How small-scale LNG can beat coal in power

generating markets in booming Asia

Massimo Casal
Head of Hub Indonesia and Philippines

Public Massimo Casal–LNG Forum Bali– ©2019 11/09/2019 1

Agenda
LNG to Power

1. Global business drivers for LNG

“Its all about prices”
2. Opportunities for LNG on the rise – a real alternative to coal fired power plants
“A new LNG buyers market offers strong opportunities for LNG to Power solutions“
3. Business case for LNG to Power Solutions
“Looking behind the scene in Indonesia”
- The overall approach – lowering the cost of electricity to boost local development
- Practical case for islands and decentralized solutions
Q&A

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Who we are!

Automotive Division Financial Services Division

Passenger Cars Business Area Commercial Vehicles Business Area Power Engineering Business Area

MAN Dealer and customer financing

VW VWN
Energy Solutions Leasing
Audi Scania Renk Direct bank
Insurance
MAN
Skoda
Truck & Bus Fleet management
Mobility offerings
Seat

Bentley

Porsche

Others

Public Massimo Casal–LNG Forum Bali– ©2019 11/09/2019 3

Our strategic business areas

Engines & Marine Systems Power Plants Turbomachinery

Aftersales MAN PrimeServ

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LNG to Power
MAN Energy Solutions as “one shop” solution provider

Public 08/09/2019 5
LNG to Power
MAN Energy Solutions as “one shop” solution provider

Motivation Solution Clean power

§ Become independent from
existing gas infrastructure or
pipeline supply
§ Partnering with global LNG
suppliers
* Procedure and cost monitoring
§ Install own LNG to power § Use the cleanest fossil fuel
infrastructure § Be highly efficient & reliable
§ Make use of bargaining § Be flexible and decentralized
power § Use engine and turbine
technology

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Definition of LNG to Power
Getting the full solution out of one source – LNG flexible and scalable arrangement

“Converting molecules into electrons”

Gas / dual fuel power plant

LNG unloading

LNG transfer

LNG storage area

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LNG to Power
MAN Energy Solutions as “one shop” solution provider

LNG Terminal Power Plant

Logistics
LNG Carrier
Offloading bay

Container

Discharge jetty
Feeder ship Local storage

Semi-trailer

Re-gasification
LNG receiving Rail car
terminal

Pipeline

Power plant
Loading bay

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 LNG to Power
MAN Energy Solutions as “one shop” solution provider

- Similar project as the

Nynäshamn project are
currently under
development in Asia
and Europe

Nynäshamn project with COD

in March 2011 - Business cases with a
§ Full containment storage continuous off-take
tank
supporting the fuel
§ 20.000 m³ LNG
switch from coal/diesel
§ 2 truck loadings arms
to LNG
§ Pipeline to Nynas refinery
§ Prepared for tank 2 and - Able to cover a 6 weeks LNG
export supply cycle for a 50 MW base
load power plant from MAN

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LNG in the Press
Huge sustainable changes on the horizon

May 15th 2019- LNG Journal

Japanese spot cargoes contracted in April show drop of
$3.90 per MMBtu versus year ago period
Japanese spot liquefied natural gas cargoes were contracted for
Japan last month at a cost of $3.90 per million British thermal
units less than in April 2018 and down $1.20 per MMBtu versus
March 2019.

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Is coal still king in Asia?
Or will renewables and gas to power supply the new cheap base load power

