SAFETY4SEA: LNG may be a viable alternative option. What do you see post 2020 in the market? How fast do you think the market will accelerate adoption of LNG as a marine fuel?
Alexander Prokopakis: It is a slow process. We don’t expect that January 2020 will see 10% of LNG sold. We are not sure when the kicking point will be. We think that the full development of LNG as a fuel will be seen between 2024 and 2028. A few projects are coming within the next two years, then some ship owners and charterers will start realizing the value, start putting orders.
S4S: What we are witnessing so far is that the pace is a little bit slow. You think that the market is not ready yet?
A.Pr.: The market is ready, but decisions are being delayed due to lack of awareness and the level of CAPEX required. There will be a domino effect. When we will see the first projects realized, then the acceleration will be faster. There are a lot of projects involving LNG as a fuel on paper. If only a small fraction of it, say 1/3, materialize, then we are going to talk about a significant percentage of LNG as bunkering.
S4S: The LNG fuel market has its majors as established players but you have the vision to be a premium provider. How would you differentiate yourself with respect to the competition?
A.Pr.: One of the foundations of our business plan is how this company will develop. We believe in the traditional bunkering business. All the majors are targeting more on the contract and long-term model. We believe the bunkering market is not going to do the same mistakes. There is going to be enough room for everybody. It’s a market that needs high investments that a lot of people cannot do. We want to provide to the market the key word for us: be an independent bunker supplier. Majors may be key players but at the beginning phases as they see LNG as a retail business. They want to see the market develop and they are helping towards that, but that is not their core business. They are to have independent players to take majority of the business. They like this model.
S4S: You have a very ambitious investment plan. Your idea is to invest something in the range of 300 – 400 mill. USD. Given the turbulence in the markets, how difficult would be to find that amount of money?
A.Pr.: We have an advantage. We are not just a shipping project. We touch four different areas:
- We are Start-up Company. [This amount of money for a pharmaceutical start-up company for example is very small]
- We are an energy company.
- We are an infrastructure company; and
- We are in the shipping sector.
If it was only shipping, it would be difficult because the market may not be there. We invest in the infrastructure and the business development of the company. The signs we get from our potential investors are very positive.
S4S: Given the innovative nature of such a project, what do you think would be the game changer that will help you move this idea forward?
A.Pr.: We need to have rules and procedures asap. There are so many standards. We are getting forward to the aviation industry’s procedures and regulations. The problem is that these need to be put on paper and ports need to get ready to provide licenses. The majority of ports now they don’t know the industry and they don’t advance. In order for things to start developing, we need to have clear regulations and procedures, how to grant the licenses, what we need to obey to, in order to be able to operate as an LNG bunker supplier. That’s going to be the game changer on the next year.
S4S: Are you targeting any specific sectors, like the cruise or container industry?
A.Pr.: No. We believe that all shipping sectors are potential customers. For now the container market and the cruise market is more for the majors. But big players like Carnival they don’t want to have all their eggs in one basket. So, we are going to have a room down the line. The next segment that I see developing is car carriers, because they are also liner business. Then is tankers and then bulkers. We are going to see many projects being announced towards the end of the year, probably first half or 2019. We don’t focus on one sector because this is the position we want to give to the market. We want to build vessels that they will be more adaptable and closer to the needs of our customers.
S4S: Can you provide an insight on where your costs may be, say cost per mmBtu? What will be this added cost to the cost of the fuel for the actual delivery onboard ships?
A.Pr.: We don’t believe that the added cost would provide a competitive advantage to the one who is going to have the cheaper supplier.
S4S: You imply that this would be insignificant? Because we have seen calculations for the price of LNG in the shore sector, that these costs would be significant and they make or break companies.
A.Pr.: Yes, because they divide the cost of that in smaller parts. When you are talking about the land, you have trucks and there are a lot of logistics. So for us it is a matter of volume. Our original business plan had also an intermediate phase with trucks for 2.5 years. We decided not to move ahead because the numbers don’t add up. It is important to identify and control the costs on the whole supply chain, but this added cost would be insignificant in the overall picture.
S4S: What is your forecast for 2025, 5 years after the IMO 2020 phase in, for the LNG as a fuel? What would be the LNG as a share in the market?
A.Pr.: LNG as bunker would be anything between 8 and 14% of the bunker market at that time.
S4S: With respect to the IMO 2050 strategy, cutting emissions 50% with respect to 2008 baseline, do you think that this may be seen as a barrier producing delays towards adopting LNG as a fuel?
A.Pr.: It is causing as much as it has caused so far to LNG. Some more considerations. There is lack of awareness. We believe that LNG is an intermediate fuel. In the next 50 years a lot of things will happen. So we are not the only fuel of the future. We are the best intermediate fuel. So we fit very well into the model of IMO of zero gas emission. If a vessel had a life cycle of 50 years, then probably LNG may not be the best choice. But because our calculations are made on a 25-year life cycle, but in reality it is close to 20, we believe that LNG would have at least 1 to 1.5 full shipping life cycle.
S4S: There are second thoughts in the market with respect to methane slip; that methane adds more GHG impact compared with carbon monoxide. What is your view?
A.Pr.: If we see the percentage of the methane slip over the years we will observe that it is steadily minimized over time. Honestly, it is not going to be zero for the foreseeable future with the level of technology at hand. But as long as things are progressing, methane slip will be going down and I am confident that the pace in which methane slip is reducing will be acceptable for a sustainable investment form any perspective.
S4S: What are you hoping to achieve in the next 5-10 for the probunkers project?
A.Pr.: The ultimate goal is to get an IPO between 2027-2028, but there are so many stages until that. By the end of the year to conclude the business review, because for us this is a make it or break it! If our numbers don’t get validated by one of the majors that our business model works, then we will stop. Then is getting the funds until the summer 2019. The next challenge is to have the vessels delivered on time, because we have a timeline to be operational at the second half of 2022, but if we have delays from yards or the designer, that might hold us back. The optimum goal is to be able to have good and reliable operation, be known in the market and stay independent through an IPO.
The views expressed in this article are solely those of the author and do not necessarily represent those of SAFETY4SEA and are for information sharing and discussion purposes only.