By Benjamin Katz
Nov. 11 (Bloomberg) — Wartsila Oyj Chief Executive Officer Bjoern Rosengren said he’s confident of announcing an acquisition this year as the Finnish company pushes into the gas-powered marine engine market to tap demand from ship owners switching fuels to accommodate tougher regulation.
The company, which powers a third of the world’s ships, could fund purchases worth up to 400 million euros ($497 million), he said. For bigger deals of as much as 1 billion euros, it would have to turn to shareholders led by Investor AB, the holding company of Sweden’s Wallenberg family.
“There’s a big change going on, from traditional heavy fuel to gas,” Rosengren, who rebuffed Rolls-Royce Holdings Plc’s bid for Helsinki-based Wartsila in September, said in an interview. “We believe that this market will be big.”
Ship owners are under pressure to switch to gas fuel as tougher regulations, to be introduced on Jan. 1, boost heavy- diesel prices by as much as 50 percent. Rosengren said he’s interested in any purchases that will help develop Wartsila’s gas-engine arm, as well as so-called scrubber technology that minimizes pollution from ships that continue to burn heavy fuels.
“We would like to see the acquisitions supporting the overall strategy that we have,” he said in London. “Anything in relation to gas and that market is interesting for us.”
The EU measures, agreed in 2012, seek to cap the sulfur content of ship fuel at 0.1 percent, compared with 1 percent now, for more than 5,000 vessels in designated emission control areas. Further legislation is likely to follow, pushing ship- owners to embrace new technology, Rosengren said.
Dropping gas prices in the wake of the booming North American shale-gas production are another incentive for ship owners to switch fuel, he said.
Increased demand for gas-powered engines would help Waertsilae, which is also a major supplier of specialist power plants, meet its goal of boosting sales 5 percent this year, a target that Rosengren said may get tougher as major economies stutter, and continue growth in 2015. Sales at the Finnish company rose 1 percent to 3.23 billion euros in the first nine months.
Wartsila is established as market leader in engines that can switch between liquid fuel and gas, allowing ships to meet environmental requirements in inshore waters while burning less costly fuel oil and diesel when plying the open ocean. Rivals including London-based Rolls-Royce, the second biggest maker of aero-engines, have been slower to to embrace that model.
“The market has more or less decided that it’s dual- fuel,” Rosengren said. “Even Rolls-Royce accepts that today. We are early out, we have the right technology, but of course the competition is also developing products.”
The company yesterday announced an order from the Daewoo shipbuilding and marine engineering yard in South Korea for 54 dual-fuel engines to power icebreaking, liquefied-natural gas carriers in Northern Russia.
Wartsila shares have gained 5.7 percent this year for a market value of 7.3 billion euros. Investor lifted its stake to 16.8 percent earlier this year.
The potential market in marine gas engines extends to all 28,500 ships in the global fleet, though it could take a decade for stricter rules to become the norm, while uptake of scrubber technology has been lower than expected, Rosengren said.
JBC Energy said in a note this month that no more than 65 percent of ships are likely to comply with the EU regulations due to modest penalties and a low risk of getting caught. Espirito Santo Investment Bank analyst Nick Wilson said the authorities may need to enforce the change with hefty fines.
The marine industry is inherently conservative and many owners will only act “when the fine gets large enough,” he said.
–With assistance from Emma Ross-Thomas, Aaron Kirchfeld, Christopher Jasper and James Boxell in London.
Copyright 2014 Bloomberg.