- To power global economies a cost competitive “24/7”

reliable supply of electrical power is core! Renewables can
only deliver a small portion with their reduced annual capacity
factor! Currently less than 10% April 2019
- Coal is powering the leading economies and still on a rise Asia continue
s to pivot
on emerging markets! Demand in China also picked up
away from co
slightly, and there were big increases from Bangladesh and
The number al
Pakistan to the Philippines and South Korea. of thermal co
development al plants in
pipelines of m
- Coal’s comeback helps explain why 2017 was the first year in Asian countrie ajor
s continues to
four that global emissions of carbon dioxide have risen, fall, according free-
to new data.
thwarting the planet-wide effort, accelerated by the Paris decline pose T he
s a warning to
summit in 2015, to control climate change. BP notes that coal’s world’s bigge the
st exporters o
share of global electricity generation—by far the largest source coal – Austra f thermal
lia and Indon
at 38%—has not shrunk in over 20 years, despite the rise of gas check supply e sia – to
.
and renewable energy
The latest co
al-fired powe
data released r plant
by Global En
Monitor (GEM ergy
- Natural Gas is the fossil fuel with the lowest environmental ) in March (2
footprint when it comes to emissions – and LNG as flexible, shows furthe 019)
r shrinkage o
tradable commodity has the potential to substitute coal on large development f coal
pipelines of Ja
scale to deliver a cost competitive fuel for power generating! Taiwan, Mala pan,
ysia, India, P
Bangladesh, akistan,
Vietnam and
China.
Source: The Economist: Edition August 4th 2018 (left) https://www.asiatimes.com/2019/04/opinion/asia-continues-to-pivot-away-from-coal/ (right)

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Is coal still king in Asia?
Comparing Australian coal export with LNG shipped ex-ship – close to parity!

LNG shipped to Japan, South Korea and April 2019

Taiwan on a delivered ex-ship basis — Asia continue
its JKM Marker s to pivot
away from co
The number al
of thermal co
development al plants in
July 2019 pipelines of m
Asian countrie ajor
Free-fall of Asia LNG price! Spot s continues to
fall, according free-
market prices for delivery to Asia to new data.
decline pose T he
in July (2019) are now down to s a warning to
world’s bigge the
US$4.30 per million Btu st exporters o
coal – Austra f thermal
lia and Indon
check supply e sia – to
.
Australian thermal coal shipped to The latest co
Japan’s Kinuura port — the Northeast al-fired powe
data released r plant
Asia Thermal Coal index, abbreviated by Global En
Monitor (GEM ergy
to NEAT ) in March (2
shows furthe 019)
r shrinkage o
Thermal coal is traded on the basis of its calorific value or heating content on a kilocalories per development f coal
pipelines of Ja
kilogram basis, and its volume priced in US dollars per metric ton. Taiwan, Mala pan,
ysia, India, P
LNG is priced on the basis of US dollars per million British thermal units, or $/MMBtu. Bangladesh, akistan,
The most common way to compare is to convert seaborne thermal coal prices into the same unit of Vietnam and
China.
measurement as LNG, in this case $/MMBtu. (Platts 2018)

https://blogs.platts.com/2018/11/08/thermal-coal-lng-northeast-asia-relative-cost-insights/
https://www.meti.go.jp/english/statistics/sho/slng/index.html

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LNG now cheaper than HFO!
July 2019; GLOBAL LNG-Asian prices slide to lowest in nearly 19 months

§ One of the main drivers is the falling cost of

LNG which allows it to compete with other fuels
in many markets.
§ Free-fall of Asia LNG price! Spot market prices for
delivery to Asia in July (2019) are now down to
US$4.50 – 5.00 per million Btu
-> 14.7 US$/MWh
(Source: Fitch 5th of July 2019)

! HFO380 Singapur 17th of May 2019: 425 USD/mt -> 37 USD/MWh

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LNG to Power – “The Technology”
Indonesia – Expected Cost of LNG Supply Chain

Low High
USD / MMBbtu USD / MMBbtu
5.00
FOB Price Asia 7.00
(October 2019)
Large vessel transportation 1.00 1.1
Breakbulking terminal 0.80 1.0
Small vessel transportation 1.00 1.3
Receiving regas and storage 1.50 1.5
TOTAL (Plant Gate) 9.30 11.5
ICP August 2019 57.97 USD/barrel
14.5% ICP (Permen ESDM No 45/2017) 8.35

Ø Prices close to regulation requirement might be possible with logistic optimization with today scenario
Ø MEMR shall review regulation of gas price for power plants!!

