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Energy Markets and LNG Fuel Business Case
LNG Fuel Forum45h Annual General MeetingCaribbean Shipping AssociationIntercontinental Hotel19-21 October 2015Cartagena, Columbia
John Hatley PE LNG Initiatives ( MBA, MSE)
Americas VP Ship PowerWartsila North America, Inc.
Cell +1 281 221 [email protected]
18 Wartsila LNG Fuel Contracted Vessels North America
3 @ BC Ferries
2 @ Seaspan
2 @ TOTE
3 @ Society Quebec Ferries
6 @ Harvey Gulf
02 November 2015
Wartsila’s #1 in LNG fuel projects
+ 2 Merchant Vessels
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Keys
Americas Shale Gale in Gas & Oil, robust / fragile ?
Global Energy Policies, market gamesmanship ?
Adoption rates, fundamentals ?
Future Ahead, structural shifts?
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Agenda
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What ? Competitive Forces Americas & EU Gas BasisEmission Areas Expansion & Owner Choices
Why ? 5 Drivers Set Investment ClockAmericas Compelling Savings3 Gas Pillars
Business Case Cargo, Investor, Banker Views1400 TEU CoasterInvestment Returns
Oil Price Shock ! Business Case: Robust or Fragile?Stress Test
Conclusions Recent Market SignalsThe Future Decade for GasBusiness Case Appendix
Agenda
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What ? Competitive Forces Americas & EU Gas BasisEmission Areas Expansion & Owner Choices
Why ? 5 Drivers Set Investment ClockAmericas Compelling Savings3 Gas Pillars
Business Case Cargo, Investor, Banker Views1400 TEU CoasterInvestment Returns
Oil Price Shock ! Business Case: Robust or Fragile?Stress Test
Conclusions Recent Market SignalsThe Future Decade for GasBusiness Case Appendix
Competition Model Forces
Government Legislation:Political power exercising market influence: Trade Behavior, Emissions
Porter’s 5 Forces + 1…Government Legislation exercises market influence… emissions
SHALE GALE
Global Recoverable Shale Gas Resource
02 November 2015
Top 5 hold over half of world’s shale gas resource
tcfSource: http://www.eia.gov/conference/2013/pdf/presentations/kuuskraa.pdf
Global Gas Production
02 November 2015
Source: LNG for Marine Transportation USA, Houston TX, June 12, 2013; David Sweet President Natural Gas Roundtable http://lngmarineevent.com/presentations/2013/David-Sweet.pdf
BILLION M3
USA is world’s #1 gas producer… US Shale gas production, by itself, exceeds all nations except Russia
Emission Control Areas
More Emission Control Areas “ECA” likely soon
Shale Gas Positioning
Americas Recent ECA casts broad &
expansive emissions regulations
Shale gas compelling economics driver amidst ever tighter Government regulatory climate.
EU Early SECA targets limited
sulfur requirements; may soon evolve into broad ECA
Shale gas parity pricing with other fuels… Government drives environmental change thru tax incentives/avoidance
02 November 2015
2012 Heralded Americas Emissions Control Area ECA broad / expansive compared to 2007 SECA specificlimits for Europe.
Marine Fuel Sulphur Content by % Weight
02 November 2015
SECA Standard
Global IMOStandard
January2012
January2020
January2025
July2010
January2015
Review2018
IMO MARPOL Annex VI Amendment October 2008 ( European Union Sulphur Directive 2012/33/EU) stepwise reductions
Shale Gas Positioning
Americas Recent invoked ECA casts
broad & expansive emissions regulations
Shale gas compelling economics driver amidst ever tighter Government regulatory climate.
EU Early adopted SECA
targets limited sulfur regulations; may soon evolve into broad ECA
Shale gas parity pricing with other fuels… Government drives environmental change thru tax incentives/avoidance
02 November 2015
Americas enjoys compelling shale gas economics…versus Europe’s absence where Government environmental inducements shape adoption.
Key: Fuel Prices on Energy Basis
02 November 2015 Peter H Jantzen
380 cStHFO
1%MGO
0.1%diesel
LNGJapan
LNGEurope
LNGUSA
0
10
20
30
$ / mmBtu
Fuel price dominates vessel OPEX… gas is cheapest & cleanest in Americas… EU price parity dampens economic incentives.
