Karatzas Marine Advisors & Co.

Karatzas Marine Advisors & Co.International Maritime Consultancy, Shipping Finance Advisory & Ship-brokerage

“U.S. Energy Exports,and the Panama Canal Expansion”

United States Association for Energy Economics / NCAC Washington, D.C., July 15th, 2016

“Safe Harbor” Statements

‘And seas but join the regions they divide’Alexander Pope

‘In Sea affairs, nothing is impossible, and nothing is improbable’

Admiral Lord Nelson, writing from HMS Victory in 1804

‘If you want to build a ship, don’t drum up the men to gather wood, divide the work and give orders. Instead, teach them to yearn for the vast and endless sea’

Antoine de Saint-Exupéry

KARATZAS MARINE ADVISORS & Co. July 2016 Page 2

Agenda

Karatzas Marine Advisors & Co.: Introduction

The “Old” Panama Canal

Shipping Market Overview

The “New” Panama Canal and the US Energy Markets

Karatzas Marine Advisors & Co.: Contact Information

KARATZAS MARINE ADVISORS & Co. June 2016 Page 3

Company Introduction

Karatzas Marine Advisors & Co. is New York-based firm with worldwide footprint & strong, well-qualified management teamActive in shipping finance advisory, restructurings, maritime strategy, private placements, vessel valuations, ship brokerage and vessel management Clients include:

Financial institutions seeking shipping market expertise and advisory on shipping mattersFinancial institutions in need of origination of transactions in shippingBanks seeking to dispose of shipping assets and/or shipping loansShipowners seeking advise to access the financial marketsShipowners seeking advisory and investors with existing ‘legacy’ concernsShipowners seeking financial partners to benefit from present market trough

Dry bulk, tankers, containerships and offshoreInternational flag business primarily, but also Jones Act expertise Proven track record of market outperformance and delivering value to clients


Company Information

Management team bears decades of diverse, proven shipping expertise, including port operations, chartering, ship brokerage and demolitions, vessel management, shipping finance and vessel valuations, co-placements and JVsCompany established in 2011, corporate history back to 2008; presently six employees, on both full- and part-time basisImpeccable credentials & references (gladly provided upon request)Well-representative existing clientele base� Geographic Distribution – Americas, Europe (UK, Germany, Greece, Scandinavia), SE Asia (Singapore,

Indonesia, Thailand), Far East (Hong Kong, Japan) China� Corollary Industry Functions – Shipowners, Charterers, Vessel Managers / Operators, Oil Companies

(including National Oil Companies), Cargo Interests and Traders, Financial Owners & Lessors, Lenders & Creditors, Service Providers

� Shipping-market Segmentation: Tankers (crude oil, products tankers, chemical tankers), Dry bulk vessels (capesize, panamax, supramax/handymax, handysize), Purpose-built vessels, Containerships (post-panamax to feedership vessels), Offshore & Drilling – Jones Act Assets

� Capital-structure Segmentation: publicly-traded companies and privately-held companies, Fortune 10 companies and private independent owners, financially-oriented owners & lessors


Agenda







Panama Canal Traffic by Traffic Segment


Top 15 Countries of Origin and Destination of Cargo (in long tons, 2015)


Panama Canal Traffic by Traffic Segment


Petroleum Traffic via the Panama Canal (2015)


Agenda







Historical Freight Market Data


World Fleet Development by Sector


Agenda







Panama Canal Update


Expanded Panama Canal (Tankers)


Expanded Panama Canal Update (Tankers, in comparison)


Expanded Panama Canal “Sanity Check”

Cost of Expansion: ~ $5.3 billionJuly 1st, 2016: Containership MV ‘MOL Benefactor’ (10,000 TEU, ) pays $829,468 in canal tolls for northbound crossing; highest canal dues ever paid, until nowAt ~ $1 mil per crossing per post-panamax containership, appr. 5,500 such crossings will be required to recoup investment. In 2015, 12,000 ocean-going vessels crossed the Canal, in total, thus it will take several years of transits by incrementally larger containerships to recoup investment.It costs appr. $1,700 to transport a container from China to US East Coast, in a weak freight market; based on full-capacity utilization, appr. $83 per container on MV ‘MOL Benefactor’ just to cross the Canal, appr. 5% of the total freight cost.For capesize vessel (present freight market of $6,000 pd and est. of $10,000 in fuel expense), it will take two weeks of additional savings to justify $500,000 in canal dues.Timing of completion of expanded Panama Canal is un-fortunate as it coincides with multi-year lows of the shipping industry.Real “worth” of Panama Canal will be seen when shipping markets revert to the mean, and world economic growth is much higher than present (~1-2%)


