EURONAV - UPDATE ON IMO 2020 PREPARATION - WEBINAR SEPTEMBER 5 2019
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EURONAV – UPDATE ON IMO
2020 PREPARATION
WEBINAR SEPTEMBER 5 2019
1
FORWARD LOOKING STATEMENTS
Matters discussed in this presentation may constitute forward-looking statements under U.S. federal securities laws, including the
Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect the Company’s current views with respect to
future events and financial performance and may include statements concerning plans, objectives, goals, strategies, future events or
performance, and underlying assumptions and other statements, which are other than statements of historical facts. All statements,
other than statements of historical facts, that address activities, events or developments that the Company expects, projects,
believes or anticipates will or may occur in the future, including, without limitation, the delivery of vessels, the outlook for tanker
shipping rates, general industry conditions future operating results of the Company’s vessels, capital expenditures, expansion and
growth opportunities, bank borrowings, financing activities and other such matters, are forward-looking statements. Although the
Company believes that its expectations stated in this presentation are based on reasonable assumptions, actual results may differ
from those projected in the forward-looking statements. Important factors that, in our view, could cause actual results to differ
materially from those discussed in the forward-looking statements include the failure of counterparties to fully perform their
obligations to us, the strength of the world economies and currencies, general market conditions, including changes in tanker vessel
charter hire rates and vessel values, changes in demand for tankers, changes in our vessel operating expenses, including dry-
docking, crewing and insurance costs, or actions taken by regulatory authorities, ability of customers of our pools to perform their
obligations under charter contracts on a timely basis, potential liability from future litigation, domestic and international political
conditions, potential disruption of shipping routes due to accidents and political events or acts by terrorists. We undertake no
obligation to publicly update or revise any forward looking statement contained in this presentation, whether as a result of new
information, future events or otherwise, except as required by law. In light of the risks, uncertainties and assumptions, the forward
looking events discussed in this presentation might not occur, and our actual results could differ materially from those anticipated in
these forward-looking statements.
2
AGENDA
1. Where did we come from?
Assumptions 2018
2. Where are we now?
Actual situation Q3 2019
3. What are the risks?
4. What is Euronav doing?
5. What can be done in the future?
3
GLOSSARY
HFO Also known as bunker fuel or residual fuel oil, HFO is the result or remnant from the distillation
Heavy Fuel oil and cracking process of crude oil and is predominantly used as a fuel source for marine vessel propulsion.
HSFO Designated fuel oils which have a maximum sulphur content of 3.5% as permitted under ISO 8217.
Heavy Sulphur Fuel Oil
LSFO Designated fuel oils which have a maximum sulphur content of 0.5%.
Low Sulphur Fuel Oil
VLSFO Marine Fuel oil that meets the specifications as per ISO 8217 with a sulphur content of no greater than 0.5%
Very Low Sulphur Fuel Oil
ULSFO Marine Fuel oil that meets the specifications as per ISO 8217 with a sulphur no greater than 0.1%
Ultra Low Sulphur Fuel Oil
MGO Defined as gasoil that meets DMA as per ISO 8217, with a max of 0.1% Sulphur.
Marine Gas Oil
MDO Defined as gasoil that meets DMX or DMA as per ISO 8217, with a max sulphur of 10ppm
Marine Diesel Oil
Distillates Medium fraction of crude with a boiling range between 250C and 580C (gasoil and diesel oil fall into this
category).
Spread The difference between two contract months of the same commodity, or the difference between the ultimate
value of two different commodities. Spreads are defined as Time Spread, Grade Spreads, Arb Spreads.
Crack The difference between crude oil value and an underlying commodity. The Fuel oil crack is Fuel oil value minus
Crude oil.
Contango Structure in the market where prices for an underlying commodity are cheaper today than in the future.
Backwardation Structure in the market where prices for an underlying commodity are more expensive today than in the future.
