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LNG Net Back & Logistics FS

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For full report email strategic@capmanconsulting-hk.com

For full report email strategic@capmanconsulting-hk.com

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  • 1.   2012                                                 [LNG REPORT 2012]               Emmanuel Gamboa, Power & Utilities – Executive Search strategic@capmanconsulting-hk.com +639285052983  
  • 2.  III.  LNG  Shipping  Fleets  and  Costs     a. LNG  Shipping  Fleet  &  Vessels     i. How  many  ships  for  a  project?             Determine   Annual     Liquefaction  Capacity   LNG   Demand   Plant  Availability         Calculate   No.       Of   Cargoes   Ship  Size       Determine     Ship   Arrival     frequency   Planned  Maintenance       Calculate     No.   Of   Ship  Journey  Times     Destination  Ports   Ships         Offload  port  delays   Trade  Split       Copyright © 2012 Capman Consulting – Strategic Human Resource Management 1
  • 3.  Determining  No.  of  Ships  for  a  Project  EXAMPLE:  DES  project  Nigeria  to  UK   • Liquefaction  train  =  4Mtpa   - Equates  to  max  daily  production  of  12,000  tonnes  over  330  days  annual  operation   • Will  consider  use  of  155,000cbm  standard  vessel  sixe   - A  155,000cbm  vessel  delivers  150,476cbm  cargo   • Round  trip  takes  12.5  days   • How  many  ships   ii. LNG  Shipping   1. Developing  History   • The  ship  ever  classified  as  “liquefied  gas  carrier”  was  Methane  Pioneer  in  1958   • Traditionally,  LNG  gas  carriers  were  funded  and  built  for  single  projects,   balanced  with  20-­‐25  years  take-­‐or-­‐pay  sales  contracts   • Japan  and  Korea  created  their  own  LNG  ship  building  industries  through   imposed  FOB  supply  imported  using  their  own  tankers    China  has  recently  begun  to  adopt  similar  thinking  in  developing  contracts    Malaysia  policy  was  to  export  LNG  only  on  ex-­‐ship  (CIF)  basis  and  reserved   all  shipping  for  Malay  flagged  vessels    India  has  recently  done  the  same  for  imports.     • The  LNG  marine  industry  is  growing  and  changing   iii. The  Modern  LNG  Fleet:   1. Growth   o 1998:  it  had  taken  34  years  to  reach  100  vessels  in  service   o 2006:  200  vessels  in  service   o 2008/9:  will  reach  300  vessels  in  service   o Estimated  326  vessels  needed  in  2010   o Potential  dangers  as  all  parties  assume  safety  in  the  “norm”  and  that   relevant  skills  will  be  available.           Copyright © 2012 Capman Consulting – Strategic Human Resource Management 2
  • 4.     2. Modern  LNG  Fleet  (by  type)  –  at  27  April  2012   LNG  Carrier  Fleet  By  Type                                              LNG  CARRIER  FLEET  BY  TYPE       Type   Delivered   On  Order   Conversion   Total   Ship   363   70   0   433   FPSO   0   1   0   1   FSRU   7   6   1   14   RV   7   0   0   7   Total   377   77   1   455       Source:  Platou  LNG      The  fleet  has  grown  rapidly  to  meet  the  increases  in  trade  rising  from  just  under  5  million  TEU  at  the  end  of  2000  to  14.28  million  TEU  at  the  end  of  March  2011.       3. Development  of  World  Container  Fleet  Capacity:  2000  to  2011     (Million  TEU  —  End  of  Period)            Source:  Drewry     Copyright © 2012 Capman Consulting – Strategic Human Resource Management 3
  • 5.   4. LNG  Fleet  Age  Profile     Global LNG Fleet by AGE, 2011 (Number of Carriers, % of Total)   iv. World  LNG  Shipping:     1. Sufficient  ship  building  capacity  to  meet  projected  demand?   • Probably  only  about  15  world  shipyards  capable  of  building  LNG  tankers   • Only  about  8  established  shipyards  currently  build  LNG  tankers     - 3  major  yards  in  Japan   - 3  in  Korea   - 2  in  Europe   - 1  now  in  China   Plus:     - 2  new  yards  in  Japan   - 2nd  possibly  in  China   - And,  Russia,  India  &  Poland  soon?             Copyright © 2012 Capman Consulting – Strategic Human Resource Management 4
