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MAN B&W DieselMAN B&W Diesel AG
LNGMathematical Solution for Selection of
LNG Carrier Propulsion Systems
MAN B&W Diesel
2
Introduction
The multi-billion dollar investment intensive LNG business is
generally governed by risk sharing consortia as well as by
20–30 years long-term supply and ship charter contracts.
A predictable and stable LNG supply from producing to con-
suming country is an essential requirement in this business
but also the strive for increased profitability in the transport
chain. A variety of modern propulsion technologies for LNG
carriers with potential for increased profits have emerged
recently and are offered in the market today (see fig. 1).
With it’s new 51/60DF engine MAN B&W Diesel is the only
company now which can provide all types of modern diesel
propulsion systems for LNG carriers. The customers can
be given expert advice in finding the most suitable transport
solution for their project specific needs.
Figure 1: Overview LNG Carrier Propulsion Systems
Natural Boil-Off Gas (NBOG)
Category I: GAS / HFO fuel flexibility>> 51/60DF diesel-electric system
>> slow-speed dual-fuel diesel engines
>> steam turbine system
Category II: Pure HFO Burning System>> slow-speed diesel engines with
NBOG reliquefaction on board
Category III: Pure GAS Burning System*>> gas turbine combined cycle electric
* expensive marine gas oil (MGO) as backup fuel only
A lot of studies on the economical benefits of modern LNG
carrier propulsion systems have already been published.
Their results, however, are usually based on certain assump-
tions regarding oil and gas prices (HFO, LNG purchasing
and selling price). In fact, by an appropriate choice of oil-
and gas price combination one can produce almost any
result needed – either in favour towards the one or the other
propulsion solution. It is not without any reason, therefore,
that such kind of studies are acknowledged with reserva-
tions and caution by the specialized readers.
To better support its customers in their investment decision,
MAN B&W Diesel has developed a method, which permits
to compare the profitability of two different LNG propulsion
systems “A” and “B” for all possible oil- & gas price combina-
tions in just one chart. A method, which reduces an appar-
ently complex problem to its main parameters of influence
and illustrates the basic trends in a simple and accessible
way – the charterer nomogram.
3
MAN B&W Diesel – LNG
This nomogram answers the question under which conditions
an LNG carrier propulsion system “A” is more profitable then
another LNG carrier propulsion system “B” from the char-
terers view, who plays a decisive role in the LNG transport
chain. It will be shown that the solution to this question can
be derived by a purely mathematical consideration. The re-
sulting formula (“Charterer Profit Criterion”) is represented at
the bottom of fig. 3 and was described for the first time in a
MAN B&W Diesel document [1]. The equation is of a very
general form and can be used for profit comparison of all
kind of LNG carrier propulsion systems.
The quantitative results of the analytical formula comparing
two modern propulsion concepts for a 200,000 m3 LNG
carrier class are visualized in fig. 4 and fig. 5. These charterer
nomograms can be calculated by means of the specifically
developed MAN B&W Diesel 3P analysis tool (3P = Propulsion
Profit Performance) based on purely technical input data
from the customer.
With the nomogram the charterer then can decide on his
own which propulsion solution will be the more profitable
option for his business depending on the oil & gas prices
that he assumes or expects for his individual LNG project
in the future.
Abbreviations
C1, C2 Constants
CIFLNG CIF Price of LNG at Discharge Terminal
CRE Charter Rate Expenses
FOBHFO HFO Price
FOBLNG FOB Price of LNG at Loading Terminal
FOE Fuel Oil Expenses (HFO, MDO)
FVG Forced Vaporized Gas
HFO Heavy Fuel Oil
HFOBurnt Amount of HFO Consumed
LNG Liquefied Natural Gas
LNGBurnt Amount of LNG Consumed
LNGDel Delivered Quantity of LNG
LNGLoad Loaded Quantity of LNG
NBOG Natural Boil Off Gas
PPF Port & Passage Fees
4
The ship charterer (mostly oil & gas or energy companies)
plays a key role in the LNG supply chain. He buys the LNG
cargo at the export terminal at a certain FOB price (or pro-
duces the LNG at certain FOB costs) and sells the LNG at
the import terminal at a higher CIF price. Furthermore, the
charterer pays for the fuel costs of the ship and compen-
sates the shipowner according to a contractually agreed
charter rate (see fig. 2).
