20120911 Shipping 2020

27 September 2012

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“SHIPPING 2020”

TECHNOLOGY INVESTMENTS IN THE NEW MARKET REALITY

© Det Norske Veritas AS. All rights reserved. 2

CONTENTS

WHY "Shipping 2020"

METHODOLOGY AND ASSUMPTIONS

BEYOND 2020

FINDINGS

27 September 2012

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© Det Norske Veritas AS. All rights reserved.

More than 1 in 10 new buildings in the next 8 years will be delivered with gas fuelled engines

In 2020, the demand for marine distillates could be as high as 200-250 million tonnes annually

Newbuildings in 2020 will emit up to 10 to 35% less CO2 than today’s ships. The EEDI will be a driver for more than half of this reduction

Scrubbers are a significant option after 2020

Ballast water treatment systems will be installed on at least half of the world fleet

At least 30-40% of newbuildings will be fitted with EGR or SCR by 2016

"Shipping 2020" – SummaryFINDINGS

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WHY"Shipping2020"

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What is “Shipping 2020”?WHY "SHIPPING 2020"

QUESTION: What technologies should be installed to meet new environmental regulations and higher fuel prices?

ANSWER:"Shipping 2020" aims to indicate which technologies are most likely to be adopted by the industry by 2020.

CHALLENGE:Uncertainties associated with market trends and drivers, fuel choices, technology developments and other variables.

The wrong investment decisions will be detrimental to both the industry and individual ship owners.

Wrong decisions impact the financial bottom line and the environment.


External drivers creates uncertainty about the future

Fuel trends (price, mix)

WHY "SHIPPING 2020"

World economy and demand for transport

Environmental regulations

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The next decade poses some important questions for the ship owner

When should I install ballast water treatment systems?

Should I meet sulphur regulations through investing in LNG fuelled engines or scrubbers, or by fuel switch?

Do I need a NOx Tier III compliant vessel enabling global operation?

What is my cost-benefit of going beyond compliance on the EEDI?

How does this affect the ship owner?FINDINGS

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METHODOLOGYAND ASSUMPTIONS

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The process – the big picture

Technology trends

Investment profileand ship

characteristics

RESULTS

SIMULATION MODEL

ScenarioA

ScenarioB

ScenarioC

ScenarioD

Environmentalregulations

Fuel trends (price, mix)

World economy and demand for transport



Megatrends and external driversMETHODOLOGY AND ASSUMPTIONS

ECONOMIC GROWTH AND DEMAND FOR TRANSPORT

• Boom or bust?• Growth level and

level of contracting• Overcapacity of

vessels?

REGULATORY AND STAKEHOLDER PRESSURE

• Global or local regulations?

• Further requirements on GHG emissions?

• Rating schemes and requirements from charterer and public

FUEL TRENDS

• Sustained high fuel prices?

• LNG cheaper than HFO?

• Development of LNG infrastructure

• Impact of sulphurregulations

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Scenarios have been created to captureuncertainties



Some of the assumptions used in the modelMETHODOLOGY AND ASSUMPTIONS

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Technologies have been assessed against relevant regulations



Compliance and fuel efficiency are the main motivation, and cost and technology maturity are the main barriers

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Ship owner survey – motivation and barriersMETHODOLOGY AND ASSUMPTIONS

Main motivation Main barriers

Source: DNV survey (23 respondents)

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Investment horizon (payback requirements) and how much of the fuel cost is paid by the ship owner impact the cost-effectiveness of many measures

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Ship owner survey – investment preferencesMETHODOLOGY AND ASSUMPTIONS



Which technologies do ship owners envisage using in the future?