  • 6.   2. LNG  Orderbook  ,  LNG  fleet  development  and  Forecast       3. LNG  Shipping  Process     4.  “Retirement  and  New  Builds   • Due  to  increased  safety  and  environmental  controls  there  about  55  to  62  older   tankers  that  will  be  retired  up  to  2014,  as  they  become  less  commercially   uneconomic     - Some  will  be  converted  into  FSRUs   • We  are  now  seeing  swelling  orderbooks  at  the  South  Korean  shipyards  but  the   current  orderbook  of  56  vessels  will  not  meet  projected  need   Copyright © 2012 Capman Consulting – Strategic Human Resource Management 5
  • 7.   • This  is  mostly  driven  by  increasing  Asian  plants  and  demand   - New  Australian  plants  alone  will  need  additional  40  to  45  vessels  to  2015   - New  “special”  vessels  for  Yamal  LNG  also   5. Structure   • Contrary  to  the  trend  in  more  traditional  shipping  markets  (e.g.,  oil  tankers,  bulk   carriers),  the  O&G  majors  and  state  enterprises  tend  to  be  more  directly   involved  in  LNG  shipping     - 44%  of  fleets  is  owned  by  O&G  majors  and  state  enterprises     • Independent  owners  and  international  companies  are  re-­‐emerging  as  significant   players   - Among  private  owners,  55%  are  South  Korean  or  Japanese  shipping   corporate   - About  33%  of  new  order  book  is  for  independent  ship-­‐owners  with  around   21%  being  Japanese  and  24%  being  Korean.     - Now  we  are  seeing  independent  Greek  and  Scandinavian  companies   entering  LNG  taner  market  with  new  builds.     - O&G  majors  account  for  about  12%   6. Shipowner  process   • Ships  can  be  owned  by  LNG  sellers  (directly  or  by  special  purpose  company),  or   by  buyers  or  independent  third  parties  who  charter  vessels  out  to  LNG  buyers  &   sellers.     • Shipowner  must  consider  several  factor  before  ordering  a  new  build  LNG  tanker   - Financing  (usually  project  financed  via  banks)   - Shipyard  quoted  prices   - Shipyard  “slot”  availability   - Cargo  containment  system  required   - Standard  or  “ice-­‐class”   - Etc.     • Shipowner  reviews  all  such  specification  with  the  classification  societies  (Lloyds,   ABS,  etc.),  the  shipyards  and  the  equipment  providers  to  allow  yard  selection,   usually  by  competitive  tender  process.     • Shipowner  generally  has  a  supervision  team  onsite  at  the  shipyard  throughout   the  construction  process  to  ensure  that  vessel  is  being  build  to  agreed   specification.           Copyright © 2012 Capman Consulting – Strategic Human Resource Management 6
  • 8.   7. Vessel  Safety     • Today,  LNG  tankers  safely  transport  more  than  220  million  tons  per  year  to   ports  around  the  world   - One  LNG  tanker  enters  Tokyo  Bay  every  20  hours   - One  LNG  cargo  enters  Boston  harbor  every  week   • Outstanding  safety  records,  but  why?   - Continuous  improvement  in  ship  technology  &  maintenance   - Continuous  improvement  in  ship  safety  equipment   - Comprehensive  safety  procedures  and  training     - Effective  government  regulation  and  international  oversight   • SIGGTO  –  Society  of  International  Gas  Tankers  and  Terminal  Operators   8. Vessel  Design  basics   • Double-­‐hulled  tankers/  gas  carriers   - From  first  one  unlike  oil  tankers   • Traditionally  driven  by  stem  propulsion     - Use  of  LNG  Boil-­‐off  gas   • LNG  cargo  contained  in  protective,  cryogenic  “tanks”  within  inner  hull   - Broadly,  2  types  of  gas  carrier  vessel  based  on  LNG  tank  design   • Enhanced  equipment  to  support  safe  ship  handling   • Sophisticated  leakage  detection  equipment  and  emergency  shutdown  systems   9. Containment  and  Boil-­‐off  Gas   • LNG  is  carried     - As  a  boiling  liquid  at  approx  -­‐160  centigrade   - In  non-­‐pressurized  tanks   • LNG  cargo  is  boiling  therefore  it  continually  produces  vapor  (Boil-­‐off  Gas  –  BOG)   - Mostly  used  as  propulsion  fuel   - Can  be  re-­‐liquefied             Copyright © 2012 Capman Consulting – Strategic Human Resource Management 7