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LNG to Power – “The Technology”
Price Blocks from an Investors view

€/kW OPEX. assumes 20% local tax rate and 10% cost of
capital (WACC) for a 20-year project lifetime

1.000 2.- Dual Fuel (DF) or

Spark Ignited (SI)
prime mover power
plant under a specific Power Plant
operating profile
900 USD/kW
- Highest possible
electrical efficiency
e
due to the high price
C pric
for LNG a s EP
300 LNG Infrastructure
SD /kW
1.
1,2 50 U
- Matched to a power Power Plant LNG Infrastructure
plant operating profile
e.g. 50 MW base load
Approx. 350 USD/kW
with 14 days storage
requirements. (7.000m3
LNG)

LNG supply logistics depending

on project setup and involvement Commodity price
11.5 USD/MMBtu of stakeholders (“bargaining
power”)

LNG logistics Power Plant

LNG infrastructure Cost of Electricity

Public Massimo Casal–LNG Forum Bali– ©2019 11/09/2019 15

LNG to Power
Gibraltar
Gibraltar – powered by high efficient MAN Dual Fuel and Gas Engines
Gibraltar– –powered
poweredbybyhigh
highefficient
efficientMAN
MANDual
DualFuel
Fueland
andGas
GasEngines
Engines

Tanks by Chart Ferox

Public Massimo Casal–LNG Forum Bali– ©2019 11/09/2019 16

LNG to Power
Gibraltar – powered by high efficient MAN Dual Fuel and Gas Engines

New Power Plant based on 2x 40 MW

- Prime mover: MAN ES engines 3x14V51/60G gas and
3x14V51/60 dual-fuel engines
- Project volume 86 Mio.€ (1.075 €/kW)

- The power plant will be operated by Gibraltar Electricity

Authority the only Electricity Utility Provider in Gibraltar
- LNG facility operated by Gasnor, a 100% Shell-owned
subsidiary. The LNG facility consists of five double wall
stainless steel tanks which will have a capacity of 1.000
m³ each

https://www.youtube.com/watch?v=zKfIfuqPFXI

Public Massimo Casal–LNG Forum Bali– ©2019 11/09/2019 17

From Good to Great
Closing the supply chain and making use of the best available technology for small scale LNG

Success criteria's

1. Global LNG infrastructure, volume and a price building mechanism offers huge
opportunities for developers and policy makers to switch to natural gas as main fuel. As
well international acting banks and development banks supporting natural gas
projects on the transition path into a renewable energy industry.

2. Available small scale LNG infrastructure is now available and price wise
competitive as support for an more sustainable electricity generation. Total cost for
LNG /natural gas at site is now competitive to oil based fuels. With a global trade
mechanism for CO2 this trend will be more leveraged and promoted.

3. Highest efficient prime mover technology with a low CO2 footprint like engine
based technology and combined cycle offers the highest conversion rate from fuel
into electricity – the source which powers local competitive economical development.

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Profound business development is core
Long way for a successful project implementation – “The Iceberg principle”

bankable LNG to Power Solution

Framing the business case for a
• First Initial technical and economical feasibility study with main stakeholder
assessment and cost drivers
• Site evaluation for LNG infrastructure

• LNG purchase and supply:

• Contract form (short, long, mid vs. spot)
between multiple stakeholders

• Evaluation of LNG supply bargaining power (team up with a global/local supermajor)

Strong coordination work

• LNG price hatching and partnering

• Attract additional off-takers for LNG use / develop robust and bankable business
case
• Logistic concept for LNG /NG distribution “Hub and Spoke Strategy”
• Storage concept; stationary vs. floating, “right” sizing etc.

