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IMPORTANT / DISCLAIMER: This presentation is prepared by Fearnley Securities, an Astrup Fearnley company.
For relevant definitions, methods, risks, disclosures on potential conflicts of interests etc. and disclaimers (including U.S. specific
disclaimers) please see www.fearnleysecurities.com. All research reports and investment recommendations should be reviewed in
conjunction with the information therein.
Fearnley LNG – Company Overview
350+ employees in the Astrup Fearnley Group. Fearnleys is one of the largest international ship broking
companies in the market today.
Company dates back to 1869. Fearnleys has been a leading full service ship brokerage house for
decades and has almost 150 years of shipping experience.
LNG Involvement since early 1970’s. Fearnleys contracted and chartered one of the first purpose built
LNG carriers which was built at the Moss/Rosenberg yards in Norway.
Extensive LNG Shipping Services. Fearnley LNG is active in: Vessel Contracting, Chartering, Sale &
Purchase, Ship Financing and LNG Advisory & Consulting.
• Conclusion
• When and how LNG does and does not
work
• Where we can bunker LNG today
• Where could we bunker LNG in 2020?
140 25
Brent Crude (LHS)
120 vs HH, NBP and
Asia DES LNG 20
100 (RHS)
60
10
40
5
20
0 0
Brent Weekly (LHS) HH (RHS) NBP (RHS) Asia DES LNG (RHS)
800 1200
HFO (LHS) and
700 MGO (RHS) in $ 1000
per metric tonne,
600
Brent (LHS) in $
800
500 per bbl
400 600
300
400
200
200
100
0 0
Oct-11
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
Apr-11
Apr-12
Apr-13
Apr-14
Jul-14
Apr-15
Apr-16
Jul-11
Jul-12
Jul-13
Jul-15
Jul-16
Jan-15
Jan-11
Jan-12
Jan-13
Jan-14
Jan-16
Jan-17
Singapore HFO ($/PMT) - LHS Brent Crude ($/BBL) - LHS MGO "Approximate" ($/PMT) - RHS
• The original formula in the world of LNG pricing is based on oil linkage and, not
withstanding efforts in recent years to “break the link”, convenience dictates
that this index still has many years of life left in it
• The formula commences with the indexation (XX%) to Brent or JCC and in
recent short term tenders, this number has even fallen below 12% (from the
traditional 14.85% of previous term contracts)
• In addition to the indexation (called the “slope”) there is also a constant value
(Z) that was traditionally added to cover shipping. This number is now often
where the trading occurs as some buyers have started to mandate the slope
itself in their short term tenders
• The convenience of dealing with the Oil Linked formula is that it provides a very
liquid market against which to hedge ones risks (for both buyers and sellers)
• The second pricing formula to consider involves a fixed link to a liquid European
Hub, plus a constant
• NBP (the UK’s National Balancing Point) has historically been the more liquid hub
in Europe and accordingly, it gained favour as the preeminent index for those
favouring a hub-linked pricing formula
• As the hub link itself is fixed, all the negotiation takes place around the constant
and this is where the sellers need to make back their storage, reload, shipping
and opportunity costs
• Notwithstanding the head start that NBP was afforded, TTF (Title Transfer Facility)
located in the Netherlands now enjoys greater liquidity and being the pricing point
for reloads out of both GATE and Zeebrugge terminals, is the more natural
European index to consider going forward
• Albeit the newest of our the three indexes examined today, Henry Hub is now one
of the most familiar formulas in the market
• It is essentially a cost plus formula based on the known costs of sourcing Natural
Gas and Producing LNG in the US (XXX% x HH), Liquefaction & Terminal CAPEX
costs (Y), plus a realistic shipping cost (Z)
• Usually 115% of the Henry Hub price, plus ~$3/MMbtu for Liquefaction & Terminal
CAPEX costs, plus shipping based on realistic long term ship charter rates
(assumed $0.9/MMbtu for deliveries into North West Europe in my forecasts)
