Commercial terms for the development of LNG infrastructure Martin Wold 06.02.2014 1 DNV GL © 2013 06.02.2014 SAFER, SMARTER, GREENER Agenda 1. Barriers for the uptake of LNG as fuel 2. Bunkering scenarios 3. Distribution cost 4. Fuel prices 5. The business case for LNG as fuel 2 DNV GL © 2013 06.02.2014 Limited bunkering infrastructure is the largest barrier for the uptake of LNG as fuel 1. Economic and market barriers  Split incentives  Financial short-sightedness 2. Policy and governance barriers  ‘Chicken and egg’ barrier  Lack of direction and coordination 3. Technology and innovation barriers  No significant barriers The majority of the abovementioned barriers are likely to be overcome. DNV GL expects rapid LNG uptake in the next years. 3 DNV GL © 2013 06.02.2014 Global LNG bunker demand by 2020 Europe & the Baltic Sea 1.4 – 2.2 million 0.07 – 0.09 million North America 0.9 – 1.4 million China 0.3 – 0.8 million Japan & Korea 0.3 & – 0.5 million Middle East India 0.3 – 0.7 million SEA 0.4 – 0.7 million South America Australia & NZ 0.3 – 0.4 million 0.1 – 0.2 million LNG Bunkering demand 2012 LNG Bunkering demand 2020 Equivalent to 4 -7 million tons of LNG DNV GL © 2013 4-7 million tons of LNG p.a is required for 1000 ships in 2020. This corresponds to 0.2-0.3% of global gas production in 2010 or 2-3% of global LNG production 06.02.2014 4 General principles and bunkering scenarios 5 DNV GL © 2013 06.02.2014 The distribution cost varies depending on the bunkering method LNG Distribution cost [EUR/tonne] 250 Assuming an LNG distribution chain of a terminal with a storage capacity of 1,000 m3 using a truck of 58 m3 to bunker the vessel: 200 58 m3 1,000 m3 + = 150 25 EUR/tonne + 65 EUR/tonne = 90 EUR/tonne 100 EURO/tonne ÷ 13,7 = EURO/MWh EURO/tonne ÷ 34,5 = USD/MMBtu 50 0 0 25.000 50.000 Truck (58 m3) average haul Assumed distribution chain 6 DNV GL © 2013 06.02.2014 75.000 100.000 125.000 150.000 LNG troughput [tonnes/year] Ship (3000 m3) Ship (6000 m3) 175.000 Terminal (1000 m3) 200.000 225.000 Terminal (10000 m3) Fuel prices Historical fuel prices on marine fuels and natural gas [EURO/MWh] 90 80 Price [EURO/MWh] 70 60 50 40 30 20 10 0 Year Europe Brent Spot Price FOB HFO 380cst MGO Europe Gas (Average import border price) US Gas (Henry Hub) Sources: Clarkson, Worldbank 7 DNV GL © 2013 06.02.2014 The ship owner’s business case Cumulative discounted cost difference compared to baseline [MUSD] 12 10 [MUSD] 8 6 4 2 Henry Hub + European gas + distribution liquefaction + distribution 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Year LNG = MGO - 25% 8 DNV GL © 2013 06.02.2014 LNG = MGO - 40% Scrubber + HFO MGO HFO 2031 Final thoughts  LNG will become a major fuel for shipping, it is only a question of when  Public support will accelerate the development of LNG fuel  For commercial projects to succeed in this early phase, partnerships and close cooperation is required  Important to understand and utilize local commercial conditions for development of LNG fuel  The (commercial) risk of choosing LNG is considered high – but what is the risk of not considering LNG fuel? 9 DNV GL © 2013 06.02.2014 Martin Wold [email protected] www.dnvgl.com SAFER, SMARTER, GREENER 10 DNV GL © 2013 06.02.2014