ORIGINAL OUTLOOK IN 2018 VS TODAY
5
IMO 2020 COMPLIANCE: A SHIP OWNER’S OPTIONS
Distillates
0.1% sulphur content
(MGO, Diesel)
Very Low Sulphur fuel Oil
COMPLIANT FUEL OR SCRUBBER TECHNOLOGY
AND
7
THE FACTORS WE CONSIDERED
1. Fleet Profile
2. Fuel oil availability
3. Retrofit & Operational
4. Bunker Price Spread
5. Change in regulation
8
Age of Vessel in Years
10.0
12.0
14.0
16.0
0.0
2.0
4.0
6.0
8.0
Hatteras
Amundsen
Aquitaine
Euronav
Ardeche
Heron
Andaman
Euronav
Aegean
Arafura
Aral VLCC
Source: Euronav
Anne
Alboran
VLCC
Alex
Drenec
Donoussa
Fleet
Desirade
Alice
Dia
Dominica
Antigone
Hojo
Sonia
Ilma
Simone
Alsace
Iris
Non Eco VLCC
Ingrid
Fleet––Average
Sandra
Sara
Hirado
Average age
Hakone
Hakata
Eco / Eco type VLCC
Newton
Noble
Nautica
Nectar
Nucleus
Neptun
Daishan
Navarin
Dalma
Nautilus
Age6.86.8yrsyears
TI Hellas
26%
Composition Euronav
Eco or Eco type VLCC
of Euronav
VLCC fleet
Non Eco VLCC
9
74%
VLCC Fleet
1. EURONAV VLCC FLEET – ALREADY EFFICIENT
2. FUEL OIL AVAILABILITY
2018 3rd Quarter 2019
Bunker market size: 60,000 ships Bunker Market Size: 60,000 ships
Bunker Global Volume: 3.5 mmbbls Bunker Global Volume: 3.5 mmbbls
HSFO Volume (post 2020): 0.6 mmbbls (17%) HSFO Volume (post 2020): 1.0 mmbbls (~30%)
450 ships to have scrubbers (Argus May 2018) 3,505 ships to have scrubbers (DNB August 19)
Oil majors: Undeclared policy Oil majors: Exxon, BP, Shell etc..
Independent refiners: Few statements Independent refiners: Valero, Marathon
National Oil Co.: No communication National Oil Co.: Sinochem etc
Oil/Fuel Oil Traders: Opportunistic Oil/Fuel Oil Traders: Vitol, Trafigura
Conclusion: Not enough LSFO will lead to Conclusion: Sufficient LSFO supply
price Spikes/Volatility should lead to price stability
102. LSFO AVAILABILITY – SUFFICIENT
Oil Majors
LSFO (0.5% S) Bunker Ports
• All majors announced plans for
availability across world
• For example Exxon patented their
compliant fuel
Refiners
• Most major refiners producing 0.5%
fuel already
• Expectation plans will accelerate into
Q4 2019
Port Authorities & Other
• Processes will professionalise the
bunker industry = good for all China wild card – Hydrogenation capacity
• Specific projects bringing compliant Could see 0.9m bpd HSFO production in 2020
fuel to ports
Source: Cockett Marine
113. RETROFIT & SCRUBBER MANUFACTURERS
2018 3rd Quarter 2019
Anticipation: Actual:
o 3 majors manufacturers o 3 major manufacturers
o A few others o 20+ manufacturers in total
o Fear of not enough scrubber manufacturing o Plenty of capacity in 2020 and some in
capacity 2019
o Major issues during retrofit leading to
significant delays especially for the early
o A simple kit: it is basically a big shower
adopters
123. SCRUBBER INVESTMENT
2018 3rd Quarter 2019
Anticipated cost: Actual cost:
o Scrubber equipment & Installation: USD 3.5 o Scrubber equipment & Installation: up to USD
million for a VLCC 6.5 million for a VLCC Retrofit
o Loss of hire: will dependent on your natural o Loss of hire: average 50 days ($1.2m to USD
drydocking cycle 2m depending on market conditions)
o Deviation and Waiting time: not always o Deviation and Waiting time: is increasing
considered hence your loss of hire time
o Scrubber OPEX: ~USD 150/day o Scrubber opex incl additional fuel burn :
USD 500-1,500/day
134. BUNKER PRICE SPREAD – LSFO VS. HSFO
2018 3rd Quarter 2019
HSFO will be available at a very large The price spread for January 2020 has
discount in January 2020 narrowed to $200 / MT
Bunker Price Forward Curve May 2018 Bunker Price Forward Curve August 2019
USD 400/mt USD 200/mt
14
Source: Argus4. SCRUBBER UPTAKE CAN INCREASE DEMAND
FOR HSFO AND IMPACT PRICE SPREAD
Scrubber Order Timing and Cumulative Scrubber Percentage of Total Fleet
300 40%
36% of
35%
VLCC fleet
% of VLCC , Suezmax fleet with scrubbers
250
30% to have
Number of VLCC, Suezmax
200 scrubbers
25%
end 2020
150 20%
15% 27% of
100
Suezmax
10%
50
fleet to have
5% scrubbers
0 0%
end 2020
Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19
Monthly VLCC order progression Cumulative VLCC scrubber orders Monthly Suezmax order progression
Cumulative Suezmax scrubber orders % of VLCC fleet % of Suezmax fleet
15
Source: DNB, DNV5. REGULATIONS CHANGES
2018 3rd Quarter 2019
Very few areas where OPLS would be banned More than 70 ports where OPLS are banned
Norway
Latvia
Ireland Lithuania China
California Belgium
Connecticut Hong Kong
Hawaii United Arab
Emirates India
Singapore
Australia
South Africa1
Source: GARD 29 August 2019
1. GARD note final decision in September 2019 16WHAT ARE THE RESIDUAL RISKS TODAY
LSFO PRICE ROCKETS HSFO PRICE PLUMMETS DURATION OF SPREAD
Lack of general availability Demand for HSFO will Scale of spread between
or in specific locations may reduce sharply post 1 Jan LSFO and HSFO important
see the price rise 2020 and price may need to but so is the time it lasts
fall substantially to find
clearing level
FOR ALL PARTICIPANTS IN THE MARKET 17 17WHAT HAVE WE DONE TO PREPARE?