FIGURE 3: FAMILIARITY AND EXPERIENCE WITH TECHNOLOGIES FIGURE 4: LIKELIHOOD OF IMPLEMENTING TECHNOLOGIES

Low sulphur heavy fuel oilDistillate fuel

Shaft generatorsBallast Water Treatment System

Waste heat recoveryPropulsion efficiency devices

Hull shape optimisationSOx scrubber

System efficiency improvement (Aux)Smaller engine/de-rating (speed reduction)

Low NOx tuningReduction of seawater ballast capacity

EGR systemCounter-rotating propulsion

Dual-fuel engineSCR system

Hybrid propulsion systemPure LNG engine

Water emulsificationLightweight constructions

Air cushionHumid air motor/ direct water injection

Wind & solar power

Score HighFamiliarity with technology

Tested

Low1 2 3 4 5

Ballast Water Treatment SystemLow sulphur heavy fuel oil

System efficiency improvement (Aux)Hull shape optimisation

Waste heat recoveryPropulsion efficiency devices

Distillate fuelEGR system

Low NOx tuningShaft generators

Smaller engine/de-rating (speed reduction)Reduction of seawater ballast capacity

SCR systemSOx scrubber

Lightweight constructionsDual-fuel engine

Water emulsificationHumid air motor/ direct water injection

Hybrid propulsion systemCounter-rotating propulsion

Pure LNG engineAir cushion

Wind & solar power

Likely to be retrofitted

Likely to be implemented on new builds

Score HighLow1 2 3 4 5

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Approximately 40% of the world fleet enters into the North America or Northern Europe ECA during a year

Half of these vessels spend less than 5% of their time there

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Time spent in ECAMETHODOLOGY AND ASSUMPTIONS

Time spent in ECA

Source: AIS data

Share of fleet


201220132014201520162017201820192020

Assign each ship a ship owner investment profile

Remove scrapped ships from the fleet each year

Add newbuildings to the fleet each year

Generate a representative sample of the current world fleet

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Model illustration : simulation of individual ships

Annual technology and fuel type decisions per ship

Technology cost decreases with more installations

Results

Fuel price and regulatoryrequirements

Growth in seabornetransport

Technology alternatives

Investment profileand shipcharacteristics


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Assumptions and information sources

Parameter Distribution Scenario dependent SourceShip segment Number of ships Fixed No IHS FairplayAge distribution Parameterized No IHS FairplayME power Fixed No IMO GHG StudyAux power Fixed No IMO GHG StudyNos of Aux Fixed No IMO GHG StudyBallast water capacity Fixed No IHS FairplaySpecific fuel consumption Fixed No MANOperational profileDays in cruise Uniform No IMO GHG StudyDays in ECA Parameterized No AISME engine cruise load Uniform No IMO GHG StudyAux engine cruise load Fixed No IMO GHG StudyShip ownerInvestment horizon Parameterized Partly SurveyDiscount rate Triangular No Internal forecastShare of fuel paid Parameterized Partly SurveyTechnologies CapEx Uniform No ManufacturersOpEx Fixed No ManufacturersFuel reduction ME Fixed No ManufacturersFuel reduction Aux Fixed No ManufacturersLearning rate Uniform No IEA/othersExternal variables Fuel prices Stochastic Yes IEA/EIA/ClarksonFleet growth Fixed Yes IHS/SAICO2 prices Fixed Yes Internal forecastRegulatory requirements Deterministic Yes Internal forecast



Fleet used in the simulation model

In total 48,400 ships in 2011 comprising the international trading fleet except passenger ships and ferries


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FINDINGS


More than 1 in 10 new buildings in the next 8 years will be delivered with gas fuelled engines

LNG price, sulphur limits and EEDI are the main drivers

From 2012-2019 the LNG price is the main contributing factor

When approaching 2020, EEDI and sulphurlimits will create additional motivation for LNG as fuel

- In Scenario D, 35% of newbuildings will be delivered with LNG engines

In scenario D, we foresee about 1,000 newbuildings from 2012-2020 and some 6-700 retrofits

Finding 1FINDINGS

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Share of LNG fuelled newbuildingsScenario D

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In 2020, the demand for marine distillates could be as high as 200-250 million tonnes annually

A 0.1% limit in ECAs (2015) is expected to increase the demand to 45 million tonnes

- The current annual global demand for marine distillates is about 30 million tonnes

With a global sulphur limit HFO demand may drop from 300-350 million tonnes to only 80-110 million tonnes in 2020

- Depends on the number of scrubbers in use

- The use of LNG will not significantly impact the demand of other fuels

- Energy efficiency measure will only slow the fuel demand in the short term

Finding 2FINDINGS

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Fuel mix in 2020


Newbuildings in 2020 will emit up to 10 to 35% less CO2 than today’s ships. The EEDI will be a driver for more than half of this reduction