  • 9.   Boil  off  Gas  used  as  Propulsion  Fuel     Source:BrighthubEngineering   Boil  off  Gas  re-­‐liquefaction     Source:  CNOOC  Fujian  LNG     Copyright © 2012 Capman Consulting – Strategic Human Resource Management 8
  • 10.   10. “Moss”  Containment    LNG  is  stored  in  a  numbers  of  self-­‐supporting,  aluminum  spherical  tanks  fixed   within  the  hull    LNG  cargo  system  is  separate  such  that  any  contraction/  expansion  is  not  passed   to  the  tanker  hull.       11. “Membrane”  Containment   • Standard  tanker  consists  of  4  separate  LNG  “holds”     • Insulating  material  is  applied  to  the  ships  inner  hull   • Membrane  applied  to  ensure  liquid  tightness           Source:  epd.gov.hk           Copyright © 2012 Capman Consulting – Strategic Human Resource Management 9
  • 11.   12. Containment  Design  –  Advantages  &  Disadvantages                          Key  selection  issues   • Capacity/  filling  limits   • Weight   • Complexity  of  manufacture   • Cost   • Size/  terminal  compatibility     Self-­‐Supporting  Tanks   • Tank:  Heavy  rigid  metallic.     • High  material  and  Fabrication  cost.     • Tank  capacity:  125,000  m³   • Ship  tank  material  weight:  4,000  tons   • Insulation:  Non-­‐load  bearing.  Relatively  cheap.     Membrane  Tanks   • Tank:  Specialized    light  construction   • High  material  and  fabrication  cost   • Tank  capacity:  125,000  m³   • Ship  tank  material  weight:  400  tons   • Insulation:  Rigid  load  bearing  over  whole  surface.  Relatively  expensive.       Source:  Shell  Global  Solutions                     Copyright © 2012 Capman Consulting – Strategic Human Resource Management 10
  • 12.   13. Current  Fleet  by  Containment  Design  Type                 Copyright © 2012 Capman Consulting – Strategic Human Resource Management 11
  • 13.   14. What  is  Storage  Tanker  Roll-­‐over?   Natural  convection  causes  circulation  of  the  LNG  within  the  storage  tank,  maintaining  a  uniform  liquid  composition.  The  addition  of  new  liquid,  however,  can  result  in  the  formation  of  strata  of  slightly  different  temperature  and  density  within  the  LNG  storage  tank.  "Rollover"  refers  to  the  rapid  release  of  LNG  vapors  from  a  storage  tank  caused  by  stratification.  The  potential  for  rollover  arise  when  two  separated  layers  of  different  densities  (due  to  different  LNG  compositions)  exist  in  a  storage  tank.       Source:  www.igu.org  Note:  ship  tanks  only  fill  from  bottom                   Copyright © 2012 Capman Consulting – Strategic Human Resource Management 12
  • 14.   v. LNG  Fleet   1. Tank  Roll-­‐over?   • It  has  been  generally  considered  that  “rollover”  in  cargo  tanks  was  not  a  major   issue,  although  cargoes  with  high  nitrogen  content  are  more  prone   • However,  an  incident  has  been  reported  when  a  vessel  with  substantial  LNG   heel  (~5400m³)  consolidated  into  only  2  tanks  loaded  a  higher  density  LNG   below  the  heel   - Original  cargo  (&  heel)  was  of  lean  LNG  from  an  Atlantic  Basin  terminal   - New  cargo  loaded  was  rich  LNG  reloaded  from  an  SE  Asian  terminal     - Important  to  remember  that  ship  tanks  only  fill  from  bottom   • The  first  tank  roll-­‐over  occurred  5  days  after  loading  and  second  tank  rolled  a   day  later   - Whilst  there  was  reported  rollover  in  both  ship  tanks  causing  a  noticeable   rise  in  tank  pressure  there  was  no  uncontrolled  BOG  release       2. “IHI  SPB”  Containment    Special  design  prevents  sloshing  damage  which  can  occur  in  membrane  tanks    Most  expensive  containment  system    Main  potential  is  for  Floating  LNG  Production  and  FSRU  applications         Copyright © 2012 Capman Consulting – Strategic Human Resource Management 13
  • 15.   3. LNG  Tankers  of  various  Types  and  Sizes  Moss  Type     • 4  Tanks     • 5  Tanks       • 6  Tanks               Copyright © 2012 Capman Consulting – Strategic Human Resource Management 14