With the charter rate the shipowner has to cover all his
expenses related to the purchase, operation, maintenance,
and manning of an LNG carrier.
Since the charterer owns the cargo and has to pay for the
fuel costs, the correct selection of propulsion system can
generate significant additional profits in his favour. By the
choice of his preferred fuel(s) the charterer indirectly (or very
often even directly) specifies the type of LNG carrier propul-
sion concept that has to be used.
The Business Model for LNG Transport
Figure 2: Charterer’s Profit Consideration
Natural Boil-Off Gas (NBOG)Expenses:
Loaded LNG (= LNGDelivered + LNGFuel ) @ FOB price
+ Fuel Oil Expenses (HFO, MDO)
+ Charter Rate Expenses
+ Port & Passage Fees
Income:Delivered LNG @ CIF price
HFO Fuel HFO FuelLNG Fuel
PROFIT = INCOME minus EXPENSES
5
MAN B&W Diesel – LNG
Mathematical Analysis
Based on the charterer’s business model for LNG transport illustrated in fig. 2,
it is possible to perform a non-quantitative, purely mathematical analysis,
which as a matter of fact has the inherent advantage of obtaining a strictly
logical and unambiguous result.
(a) LNG is purchased by the charterer at FOB price (or produced at FOB costs)
and sold at a higher CIF price.
(b) PROFIT = Income – Expenses
(c) From the charterer’s point of view we can write
Income = LNGDel · CIFLNG
Expenses = LNGLoad · FOBLNG + FOE + CRE + PPF
Once we accept the statements (a), (b), and (c) as “axioms” we obligatorily obtain
(1) PROFIT = LNGDel · CIFLNG – LNGLoad · FOBLNG + FOE + CRE + PPF
Equation (1) describes the charterer’s profit problem in its full complexity without any simplification.
Simplification Step 1:
We can certainly assume that for a given class of LNG
carrier tonnage (or ship cargo capacity) we will have the
same amount of passage & port fees for a fixed trans-
port route.
Simplification Step 2:
Charter rates will be primarily dictated by the general
situation in the LNG charter market at a given point
of time, the ship size, transport route and type of the
charter contract (long-term trade, spot trade). The
influence of the ship propulsion system on the charter
rate can be assumed to be negligible.
Then, using equation (1), the difference in charterer profits that are generated by different LNG carrier
propulsion technologies A and B for a given ship size can be written as
PROFITA – PROFIT B > 0 if
(2) LNG ADel
· CIFLNG
– LNG BDel · CIFLNG – LNG A
Load – FOBLNG – LNG BLoad FOBLNG + FOEA – FOEB
– CREA – CREB + PPFA – PPFB > 0
The liquid fuel oil expenses (neglection of 1% MDO pilot fuel consumption in the case of 51/60DF
medium-speed diesel engines) are
(3) FOE = HFOBurnt · FOBHFO
6
In general, LNG carrier propulsion systems may consume
a part of the loaded LNG, see fig. 2, so we can write
(4) LNGLoad = LNGDel + LNGBurnt
Using above expressions, the simplified charterer’s
profit equation (2) then becomes
PROFITA – PROFIT B > 0 if
LNG ADel · CIFLNG – LNG B
Del · CIFLNG – LNG ADel + LNG A
Burnt · FOBLNG – LNG BDel + LNG B
Burnt · FOBLNG – HFO A
Burnt · FOBHFO – HFO B
Burnt · FOBHFO > 0
(5) Û < · + +CIFLNG
FOBLNG
FOBHFO
FOBLNG
LNG ADel – LNG B
Del
HFO ABurnt
– HFO BBurnt
LNG BDel – LNG A
Del HFO A
Burnt – HFO B
Burnt
LNG BBurnt – LNG A
Burnt
HFO ABurnt
– HFO BBurnt
FOBHFO
FOBLNGÛ · HFO A
Burnt – HFO B
Burnt < LNG ADel – LNG B
Del · CIFLNG
FOBLNG
FOBHFO
FOBLNG
– HFO ABurnt
– HFO BBurnt · > 0
CIFLNG
FOBLNG
Û LNG ADel – LNG B
Del · – LNG ADel – LNG B
Del – LNG ABurnt – LNG B
Burnt
+ LNG BDel – LNG A
