DNV GL © 2016

Ungraded

12 May 2016 SAFER, SMARTER, GREENERDNV GL © 2016

Ungraded

12 May 2016Hendrik W. Brinks

Future shipping energy sources and lessons learnt

1

Åland Maritime Day

DNV GL © 2016

Ungraded

12 May 2016

Alternatives for compliance with sulfur regulations

� Use of cleaner oil-based fuel

– Heavy fuel oil (HFO) to marine gas oil (MGO)

� Switch to a different fuel

– LNG (Liquid Natural Gas)

– Methanol

– LPG (Liquid Petroleum Gas)

– Biofuels (e.g. HVO, pyrolysis oil, LBG)

– Hydrogen

– Electricity

– Nuclear power

� Cleaning of the exhaust with a scrubber

2

� Typically, particulate matter emissions and NOx

emissions are reduced by fuel switch

DNV GL © 2016

Ungraded

12 May 2016

Factors affecting decision making on fuel

� Cost of fuel over the expected lifetime

� Regulatory requirements on local and global emissions

� Corporate social responsibility

� Availability in ports

� Risks of introducing new technology

� Safety of ship

3

DNV GL © 2016

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12 May 2016

Factors affecting decision making on fuel

4

� Cost of fuel over the expected lifetime

� Regulatory requirements on local and global emissions

� Corporate social responsibility

� Availability in ports

� Risks of introducing new technology

� Safety of ship

The fuel trilemma

DNV GL © 2016

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12 May 2016

Emissions for LNG

� The baseline is not static: It depends on regulation

� LNG has the potential of reducing greenhouse gas emissions

– Methane leakages in production, distribution and use is critical

– Currently acknowledged slip: 2-3%

5

0

20

40

60

80

100

120

HFOBaseline

Low sulfurMGO

HFOw/scrubber

LNGAverage

LNGwithout slip

To

tal

GH

G e

mis

sio

ns

CH4 is a ≥25 times stronger GHG than CO2.

At 4% CH4

leakage, LNG is emitting as

much GHG as diesel

DNV GL © 2016

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12 May 2016

Introduction to case study (DNV GL & MAN DT)

� Compare alternatives for a specific ship

– 75 000 DWT LR1 tanker

� Focus on comparing fuels

6

DNV GL © 2016

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12 May 2016

Fuel variants considered

7

Variant ECA fuelNon-ECA,

2018-2019Non-ECA,

2020 -

Reference MGO HFO LSFO 0.5%

LNG LNG LNG LNG

LPG LPG LPG LPG

Methanol Methanol Methanol Methanol

LNG/HFO LNG HFO LSFO 0.5%

LPG/HFO LPG HFO LSFO 0.5%

Methanol/HFO Methanol HFO LSFO 0.5%

ULSFO 0.1% ULSFO 0.1% ULSFO 0.1% ULSFO 0.1%

DNV GL © 2016

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12 May 2016

Additional investment costs

8

LNG

LNG/HFO

LPG

LPG/HFO

Methan

olMet

hanol/H

FO

ULSFO

0

2

4

6

8

10

∆∆ ∆∆CA

PE

X (

mill

ion

US

D)

Capex costs:- Engine upgrades- Fuel supply system- Fuel storageEngineering and installation costs included

DNV GL © 2016

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12 May 2016

Application – trading route

Leg State Total distance

(nm)

Approach (h/leg)

Port (h/leg)

Houston –Rotterdam

Cargo(diesel)

5,052 10 36

Rotterdam –Ventspils

Ballast 961 10 36

Ventspils –Houston

Cargo(MGO)

5,670 10 36

Port (10%)

Approach (3%)

Transit (87%)

0 1 2 3 4 5 6

Power (MW)

MW Propulsion MW Auxiliary MW PTO

53% load including PTOSpeed: 12.5 knots

DNV GL © 2016

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12 May 2016

Fuel prices – historic data

Europe vs. USA

� HFO and Methanol: same price

� LNG and LPG cheaper in USA

� MGO slightly cheaper in Europe

2010 2011 2012 2013 2014 20150

5

10

15

20

25

30

35

Fu

el p

rice

($/

GJ

on

LH

V b

asis

)

Time

HFO (380 cSt) (Europe) MGO/MDO (Europe) Methanol (US) LPG (US) LNG (US)

DNV GL © 2016

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12 May 2016

Fuel price scenarios

� High price scenario based on mid 2014 prices

� For LNG and LPG distribution costs are added

2012 2014 2016 2018 2020 20220

5

10

15

20

25

30

35

40

45

Fu

el p

rice

($/

GJ

on

LH

V b

asis

)

