Methanol –An Ultra Clean Marine Fuel Solution

GREENTECH 2018 – Environmental ConferenceJune 1, 2018 I Vancouver, B.C.

Jason Chesko, Sr. Manager, Global Market Development, Methanex Corp.Diego Jaramillo, Manager, Quality & Responsible Care, Waterfront Shipping

1) Methanex Corporation

2) About Methanol

3) Methanol Marine Fuel• Attributes / Business Case• Commercial Developments

4) Waterfront Shipping: Methanol dual fuel vessels – an operator’s experience

Agenda

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Methanex Corporation

The world’s largest producer and supplier of methanol to major international marketsMethanex

Production SitesGlobal Office LocationsDistribution Terminals and Storage FacilitiesShipping Lanes

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About Methanol

• Chemical market - essential ingredient used in countless industrial and consumer products (~55% demand)

• Fuels/oil substitution markets - represent the fastest growing demand segment for methanol (~45% demand)

An essential ingredient of modern lifeMethanol

Vehicle Fuel Marine Fuel Power Generation

Energy/Fuels Markets

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Methanol is typically made from natural gasMethanol Production

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Liquid fuel at ambient temperature & pressure

• Production from renewables and/or utilizing excess CO2 streams• Lower carbon content fuel for Energy Efficiency Design Index (EEDI) for new vessels

Source: Methanol Institute

Methanol offers pathways to reduce CO2 emissionsMethanol Production

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Methanol Marine Fuel

• Low emissions• Wide availability• Innovative technology with low

incremental cost • Fuel flexibility• Competitive fuel costs • Safe, environmentally friendly• Successfully in use today• Commercialization activity expanding

Methanol is an innovative alternative fuel solution with many benefitsMethanol Marine Fuel

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Source: IMO

IMO Sulphur Limits – Marpol Annex VI

IMO limits SOx content of fuel to 0.1% in ECAs. Global sulphur cap of 0.5% (from current 3.5%) to come into effect in 2020.

IMO Nitrogen Oxides Limits – Marpol Annex VI

Cleaner-burning marine fuels being phased in due to increasingly strict emissions regulationsMarine Fuel Emissions Regulations

Tier III NOx limits effective in North America in 2016 and North and Baltic effective 2021 (newbuilds only)

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Methanol is a clean-burning fuel that meets stringent environmental regulationsEmissions Reductions

Source: Stena LinesEmission reductions when compared to heavy fuel oil 12

- Methanol significantly reduces NOx compared to diesel with current engine technology, but not quite to Tier III levels- Tier III NOx limits can potentially be met with water in methanol

Emissions Reductions – Tier III NOx

Source: MAN

EGR1 2 3SCR Water + Methanol

• R&D work underway to meet Tier III NOx with a mixture of methanol & water

• Reduce additional capital and operational expenses related to SCR/EGR after treatment

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Methanol infrastructure already in place and well positioned to reliably supply the global marine industryWide Availability

Source: Methanex

Red flags/circles represent existing methanol supply locations; lines represent rail networksMethanol global terminal locations based on available information; not a complete list

Methanol Global Terminal Locations North America Methanol Market

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Source: Stena Line

Methanol has minor modification requirements and modest incremental costInnovative Technology

New high pressure common rail system

High pressure double walled pipe High pressure

pump

Methanol tank in double bottom

Inert gas system (nitrogen)

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• Liquid fuel at ambient temperature & pressure• Low cost infrastructure • Compatible with diesel infrastructure

- Methanol is a cost-effective, liquid marine fuel alternative- Methanol offers fuel flexibility

Low-Cost Infrastructure and Capital Costs

Modest incremental cost to convert or build new engines to operate on methanol

• Engine technology straightforward/minor modifications required

• Small amount of diesel used as pilot fuel• Flex fuel (diesel or methanol) maintained

mitigating commodity price & technology risks

Utilize existing supply chain/infrastructure

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- Methanol is an economically viable alternative marine fuel over the cycle- Potential for short payback on investment based on historical fuel pricing

Cost Competitive Fuel Cost vs. Marine Gas Oil (MGO)

Chart source: Platts and IHS Chemical• Methanol: USGC spot price adjusted to energy equivalent of MGO (2.16 factor)• MGO: West Coast Average: Vancouver, Seattle, San Francisco, LA; East Coast Average: New York, Philadelphia, Norfolk, Montreal, Charleston

Marine Fuel PricingMethanol adjusted to MGO Energy Equivalency

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$200

$300

$400

$500

$600

$700

$800

$900

$1,000

$1,100

$1,200

US$ /

tonn

e

North America (West Coast) MGO

North America (East Coast) MGO

Methanol (Energy Equivalent)