  • 16.  Membrane     • Large       • Small         • 3  Tank  Moss               Copyright © 2012 Capman Consulting – Strategic Human Resource Management 15
  • 17.  Other  Types   • Pressurized         • Prismatic         • Conch                       Copyright © 2012 Capman Consulting – Strategic Human Resource Management 16
  • 18.   4. Standard  Ship  Size   1970-­‐2002   • 130-­‐140,000m³   • Limitations   - Japanese  maximum  displacement,  105,000  dwt   - US  maximum  draft,  11.3  m.   • Conservative  designs   2002-­‐2006   • 140-­‐153,000m³   • Limitations   - Japanese  maximum  displacement,  105,000  dwt   - US  maximum  draft,  11.3  m.   • Optimized  designs   - Larger  ships,  same  constraints   5. Vessel  Size  has  increased     2007   • A  new  generation  of  LNG  tankers  arrived  to  transport  the  output  of  the   large  Middle  East  “mega-­‐train”  projects  to  long  haul  markets  in  USA  and   Asia   1. To  extend  the  reach  of  existing  commercial  ventures  in  other  distant   supply  centers   2. Fewer  transits  with  reduced  fuel  costs   • Vessel  Size  for  its  economies  of  scale  are  critical  for  this  new  strategy  to   achieve  equivalent  or  lower  delivered  cost     - Increase  from  138,000  to  220,000m³  vessel  size  can  reduce  cargo   delivery  costs  by  up  to  45%     • 54  Q-­‐flex  and  Q-­‐max  vessels  now  operating  equaling  ~20%  of  global  fleet     Copyright © 2012 Capman Consulting – Strategic Human Resource Management 17
  • 19.   Growth in Capacity of LNG Carriers   Source:  Short  History  of  Shipping,  Peter  G.  Noble         125,000m³     145,000m³     200,000m³     250,000m³         (MOSS)                         (MEMBRANE)                  (MEMBRANE)                    (MEMBRANE)                                   LNG  Cargo  Tanks   4   4   5   5   Length  (overall)  m   285   289   313   345   Beam  (m)   44   43.4   50   54   Loaded  Draft  (m)   11   11.4   12   12   Ballast  Draft  (m)   10   9.7   9.9   10.3   Deadweight  tonnes   69,000   72,000   100,000   120,000   Displacement  (loaded)  tonnes   97,800   103,000   140,000   174,000   Boil-­‐off  Rate  %  per  day   0.15   0.15   0.14   0.13   Max.  Loading  Rate  (m³/hr)   11,000   13,000   16,000+   16,000+   Manifold  dia  inches   16   16   20   20   Propulsion  Power  MW   26  MW   27   31   34         Copyright © 2012 Capman Consulting – Strategic Human Resource Management 18
  • 20.   Against  Bigger  ships   • Draft  and  its  relationship  with  LOA  &  Beam  size  is  the  issue  for  Moss  tankers   - Must  have  loaded  draft  of  12  meters  or  less   - Suez  canal   - Limited  terminal  access   • Terminal  loading  and  unloading  lines  and  arms  limited  typically  to  10,500m³/hr       • Commercial  contracts  require  a  turnaround  of  24  hours  so  a  138,000-­‐155,000  m³   LNG  ship  unloads  in  12  hours   • A  216,000m³  ship  takes  21  hours  to  unload     Increasing  size  =  increased  design  problems     • Regarding  “sloshing”,  particularly  for  Membrane  tankers.   • Possibility  to  put  in  5th  tank  per  vessel  but  then  cost  goes  up  due  to  associated   equipment   • The  sloshing  phenomena  occur  when  the  ship  motions  coincide  with  the  natural   frequency  of  the  liquid  motion  in  the  tanks.  The  build-­‐up  of  violent  motion  is  due  t   frequency,  not  amplitude.     Increasing  size  =  new  propulsion  systems   • Increasing  size  is  driving  consideration  of  new  more  complex  and  efficient   propulsion  methods  (away  from  single  screw,  steam  turbines)   - Single  screw  slow  speed  diesel   - Twin  screw,  lean  burn  diesel  electric   - Twin  screw,  diesel  electric  coupled  with  re-­‐liquefaction  units  to  limit  boil-­‐off   - 4  stroke  diesels  using  boil-­‐off  gas  as  a  dual  fuel     - Gas  turbines   • Choice  of  propulsion  system  is  highly  correlated  to   - Commercial  drivers  (fuel  saving  vs.  maintenance)   - Type  of  trade  (point-­‐to-­‐point,  short  voyage,  long  distance  voyage  or  merchant)   - Experience  of  shipping  company   6. Changing  propulsion  trends:  Environmental  pressures  on  LNG  carriers       FUEL   NOx   SOx   CO2   Steam  Turbine   HFO  +  LNG   200   2,400   180,000   Low  Speed  Diesel  +  re-­‐liquefaction   HFO   3,950   1,800   120,000   Dual  fuel  electric   LNG  only   240   0   100,000   Gas  turbines  and  COGES   LNG  only   850   0   108,000  Note:  Emissions  shown  in  tones/  year/  ship                                                                                          Source:  ALSTOM   Copyright © 2012 Capman Consulting – Strategic Human Resource Management 19
