LNG SHIPPING

Norton Rose 23 April

Olga Vedernikova

Introduction
History on LNG shipping
What makes it different Fleet size

Types of ships Who builds what and where Propulsion systems Innovation Safety record
LNG Shipping Solutions for Norton Rose 2008

What makes LNG Shipping different

It is only 40 years old Ships generally built against long term contracts Little or no surplus tonnage = no spot market availability (although today not the case) Lead time for new ships about 4 yrs High capital cost: about twice VLCC Mainly steam turbine propulsion Few experienced shipowners The product needs respect

LNG Shipping Solutions for Norton Rose 2008

LNG Shipping Solutions for Norton Rose 2008

LNG Shipping Solutions for Norton Rose 2008

LNG Shipping Solutions for Norton Rose 2008

First Moss

LNG Shipping Solutions for Norton Rose 2008

LNG Shipping Solutions for Norton Rose 2008

Speculation ships for BP

LNG Shipping Solutions for Norton Rose 2008

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Double hull ship structure

Liquid cargo at T =-163C

Cryogenic liner composed of: -primary & secondary membranes -load bearing cryogenic insulation

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First CS1 and DFDE

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The LNG fleet

Existing Fleet Orderbook Total 266 ships 126 ships 392 ships
450 400 350

Fleet Growth

Fleet size: 266 ships 155 Membrane 99 Moss 8 Other 4 fully pressurised On Order: 126 ships 99 Membrane 13 Moss 4 SPB 10 semi-pressurised
Source: LNG Shipping Solutions research

300 v s ls 250 200 150 100 50 0 2003 2004 2005 2006 2007 2008 2009 2010 2011

Fleet s o y

Delivery

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Delivery Schedule
Delivery Schedule
60 50

LNG vsls

40 30 20 10 0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

On order

Delivered

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LNG tanker parameters - Recent developments

Containment system: Membrane systems dominant. Moss vessels only built by Japanese yards. HHI has cut up its jigs for Moss tank manufacturing BUT, Moss revival due to problems with CS1 / Mark III vessels? NO96 in strong position due to problems with CS1 / Mark III vessels Propulsion: Traditional steam turbine propulsion challenged by alternatives Dual Fuel Diesel electric new standard (APM, Bergesen, BP, Chevron, Gaz de France, K Line, MOL, Teekay, MISC) Slow speed diesel with reliquefaction (only ExxonMobil/Qatar) Gas Turbine orders yet to be placed Cargo capacity : Increasing Standard ship size now ~ 155,000-165,000 cbm LNG capacity West of Suez Max ~ 165-177 kcbm? ExxonMobil/Qatar taking deliveries 216,000 cbm: Q flex QatarMax ~ 260,000 cbm with slow speed diesel with reliquefaction but for single destination trade in original thought process: they now want to change all terminal s to accept these ships!

Source:
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Propulsion Systems
Steam Dual fuel Diesel Electric Slow speed diesel with reliquefaction Possibly gas turbine

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Propulsion alternatives: 1 Steam

Steam turbine Burns a combination of boil off gas (2/3) and HFO (1/3) Low fuel efficiency of about 27% High fuel consumption of about 180 tonnes 380 cst equivalents per day (150 kcbm vessel) Fuel heats water to boiling point steam propels steam turbine which is connected to propeller through reduction gear Originally chosen in the 1960s as a reliable but fuel inefficient system. LNG Industry has stuck to technology until today no one has wanted to be first with other propulsion but now GdF and BP have Diesel Electric vessels on order and Exxon has Slow speed diesel with reliquefaction on order All other shipping segments abandoned steam turbine after the 1970s oil crisis Steam turbine has become outdated for several reasons Kawasaki and Mitsubishi only steam turbine manufacturers in the world with total annual capacity of 24 turbines per year not enough at present growth rate of LNG shipping High oil and gas prices Little fuel saving when slow speeding However a fight back underway with new Re-heat or Ultra steam Operating costs of steam turbine LNGC approximately USD 13,500/day

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Propulsion alternatives: 2 DFDE

Dual Fuel Diesel Electric
Diesel engines burn boil off gas with marine diesel oil as a pilot fuel engines connected to electricity generators which power electric motors which power propeller Engines can run on 100% marine diesel or heavy fuel oil as well High fuel efficiency of ~ 43% Good fuel consumption of about 125 tonnes MDO equivalents per day (150 kcbm vessel) High redundancy as several diesel engines and several motors minimize risk of total break down Big savings when slow speeding as one or several engines can be shut down Proven technology installed on many new cruise ships Propulsion alternative offers very little emissions and ships carry very little bunker oil which in case of diesel is also non persistent minimizing consequences of spills and leakage if involved in serious accident Any crew can operate the engines Operating costs of DFDE propelled LNGC approximately USD 15,500/day Small engine room space offers ~ 5,000 cbm extra cargo capacity to steam turbine

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Propulsion alternatives: 3 SSDR

Slow speed diesel with reliquefaction Diesel engines which burn HFO are connected directly to propeller Engines can not burn boil off so ship must be equipped with reliquefaction system High fuel efficiency of ~ 43% Good fuel consumption of about 105 tonnes 380 cst per day (150 kcbm vessel) Savings when slow speeding as engines work efficiently over a wide range of speeds Slow speed diesel engines proven technology installed on in excess of 90% of merchant vessels Reliquefaction plant onboard ship non proven technology. Only exists on 1 vessel, LNG Jamal, for research purposes. Owned by Osaka Gas technical manager NYK. ExxonMobil/Qatar Petroleum to use this system for their Qatar-UK and Qatar-US trades Any crew can operate the engines but who has got the skills to operate the reliquefaction plant? Operating costs of SSD propelled LNGC approximately USD 14,500/day
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LNG vessel development