• The 1.15 factor derives from the requirement to burn approximately 15% of feed
gas as fuel to perform the liquefaction process but this is not rigorous
• Liquefaction (CAPEX) costs are a generic $3/MMBtu, although these can vary too
• In my fuel comparison chart, I have added $0.3/MMbtu for the FOB European
LNG price to account for terminal and reload costs out of Rotterdam
All information is given in good faith but without guarantee | 10
Forecasts: Brent & HH
$90.0 $8.0
$80.0
$7.0
$70.0
$6.0
$60.0
$5.0
per MMbtu
$50.0
per bbl
$4.0
$40.0
$3.0
$30.0
$2.0
$20.0
$1.0
$10.0
$0.0 $0.0
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
$80.0
$700.0
$70.0
$600.0
$60.0
$50.0
US$ per bbl
$400.0
$40.0
$300.0
$30.0
$200.0
$20.0
$100.0
$10.0
$0.0 $0.0
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Brent ($/BBL) - LHS HSFO ($/MT) - RHS LSFO ($/MT) - RHS MGO ($/MT) - RHS
$12.0
$10.0
$8.0
$6.0
$4.0
$2.0
$0.0
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Source: www.naturalgasworld.com
• The Capital Expenses (CAPEX) and Voyage Expenses (VOYEX) are based upon
a generic 8,500 TEU Container Ship. Particulars as follows:
• Note: The above particulars are not taken from a specific design but rather are an
EXAMPLE ONLY 8,500 TEU Container Ship based on various industry sources
Costs
2 x 4,000 cbm Type C Tanks $8 Million
Engine Parts $5 Million
Docking & Off-Hire $5 Million
Installation & Piping $10 Million
TOTAL CAPEX $28 Million
• Positives: • Negatives:
o Cheapest Fuel o Expensive conversion
o Compliant at source o Uncertainty of adequate
o Satisfies all existing and supply
known future Environmental o Pricing uncertainty with a
restrictions (“Future Proof”) less liquid fuel market
Source: DNVGL, MAN Diesel, Astrup Fearnleys
• The following illustrates the estimated Total additional CAPEX required for a DF
LNG propulsion system ABOVE that required for a conventional 8,500 TEU
Newbuild Container Ship
Costs
2 x 4,000 cbm Type C Tanks $8 Million
Engine Parts $2 Million
Piping $3 Million
TOTAL CAPEX $13 Million
Costs
CAPEX $3 Million
Docking $2 Million
Installation $3 Million
Consumption ~8 tonnes per day (520 – 1560 kw for 52 MW Engine)
TOTAL CAPEX $8 Million
• Positives: • Negatives:
o Retrofit possible / cheaper o Compliance regime Require
o Continued HFO usage 100% reliability
(lower potential fuel cost) o Bi-product disposal an extra
o Existing Engine and bunker burden
tank usage o Stability considerations
o Not “future proof”
Source: Wartsila, http://www.fathommaritimeintelligence.com, Astrup Fearnleys
Source: www.worldmaritimenews.com
RANKING 2 3 1 4
Source: Fearnley LNG
Source: www.gCaptain.com
• The most telling outcome of the voyage calculation is that in a 0.5% Sulphur
Cap World, doing nothing is the least favourable option
• Fuel forecasts are an imprecise science at best but even at today’s prices,
Bunkered LNG would trade at a discount of over $1 / MMbtu to MGO in North
West Europe, and this delta is forecast to grow through the mid to late 2020s
• LNG Conversions are not an especially promising option given the sizeable
CAPEX involved in procuring the bespoke kit for the project, coupled with the
time necessary to take the vessel out of service (loss of hire can be much more
significant than our calculation suggests)
• For existing vessels, LNG Scrubbers provide a very sound option and indeed
they even outperform a Newbuild LNG DF engine in voyage cost terms (basis
our forward pricing assumptions)
• For all new tonnage ordered from today onwards, however, a Newbuild DF
LNG Propulsion offers the most cost-effective long-term solution, especially
considering all existing, planned and potential IMO requirements
KEY
2017:
KEY
2017:
2020+:
For relevant definitions, methods, risks, disclosures on potential conflicts of interests etc. and disclaimers (including U.S. specific
disclaimers) please see www.fearnleys.no. All research reports and investment recommendations should be reviewed in conjunction
with the information therein.