  • 21.   • In  2003,  with  exception  of  3  very  small  vessels,  ALL  were  steam  turbine   driven,  burning  combinations  of  BOG  and  Heavy  Fuel  Oil  (HFO).   • Now,  around  40%  of  new  vessels  on  order  are  for  diesel  (Diesel  Fuel  Diesel   Electric)  driven  ships     - DFDE  vessels  cannot  burn  BOG/  HFO  fuel  combination   - New  Q-­‐flex  and  Q-­‐max  vessels  now  use  slow  speed  engines  burning  HFO   only   • Gas  turbine  units  have  fuel  efficiency  of  38-­‐40%  compared  with  28%  for   steam  turbines   - Plus,  would  use  “light”  gas  instead  of  “heavy”  bunker  oil  as  fuel.       • Qatar’s  Nakilat  is  reported  to  be  considering  changing  all  its  45  tankers   (including  Q-­‐flex  and  Q-­‐max)  to  run  only  on  LNG  gas  fuel   • Should  they  decide  to  go  ahead  with  this  plan  the  tankers  will  be  converted   during  2012  to  2015   • Shipping  brokers  and  analysts  say  the  refit  programs  and  consequent  idling   of  Qatari  tonnage  will  push  day-­‐rates  on  LNG  carriers  even  higher  as  they   will  have  to  charter  in  other  tankers  to  cover  during  refit  period.     Other  design  development   • New  advanced  containment  designs  for  both  Moss  and  Membrane  tank   carriers   • On-­‐board  re-­‐liquefaction  facilities  for  cargo  retention  on  new  Qatari  vessels    7. Vessel  size  has  also  decreased     Coral  Methane   • The  first  Polish  built  LNG  carrier  was  launched  on  may  7,  2008,  at  Gdansk   based  Stoczina  Polnocna  SA  (Northern  Shipyard),  member  of  REMONTOWA   Group   - Diesel/  gas  electric  driven   - Can  carry  a  variety  of  gas  cargoes;  liquefied  natural  gas  (LNG),  liquefied   petroleum  gases  (LPG)  or  ethylene   - Ice  class  1B   - Cargo  capacity  7,500m³   - Length  over  all  117.80m;  breadth  18.60  m;  draught  7.15  m  8. Technological  Change   “Cold  Weather”  needs  Copyright © 2012 Capman Consulting – Strategic Human Resource Management 20
  • 22.   • More  severe  weather  conditions  –  ice    and  waves     - Sakhalin  –  “winter-­‐ising”  the  vessels   - Snohvit/Shtokman/  Barents  Sea  –  “artic-­‐ising”  the  vessels   • Requires  greater  thickness  (ice)  and  more  cryogenic  steels  for  hulls   • Requires  strengthened  propellers,  and  protection       Ice-­‐class   • Sovcomflot     - Energy  shipping  company   - One  of  most  modern  and  youngest  world  fleet   - Specialist  in  ice-­‐class  vessel  and  extreme  cold  operations   - Took  delivery  of  2  tankers  at  end  of  2007  ex  Japan  for  Sakhalin  2  project   to  travel  to  Japan  &  elsewhere  on  20  year  charter      145,000m³    Moss  containment    Ice-­‐class   • Russia   - Reported  that  Russia  will  require  30  LNG  tankers  by  2020  to  transport   ~25Mtpa  from  existing  and  new  export  plants    Shtokman  LNG  will  need  12  new  vessels    Yamal  LNG  will  need  12  new  vessels;  new  design  for  large-­‐scale,   year  around  Arctic  export  ……..  Very  large,  ice-­‐class  with  Moss   tanks    Others  will  need  ~6  new  vessels   - Many,  if  not  all,  of  these  vessels  to  be  built  by  Russian  United   Shipbuilding  Yards  –  agreements  with  Korean  shipyard  and  with  French   Technip  for  technology  transfer                           Copyright © 2012 Capman Consulting – Strategic Human Resource Management 21