4 Pathways for Vessel Owners
1. Consume compliant Ultra Low Sulfur Distillate… expensive champagne fuel
2. Switch to alternative fuel: safe, clean, abundant, affordable, & available natural gas as LNG
3. Alternative Compliance… install new technology scrubber … CAPEX, OPEX, space, weight, complexity, & operational tradeoffs
4. Abort the Port
02 November 2015
ECA and SECA mandates force timely choices… options 1,4 invoke business reset … prepare LNG now
Agenda
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What ? Competitive Forces Americas & EU Gas BasisEmission Areas Expansion & Owner Choices
Why ? 5 Drivers Set Investment ClockAmericas Compelling Savings3 Gas Pillars
Business Case Cargo, Investor, Banker Views1400 TEU CoasterInvestment Returns
Oil Price Shock ! Business Case: Robust or Fragile?Stress Test
Conclusions Recent Market SignalsThe Future Decade for GasBusiness Case Appendix
Shale Gas Plays
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Shale …. huge reserves natural gas; nearly century supply
Abundant Gas Supply
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Paradigm shift to shale gas; now 25% of supply... future @ half
Annual Shale Gas Production
17% CAGR
41% CAGR
Shale production surge… 2006 frantic… 2010 strong
24% CAGR
Other US
Bakken ND
Eagle Ford TX
Marcellus PA
Haynesville LA
Woodford OK
Fayetteville AR
Barnett TX
Antrim MI, IN
Emission Control Area “ECA” US & Canada
02 November 2015
ECA bubble encapsulates… any flag ships.. 200 nautical miles… low sulfur fuel (equivalence)… enforceable August 2012
Source: US EPA, Designation of North American Emission Control Area to Reduce Emissions from Ships
Puerto RicoUS Virgin Islands 2014
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Source:http://www.dnvusa.com/industry/maritime/publicationsanddownloads/publications/newsletters/technical_regulatory/2012/north_american_emission_control_area.asp
Fuel Sulfur 0.10 % limit commences 1 January 2015
No. Am. ECA Fuel Sulfur Limit
5 US Game Changers
Source:http://www.google.com/imgres?imgurl=http://www.canadiansailings.ca/canadiansailings/portals/0/April_13/emissions_area_map.jpg&imgrefurl=http:// EIA March 2010 Shale Gas Plays Lower 48 States
US centuries shale gas supply
Natural Gas bargain
Emissions Control Area 2012
EPA Engine Emissions
EPA Fuel Standards
5 gas drivers …shale supply + bargain prices + 3 EPA mandates = set Investment Clock
3 Pillars LNG Fuel Vessels
02 November 2015
ECONOMICS SAFE & RELIABLE
ENVIRONMENT SUSTAINABILITY
Proven LNG systems... reduce risk for yard, owner, & banker... extends LNG value proposition to end customer
Pillar... Environmental Sustainability
Methane has the highest hydrogen to carbon ratio = lowest CO2.
Butane[C4H10]
10:4(250%)
Propane[C3H8]
8:3(267%)
Ethane[C2H6]
6:2(300%)
Methane[CH4]
4:1(400%)
Natural gas a mixture of hydrocarbon gases associated with petroleum deposits, principally methane.
MGO 1.86:1 (186%)Natural gas… lowest carbon = cleanest burning fuel
How clean ?
CO2
NOx
SOx
ParticulatesDF Natural Gas
Engine
DieselEngine
0
20
40
60
80
100
Emissionvalues [%]
-25%
-85%
-99%
-99%
LNG provides significant emission reductions compared to traditional diesel engines
Logic… Economics !
02/11/2015
Pillar… Economics... it saves money!
LNG provides compelling savings… Business Cases demonstrate
Payback screen short term … <4 years... Strong cash flows… Higher ROIC & EBITDA
Competitive Advantage
How much does LNG cost ?
The Math LNG x 1.7 = Diesel Gallon Equivalent= $1.05 x 1.7 = $ 1.78 gallon diesel equivalent
= savings ( $3.37 - $1.78 ) = $ 1.58 per gallon
Source: Zeus LNG Fuel Seminar, August 31, 2011 Houston; Fleet Operators Perspective: Issues the LNG Industry Must Address, David Moseley, Assist Secretary Washington State DOT
August 2011 …LNG captures compelling fuel savings …. nearly half cost of diesel
How much does LNG cost ?