Chart1

North America (West Coast) MGO40542407244090741089412744145341638418204200342185423694255142735429164310043250856.8751085.1251056.51032.6251094.251020.6251046.3751080.125733.875723.875493.25622614.45000000000005558.375689.25625000000002814.25North America (East Coast) MGO40542407244090741089412744145341638418204200342185423694255142735429164310043250855.81023.61004914.575000000000051039.675969.8751027.97499999999991056.075705.47500000000002668.375420.77499999999998515.08000000000004575.88484.1638.03000000000009783.3Methanol (Energy Equivalent)40542407244090741089412744145341638418204200342185423694255142735429164310043250790.25303509050491783.38407819148927826.68649926960939818.13798551127354885.054688927701931004.00176701598391183.8722580184187793.12407245686472874.44620585900282800.30166587276392485.49241865142369459.79771355986026688.98420768497942628.97305070392724764.71051656610564846.15731343283585

US$ / tonne

Chart Data

Price Data

Platts Bunkerwire: May 22, 2018

30-Dec-09

Jesse Van Hove: Jesse Van Hove:MDO/MGO30-Jun-10

Jesse Van Hove: Jesse Van Hove:MDO/MGO30-Dec-10

Jesse Van Hove: Jesse Van Hove:MDO/MGO30-Jun-11

Jesse Van Hove: Jesse Van Hove:MDO/MGO30-Dec-11

Jesse Van Hove: Jesse Van Hove:MDO/MGO29-Jun-12

Jesse Van Hove: Jesse Van Hove:Marine Diesel Oil.31-Dec-1228-Jun-1330-Dec-1330-Jun-1430-Dec-1430-Jun-1531-Dec-1530-Jun-1631-Dec-1630-Jun-1731-Dec-1730-May-18

West Coast

Los Angeles$708$698$808$956$978$1,053$1,069$994$1,012$1,016$693$606$451$537$546$491$619$784

San Francisco$763$768$890$1,235$1,088$1,053$1,116$996$1,022$1,098$780$734$529$637$631$611$688$807

Seattle$718$713$845$1,038$1,056$1,029$1,097$1,038$1,048$1,098$671$773$494$657$640$564$731$835

Vancouver$725$765$885$1,113$1,105$996$1,095$1,056$1,104$1,109$792$783$499$657$641$569$719$832

West Coast MGO$728$736$857$1,085$1,057$1,033$1,094$1,021$1,046$1,080$734$724$493$622$614$558$689$814

East Coast

New York$680$696$843$1,030$995$902$1,040$947$991$993$626$629$355$461$532$469$616$773

Philadelphia$678$703$840$1,030$995$903$1,036$959$995$1,054$660$640$361$467$542$469$620$772

Norfolk$680$700$845$1,050$990$920$1,034$964$1,005$1,054$670$636$369$501$573$499$621$788

Montreal$913$773$916$1,043$1,100$931$1,063$994$1,128$1,084$817$732$550$630$622$468$664$810

Charleston$679$678$836$965$940$918$1,026$987$1,022$1,096$755$706$469$516$612$516$669$774

East Coast MGO$726$710$856$1,024$1,004$915$1,040$970$1,028$1,056$705$668$421$515$576$484$638$783

Gulf Coast

New Orleans$615$668$820$980$955$902$1,027$958$1,005$992$677$596$395$467$536$423$605

Houston$608$663$815$943$940$895$1,020$959$1,006$989$673$589$393$473$541$450$605

Gulf Coast MGO$611$665$818$961$948$899$1,024$959$1,006$991$675$593$394$470$539$437$605

Middle East

Kuwait$653$723$809$1,043$1,048$994$984$974$849$727$512$520$555$535$608

Fujairah$653$728$818$1,040$1,043$980$983$995$985$975$850$727$512$520$555$535$608

Khor Fakkan$653$728$818$1,040$1,043$980$983$995$985$975$850$727$512$520$555$535$608

Middle East MGO$653$726$815$1,041$1,044$980$983$994$984$974$849$727$512$520$555$535$608

Asia

Singapore$633$639$786$915$930$865$930$924$975$930$563$564$329$450$497$435$558

Hong Kong$683$663$813$953$960$834$958$921$962$923$591$568$350$458$510$453

South Korea$695$820$985$990$860$948$908$971$944$590$570$342$460$514$470$584

Shanghai$707$722$821$1,083$1,105$1,040$1,060$1,072$1,074$1,056$778$661$490$501$593$563$638

