LNG Bunkering Perspectives in Singapore: Should Fratelli Cosulich Pursue a First Mover Advantage?

The question of developing LNG bunkering infrastructure has risen, as LNG has become an alternative fuel for vessels to comply with the MARPOL Annex VI regulations of the International Maritime Organization regarding reduced sulphur content of fuel. In this thesis I will evaluate how should Fratelli Cosulich consider investing in LNG bunker barges for use in Singapore and when. The methodology and approach used in this thesis can prove relevant for other companies considering LNG barge investments in other markets. Or for port authorities and government bodies deciding whether it makes sense to promote and support LNG bunkering projects. Analyzing the Lloyd’s Register forecasts regarding LNG global bunkering consumption, I extrapolated that under the best circumstances it would make sense at the earliest to invest in a 3000tn LNG barge by 2023. In 2023 there should be enough volume according to the forecasts to allow for at least breakeven of the barge. However the main research question I wanted to tackle was whether there is value in pursuing a first mover advantage which would require to invest earlier then the breakeven year. There is value created from investing early in the LNG market under some conditions. The management savings that are incurred by managing initially one barge and after 5 years possibly expanding to a second barge creates the value in pursuing a first mover advantage. In order to evaluate the value that is created by pursuing a first mover advantage I used a real options analysis, modeling it as an option to expand. In order for the first mover advantage to create value there needs to be sufficient demand and growth of the demand that will create sufficient revenues. If the revenues are not sufficient then it does not make sense to consider the first mover advantage. What will maximize the value of the first mover advantage is the lower possible cost of the barges and on the side of the company trying to achieve the highest possible management savings. The regulatory and safety framework on the operation of LNG barges in Singapore is still not completely clear as the Maritime and Port Authority of Singapore will publish the official framework by the end of 2014.