18DEDICATED AND FOCUSED BUNKER
PROCUREMENT DESK
Establish dedicated fuel & procurement team
o Branch office set up in Geneva (fuel trading hub)
o Financial and operational human resource added to team
o Built experience in an changing fuel market
Procure & source Thorough testing Build relations for
LSFO Storage & logistics of fuels 2020+
Other initiatives including fuel management and saving projects 19WHAT HAVE WE DONE IN TERMS OF FUEL OIL?
420,000 tons of compliant fuel oil (0.5 & 0.1) purchased
o Covers substantial part of Euronav’s total fuel requirement 2020
Procurement o Average purchase price VLSFO: USD 447 p/t v USD 520 p/t for
retail VLSFO
o Mix of residual and distillate based materials
Compliant fuel purchased & stored on ULCC Oceania
o Oceania one of only two operational ULCCs in world
Operational o Euronav owns the other 3m barrel vessel currently chartered out
o Experience of wholesale procurement and logistics
External bank financing drawn against Oceania inventory
Financing o Will allow for continued liquidity on our balance sheet
o Accounting treatment as inventory
20PROCUREMENT
420,000 MT Purchased Average Price Paid for Compliant Fuel Protection
100% 700
0.1% Residual 606
90%
Fuel Oil 600 566
80%
70%
500
447 $47
per ton
$ per ton fuel cost
400
60% 400
0.5%
Premium
50%
Fuel 300 Paid so
40% far
200
30%
20%
100
10%
0
0% 0.5% Fuel Oil HSFO Bunker 0.1% Resid & MGO price
price during Distillate during purchases
purchases
Source: Euronav 21OPERATIONAL MANAGEMENT
o Euronav leveraging our assets and financial
capacity to complement our business needs
o We are using ULCC as supply platform for fleet
o By procuring fuel ahead of 2020 been able to
take advantage of emerging 0.5% Sulphur fuel
oil market ULCC Oceania
o Mediterranean price $35 per ton cheaper than
Singapore during procurement period
Financing Malta
o Working capital covered by specific credit
facility of $100m at commercial lending rates
Singapore
area
22VLCC BUNKER MAPPING FOR EURONAV
Singapore is key fuel hub
VLCC
SUEZMAX
Likely to see c. 70% of bunkering through this core channel in 2020
Source: Euronav 23BENEFITS OF FORWARD BUYING FUEL
Security of Safety & Quality Control Lower
Supply Reliability Emissions
Scale Provenance Compliance CO2 (compared with
Avoid fuel price spikes Testing Compatibility using scrubber)
Security Reliability Stability
supply Safety Tested
24LSFO ARBITRAGE TRADING
Bunker Arbitrage Trade Flows
Current HSFO VLCC trades
Potential VLSFO Suezmax trades
25HSFO OVERSUPPLY TO CREATE FLOATING
STORAGE OPPORTUNITIES
Tank Farms swapped to LSFO reducing capacity
• In traditional storage hubs already switched
• Move from HSFO to LSFO to meet new client demand
Tank Farms also being used for blending
• In order to facilitate blending many tanks used
• Putting further pressure on supply of tanks capacity
3.5% HSFO Oversupply to move into Contango
• Euronav believes this contango curve will steepen quickly
• Driving attractive floating storage economics
Floating storage contango goes away once the HSFO market rebalances with
increased installed scrubbers in the world maritime fleet
26CONCLUSION
27EURONAV POSITION HAS EMBEDDED
OPTIONALITY
“Second mover” advantage
• Experience from first installation cycle
• Reduced costs & time with increased availability
Potentially procure HSFO & store ourselves
• Would enable capture of HSFO at low price
• Euronav has proven financial and operational capability
Utilise established forward derivative markets
• Derivative market to capture value
• De-risking speculative investment in scrubber technology
28CONCLUSION
Euronav fleet profile – fuel efficient
Fuel Oil Availability – sufficient
Scrubber technology – second mover
advantage
Bunker spreads – narrowed past 12 months
Dedicated fuel procurement team established
LSFO Quality, Quantity & Supply Security
proven > 2020 29THANK YOU!
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