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Axelrod Energy Projects LLC www.axelrodenergyprojects.com.

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Presentation on theme: "Axelrod Energy Projects LLC www.axelrodenergyprojects.com."— Presentation transcript:

1 Axelrod Energy Projects LLC

2 SHIPS AND ECAS: WHAT DO SCRUBBERS HAVE TO OFFER? Lawrence Axelrod Axelrod Energy Projects LLC 2013 Energy Conference October 27-29, 2013 Miami Beach

3 Axelrod Energy Projects LLC Introduction 1.The ECA Problem 2.A Scrubber Solution? 3.Scrubber Realties 3

4 Axelrod Energy Projects LLC The ECA Problem Ship engines are a source of air pollution The International Maritime Organization is charged with regulating international shipping matters (including safety, security, and pollution) The IMO first addressed air pollution from ships in MARPOL Annex VI, effective May 19, 2005 Marpol Annex VI sets an evolving cap on sulfur content of bunker fuel used on the high seas (which now stands at 3.5%S) Annex VI permits the creation of shipping zones that are deemed to require special fuel-related regulations Originally, these zones were known as SOx Emissions Control Areas (SECAs). 4

5 Axelrod Energy Projects LLC The ECA Problem SECAs were restricted to 1.5%S max bunker fuel SECAs established in: – Baltic Sea (effective May 2006) – North Sea/English Channel (effective November 2007) SECAs become ECAs (Emissions Control Areas) – 1%S max bunker fuel, effective July 2010 Two new ECAs North America (effective August 2012)—two hundred nautical miles US (including Hawaii) Canada Puerto Rico/US Virgin Islands (effective January 2014 ) 5

6 Axelrod Energy Projects LLC The ECA Problem ECA sulfur cap falls to 0.1%S max effective January 1, 2015 Shipowners face a large financial burden Ships have traditionally burned high sulfur IFO on high seas The shift to low sulfur bunker fuel in ECAs has added an expense to shipowners Rotterdam IFO-380 LS/HS Differential – $44.73 mt (Jan-Dec 2012) – $27.13 mt (Jan-Sept 2013) 6

7 Axelrod Energy Projects LLC The ECA Problem While 1.5%S max and 1%S max IFO have been available from bunker suppliers at an increased cost, the shift to 0.1%S bunker fuel raises the economic stakes to another level By moving the bar to 0.1%S max the IMO is essentially eliminating (or at the very least enormously reducing) the ability to burn fuel oil in ECAs To meet the 0.1%S cap bunker suppliers will need to make use primarily of middle distillate 7

8 Axelrod Energy Projects LLC The ECA Problem Middle distillate trades at a significant premium to fuel oil Rotterdam Barges – 1%S Fuel Oil premium to 3.5%S Fuel Oil Jan-Dec 2012: $40.92 mt ($3.89 million btu’s) Jan-Sep 2013 $20.82 mt ($3.55 million btu’s ) – 0.1%S Gasoil premium to 1%S Fuel Oil Jan-Dec 2012: $ mt ($6.39 million btu’s) Jan-Sep 2013 $ mt ($6.88 million btu’s ) 8

9 Axelrod Energy Projects LLC The ECA Problem 9

10 Axelrod Energy Projects LLC The ECA Problem To give an idea of the financial burden that ECAs impose on shipowners, it is necessary to employ rough estimates of the amount of 1%S bunker fuel being consumed in ECAs Baltic/North Sea/English Channel: 9.6 million mt/year North America: 2.2 million mt/year Total: 11.8 million mt/year 10

11 Axelrod Energy Projects LLC The ECA Problem Notional incremental costs (basis 2012 Rotterdam prices) ―1%S/3.5%S NW Europe: $393 million N America: $90 million Total: $483 million —0.1%S/1.0%S NW Europe: $2.71 billion N America: $621 million Total: $3.33 billion 11

12 Axelrod Energy Projects LLC A Scrubber Solution? IMO regulations permit shipowners to meet sulfur caps through technological means Shipborne scrubbers are capable of handling IFO with sulfur as high as 4.5%S – Emissions on par with use of 0.1%S bunker fuel Scrubbers can be retrofitted on existing vessels or installed on newbuilds 12