Asia MGO$674$680$810$984$996$899$974$956$995$963$630$590$377$467$528$480$593

Europe

Rotterdam$628$663$791$928$927$849$920$868$925$878$514$536$299$434$470$421$551

Antwerp$623$663$788$923$925$850$925$868$925$878$514$536$299$434$470$421$551

Hamburg$643$668$799$943$950$868$954$897$966$929$560$577$321$450$505$434$572

Europe MGO$631$664$792$931$934$855$933$877$938$895$529$549$306$439$482$425$558

Chart Data

30-Dec-0930-Jun-1030-Dec-1030-Jun-1130-Dec-1129-Jun-1231-Dec-1228-Jun-1330-Dec-1330-Jun-1430-Dec-1430-Jun-1531-Dec-1530-Jun-1631-Dec-1630-Jun-1731-Dec-1730-May-18

Average MGO Prices

North America (Gulf Coast) MGO$611$665$818$961$948$899$1,024$959$1,006$991$675$593$394$470$539$437$605

North America (West Coast) MGO$728$736$857$1,085$1,057$1,033$1,094$1,021$1,046$1,080$734$724$493$622$614$558$689$814

North America (East Coast) MGO$726$710$856$1,024$1,004$915$1,040$970$1,028$1,056$705$668$421$515$576$484$638$783

Europe MGO$631$664$792$931$934$855$933$877$938$895$529$549$306$439$482$425$558

Asia MGO$707$708$820$1,034$1,048$950$1,004$990$1,023$1,000$684$615$416$480$554$517$611

Middle East MGO$653$726$815$1,041$1,044$980$983$994$984$974$849$727$512$520$555$535$608

Methanol Prices

Methanol - USGC Spot

Jesse Van Hove: Jesse Van Hove:USGC spot methanol (FOB Houston). Source: IHS Chemical.$322$331$366$363$383$379$410$465$548$367$405$371$225$213$319$291$354$392

Methanol (Energy Equivalent)

Jesse Van Hove: Jesse Van Hove:Converted using methanol and #2 diesel low heating value BTU/kg$694$715$790$783$827$818$885$1,004$1,184$793$874$800$485$460$689$629$765$846

Methanol is a clear, colourless liquid that quickly and naturally biodegradesMethanol - Environment, Health and Safety

• More environmentally benign than conventional marine fuels (i.e. HFO and MGO)

• Long history of methanol safe handling

• International standard (IGF Code) under development for methanol as marine fuel

methanol18

• Stena Germanica ferry converted to run on methanol in 2015

• Gothenburg to Kiel

• Powered by four Wärtsilä 4-stroke engines (24 MW total)

• Straightforward fueling (liquid fuel)

• Fuel switching (Methanol or MGO) is fast, simple and reliable. No loss in engine speed or output

• Efficiency improvements (i.e. 1-2%) versus diesel

The world’s first methanol-fuelled ferryMethanol in Use Today: Stena Germanica Ferry

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The world’s first methanol-fuelled tankersMethanol in Use Today: Waterfront Shipping Tankers

Lindanger

Taranaki SunMari Jone

Leikanger Mari Boyle

Medium Range Fleet 50,000 DWT Methanol Duel Fuel Engine Class

Manchac Sun

Cajun Sun

• Commercial-ready technology

• In 2016, Waterfront Shipping launched 7 vessels with methanol dual-fuel MAN ME-LGI 2-stroke engines

• 4 new methanol dual-fuel vessels on order for 2019 delivery

• Multiple ship owners

• Operating safely and reliably, across the globe: ~30,000 operating hours

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http://www.wlco.no/Default.aspxhttp://www.mol.co.jp/en/index.html

Methanol Marine Fuel Commercialization Activities - Small Engine Market

Leanships(Horizon 2020) GreenPilot SUMMETH

Ministry of Transport Billion Miles

Europe Sweden Sweden China Singapore

Engine Conversion

Pilot Boat Conversion

Road Ferry Conversion

Fishing BoatConversion &

Guidelines

Harbour Tug Conversion

Ghent University, Damen Shipyards,

Methanex, Abeking & Rasmussen, Kant Marine & Industrie,

Dredging International

Swedish Maritime & Transport, SSPA

Sweden, ScandiNAOS,

Methanol Institute

Consortium of partners

(academia, technical, industry)

Ministry of Transport, Tianjin University, China

Classification Society, Methanex

Billion Miles

2015-2018 2016-2018 2015-2017 2017-2018 2018+

Methanol Fuelled Pilot Vessel, GreenPilot Project, Sweden

Swedish Road Ferry, SUMMETH Project

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Waterfront ShippingMethanol dual fuel vessels – An operator’s experience

- 28 vessels, including 7 methanol dual-fuel vessels - 4 new methanol dual-fuel vessels on order (2019)

Waterfront Shipping

Cabo Negro II Caribbean Spirit Global Spirit Magellan Endeavour Patagonian Mystic Falkanger Finnanger

Fjellanger Sabrewing Scarlet Ibis Tamiat Navigator World Navigator Taranger

Lindanger Taranaki Sun Mari Jone Leikanger Mari Boyle

Medium Range Fleet 45,000 - 50,000 DWT

Class

Medium Range Fleet 50,000 DWT

Methanol Dual Fuel Engine Class

Handy Size Fleet20,000 to 30,000

DWT Class

Coastal Fleet1,000 to 10,000

DWT Class

Mariline Marinex Medalta Adventurer Sakhara Lotus Marit

Yelena Argo Chemist

Manchac Sun Cajun Sun

SCT Matterhorn

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Strong partnership between reliable stakeholders

Vessel concept developed together with MANDiesel & Turbo, Alfa Laval, DNV-GL and theNorwegian Maritime Directorate.