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June 2014… LNG captures compelling fuel savings …. nearly half cost of diesel
Pillar… Safe & Reliable
Viking Energy 2003Stril Pioner 2004
Europe’s decade LNG experience began offshore North Sea vessels… proven path for technology transfer to Americas
Agenda
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What ? Competitive Forces Americas & EU Gas BasisEmission Areas Expansion & Owner Choices
Why ? 5 Drivers Set Investment ClockAmericas Compelling Savings3 Gas Pillars
Business Case Cargo, Investor, Banker Views1400 TEU CoasterInvestment Returns
Oil Price Shock ! Business Case: Robust or Fragile?Stress Test
Conclusions Recent Market SignalsThe Future Decade for GasBusiness Case Appendix
Cautionary Remarks
Each investment case requires careful analysis, inclusion, and weighing a broad variety of issues stemming from technical, financial, operational, regulatory, and other areas.
The purpose of this exercise is to illustrate a Business Case example and how a few of many key considerations may be transcribed into financial modeling as an aide to decision making.
Readers are advised that neither the Author nor Wartsila nor it’s subsidiaries are responsible for any errors, omissions, or updates to this information contained herein or assumptions or derivations whatsoever.
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This presentation is no substitute for your good and responsible decision making. Please utilize prudence and caution when making investment decisions along with securing the advice and guidance of professionals.
4 Stakeholders
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SHIP OWNER
BANKER
PUBLIC
George Washington (1732- 1799)
Thomas Jefferson
( 1743- 1826)
Theodore Roosevelt
(1858- 1919)
Abraham Lincoln
(1809- 1865)
CARGO OWNER
4 Stakeholders
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SHIP OWNER
BANKER
PUBLIC
The cargo PULL to
move a deal forward
The entrepreneur
PUSH to make a deal
The Capital Cash to
PROPELL deal
Ultimate Environment
Safety
CARGO OWNER
4 Viewpoints
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SHIP OWNER
BANKER
PUBLIC
Transport safely at
optimal cost reliably
At fair return capturing
risks
Are risks understood
& I’m repaid !
Ultimate Environment
Safety
CARGO OWNER
4 Key Metrics
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SHIP OWNER
BANKER
PUBLIC
All In Charter
Freight rate $ / ton
Return on Investment:
ROIC, EBITDA, cash flows
EBIT, Times Burden Cover,
cash flows
Ultimate Environment
Safety
CARGO OWNER
Business Case Vessel
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Over 100 ships annually built of similar size
The Route… Miami - Kingston - Caucedo
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Foreign flag 1400 TEU Container … Emission Control Area route significant “ECA” Bound…2110 Nautical Miles, cargo operations 8 hrs/port, 359 operating days, 6 weather days
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Foreign Flag Vessel & US Corporation
1,400 TEU Capacity ( 334 Reefers )
Speed 18 knots… single Screw … 2 Stroke
Propulsion power 13,500 HP ( 10,080 kW )
Manning SOLAS Compliant
Certified Major Class Society
1400 TEU Container Coaster
Speed provides 55 annual round trips along route… vessel size yields competitive cost tonnage delivery economics.. LNG fuel… load factor 50%
Recall ?
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Then… 5 August 2014
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Recent Prices: LS180 1% 636 $/mt… LSMGO 0.1% 971 $/mtSource: http://www.bunkerworld.com/prices/port/us/hou/
Cargo Owner Transport safely at optimal cost reliably
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Cargo owner with LNG fuel choice benefits millions transport savings… $6.7 to $13.5 million over five years per ship… times how many ships?
Ship Owner A fair return capturing risks
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Compelling fuel payback for vessels running on LNG fuel; an initial screening tool … not a good investment metric.
Ship Owner A fair return capturing risks
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Investor finds Competitive Advantage for return on capital… LNG hurdle rate is highest & yet preserves millions cargo owner savings.
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LNG fuel has strongest EBITDA… + $1.9 Million over HFO+ Scrubber and + $3.1 Million atop MDO.
Years
EBITDA
MDO Fuel
HFO + Scrubber
LNG Fuel
Ship Owner A fair return capturing risks
Banker Are risks understood & I’m repaid !
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Banker finds debt cover is weakest on MDO fuel, favorably stronger on alternatives, LNG is strongest.
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Years
EBITBanker Are risks understood & I’m repaid !