Time

HFO (380 cSt) HFO/LSFO: High price MGO/MDO MGO: High price Methanol Methanol: High price LNG LNG: High price LPG LPG: High price

DNV GL © 2016

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12 May 2016

Fuel price scenarios

� High price scenario based on mid 2014 prices

� For LNG and LPG distribution costs are added

� Low price scenario based on mid 2015 prices

� Less price reduction for methanol and LNG

2012 2014 2016 2018 2020 20220

5

10

15

20

25

30

35

40

45

Fu

el p

rice

($/

GJ

on

LH

V b

asis

)

Time

HFO (380 cSt) HFO/LSFO: Low Price MDO/MGO MGO: Low Price Methanol Methanol: Low Price LPG LPG: Low Price LNG LNG: Low Price

DNV GL © 2016

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12 May 2016

Annual cashflow for single-fuel variants

� LNG and LPG generate a positive cashflow after the investment

� Methanol and ULSFO not financially attractive

2017 2018 2019 2020-10

-8

-6

-4

-2

0

2

Investments

An

nu

al c

ash

flo

w (

mU

SD

)

Time

High-price scenario LNG LPG Methanol ULSFO 0.1%

Globalsulfur cap:0.5%

DNV GL © 2016

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12 May 2016

Annual cashflow for combined variants

� Combined variants are not affected by global sulfur cap

� A global sulfur cap favours the single-fuel variants

2017 2018 2019 2020-10

-8

-6

-4

-2

0

2

sulfur cap:0.5%

Global

Investments

An

nu

al c

ost

dif

fere

nce

(M

US

D)

Year

Low-price scenario LNG LNG/HFO LPG LPG/HFO Methanol Methanol/HFO ULSFO 0.1%

DNV GL © 2016

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12 May 2016

Payback time for LNG and LPG

� Payback time is faster for single-fuel variants

� Payback time is faster by increased speed

� Payback time is faster in the high price scenarios

� LPG is at least comparable to LNG

– Shorter payback

– Less sensitive to price scenario

– Less investments

12 13 14 152

4

6

8

10

12

Pay

bac

k ti

me

(yea

rs)

Speed (knots)

High price scenario LNG LNG/HFO LPG LPG/HFO

12 13 14 152

4

6

8

Pay

bac

k ti

me

(yea

rs)

Speed (knots)

LPG: Low price scenario LPG: High price scenario

DNV GL © 2016

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12 May 2016

Payback time as a function of fuel-price spread

� For most of the period 0.5% S fuel (LSFO) is the relevant comparison

� LNG requires a larger discount than LPG

� Methanol: Requires ~18% discount on MGO to be comparable to LNG

-2 0 2 4 6 82

4

6

8

10

12

Pay

bac

k ti

me

(yea

rs)

Price spread to LSFO ($/mmbtu)

High price scenario Payback time methanol Payback time LPG Payback time LNG

-10% 0% 10% 20% 30% 40%

DNV GL © 2016

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12 May 2016

Conclusions for case study (DNV GL & MAN DT)

� Regulations call for alternative fuels as a means of compliance

� Costs and benefits for various fuels (LNG, LPG, methanol, ULSFO) were investigated

� LNG and LPG were found to be the most promising options

� For the most promising alternative fuels, the best option is to use the fuel both in ECAs and non-ECAs.

� Financial attractiveness is highly dependent on fuel price scenario.

DNV GL © 2016

Ungraded

12 May 2016

Methanol as a shipping fuel

� Typically produced from

– Natural gas (70% efficiency; 93 kgCO2/GJ)

– Coal (182-190 kgCO2/GJ)

� Reduced local emissions

– Sulfur-free

– Less PM and NOx

18

MGO: 89 kgCO2/GJ

DNV GL © 2016

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12 May 2016

Methanol from black liquor: Costs and emissions

� Feasibility study: Altener II

– Rehabilitate old pulp mill or change to process involving methanol production?

– Based on methanol price of 230 $/t, the IRR is 26% (Nth plant).