Del + LNG BBurnt – LNG A
Burnt
For a given class of LNG carrier design (cargo capacity) and transport distance the amount of
consumed fuels and delivered cargos for two different LNG carrier propulsion technologies
A and B (or two different fuel operation modes for a given propulsion system) is fixed and, hence,
we can write
(5') Û < C1 · – C1 + C2
CIFLNG
FOBLNG
FOBHFO
FOBLNG
“Charterer Profit Criterion”
7
MAN B&W Diesel – LNG
The result shall briefly be described:
C1 and C2 are constants the value of which is determined by purely technical aspects (amount of
consumed and delivered LNG, amount of HFO burnt). The term on the left hand side represents the
fuel price ratio of purchased LNG (FOB price) and HFO. The remaining term on the right hand side
denotes the ratio of LNG selling price (CIF) to LNG purchasing price (FOB).
According to equation (5') the limiting case (i.e. PROFITA = PROFIT B) represents a straight line of
the form
Y = c1 · X – c1 + c2
It must be emphasized that the mathematical approach performed and the resulting equation
(“Charterer Profit Criterion”) are of a very general form and can be used for profit comparison of all
kind of LNG carrier propulsion systems. The same formula can also be applied to compare the
profitability of two different fuel operation modes (e.g. pure gas operation versus NBOG + HFO add
up operation) for a given propulsion system.
A summary of the mathematical approach described above and of the resulting solution is given
in fig. 3.
Figure 3: Mathematical Solution for Profit Comparison from the Charterer’s View
Charterer PROFIT = LNGDel · CIFLNG – LNGLoad · FOBLNG + FOE + CRE + PPF A... LNG carrier with propulsion system A
B... LNG carrier with propulsion system B
< · + +CIFLNG
FOBLNG
FOBHFO
FOBLNG
LNG ADel – LNG B
Del
HFO ABurnt
– HFO BBurnt
LNG BDel – LNG A
Del HFO A
Burnt – HFO B
Burnt
LNG BBurnt – LNG A
Burnt
HFO ABurnt
– HFO BBurnt
PROFITA > PROFIT B if
< C1 · – C1 + C2 ÛCIFLNG
FOBLNG
FOBHFO
FOBLNG
“Pure” Mathematics
“Charterer Profit Criterion” System A vs. System B
For given transport distance and ship design
8
Illustration of the Formula – The Charterer Nomogram
To illustrate the mathematical solution, fig. 4 compares the
charterer’s annual profitability for two different types of
modern propulsion systems that have entered the orderbook
at several yards. In the diagram (“charterer nomogram”)
there are limiting lines for various transport distances. In the
field below the limiting line we have higher annual profitabil-
ity for the HFO burning propulsion concept and in the field
above the limiting line there is higher annual profitability for
the gas burning propulsion concept (in this chart calculated
with NBOG + FVG operation mode).
It can be clearly seen that the answer as to which solution is
more profitable depends very much on the prevailing prices
of oil (HFO), the LNG purchasing (FOB) and LNG selling (CIF)
price but also on the position of the limiting line. The latter
depends from the value of the constants C1 and C2, which
apart from the transport distance are determined by purely
technical aspects of the propulsion system (overall efficiency,
type of fuel used), ship design (cargo capacity), and logistics
(time loss due to fuel oil bunkering, waiting etc).
With decreasing transport distance, the field of possible oil
and gas price combinations which lead to a higher annual
profitability of the gas burning 51/60DF electric propulsion
concept becomes larger and larger.