LNG has strongest EBIT… Depreciation 10 Year MACRS ½ Year Convention… Dry docking years 5,10,15,20
LNG Fuel
HFO + Scrubber
MDO Fuel
Agenda
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What ? Competitive Forces Americas & EU Gas BasisEmission Areas Expansion & Owner Choices
Why ? 5 Drivers Set Investment ClockAmericas Compelling Savings3 Gas Pillars
Business Case Cargo, Investor, Banker Views1400 TEU CoasterInvestment Returns
Oil Price Shock ! Business Case: Robust or Fragile?Stress Test
Conclusions Recent Market SignalsThe Future Decade for GasBusiness Case Appendix
Recall Shale Gas
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North America Shale Oil Plays
02 November 2015Source: http://www.ogj.com/articles/print/vol-110/issue-12/processing/us-refining-outlook-rosier-than.html
US shale crude revolution; reserves exceed 120 billion BBL
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Source: http://www.usfunds.com/investor-library/frank-talk/one-of-the-most-notable-stories-of-the-year-energy-renaissance-in-the-usa/
5% CAGR
14% CAGR
58% CAGR
Shale crude surging… 2006 growth strong; 2010 frantic
US Shale Crude Production
5 January 2015
50 © Wärtsilä Source: http://www.forbes.com/sites/nathanvardi/2015/01/05/saudi-arabias-750-billion-bet-drives-brent-oil-below-54/
Exert Discipline in the Marketplace amongst OPEC and Non OPEC countries... Key focus on market share
Brent Crude Oil Prices
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Source: http://www.nasdaq.com/markets/crude-oil-brent.aspx?timeframe=1y
THEN
Crude severe price drop past year as abundant supplies face weak demand
NOW
Oil Prices Dropping
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Source: http://www.bloomberg.com/news/2015-01-26/oil-slides-to-near-6-year-low-as-u-s-supply-seen-worsening-glut.html
26 January 2015
Oil down 60% since June…US WTI crude closes at multi - year low… caused by oil glut from…
Strong Supply : US shale boom + Libya restarts large oilfield…& Saudi Arabia not reducing supply
Soft Demand: China strong but tapering & EU slight recession…
Discipline Target US or Russia ?
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Russia suffering double whammy:
Oil rich Ukraine and Black Sea burdened by politics under imposed sanctions as oil takes severe price slide…
Ruble plunges down 50% against USD
Source: http://online.wsj.com/articles/ruble-hits-new-low-as-oil-prices-drop-1417441184
Source: http://www.usnews.com/news/articles/2014/11/10/an-oil-price-cold-war-with-saudi-arabia-not-so-fast-experts-say
Source: http://www.businessinsider.com/ruble-plunging-again-2014-12p://online.wsj.com/articles/ruble-hits-new-low-as-oil-prices-drop-1417441184
1 December 2014
26 January 2015
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Source: http://www.cnbc.com/id/102366561#.
Recent low for crude
Source: http://www.businessinsider.com/citi-saudi-arabia-wont-win-this-oil-standoff-2014-11 55 © Wärtsilä
Profits negative… Severe Pain
Profits squeezed…Manageable Pain
45 $/BBL
Key Oil Production Cost
50$/BBL
Total Liquids Production
Brent Breakeven Price
2014 Oil Production
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US vaults to 3rd in world crude production in 2014
Source: http://en.wikipedia.org/wiki/List_of_countries_by_oil_production
Government Breakeven Budgets
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Severe shortfalls @ prices under 100$/BBL, present oil glut & soft prices challenge sustainability beyond short run
Source: https://alfinnextlevel.files.wordpress.com/2014/04/oil_breakeven_deutsche_bank_oct_14.png
50 $/BBL
What’s the impact of the steep fall in oil prices !
Is competitive advantage of LNG robust or fragile ?
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Recent … 12 October 2015
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Prices : LS380 225 $/mt… LSMGO 0.1% 484 $/mt
Source: http://www.bunkerworld.com/prices/port/us/hou/
Owner At fair return capturing risks of oil fall 12 Oct 2015
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LNG competitive advantage retains millions savings for shipper but returns narrow for investor amidst oil glut steep price dive.
Fuel Stress Test
THEN 5 August 201420.6% @ LNG 480 $/mt 17.0% @ MDO 971 $/mt17.4% @ HFO 636 $/mt
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Deviation
ROCE
NOW 12 October 201522.4% @ LNG 400 $/mt 31.6% @ MDO 474 $/mt28.9% @ HFO 225 $/mt
LNG robust despite steep crude drop whose irrational conditions are not sustainable! Most volatile returns MDO, then HFO, least with LNG… holds market cargo share with compelling millions shipper savings.