  • 23.   9. LNG  Transfer  at  Sea    Two  vessels  moored  together    LNG  transferred  using  flexible  hoses  (6,000  m³/h)      Benign  conditions  required    Allows  maximization  of  Exelerate    Energy,  Energy  Bridge  vessels    Ataris  testing  transfer  from  their  Q-­‐flex  &  Q-­‐max  vessels  to  smaller  tankers     • Maximization  of  Exelerate  Energy  business  model     • The  Problem….   - Tugs:  Much  smaller  than  LNG  carriers.  Work  beam  on  to  waves     10. Tandem  Unloading     • LNG  (un)loading  at  wave  heights  up  to  5.5  m  (18ft)     • Considerable  design  work  performed  by  individual  companies  and  through  JIPs   - Model  testing  completed   - Products  “commercially  available”   - Needs  a  project  to  develop  further   • LNG  tankers  would  need  modification  so  would  have  to  be  dedicated  to  a   specific  trade               Copyright © 2012 Capman Consulting – Strategic Human Resource Management 22
  • 24.   11. Hoses     • Considerable  work  being  done  in  the  industry  to  develop  and  commercialize   large  diameter  cryogenic  LNG  hoses  for  (un)loading   - Designs  focusing  on  (un)loading  in  wave  heights  of  4.5-­‐5.5  m   - Floating  and  sub-­‐surface  versions  being  developed  from  aerial  hoses       12. LNG  Shipping  Experienced  personnel  –  a  serious  challenge   Number  of  officer  on  a  LNG  carrier   • Deck  officers  =  5  (including  Cargo)   • Engineering=  5  (including  Cargo)   • Total  Officers  =  10   Estimate  of  new  required  officers  to  meet  shipbuild   • 143  x  10  x  2.5  =  3,575   • Senior  officers  =  2,145  (60%)   • Junior  Officers  =  1,430                 Copyright © 2012 Capman Consulting – Strategic Human Resource Management 23
  • 25.  b. LNG  Shipping  Logistics  &  Costs      i. Basic  Commercial  Models   • Free  on  Board  (FOB)   - Title  to  the  LNG  cargo  transfer  to  buyer  at  loading  and  buyer  has  responsibility  for   shipping   • Cargo,  Insurance  &  Freight  (CIF)   - Title  of  LNG  cargo  can  transfer  during  the  voyage  (high  seas)  or  delivery  and  the   seller  is  responsible  for  shipping;  complex  liabilities  as  buyer  is  responsible  for  cargo   but  seller  responsible  for  shipping.     • Delivered  Ex-­‐ship  (DES)   - Title  transfers  on  unloading  and  seller  has  responsibility  for  shipping    ii. Control  of  Shipping     • For  LNG  sellers,  control  of  LNG  shipping  is  a  core  “value  chain”  issue  to  ensure  loading   schedules  are  tuned  to  production  activities   - Shutting  in  or  slowing  LNG  liquefaction  needs  to  be  avoided.     • Control  of  shipping  does  not  necessarily  require  ownership  or  operation  –  both  short   and  long  term  charters  provide  sufficient  controls   - Having  the  ability  to  “tune”  an  FOB  ship  loading  schedule  and  the  “heel”   management  of  vessels  provides  sufficient  control  in  most  cases     - This  “tuning”  facility  does  however  require  some  contractual  changes  to  the   apportionment  o  shipping  &  commercial  liabilities.    iii. Long  Term  LNG  Charter  Contracts   Traditionally:     • Newbuild  vessels  constructed  to  meet  the  requirements  of  a  specific  project     • Long  duration  charter  period  (typically  15-­‐25  years)   • Fixed  or  relatively  fixed  hire  iv. Risks  to  Owner  and  Charterer   • Owner   - Technical/  Operating  Risk   - Non-­‐performance  by  the  charterer   Copyright © 2012 Capman Consulting – Strategic Human Resource Management 24
  • 26.   • Charterer   - Technical/  Operating  Risk   - Non-­‐performance  by  the  owner   - Market  risk     v. LNG  Charter  Terms   • The  owner  is  responsible  for  the  operation,  maintenance  and  performance  of  the  vessel   • The  technical  operating/  “breakdown”  risk  is  shared  between  owner  and  operator   - Of  hire  and  exceptions  provisions  typically  excuse  charterer  from  paying  hire  but   owner  not  obliged  to  provide  alternative  vessel  or  pay  damage     - If  repeated/  serious  failure  to  perform  owner’s  obligations,  charterer  may  have  right   to  replace  vessel  operator  or  take  vessel  under  a  bare-­‐boat  