Figure 4: Charterer Nomogram for Constant Cargo Capacity Ship Design
Propulsion System Profit ComparisonShip: 200,000 m3 Class, Service Speed = 20 kn, Twin-Screw
Logistics: 10 hours HFO bunkering time per 10,000 nm
1.0 1.5 2.0 3.0
Fuel
Pric
e Ra
tio H
FO /
LNG
(FOB
)
Ratio LNG Selling Price (CIF) / LNG Purchasing Price (FOB)
0.0
2.0
2.5
0.5
1.0
1.5
2.5
3.5 4.0
Transport Distance 10,000 nm
Transport Distance 6,000 nm
Transport Distance 4,000 nm
Transport Distance 2,000 nm
Oil / Gas Price Situation 09-2004(Prices all based on USD/t, Henry Hub CIF)
Oil / Gas Price Situation 01-2006(Prices all based on USD/t, Henry Hub CIF)
Higher profit for GAS propulsion with the 51/60DF electric concept
Higher profit for HFO propulsion with slow-speed engines and NBOG reliquefaction
9
MAN B&W Diesel – LNG
Additional valuable information can be gained from the charterer nomogram:
A horizontal line (C1 = 0), see 2,000 nm line in fig. 4, means
that both solutions deliver the same amount of LNG
(LNG ADel = LNG B
Del). In such a case the criterion as to which
propulsion concept is more profitable becomes independent
of the LNG selling price (CIF) and is influenced only by the
operating expenses (fuel price ratio).
A negative inclination of the limiting line (C1 < 0), see fig. 5,
represents a case where the gas burning 51/60DF electric
propulsion concept delivers more LNG than the HFO pro-
pulsion with slow-speed engines and NBOG reliquefaction
in spite of the fact that it has been calculated to be running
on pure gas operation mode (NBOG + FVG) throughout the
whole year! The reason for this originates from the aspect
that the profit comparison in figure 5 is based on ships
having all the same displacement (constant displacement
ship design). On such a basis of comparison the pure gas
burning 51/60DF electric propulsion concept allows an LNG
carrier design with about 3% more cargo capacity. This
advantage is primarily due to the resulting HFO fuel weight
savings, which can partly be replaced by additional LNG
cargo weight, see [2].
Figure 5: Charterer Nomogram for Constant Displacement Ship Design* (* 3% higher cargo capacity for ship with 51/60DF electric propulsion)
Propulsion System Profit ComparisonShip: 134,000 t (200,000 m3 Class), Service Speed = 20 kn, Twin-Screw
Logistics: 10 hours HFO bunkering time per 10,000 nm
1.0 1.5 2.0 3.0
Fuel
Pric
e Ra
tio H
FO /
LNG
(FOB
)
Ratio LNG Selling Price (CIF) / LNG Purchasing Price (FOB)
0.0
2.0
2.5
0.5
1.0
1.5
2.5
3.5 4.0
Transport Distance 10,000 nm
Transport Distance 6,000 nm
Transport Distance 4,000 nm
Transport Distance 2,000 nm
Oil / Gas Price Situation 09-2004(Prices all based on USD/t, Henry Hub CIF)
Oil / Gas Price Situation 01-2006(Prices all based on USD/t, Henry Hub CIF)
Higher profit for GAS propulsion with the 51/60DF electric concept
Higher profit for HFO propulsion with slow-speed engines and NBOG reliquefaction
10
The decisive advantage of the charterer nomogram is that it
can be calculated by MAN B&W Diesel without any need for
confidential or sensitive customer data like projected oil &
gas prices (FOB, CIF)! For determination of the position of
the limiting line(s) only a minimum of technical customer in-
put is required:
>> Cargo capacities of the ship designs for the
respective propulsion options
>> Ship service speed and corresponding power
at propeller
>> Transport distance(s)
>> Logistics input (data per round trip): time needed
for loading / unloading of the LNG cargo, extra time
needed for manoeuvring, waiting, etc.
>> Hotel electric load, required electrical power for
LNG cargo loading / unloading.
Based on this minimum technical input MAN B&W Diesel
can generate for its customer a project specific charterer
nomogram by means of its 3P analysis tool (3P = Propulsion
Profit Performance), which was developed inhouse specific-
ally for the economic evaluation of LNG carrier propulsion
systems.