Agenda
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What ? Competitive Forces Americas & EU Gas BasisEmission Areas Expansion & Owner Choices
Why ? 5 Drivers Set Investment ClockAmericas Compelling Savings3 Gas Pillars
Business Case Cargo, Investor, Banker Views1400 TEU CoasterInvestment Returns
Oil Price Shock ! Business Case: Robust or Fragile?Stress Test
Conclusions Recent Market SignalsThe Future Decade for GasBusiness Case Appendix
14 February 2014
63 © Wärtsilä Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=6264:harvey-gulf-breaks-ground-for-lng-fueling-facillity&Itemid=227 .
Harvey Gulf Port Fourchon LNG fueling facility operational 2015
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18 February 2014
2 Vessels… total 94mW = North America’s largest LNG conversion undertaken !
Source: http://www.motorship.com/news101/lng/tote-goes-with-wartsila-four-strokes-for-lng-conversions
25 February 2014
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Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=6310:tote-cuts-steel-for-lng-fueled-containership&Itemid=227 .
1st LNG fuel containerships commence construction @ NASSCO
11 March 2014
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Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=6373:elliott-bay-design-group-gets-aip-for-lng-bunker-barge&Itemid=225 .
LNG bunker barge designs moving industry forward
16 April 2014
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Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=6580:lockheed-martin-delivers-lng-tank-for-harvey-gulf-newbuild&Itemid=231
Americas industrial base expanding supply of key LNG enablers
17 April 2014
02 November 201568
Source: http://www.caribbeanbusinesspr.com/prnt_ed/crowley-extremely-positive-about-lng-units-growth-prospects-9768.html
Safe, clean, low cost LNG fuel from US shipments may lower power costs…
16 June 2014
69 © Wärtsilä Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=6853:nassco-books-another-jones-act-tanker-order&Itemid=223 .
American Petroleum Tankers “APT” orders another LNG ready tanker from NASSCO
25 June 2014
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Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=6905:crowley-seeks-title-xi-guarantees-for-lng-fueled-conro-pair&Itemid=223 .
Crowley and TOTE filing for MARAD Title 11 Loan Finance Guarantees
3 July 2014
71 © Wärtsilä Source: https://www.bcferries.com/bcferries/faces/attachments?id=856428
Now 6 LNG fuel ferries for Canada as BC Ferries (3) follows STQ
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15 July 2014
Source: http://maritimeintel.com/maersk-warns-sulphur-regulation-will-cost-us250-million-annually/
Prohibitively expensive compliant diesel inside ECA in 2015 !
More Traditional Pain = More LNG Gain
19 November 2014
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Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=8277:seaspan-orders-two-lng-fueled-ferries&Itemid=230
Now 8 LNG fuel ferries for Canada
2 December 2014
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Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=8352:abs-approves-lng-fueled-z-drive-towboat-design&Itemid=231
River towboats 100% ECA bound consider LNG fuel.
6 February 2015
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Historic 1st LNG fuel bunkering North America
Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=8703:harvey-gulf-makes-lng-fueling-history&Itemid=231
25 February 2015
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Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=8787:conrad-shipyard-to-build-first-lng-bunker-barge-in-us&Itemid=225
1st LNG Bunker Barge for US; slated for PNW then redeployed to Jacksonville for TOTE’s Caribbean service.
5 March 2015
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Maritime History: Americas 1st Offshore LNG fuel Vessel enters service.
Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=8822:harvey-energy-starts-working-for-shell&Itemid=231
20 March 2015
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STQ Ferry F. A. Gauthier on sea Trials, 1st LNG Fuel Ferry North America soon to enter service
Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=8896:lng-fueled-ferry-wont-reach-quebec-until-april&Itemid=231
11 April 2015
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Source: http://www.wsj.com/articles/SB21439164361287373597304580572050147269116
20 April 2015
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Historic world wide moment: TOTE’s Marlin Class 3,100 TEU ship launched for Puerto Rico trade !
Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=9035:nassco-launches-worlds-first-lng-fueled-containership&Itemid=231
9 July 2015
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BC Ferries short lists yards for 2 Spirit Class retrofits to Dual Fuel operation on LNG
Source: http://www.marinelog.com/index.php?option=com_k2&view=itemlist&task=tag&tag=ferry
15 July 2015
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Source: http://hhpinsight.com/marine/2015/07/stqs-gauthier-lng-ferry-enters-service/
North America’s first LNG ferry enters service
19 July 2015
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Historic Americas moment: Davies Launches first of 2 Dual Fuel Ferries for STQ
Source: http://www.marinelog.com/index.php?option=com_k2&view=itemlist&task=tag&tag=ferry
25 August 2015
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Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=9646:vt-halter-lays-keel-for-second-lng-fueled-crowley-conro&Itemid=223
2nd Crowley LNG fuel ready ConRo ship begins construction
30 August 2015
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2nd TOTE LNG Fuel Container ship christened
Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=9671:nassco-launches-second-lng-fueled-tote-containership&Itemid=223
9 September 2015
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Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=9719:keel-laid-for-first-lng-bunker-barge-at-conrad-orange&Itemid=223
Americas first LNG bunker barge begins construction
1 October 2015
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Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=9831:crowley-takes-deliver-of-first-lng-ready-jones-act-tanker&Itemid=231
First LNG ready tanker delivered to Crowley
7 October 2015
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Source:http://www.marinelog.com/index.php?option=com_k2&view=item&id=9864:aker-philly-cuts-steel-for-two-more-kinder-morgan-tankers&Itemid=223
3rd & 4th LNG ready tankers steel cut for Kinder Morgan
16 October 2015
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World’s first LNG fuel Container ship delivered
18 October 2015
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Source: http://www.marinelog.com/index.php?option=com_k2&view=item&id=9920:harvey-gulf-takes-delivery-of-second-lng-fueled-osv&Itemid=231
2nd LNG fuel OSV delivered for Harvey Gulf
Drivers = Decade Shift to Gas
02 November 2015
Mid decade market tipping point
Source: US EPA web sites, Hatley capture various sources
Geographic emissions bubble encapsulates US/CanadaTight sulfur limits stress supplyAfter treatment burdens diesels
Paradigm shift to gas 1st on economics 2nd on emissions
Early adopters moving ahead… soon early followers !
Mandated Emissions & Fuel Restrictions
2015 Fuel Sulfur 1/10% = Stress
APPENDIXBusiness Case Details
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Financials
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Key Values`
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Key Values
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Fuel Attributes
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Utilize fuels specific for regional case... As fuels widely vary, the historic dollars per ton or gallon is challenging to use as differing fuels host widely varying energy content, density, value... These values shown are generally representative.
EBIT
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EBITDA
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Coverage Ratio Times Debt Burden Covered
Times Debt Burden Covered = . EBITDA .Principal Repayment.
Interest + ( 1 - tax rate )
Times Burden Covered includes both obligations of debt loan interest and principal repayment.
When including principal payment as a part of a company’s financial burden, express the figure on a before tax basis. Unlike interest payments, principal payments are not a tax deductible expense. Adjusting principal payment is “grossing up the principal.”
As replacement of maturing debt is not certain, witness the recent severe recession when creditors refused to renew maturing obligations, then debt burden becomes interest plus retiring principal payments.
Times burden covered is very conservative since it presumes a company pays existing loans down to zero without roll over.
Source: Higgens, Analysis for Financial Management 10th Edition, page 49-50 uses EBIT not EBITDA.
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Coverage Ratio Times Interest Earned
Times Interest Earned = . EBITDA .
Interest ExpenseTimes Interest Earned shows the available cash flow to pay debt interest
payments.
If a company is able to always roll over it’s maturing obligations with new loans, then the net burden is merely the interest expense.
However, during a financial panic replacement of maturing debt by new is not always available as credit markets tightened during the recent severe recession.
The Times Interest Earned ratio is too liberal because it assumes a company will always roll over its maturing obligations.
Source: Higgens, Analysis for Financial Management 10th Edition, page 50 uses EBIT not EBITDA.
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Cash Flow from Operating Activities
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Cash Flow from Investing Activities
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Cash Flow from Financing Activities
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Agenda
104 © Wärtsilä
What ? Competitive Forces Americas & EU Gas BasisEmission Areas Expansion & Owner Choices
Why ? 5 Drivers Set Investment ClockAmericas Compelling Savings3 Gas Pillars
Business Case Cargo, Investor, Banker Views1400 TEU CoasterInvestment Returns
Oil Price Shock ! Business Case: Robust or Fragile?Stress Test
Conclusions Recent Market SignalsThe Future Decade for GasBusiness Case Appendix