Panama Canal Unknowns

“It’s tough to make predictions, especially about the future”, it has been said. Many variables can affect volume of future transits, trades and trading routes, and cargoes:

State of freight market (i.e. tonnage supply and demand, economic growth, etc)Price of oil as fuel (bunkering expense for vessels)Port infrastructure (i.e. terminals, dredging, etc)Cost of capital and interest rates (i.e. Capex for vessels, trade finance cost, etc)Trading patterns (LNG has been traded on long term contracts and ‘trains’ with nascent spot market)Pricing models (LNG vs oil)Regulatory and political events (emission laws, clean energy, etc)


Newsflash: In the U.S., Largest Oil Reserves in the World


Financial Times, July 4th, 2016, based on report produced by Rystad Energy

Newsflash: Shale Oil is Low Cost Oil


Financial Times, July 13th 2016, based on Wood Mackenzie Analysis

Thoughts on Crude Oil and Panama Canal Transits

U.S. has great potential as exporter of crude oil (swing producer?)Lifting of export ban of crude oil in 2015

Presently, appr. 600,000 bbl per diem exported by USSeaborne exports mostly to Europe (UK, Continent, Med)Mostly on Panamax or Aframax tankers (400,000 – 600,000 bbl per shipment / tanker)Still a developing trade in early stages, but so far in small parcels over short distances

India, SE Asia, China and Far East show strongest demand in crude importsMiddle East (and now Iran) likely first sourceU.S. crude oil can only exported in supertankers (i.e. Suezmax, VLCC) cost-competitively to countries in the Pacific RimExpanded Panama Canal cannot accommodate such tankersPossibly, transshipment via Panamax / Aframax tankers and/or pipeline and reverse lightering of supertankers in Pacific Coast of Panama

Potentially can happen, for North Asia / China / Japan, but at different cost curves of crude oil and seaborne shipmentEIA, June 30th, 2016: “Panama Canal expansion unlikely to significantly change crude oil, petroleum product flows”


LNG Tanker World Fleet (# of Vessels >50,000 cbm)


LNG Seaborne Trade (mil tons)


Panama Canal LNG Tanker Canal Dues


Panama Canal LNG Tanker Canal Dues


Transport Costs for LNG (160,000 cbm) from USG to Japan


Slide for comparison purposes only. Otherwise, exceptionally low shipping cost reflect weakest freight market and also low bunkering expense.

Thoughts on LNG and Panama Canal Transits

U.S. natural gas discoveries in last decade have been a game changerCountries of the Pacific Rim likely major buyers of US LNG over timeLNG trading is moving away from ‘train’ to ‘spot training’ (similar to crude oil)Most of the LNG tankers at present are owned by ‘independent’ shipowners, intended for spot market tradingTransiting the Panama Canal makes economic sense for LNG tankers

Most economic route, even in historically weak timesSavings on trade finance costs, Capex for expensive cargoes and vesselsCorporate Social Responsibility by lowering emissions, etc

Transiting the Panama Canal makes also sense for newly developed large LPG Tankers, Very Large Gas Carriers (VLGC) and also ethane TankersThe expanded Panama Canal likely to a have symbiotic relationship with development of natural gas markets and exports from North America

Possible competition: circumnavigating North America via the Arctic (Northwest or Northeast Passage) – in the future


Agenda







Karatzas Marine Advisors & Co. International Maritime Consultancy, Shipping Finance Advisory & Ship-brokerage

Headquarters:One World Financial Center, 30th Floor200 Liberty StreetNew York, NY 10821 USA

Germany Office:Neuer Wall 8020354 Hamburg

USA (New York City): +1 212 380 3700GERMANY (Hamburg): +49 40 822 138 345Email: [email protected]: www.Karatzas.com

Contact Details

KARATZAS MARINE ADVISORS & Co. July 2016

mailto:[email protected]

http://www.karatzas.com

Thank you for your attention!

For Current Commentary on Shipping Finance, Please Feel Free to Visit Our Blog atwww.shippingfinance.wordpress.com


References and Data Sources: EIA, The Panama Canal Authority, The Financial Times, The Wall Street Journal, The Maritime Executive, gCaptain, Clarksons Research, Karatzas Marine Advisors.

http://www.shippingfinance.wordpress.com

Karatzas Marine Advisors & Co.

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