charter     vi. Allocation  of  Costs  or  Who  Pays  for  What   Type  of  Charter     Shipowner   Ship  Charterer   Spot  or  single  voyage   Capital,  operating,  voyage   None   Consecutive  voyage   Capital,  operating,  voyage   None   Contract  of  affreightment     Capital,  operating,  voyage   None   Period  of  Time  Charter   Capital,  operating   Voyage   Demise  or  bareboat   Capital   Operating,  voyage  Source:  Drewry  Maritime  Research   • Allocation  of  costs  depends  on  the  nature  of  the  shipping  contract   • The  shipowner  aims  for  a  minimum  charter  hire  rate,  at  which  costs  (including  an  allowance  for   a  target  %age  rate  of  return  on  investment  capital)  will  equate  to  revenues.   - This  minimum  rate  differs  according  to  the  type  of  charter  contract  employed,  because  the   owner’s  costs  differ  according  to  the  type  of  charter  contract  employed     vii. Basic  Economics   Breakdown  as:   • Capital  Costs  (fixed  costs):  purchase  of  vessel  consist  of  ship  owner  equity  plus  bank   financing  interest     • Operating  Costs  (variable  non-­‐trading):  vessel  costs  unrelated  to  trading  consist  of   crew,  insurance,  repair  &  maintenance,  stores,  spares,  lubes,  etc.     • Voyage  Costs  (variable  trading):  directly  related  to  trade  consist  of  bunker  fuel,  port   &  canal  costs.       Copyright © 2012 Capman Consulting – Strategic Human Resource Management 25
  • 27.  viii. New  Build  Capital  Costs   • LNG  tankers  are  the  world’s  second  most  costly  merchant  vessels  after  very  large   cruise  liners   - Similar  degrees  of  sophistication  to  build  process     • LNG  tankers  are  by  far  the  most  expensive  type  of  cargo  vessel,  costing  two  to  thre   times  the  price  of  an  oil  tanker  of  similar  tonnage.     • New  LNG  tanker  average  capital  cost  is  ~$200-­‐300million  for  Q-­‐flex  and  Q-­‐max   vessels  and  ~$180-­‐190  million  for  155,000m³   - Steel  costs  have  risen  rapidly  over  recent  years   - New  technologies   - New  propulsion  systems  ix. ECONOMICS       1.  Newbuild  Prices   Newbuilding Price (Conventional LNGC)   Copyright © 2012 Capman Consulting – Strategic Human Resource Management 26
  • 28.  Note:  More  than  x2  cost  of  equivalent  sized  Oil  tanker  which  carries  4  to  5  times  as  much  energy.     2.  Operating  Costs     • LNG  shipping  costs  are  largely  determined  by  daily  charter  rate   • There  are  no  set  rates  for  LNG  tankers  as  there  are  for  Oil  tankers   - Charter  rates  vary  widely  from  ~$27,000-­‐$150,000  per  day   • Average  long-­‐term  charter  rate  is  seen  as  $55,000-­‐$65,000  per  day   • Short-­‐term  (spot)  charter  rates  vary  with  market     Conventional LNGC Short Term Charter Rate Projection   Spot  &  short-­‐term  charter  rates  (2006-­‐Present)     • Ship  trading  costs  vary  widely  and  are  largely  depend  on  voyage  distance   - Voyage  length  is  often  is  of  key  importance  because  the  main  voyage  cost  item,   beside  port  dues  and  canal  tolls,  is  fuel  or  boil  off  (using  part  of  the  LNG  cargo)   to  propel  the  ship.     • New  ship  technologies  are  helping  to  bring  costs  down  and  make  previously   uneconomical  projects  viable                 Copyright © 2012 Capman Consulting – Strategic Human Resource Management 27
  • 29.   3.  Fleet  Utilization     Utilization of LNG Fleet  Source:  ConocoPhilips   • LNG  tanker  market  is  currently  very  tight  with  many  players  searching  the  world  for   tankers  for  short-­‐term  charter   -­‐Many  spot  tankers  now  being  used  for  Japan   -­‐  Qatar  looking  for  tanker  over  next  years?   • Market  is  forecast  to  remain  tight  for  the  next  few  years     –  Where  are  we   • Estimates  are  about  14%  of  fleet  (maximum)  is  available  at  any  time  for  Spot   Market  activity  up  to  1  year   • Spot  charter  rates  differ  between  Atlantic  and  Asia     • Current  spot  charter  rate  increasing  with  rates  doubling  in  second  half  of  2010   reaching  ~$60,000/day  in  winter  2010  period  and  now  to  ~$125,000/  day  in  late     2011         Copyright © 2012 Capman Consulting – Strategic Human Resource Management 28