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Snapshot of the Asia Power Industry
Leading in economic growth but lacking in investments into the supporting infrastructure

b a n k s g iv e them the
o a l p la n t s fl o under as Institute for Energ
Asia's c (IEEFA) 2019: Coal
y Economics and
Financial Analysis
cold shoulder n s h a v e q u it coal since ballooning, renew
pipeline shrinking
, stranded asset ri
ancial instituti o ables ever cheap sk
th a n 1 0 0 fi n Coal fleets represe er
More nt huge financial
February. o a l-fi re d p o w er plants are and investors writ
e Tim Buckley IEE
risk to sharehold
ers
’s c o al d e v e lo pers and c e e p a fl o a t a s global Finance Studies, K FA’S Director of Ene
ate Finlayson the or rgy
Asia
b u il d n e w m arkets and k to avoid
Communications S
trategist.
ganisation’s Senio
r
tr ug g li ng to k s o n th e m
s
tu ti o n s tu rn their bac
financial in s ti
n g e, R e u te rs reports.
climate ch a nging,” said
criticism over financing is v e r y c h a ll e
p o w e r p la n t x e c u t iv e Officer
“ C oa l ro , Deputy Ch ie f E
Dharma D jo jo n e g o
e r , th e p o w e r generation
o n e s ia ’s P T Adaro Pow al m in er PT Adaro
of Ind s econd-larg e s t c o
e c o u n tr y’s
unit of th
Energy.
ne ar s E PC deal
First Gen LN G project
ne d
for plan

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Practical case for islands and decentralized solutions
Indonesia – bringing clean and cost competitive electricity to the people

Development steps
1. Calculating the cost of electricity powered by LNG
2. Give the indication if a fuel switch pays off for the country or not!

Public Carsten Dommermuth– Future Energy Show Philippines in Manila – ©2019 08/09/2019 21
Practical case LNG to Power
Indonesia Islands – a great opportunity for small scale LNG

Reference Power Plant sizes Is the current tariff sufficient for new investments

50 MW and 100 MW DF solutions

Plant Engine type Gas price available at site

100 MW 6x 18V51/60DF 40 USD/MWh

4x 14V51/60DF 40 USD/MWh
50 MW

* Natural Gas price of 40 USD/MWh (11.5 USD/MMBTU) including all delivery costs for free at site logistics (HHV) – 14 days
storage required at site. All plants running under base load > 7.500 annual operating hours

Question marks on:

Is the current tariff sufficient for investment in LNG to Power to receive at least an
interest of 15%-20% IRR?

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Practical case LNG to Power
How a 50 MW power plant looks like – Case PLN Sumbawa

3 MAN dual fuel engines

type 51/60 DF under base load > 375.000 MWh delivered to the local grid and to
the local community to boost regional economic development

Contract award
in May 2017

Construction time
15 month

O&M contract
for 5 years

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Practical case LNG to Power
Indonesia Islands – a great opportunity for small scale LNG

“50MW” – DF 50,9MWnet
Project KPIs Value

Engine selection 4 Engines MDT, type 14V51/60DF

Plant net output 50.9 MWel

Plant net efficiency 46.2%

Owners cost
EPC plus interest during 47.2 MUSD
construction and infrastructure
Natural gas LHV free at site Gas price based on 11.5 USD/MMbtu
(plus 5°C / 6 bar) (Escalation rate 5%/a)
Weighted Average Cost of
10%
Capital (WACC)

Construction time 18 month

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Practical case LNG to Power
Indonesia Islands – a great opportunity for small scale LNG

“50MW” – DF 50,9MWnet
Production costs Incl. LNG
Annual operating hours of the power plant
new power plant only infrastructure
5.000h USD/MWh 91.4 94.1
Mid-merit
5.500h USD/MWh 88.8 91.5
6.000h USD/MWh 86.7 89.3
6.500h USD/MWh 84.9 87.4
7.000h USD/MWh 83.4 85.9
7.500h USD/MWh 82.1 84.6 Base-load
8.000h USD/MWh 80.9 83.3

