Vessels



If not In Piraeus then where?

18

Intelligence in Shipping Introduction

LNG as Fuel Perspective


Piraeus (Container Vessels): Three Classes:

Class (0-1.999 TEU) Small Feeder Vessels Connecting Hubs with Small Ports

Class (2.000-7.999 TEU) Feeder Vessels Connecting Hubs with Small Ports Operating in Larger Distances

Class C (8.000+ TEU) Mother Vessels Performing Transcontinental Routes



Piraeus: Piraeus is a Major Short & Deep Sea Hub Age Determines Retrofit Potential Size Determines LNG Demand

Preprocessing Container Vessels:

Intelligence in Shipping Facts & Figures

Ports / Terminals


Piraeus: Destination and Installed Power are also Critical for LNG Demand

Preprocessing RoPax Vessels:

Small Ro-Ro/Pax Large Ro-Ro/Pax

Number of Arrivals 1132 756

Average Installed Power [kW] 12.735,6 29.090,4

Average Service Speed [ knots ] 22,2 36,0

Average Age 20,4 10,2



Piraeus: Same Preprocessing Analysis for all Critical Vessel Types

Calculating for Each vessel Category: Expected Number of Port Calls in 2020 & 2030 Average Refueling Quantity (m3) Expected Percentage of LNG Fuelled Vessels Expected Percentage of Vessels Refueling in Port Expected Number of Annual Refuelings Expected Annual Demand for LNG (m3)



Piraeus:LNG Demand for Indicative Vessel Categories ( 2018 2020 )


Ship type Expected annual No of calls 2020

Average LNG bunker delivery

size (m3)

Share of fleet that bunker LNG 2020 [%]

Share of total calls with Lng bunker operations [%]

No of LNG bunker operations 2020

Annual LNG (m3) 2020

Small Container Ship 1355 92 39 60,00 314 29018,90

Medium Container Ship 697 202 48 60,00 201

40547,35

Small Passenger Cruise 292 143 48 60,00 84 12053,30

Large Passenger Cruise 478 450 71 60,00 202 91024,25

Small Vehicles Carrier 395 77 53 60,00 125 9618,18

Large Passenger Ro-Ro Ship (Vehicles) Piraeus - Crete -Piraeus 708 189 100 100,00 708

133659,18

Small RO-PAX Piraeus - Cyclades -Piraeus 1132 44 74 100,00 836

36630,06

Large RO-PAX Piraeus - Cyclades -Piraeus 756 59 77 100,00 580

34052,60

Large RO-PAX Piraeus - North Aegean - Piraeus 408 132 74 100,00 300

39749,70

Large RO-PAX Piraeus - Dodecanese -Piraeus 274 242 100 100,00 274

66237,46



Piraeus 2020:

0 200 400 600 800

1000 1200 1400

Small

Conta

iner S

hip

Large

RoPa

x Cr

ete

Large

RoPa

x Cycl

ades

Small

RoPa

x Cycl

ades

Large

Passe

nger

Cruise

Large

RoPa

x Nort

h Aeg

ean

Small

Car C

arrier

Small

Passe

nger

Cruise

Large

RoPa

x Dod

ecan

ese

Expected Number of Port Calls (2020)



Piraeus 2020:

0

100

200

300

400

500

Large

Passe

nger

Cruise

Large

RoPa

x Dod

ecan

ese

Large

RoPa

x Cr

ete

Small

Passe

nger

Cruise

Large

RoPa

x Nort

h Aeg

ean

Small

Conta

iner S

hip

Small

Car C

arrier

Large

RoPa

x Cycl

ades

Small

RoPa

x Cycl

ades

Average Refueling Quan ty (m3)



Piraeus 2020:

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

100%

Large

RoPa

x Dod

ecan

ese

Large

RoPa

x Cr

ete

Large

RoPa

x Cycl

ades

Large

RoPa

x Nort

h Aeg

ean

Small

RoPa

x Cycl

ades

Large

Passe

nger

Cruise

Small

Passe

nger

Cruise

Sm

all Ca

r Carr

ier

Small

Conta

iner S

hip

Expected Percentage of Vessels Refueling in Port of Piraeus


Piraeus (Base Scenario With EU Co-Funding): 20,000 cm Storage Tank - Use of Near

by LNG Import Terminal 1 bunker vessel 1.000 m3 5 LNG Tracks 50 m3 each



LNG Bunkering in Piraeus Terminal Infrastructure Works (Supply)