  • 30.   LNG Spot Charter Rates  Source:  Teekay  Corporation   4.  Voyage  Costs   • Voyage  Cost  Circulation  from:     - Market  rates   - Operating  costs  of  ship   - Voyage  days   - Waiting  days     - Port  days   - Mileage   - Fuel  prices   - Speed  &  consumption  of  fuel   - Canal,  port  and  terminal  fees   • To  get:     - Total  cost  of  voyage   - LNG  shipping  rate   5.  Main  Engine  Bunker  Fuel  Prices   • Volatility  of  this  main  fuel  price  leads  to  necessity  for  contractual  coverage  (price   hedging)  of  this.     • Market  price  vary  with  geography  and  are  quoted  monthly  at  Rotterdam,  Houston,   Middle  East  and  Singapore   Copyright © 2012 Capman Consulting – Strategic Human Resource Management 29
  • 31.     6.  Additional  Voyage  Charges   Port  Charges  ($  000)  [for  loading  and  discharging]     • Trinidad/  Lake  Charles                                100   • Ras  Laffan/  Japan                                                  200   • Algeria                                                                      82  –  102   • Port  Fontin                                                                          46   • Spain                                                                            91  –  110   • Lake  Charles                                                                      31   • Bonny  Island                                                                    291   • Oman  Qalhat                                                                    ~80   Canal  Charges  –  About  10%  of  LNG  trade  transits  though  canals,  nearly  all  via  Suez  at   present   • Suez   - Conisderable  number  of  Middle  East  cargoes  coming  to  Atlantic  Basic   - Charge  can  be  up  to  20cents/MMBtu   - Canal  Authority  offers  35%  rebate  +  “cargo  incentive”  up  to  15%  for  volumes   over  2Mtpa  to  encourage  LNG  vessels?   • Panama   - Can  only  take  LNG  tankers  that  are  100,000m³  or  smaller   - This  <17  takers  of  the  entire  fleet   - LNG  transit  .  .  .  .  .  .  .  .  NOT  A  LOT  YET,  but  .  .  .  .  .  .  x. Panama  Canal  Update   1. Current  Development   • $5.2  billion  development  to  be  completed  by  2014   - Will  build  2  new  large  three-­‐chamber  locks  at  both  the  Atlantic  and  the  Pacific   ends  of  the  Canal   Copyright © 2012 Capman Consulting – Strategic Human Resource Management 30
  • 32.   • This  will  allow  LNG  tankers  up  to  170,000m³  passage   - Potential  to  open  up  new  routes  linking  Atlantic  and  Pacific  and  possibility  a   further  10%  of  LNG  trade  2. Shipping  Rates   •LNG  tankers  ply  their  trade  around  the  world  but  there  are  commercial  limits     - The  voyage  costs  are  critical     • The  LNG  “shipping  rate”  is  a  major  variable  cost  in  the  LNG  chain  which  can  make   supply  routes  either  profitable  or  commercially  impossible.  Shipping  Rates  vary  with  journey  mileage:   Estimated LNG Shipping Costs Alaska – Asia Pacific Copyright © 2012 Capman Consulting – Strategic Human Resource Management 31
  • 33.   Estimated LNG Charter Rates and New Build Orders  Note:  Rates  must  be  based  on  a  particular  size  of  tanker  at  a  specific  charter  rate  in  $000  per  day     3. Netback  Pricing   • Simple  method  (from  oil  markets)  to  track  and  compare  the  return  &  profitability  of   a  particular  trade   • Netting  off  the  price  back  to  the  supply  source  value     - Deducing  regas  costs  and  shipping  costs  from  the  market  sale  price  gives  a  FOB   netback   - Further  deducting  the  liquefaction  cost  and  feed-­‐gas  price  gives  an  upstream   netback  value  to  the  producer  (often  involves  JVs  at  this  upstream  level)       Copyright © 2012 Capman Consulting – Strategic Human Resource Management 32

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