Focus on the base-load operating mode above 7.500 annual full-load hours

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Practical case LNG to Power
Indonesia Islands – a great opportunity for small scale LNG

350.0
€/ MWh Tariff: 130 -140 USD/MWh
300.0 i.e. NTT, Maluku. Papua
85% BPP average
250.0

200.0

Tariff: 130 -140 USD/MWh

150.0

100.0

50.0

Running hours / a
0.0
500 1000 1500 2000 2500 3000 3500 4000 4500 5000 5500 6000 6500 7000 7500 8000 8500
Gas engine plant 50MW 20V35/44G TS 277.3 166.9 130.1 111.7 100.6 93.3 88.0 84.1 81.0 78.6 76.6 74.9 73.5 72.3 71.2 70.3 69.5
Dual Fuel plant 50 MW 14V51/60DF 305.5 181.1 139.6 118.9 106.5 98.2 92.2 87.8 84.3 81.6 79.3 77.4 75.8 74.5 73.3 72.2 71.3
Gas engine plant 100MW 18V51/60G TS 270.2 163.4 127.7 109.9 99.3 92.1 87.0 83.2 80.3 77.9 76.0 74.3 73.0 71.8 70.8 69.9 69.1
Dual Fuel 100 MW 18V51/60DF 295.5 176.1 136.2 116.3 104.4 96.4 90.7 86.5 83.1 80.5 78.3 76.5 75.0 73.7 72.5 71.5 70.7

Huge lever with high efficient state-of the art equipment to reduce the current subsidies tariff
Production costs with new equipment 80-82 USD/MWh

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Practical case for islands and decentralized solutions
Indonesia – bringing clean and cost competitive electricity to the people

Development steps
1. Calculating the cost of electricity powered by LNG
2. Give the indication if a fuel switch pays off for the country or not!

Public Carsten Dommermuth– Future Energy Show Philippines in Manila – ©2019 08/09/2019 27
Practical case LNG to Power
Indonesia Islands – a great opportunity for small scale LNG

Adding LNG infrastructure to the new duel fuel plants

Tariff: 130 -140 USD/MWh
- Increase of EPC to 1.250 USD/kW – 2 weeks storage @ site + regas.
i.e. NTT, Maluku. Papua
100 MW LNG
85% BPP average
to Power
50 MW LNG to
Production Power IRR 14,5% Attractive fuel switch
costs with state IRR 14% 84 USD/MWh opportunities from oil
of the art dual based power
fuel engines 85 USD/MWh
generating to LNG
82 USD/MWh
available!

LNG powered

New electricity LNG to Power 50 MW LNG to Power 100 MW

generating costs

Results for the reference Power Plants Overall good indication!

50 MW and 100 MW (53,5 MW and 95,4 MW net ! – 7.500h base load) Interesting opportunities
Internal rate of return (IRR) with current tariff 20% (19.9% for the 100 MW) for investors (IRR) as well
the government to reduce
Internal rate of return (IRR) including LNG equipment 14% the cost of electricity to
(50 MW – 2 weeks storage - 350 USD/kW)
push for the change!
Internal rate of return (IRR) including LNG equipment 14.5%
(100 MW – 2 weeks storage – 350 USD/kW)

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Urgent policy action is needed
Summarize – What is needed to make the LNG story happen!

1. Clear leadership management to support the change towards high efficient new, state of the
art generating technology based on natural gas! Also as support for non-dispatchable
renewables
“Stop subsidizing a old high money consuming energy system”

2. Local governments: Take the lead in an “hub and spoke strategy” to bring LNG to the remote
locations (small scale infrastructure)
Support FDI´s and local investors in investing in a modern energy system what can
support the national GDP development.

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Our White Paper how LNG can bring power
to the people in remote locations of Asia
Download your version under: https://man-es.com/discover/lng-paper

Public Massimo Casal–LNG Forum Bali– ©2019 30

Thank you
very much!
Massimo Casal

+62 21 5795 7490

massimo.casal@man-es.com