Investment Cost 97 m Operating Cost 14 m per Annum Bunkering Surcharge for 15 years PBP (Discounted Cash flows)

No EU Funding: 170 per ton 75% EU: 97 per ton

97 m

14 m 0

20

40

60

80

100

120

Investment Cost Annual Opera ng Cost

Piraeus Terminal Infrastructure Cost


LNG Demand: 225,000 tons / 500,000 m3 per Annum (2020)


Patra: Ro-Pax Operations in Adriatic Sea Represent a Major Demand Driver Distance From Revithousa LNG Import Terminal Increase substantially Increases

Cost Financial Analysis shows

nitial Investment Exceeds 80 m (Need for LNG Storage) Annual Operating Cost for 2020 & 2030 Close to10 m A Surcharge of 250 per ton of LNG is sufficient for a Pay Back Period

(discounted Cash flows) of 15 Years for the Investment of the Port Thessaloniki:

Due to Vessel Types Calling at the Port Demand for LNG is Estimated to be Less than 10,000 ton per Year


Ports Should Seek for EU

Support


Genova 2020 initial Investment 85-105 m Annual Operating Cost exceeds 15 m A Surcharge of 110 per ton of LNG for a 15 years Pay Back Period

Napoli 2020 initial Investment 80-105 m

Annual Operating Cost for 2020 exceeds12 m A Surcharge of 150 per ton of LNG for a 15 years Pay Back Period

Ravenna 2020: initial Investment 30-50 m Annual Operating Cost for 2020 about 6 m A Surcharge of 250 per ton of LNG for a 15 years Pay Back Period

Venezia 2020: initial Investment 30-50 m Annual Operating Cost for 2020 about 8 m A Surcharge of 150 per ton of LNG for a 15 years Pay Back Period



Intelligence in Shipping Poseidon-Med

Facts and Figures


Research Activities Market & Feasibility Studies: Various Ship Types Focused on Greek and Mediterranean Needs (100% ECA Operation) Quantify LNG as Fuel Retrofit Cost Financial Modeling and Investment Evaluation on 3 Alternatives

LNG MGO HFO and Scrubbers

Calculate Pay Back Period and other Major Financial Criteria

Facts & Figures Short Sea Shipping


LNG Solution Comparison with other Alternative Fuels

Indicative Cost to Comply with Sulphur Cap Requirements (e.g. Large RoPax Vessel) MGO < 1 m Scrubber Approx. 5 m LNG Approx. 8 m

Consider also the: Alternative Fuels Spreads Reduction of the Specific Fuel Consumption with the Use of LNG (Save as you

Sale) Various Technical Problems of Non-LNG Alternatives Economies of Scale will Decrease Retrofitting cost



LNG Price Spread (e.g. Port of Piraeus)

LNG CIF price: 10 / Mmbtu 512 per ton LNG Bunker selling Price 609 per ton LNG - MGO Spread approx 111 per ton LNG HFO Spread approx -169 per ton

512

609

720

440

0

100

200

300

400

500

600

700

800

LNG CIF LNG MGO HFO

Alterna ve Fuels /ton

LNG CIF

LNG

MGO

HFO

111

169 200

150

100

50

0

50

100

150

MGOLNG HFOLNG

Alterna ve Fuels Spread

MGOLNG

HFOLNG


Surcharge: 97 per ton


Spread MGO-LNG

Aprox. 8 Years Pay

BackFor a

RoPax

For 10 per MMbtu for LNGMGO-LNG Spread is 111

per ton



Spread LNG-HFO

Aprox. 2 Years Pay

BackFor a

RoPax

For 10 per MMbtufor LNG

LNG-HFO Spread is 169 per ton



High and/or Volatile LNG Price Lead to Almost Zero LNG Fueled Orderbook in Future

Make Retrofitting of Middle Aged Vessels not Feasible in Financial Terms

Turn Existing LNG Fueled Projects to Toxic Investments

Sustainability The Use of LNG as Fuel will Increase Demand and Sooner or Later the Price.

Some Say that LNG Production Might not Meet Demand by 2030.

