Marine lng fuel, challanges and opportunities

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MARINE LNG FUEL:
CHALLENGES &
OPPORTUNITIES
18.9.2019 [Presentation name / Author]1
John Hatley PE
Gas Initiatives ( MBA, MSE )
Wartsila North America
Cell +1 281 221 4209
john.hatley@wartsila.com
John Hatley PE LinkedIn
S2.6 SHIPPING OPTIMISING
OPERATIONS & MEETING THE 2020
IMO EMISSIONS CAP
17-19 SEPTEMBER 2019
HOUSTON, TEXAS

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Future Ahead, structural shifts?
As a vessel owner, all I want to know
what 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.

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Challenges

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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
???

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Competition Model Forces
Government
Legislation exercises
market influence…
emissions

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Watershed 12 December 2015
18.9.2019[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

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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.

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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.

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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

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Regional Air Emissions, Environment, & Health
CO2
Carbon Dioxide
Greenhouse
Gas
NOx
Nitrogen Oxide
Ozone
SOx
Sulphur Oxide
Respiratory
PM
Particulate
Matter
Carcinogen
Low emissions = Anatomical… Human Health Global Warming

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Regional Air Quality & Global Warming
Anatomical… clean fuel promotes
better health and longer life…
Global… is regional aggregated
REGIONAL
AIR QUALITY
GLOBAL
AIR QUALITY

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Disruptions

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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

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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 &
LSFO
1.8 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

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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

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Opportunities

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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, …

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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

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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

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Equivalent Annual CO2
Least CO2
Ethane 21% < HFO
LNG 26% < HFO
Hydrogen 100% < HFO
Ammonia 100% < HFO
Renewables
Decades
Away!

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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

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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

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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

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Adoptions

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Marine Substitution Sail to Steam
Percent
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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 ?

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Clipper Ship Era 1840’s
Large Sails
Remarkable Speed
( 18 mph )
Good Cargo Capacity
Smaller Crew
( reduced cost )
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Sail defensive performance
… brief 3 decade surge

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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

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US Railroad Substitution Steam to Diesel
Percent
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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

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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

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Future Ahead, structural shifts?
As a vessel owner, all I want to know
what 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 PE
VP Americas Marine Solutions
& Director Market Shaping
Gas Initiatives ( MBA, MSE

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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

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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

Marine lng fuel, challanges and opportunities

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Marine lng fuel, challanges and opportunities