Seven ships in total from Hyundai MipoDockyard and Minaminippon Shipbuilding forMarinvest, Westfal-Larsen and MOL on longterm time charter with Waterfront Shippingowned by Methanex.

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Design Philosophy: General design decision

Primary focus in the Dual fuel system concept has been personal and system safety. Secondly, sustain engine reliability.

Main design considerationsA Gas safe engine roomA single failure results in Second Fuel (SF, Methanol) shut down or SF stopThe Methanol system must not affect the engine running on MGO/HFOThe Methanol system is an “Add-On” to the ME engine

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Methanol concept: Supply System (LFSS)

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LFSS Unit (Liquid Fuel Supply System)

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Safety features Fail Safe System - Auto change over from Secondary Fuel to

Primary Fuel Nitrogen Purging Double Walled Piping and Components Leakage Detection Continuous Ventilation Intrinsically safe components Fixed CO2 Extinguishing System CCTV Monitoring Alarms with shutdown and purging Immediate switch to conventional fuel Fire fighting on deck Fire fighting in Engine Room

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Main Engine - Overview

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Main Engine - Overview

ME-Engine + LGI Technology = ME-LGI-M

HFO/MGO Methanol Dual Fuelled

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Novel ideas based on proven technologyCentered around the MAN Ultra-long-stroke dual fuel engine (6G50ME-B9.3-LGI), ensuring a solid and reliable framework.

Designed with instantaneous, automatic fall-back to conventional fuel in the unlikely event of a disruption of methanol supply.

Able to operate at unrestricted power, equivalent efficiency, reduced emissions, with 5% pilot fuel.

Fuel Booster Injection Valves with integrated pressure booster allow for low pressure supply of methanol fuel, through double wall pipes from the Liquid Fuel Supply System on main deck.

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ME-LGI-M: Additional components compared to a standard engine

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ME-LGI-M: 4 Fuel Valves per Cylinder

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FBIV and conventional fuel injector slide valve

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Fuel Booster Injection Valve (FBIV)Sealing/ cooling / hydraulic oil

MethanolBooster (injection pump)

Injection

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Status

Currently operating on Methanol.

~30,000 operating hours

3 fuel options (HFO, MGO, Methanol): flexibility in many price scenarios

Cylinder chambers are much cleaner.

Engineering crew transfer their knowledge from conventional engines.

MAN provides LGI-M specific training to engineers

Technical improvement and learnings continue

Thank you!

www.methanex.com

linkedin.com/company/methanex-corporation

@Methanex

VANCOUVER, CANADAJason Chesko

jchesko@methanex.com+1.604.661.2680

FLORIDA, USARenato Monteiro

rmonteiro@methanex.com+1.604.308.0400

- For more information on methanol marine fuels & supply -

Methanol – �An Ultra Clean Marine Fuel Solution ��AgendaMethanex CorporationMethanexAbout MethanolMethanolMethanol ProductionDiapositive numéro 8Methanol Marine FuelMethanol Marine Fuel�Diapositive numéro 11Emissions Reductions�Emissions Reductions – Tier III NOxWide AvailabilityInnovative TechnologyDiapositive numéro 16Cost Competitive Fuel Cost vs. Marine Gas Oil (MGO) Methanol - Environment, Health and SafetyMethanol in Use Today: Stena Germanica FerryMethanol in Use Today: Waterfront Shipping TankersMethanol Marine Fuel Commercialization Activities �- Small Engine Market Waterfront Shipping�Methanol dual fuel vessels – An operator’s experienceWaterfront ShippingStrong partnership between reliable stakeholdersDesign Philosophy: General design decisionMethanol concept: Supply System (LFSS)LFSS Unit (Liquid Fuel Supply System)Safety featuresDiapositive numéro 31Main Engine - OverviewMain Engine - OverviewNovel ideas based on proven technologyME-LGI-M: Additional components compared to a standard engineME-LGI-M: 4 Fuel Valves per CylinderFBIV and conventional fuel injector slide valveFuel Booster Injection Valve (FBIV)StatusThank you!