Uncertainties on LNG Price and Spread are Present

Transition to the LNG Era Treats


Ability to Manage LNG Price and Spread Political Means to Manage LNG & LSF Spread

Use of Risk Management Tools. Risk Management can do very Little to Reduce Variability, but can be very Effective in Reducing Uncertainty for those Involved in Risk-Taking Decisions

Sustainable Financing is the Answer: Know & Avoid Catastrophic Risks

Impugn Greed For Profits Or Phobic Attitudes!!!

Technocratic Criteria In Financing

Establish Formal Procedures For Rating Corporate Performance and Investment Evaluation

Transition to the LNG Era Possibilities


By 2020: Hopefully Economy will Recover Starting a New Shipping / Shipbuilding Cycle

Economies of scale and widespread of LNG would reduce Equipment Cost

There is Time to Solve all Technical Issues and Train an adequate Number of Skilled Seafarers

Transition to the LNG Era Possibilities


LNG is the Dominant Scenario Among the Alternative Fuels

Mandatory Regulations in 2020: Directive for LNG Bunkering Stations @ Core Ports (Supply) Low Sulphur Cap in Med (Demand)

EU Member States Approval (Spain, Portugal, Greece, Italy, Cyprus etc)

Transfer and Adapt Know-How from the Baltic / Singapore in Technical, Regulatory and Safety Issues

ConclusionsTowards the LNG Era in East Med


Infrastructure Works: Huge Investment Costs EU Co-Funding Portfolio (TEN-T, Regional & Cohesion Funds, EIB,

Innovative Financial Instruments - PPP)

Vessels Retrofitting: High Initial Cost Lack of EU Supportive Measures (only Pilot Actions) But Positive Cash-flows


Private & Public Sector Financial Problems in S. Europe


Ports & Vessels Are Expected to Voluntary Shift to LNG as Fuel due to Significant Benefits (prior to 2020)

LNG as Fuel will have Enormous Side Benefits: LNG Bunkering Services Infrastructure Construction Ship & Terminal Equipment Shipbuilding & Retrofitting Services Synergies with Mainland Energy & Transportation Sectors



Greece-Special Characteristics:

Greek Archipelago Requires Ways to Access through Sea a Large Number of Remote Islands

Greek Authorities Must Ensure Uninterrupted Accessibility and Sustainability of a Large Coastal Shipping Network

Current Economic Conditions Have Reduced Demand: the System is One Step before Collapse

Both Aegean and Ionion Archipelaga Are Sensitive Ecosystems Whose Main Characteristic is a Pristine Environment

LNG Represents a Win-Win and Sustainable Solution: Lower Operating Cost andLower Environmental Cost

But: Initial Infrastructure Cost is Forbidding

ConclusionsImportance for the Greek State


Greek Terminals Expect (from the Transition to LNG in Shipping):

Increased Revenues Improved Environmental Conditions in the Port Area (Including Reduced Noise) Compliance to Newer Directives and Regulations Maintain Competitiveness and Ensure Survival Ability to Serve LNG Fueled Vessels in the Near Future

Despite: High Initial Investment Cost for Infrastructure



Greek Ship-Owners Expectations (from the Transition to LNG in Shipping): Compliance with EU and IMO Regulations Stay in touch with Near Future Dominant Scenario Decreased Fuel Consumption Expected Positive Cash Flows PBP No More than 8 years in 90% Ability to Provide Shipping Services to the ECA Areas (Seasonal Adjustment) Improve Corporate Good Will and Eco- Friendly Profile by Using Green Fuel Take Advantage of LNG Combustion for Reduced Noise Emissions

Greek Financial Institutions Expectations: Reduce Shipping Portfolio Risk Finance Sustainable Projects

Despite: High Initial Investment Cost for Retrofits and New Buildings



Consider the Comprehensive Network Especially in Area with Significant Geostrategic Role

Help Organize an Efficient Market for Natural Gas to Ensure Availability at Reasonable Prices

Reassess EU Incentives. Not only for the LNG Supply (Infrastructure Works) but also for Demand (Vessels) . Markets are Always Demand Driven

RecommendationsTowards the LNG Era in Greece


Provide Supportive Measures for Solutions to the Financial Obstacles (such as Innovative Financial Instruments, Pan-European Accreditation Mechanisms to Reveal Best and Viable Projects

Undertake Extended Focused Studies in Each Affected Region

RecommendationsTowards the LNG Era in Greece

the costa project - the financials of lng “as fuel”

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