On-board regasification concept A submerged buoy connects to the specially designed vessel: Energy Bridge and Neptune Vessel regasifies LNG onboard and discharges gas over about 6 days Interconnecting subsea pipeline ties into the downstream delivery infrastructure. First commercial LNG STS completed over the summer 2006 Teesside saw alongside discharge of gas early 2007 On-board regasification opportunities No need for onshore installation less permitting and NIMBY problems Very fast way and low cost to set up LNG imports infrastructure Can connect directly to onshore pipeline system 25 Conversion of old carriers (Golar) extending life
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Floating LNG projects

Scenic Boston

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Not a new terminal

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Not so scenic Boston

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And the US is worried about terrorist attack!

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LNG shipping industry traditional commercial characteristics

Conservative industry which has a strong tendency to favour ship owning companies established in LNG shipping Politics nationality of shipping company and flag state often very important Vessels mainly built for LNG plants or LNG buyers which take them on 20-25 year time charters Ownership of vessel often shared between several companies For ship owners not currently active in LNG shipping banks and oil majors normally require partnership with LNG ship management experienced owner No pools!: yet!
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Liquefaction
Major talking point for 2008 due to delays and expense of large shore based projects Many stranded fields that are too small to justify high land based investment are suitable Majors dominance of the product is encouraging end users to look at/invest in the small offshore ideas Technology still needs perfecting and many doubts on putting the liquefaction on a moving structure Flex LNG would appear to have the edge due to the early shipyard psoitions but what about topsides (Chris?)
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LNG shipping industry future dynamics

New buildings now moving into semi-speculative owners reserve slots without exact charterer lined up: very similar to LPG LNGCs ordered against medium term charters with owner carrying residual value risk New and established LNG shipowners with orders for vessels they only plan to use in the short term market STASCO launched standard LNG time charter party targeting short term trade well received in the market Old vessels coming off 20 year T/Cs becoming available for short term trade Oil companies building their own fleets for trading purposes Short term market already a reality and growing quickly: LNG & LPG displaying increasingly similar characteristics
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Use and control of LNGC is moving from tramline for projects to flexible trading for gas trading
LNG fleet control situation
400 350 300 No of vessels 250 200 150 100 50 0
M M M Ju l-1 0 Se p10 No v10 No v07 Ju l-0 8 Se p08 No v08 Ju l-0 9 Se p09 No v09 Ja n09 Ja n08 Ja n10 ar -0 8 ar -0 9 ay -0 9 ar -1 0 ay -0 8 M M M ay -1 0

100% 95% 90% 85% 80% 75% 70% 65% 60%

LNG project Open/Shipowner control

Available if project T/C not extended Major LNG trader control

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Fixed Project as % of fleet if not extended

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What is spot trade?

= spare cargoes + long shipping market + demand from end users

Cargoes:
Projects debottlenecking, diversion clauses in existing long term SPAs; Wedge volumes Equity

Shipping :
excessive shipping capacity needed to move the product to price driven markets like Asia

End user market :

has been facilitated by increase in the regas capacity + panic demand : not always in the same place!

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Existing Projects on the Spot:

SNOHVIT

ARZEW DAMIETTA IDKU QATARGAS DAS Is OMAN ATLANTIC LNG NLNG E. GUINEA

Repsol

NWS

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Majors volumes for spot plays in next 3 years

SAKHALIN SKIKDA QATARGAS RASGAS Yemen LNG

TANGGUH

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Spot market growth: 2000-2007

Since 2000 spot market has quadrupled and so did the routes with new regas terminals coming on stream in recent years and projects sending cargoes to any high priced markets as at present moment.

600 500 400 300 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007
spot
routes

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Spot Market
Spot Cargo destination for Q1 2008
MED 16% Atlantic 23%

Asia-Pacific 61%

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Spot Market Trading Participants

IOCs BG / BP / Shell / Statoil / Chevron Texaco/ Conoco Philips / Repsol / GDF NOCs Sonatrach / Petronas / GOSO Projects NLNG / RasGas / QatarGas / NWS / MLNG / Brunei LNG Energy Companies Sempra / Cheniere / RWE / Suez / Constellation / DB Energy / Essent Traders Vitol / Goldman Sachs / Merryl Lynch / Gazprom / EDF / Sempra Trading
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Summary
Spot market is growing rapidly in price-driven environment. Today as much as 20-25% of fleet working on a flexible basis Main drive - to have global reach and maximum applications including offshore Main challenges getting cargoes and compatibility Transportation costs are not just a question of charter rate Offshore activities for both regas and liquesfaction are indicative of the diversion in the industry! LNG vessels operating in the spot market can be profitable but right size and propulsion of great importance

shipowner / charterer have to be open-minded and prompt in decisions!

A growth industry such as this needs good reliable shipowners but who require sensible charter revenues in order to maintain high quality safe operations LNG Shipping Solutions for Norton Rose 2008
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Thank you for your attention

With any questions please contact: OLV@LNGSHIP.NET

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