– Emissions depend on source of electricity and energy for steam

19

BL Finland (Diesel)

BL Russia

BL Finland

Coal

Natural gas

0 20 40 60 80 100 120 140 160 180 200

Greenhouse gas emissions (kgCO2/GJ)

Methanol production Methanol use

DNV GL © 2016

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12 May 2016

Summary

20

� Many fuels are available:

– Oil

– LNG

– Methanol

– Biofuel

– Electricity

– Nuclear power

� Diversification; no silver-bullet solution

DNV GL © 2016

Ungraded

12 May 2016

SAFER, SMARTER, GREENER

www.dnvgl.com

Global impact for a safe and sustainable future

21

Hendrik W. Brinks

Christos Chryssakis (DNV GL)

Pierre Sames (DNV GL)

Christian Mørch (MAN DT)

Niels Clausen (MAN DT)

Per Kristensen (MAN DT)

Acknowledgements:

Hendrik.Brinks@dnvgl.com

DNV GL © 2016

Ungraded

12 May 2016

Case study: Hydrogen

� Benefits

– An energy carrier that for the user is independent on energy source

– Gives opportunities for handling energy security

– Virtually no local emissions

– When produced from renewable energy or nuclear energy, an energy system with significantly reduced greenhouse emissions can be made – the hydrogen society

� Drawbacks

– H2 difficult to store

– Safety considerations

– Efficient use of energy?

– GHG benefit without renewable energy?

22

DNV GL © 2016

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12 May 2016

Hydrogen: Type of production

� Reforming of natural gas cheaper than electrolysis of water

� Distributed production (at filling stations) cheaper than central production with truck distribution

23

� Reforming has a 3 times less CO2 footprint than electrolysis

� Distributed production only adds a little to the CO2

footprint

Costs (US)

Emissions (US)

DNV GL © 2016

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12 May 2016

Hydrogen: Conclusion

� Hydrogen adds 20-40% to the fuel price with about 10% reduction in GHG

� In addition costs applies to

– Purchase of fuel cells

– Storage of H2 onboard

– Safety measures on the ship

– Lost cargo capacity

� Hydrogen not likely to play a major role in propulsion in shipping for the next decade or two.

24

DNV GL © 2016

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12 May 2016

Hydrogen: Resource management

� Storage of electric energy in batteries are more efficient than in H2.

25

DNV GL © 2016

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12 May 2016

Case study: Pyrolysis oil

� Flash pyrolysis:

– Biomass heated without oxygen at ∼500ºC for <2 sec.

– 65% yield of pyrolysis oil (also called bio-oil)

26

Pros Cons

Simple process Water content 25%pH = 2.5-3.0

Suitable for direct use in adapted boilers and turbines

Upgrading needed for use in engines

Easier to transport than biomass

Energy density half of diesel (by volume)

DNV GL © 2016

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12 May 2016

Case study: Pyrolysis oil in Finland/Canada

27

� Case 1: Logging + pyrolysis oil plant in Finland. Shipping to the Netherlands

� Case 2: Logging + pyrolysis oil plant in Canada. Shipping to the Netherlands

� Techno-economical assessment

MGO: 89 kgCO2/GJ MGO (Q2 2014): 20 $/GJ

7.8kgCO2/GJ

23$/GJ

DNV GL © 2016

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12 May 2016

Pyrolysis oil: Price versus CO2 footprint

28

7.8kgCO2/GJ

23$/GJ

10.4kgCO2/GJ

19$/GJ

DNV GL © 2016

Ungraded

12 May 2016

Methanol from black liquor (pulp and paper mill)

� Black liquor: An intermediate usually burned to recover chemicals and heat

� Black liquor benefits:

– Easy to feed to a pressurized gasifier

– Rapid gasification rates

– No tar formation

– Typically 250-300 MW of black liquor available per pulp mill

� Black liquor may alternatively be used to make methanol

– Gasification in oxygen

– Cleaning

– Water gas shift

– Syngas to methanol

� Test facility by Chemrec in Piteå, Sweden

– 3 MWth gasifier (since 2005)

– Production of methanol and DME (since 2011)

29

DNV GL © 2016

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12 May 2016

Refinery process

� IFO380: Visbroken residue, HCO and LCO

� MDO: More LCO than in MGO

30

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12 May 2016

ISO8217

31

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12 May 2016

ISO8217

32

DNV GL © 2016

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12 May 2016

Biodiesel vs. hydrogenated vegetable oil

33

3

+

� Hydrogenated vegetable oil

� Biodiesel

+

+

3

DNV GL © 2016

Ungraded

12 May 2016

Setting the baseline

� The baseline is not static

– Depends on regulation

� Scrubber

– 2-3% increased fuel consumption

– 2% increased CO2 emissions from neutralization

– Total: 2-5% increase of CO2 emissions

� Use of MGO

– Emissions:

– More CO2 emissions in the refinery

– Less CO2 intensive in use

– Price:

– MGO is 300 $/t more costly than HFO

34

0 10 20 30 40 50 600

100

200

300

400

Scr

ubbe

r pr

ice

($/k

W)

Engine size (MW)