With the nomogram the charterer then can decide on his
own which propulsion solution will be the more profitable
option for his business depending on the oil & gas prices
that he assumes or expects for his individual LNG project
in the future.
Figure 6: Charterer Nomogram, Additional Information
Additional Note on Charterer Nomogram (Fig. 4 and 5):
A negative inclination of the limiting line in figures 4
and 5 means
A... HFO propulsion with slow-speed engines and NBOG
reliquefaction
B... GAS propulsion (NBOG + FVG) with the 51/60DF
electric concept
and vice versa
C1 < 0 Û LNG ADel < LNG B
Del
11
MAN B&W Diesel – LNG
Conclusion
From the mathematical solution for profit comparison of two
different propulsion systems (see fig.3) and the resulting
charterer nomograms (see fig. 4 and 5) we have to conclude
that there is a tendency towards
GAS burning concept with the 51/60DF electric system for
>> Short, medium, and long transport distances
>> High HFO / LNG (FOB) fuel price ratios
>> Low LNG selling to purchasing price ratios CIF / FOB
>> Optimised constant displacement ship designs
(i. e. more cargo capacity in case of vessel design for
pure gas operation with the 51/60DF)
HFO burning concept with slow-speed engines and NBOG reliquefaction for
>> Long to very long transport distances
>> Low HFO / LNG (FOB) fuel price ratios
>> High LNG selling to purchasing price ratios CIF / FOB
>> Constant cargo capacity ship designs (i. e. ship designs
with the same cargo capacity but in general of different
displacement)
It must be emphasized that above results have been obtained
through a very general approach applicable to all LNG carrier
sizes. The only restriction in the mathematical analysis was
that one has to compare similar ship sizes with each other.
Quantitative calculations at MAN B&W Diesel confirm that
the class of the LNG carrier as such (e. g. 150K, 200K, 250K)
has no influence on the validity of the trends and statements
above. Ship size is no decisive factor for determination of
the most suitable propulsion concept from the profit point of
view in the LNG transport chain.
Regardless of the customer’s final choice, MAN B&W Diesel
is the only company which can provide all types of modern
diesel propulsion solutions for LNG carriers, which are dis-
cussed in the market today. Upon request MAN B&W Diesel
scientifically calculates with a minimum of project-related in-
formation which propulsion concept suits best its customers’
individual demands.
MAN B&W Diesel supports the customer decides.
Sokrates Tolgos
MAN B&W Diesel AG
Augsburg, Germany
April 2006
REFERENCES
[1] Tolgos, S.: Mathematical-Analytical Consideration of HFO vs. Gas
Propulsion for LNG Carriers from the Charterer’s Point of View.
Memorandum, MAN B&W Diesel AG, Augsburg, 20th April 2005.
[2] Tolgos, S. and Bille, O.: Economic Evaluation of LNG Carrier
Propulsion Concepts. Technical Paper, MAN B&W Diesel AG, 2006.
About the Author
Born in 1966 in Greece, Sokrates Tolgos received his Dipl.-Ing. degree
in Aerospace Engineering from the University of Stuttgart, Germany,
in 1993. Having specialized during his studies in the field of aircraft
propulsion and turbomachinery he started his professional career at
BMW Rolls Royce Aeroengines as an R&D engineer in gasturbine aero-
dynamics. There he took part in the development of the BR710 and
BR715 aircraft engines. From 1998 he worked with the Sulzer Group in
various positions as a contract manager for industrial turbomachinery
projects and as a marine sales engineer. In 2003 he joined MAN B&W
Diesel, where he has presently been assigned the sales responsibility
of medium-speed marine engines for LNG carrier and cruise vessel
applications worldwide.
MAN B&W Diesel – a member of the MAN GroupMAN B&W Diesel – a member of the MAN Group
Copyright © MAN B&W Diesel AGReproduction permitted provided source is given.Subject to modification in the interest of technical progress.D2366338EN Printed in Germany KW9-05061
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