Phase 0 of EEDI (2013) will encourage cost-effective measures

In Phase 1 (2015) and 2 (2020), up to half the reductions are motivated by EEDI alone

- Due to short investment horizon and low fuel burden, these reductions are not cost effective for the ship owner

- But in the long-term these are cost-effective

Small differences between scenarios- Fuel prices are already so high that any

variation does not affect uptake

Operational measures not included

Finding 3FINDINGS

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CO2 emission reduction on newbuildings

EEDI reduction on newbuildings

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Scrubbers are a significant option after 2020

Few ships spend more than 30% of their time in and ECA justifying a scrubber before 2020

In 2020, with the global sulphurrequirements, scrubbers become a significant solution

- Scrubbers can be retrofitted and can take 25% of the market, 15-20,000 ship

- Still, 70% of ships will run on distillates

- In the short term LNG can only take a small part of the market

Uncertainty about the 2020 limit will slow technology development and uptake

Finding 4FINDINGS

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Ship owner investment profile

SOx reduction options in 2020


Ballast water treatment systems will be installed on at least half of the world fleet

The Ballast Water Management Convention has not yet entered into force, but

- The schedule for mandatory treatment of BW is fixed (2019)

- The US has decided to implement a similar scheme for all ships in US waters (2013)

- Other countries have local requirements

This will motivate a significant part of the world fleet to implement a treatment system irrespective of BWMC progress

Finding 5FINDINGS

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Annual expected ballast water treatment installations

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At least 30-40% of newbuildings will be fitted with EGR or SCR by 2016

Both EGR and SCR are currently under development and need more time to mature

LNG is an alternative but does not seem to replace more than 25% of EGR or SCR installations

- Dependent on LNG price

Will a ship owner will opt for a Tier III engine even if the ship is initially not planned for sailing in an ECA?

- Lower second-hand value due to the loss of geographic flexibility

Finding 6FINDINGS

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NOx treatment installations


Relative fuel price differences have a significant influence on uptake on LNG fuelled vessels

Regulatory requirements on EEDI and SOx in particular drives technology uptake

Fuel prices, investment horizon and fuel burden are important drivers

SensitivityFINDINGS

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Scenario D+ is Scenario D with increased fuel burden and investment horizon

Uptake of smaller engine/de-ratingUptake of LNG fuelled vessels

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The next decade poses some important questions for the ship owner

When should I install ballast water treatment systems?

Should I meet sulphur regulations through investing in LNG fuelled engines or scrubbers, or by fuel switch?

Do I need a NOx Tier III compliant vessel enabling global operation?

What is my cost-benefit of going beyond compliance on the EEDI?

How does this affect the ship owner?FINDINGS

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Future delivery capacity of technologies and fuel

Two-tier second-hand and charter market


Ballast water and sulphur regulations set requirements on ships in operation

In 2020 60,000 ships have to switch fuel or clean the exhaust

- Are 20,000 scrubbers retrofitted between 2019 and 2020 possible?

- Will there be enough low sulphur fuel available and at what price?

- Will the availability uncertainty of LNG bunkering facilities slow uptake of gas fuelled engines?

By 2020 30-60,000 ships will have to install a ballast water treatment system

- How many ballast water systems can be retrofitted each year?

Future delivery capacity of technologies and fuelFINDINGS

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Will there be a two-tier charter market, and which technologies would give a price premium?

Today’s ships will compete with increasingly more energy efficient ships

Ships built after 2016 with a NOx Tier II compliant engine will not be able to enter an ECA

Will a ship with a scrubber or LNG as fuel have a higher second-hand value?

Will many ship owners build beyond today’s requirements and aim for 2020 standards?

Two-tier second-hand and charter marketFINDINGS

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BEYOND 2020

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Future regulationsBEYOND 2020

Numerous regulations can become important after 2020

GHG- High attention today, but little progress

Black carbon and particulate matter- Increasing attention, but difficult to measure

and control

Hull bio-fouling (transport of alien species)- Guidelines developed, may results in

regulations over the next 10-15 years

Underwater noise- Raising concerns about possible impact on

ocean-dwelling mammals, but science remains unclear


Safeguarding life, property and the environment

www.dnv.com

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