13 Axelrod Energy Projects LLC A Scrubber Solution? Scrubber Technology: o Open loop uses seawater to remove sulfur from exhaust gas. Filtered/treated wastewater from the ship is discharged into the sea. o Closed loop uses seawater to remove pollutants from exhaust gas. Ships store accumulated waste. Disposed at port. o Hybrid system combines the two systems, allowing a vessel to operate in either closed or open loop mode. 13

14 Axelrod Energy Projects LLC A Scrubber Solution? Classification societies play a role in certifying that scrubbers can meet standards set by the IMO – American Bureau of Shipping: Belco – Bureau Veritas: Belco – Det Norske Veritas (DNV): Green Tech and Wartsila – Germanisher Lloyd: Couple – Lloyd’s: Alfa Laval and Ecospec 14

15 Axelrod Energy Projects LLC Scrubber Realities Cost of a scrubber varies with type and size of ship-- – low end: $500,000 – high end: $5 million Payback varies with: – Cost of scrubber – Time vessel spends in ECAs – Cost of MGO versus IFO – Fuel consumption 15

16 Axelrod Energy Projects LLC Scrubber Realities Projected payback on scrubber purchase will vary with underlying assumptions: – Under 10% of operations in ECAs: 6-9 years – 45-50% of operations in ECAs: 4-6 years – 100% of operations in ECA: 2-3 years. 16

17 Axelrod Energy Projects LLC Scrubber Realities 17 Scrubber Examples: Non-Cruise Companies ShipownerScrubber CompanyScrubber Delivery Algoma Central Corporation (Canada) Wartsila Ordered 2011, first delivery in 4Q 2013 Canada Steamship Lines (Canada) Ecospec Ordered 2012, delivered 2013 DFDS (Denmark) Alfa Laval (and possibly other scrubber companies) Deliveries in 2013 and 2014 Ignazio Messina & Co. (Italy) Wartsila Ordered in 2010 and delivered in 2011 Oceanex (Canada)Couple Ordered in 2012 and delivered in 2013 Spliethoff (Germany)Alfa LavalDelivered in 2012

18 Axelrod Energy Projects LLC Scrubber Realities For most part, ships operating in ECAs post-2015 will not be equipped with scrubbers: – Not worth spending the money on older ships – Prefer gradual, newbuilds to retrofits, which take ships out of service – Scrubbers seen as too costly, especially for ships only in ECAs for limited periods of time 18

19 Axelrod Energy Projects LLC Scrubber Realities Compared to other types of shipping companies, cruise lines show greater interest in purchasing scrubbers, since — – Some of their cruise vessels spend a significant portion of their time in ECAs – Cruise ships, unlike other vessels, cannot generally slow steam 19

20 Axelrod Energy Projects LLC Scrubber Realities These cruise lines are investing in scrubbers: – Royal Caribbean announced in July 2013 that it would have scrubbers installed in two newbuilds – Norwegian Cruise Lines announced July 2013 that two newbuilds will have scrubbers based on Green Tech technology – Carnival announced Sept that 32 of its cruise vessels will be outfitted with scrubbers (both retrofits and newbuilds) at a cost of $180 million 20

21 Axelrod Energy Projects LLC Conclusion -- Near Term ECAs will move to 0.1%S max bunker fuel in January 2015 Bunker companies will need to expand their MGO lines 0.1%S Gasoil/1.0%S (3.5%S)Fuel Oil diff can be expected to expand Shipowners will face higher fuel costs for those ships that sail in ECAs Positive development for those that burn 1%S in on-land applications Scrubbers will be more the exception than the rule, though seem to be gaining traction in cruise industry 21

22 Axelrod Energy Projects LLC Conclusion -- Longer Term IMO will cap bunker fuel at 0.5%S max – To be reviewed in 2018 – To be implemented earliest 2020, latest 2025 Given anticipated incremental costs associated with burning 0.5%S bunker fuel on high seas, at least some shipowners will likely be willing to consider (if not embrace): – Scrubbers – LNG (pending availability of infrastructure) 22

23 Axelrod Energy Projects LLC


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