Are Tankers GreenMaritime Outlook Middle East

Abu Dhabi 7 April 2009

Erik.Ranheim@INTERTANKO.com

Manager Research and Projects

Tanker shipping serving some of the world’s biggest companies

BP’s approach to managing the environmental impact of its operations is underpinned by the goal of continuous performance improvement

We strive to conduct business in a manner that is protective of the environment, and that is compatible with the environmental and economic needs of the communities in which we operate.

Meeting the world’s growing energy needs and protecting the environment requires new technology, new partnerships and new ways of operating.

How to produce energy in environmentally responsible ways

Are tankers Green? Challenges

Life cycle Building to Decommissioning/recycling

ODS = OzoneDepleting Substances(cooling medium)

NOx, SOx, PMAnnex VI

Sewage

Garbage

Accidental oil pollution Ballast water

ToxicAntifouling

CO2/GHG emission

VOC = VolatileOrganicCompounds

Environmental challenges in shippingCleaner seas, cleaner air, a sound mother earth

Cleaner air• Annex VI implemented

GHG reduction• Currently the biggest challenge

Cleaner seas• Oil pollution• Acidification of oceans• Anti-fouling Systems• Garbage, other pollutions into the sea

Invasive spices – ballast water management

Emission to air?

The Challenges

• The world demands greener shipping

• Emission from shipping is dirty and harmful for the health and the environment

• GHGs emission from shipping is not directly regulated under the Kyoto protocol

• IMO assumed to regulate GHG emission

• Shipping must react

7

CO2 Emissions per Unit Loadby Transport Mode

Source:Ministry of Land, Infrastructure and Transport (Japan): The Survey on Transport Energy 2001/2002 MOL (Japan): Environmental and Social Report 2004

Large Tanker

Large Containership

Railway

Coastal Carrier

Small-size Commercial Truck

Airplane

Standard-size Commercial Truck

100 200 300 400

398

226

49

11

6

3

1

0

Units Relative

Shipping energy efficient

Engine break specific fuel consumption

160

180

200

220

240

260

280

1910 1930 1950 1970 1990 2010

First ocean going diesel ship - MS Selandia

Oil crises 1973

Engine BSFC assumed constant for years 2000-2008

Source: Lloyd’s Register

g per kWhg per kWh

Fuel efficiency in shipping has has improved

Trends – Co2 emission, energy use, global trade

Source: Fearnleys/INTERTANKO

IndexIndex

80

100

120

140

160

180

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Population

Energy use

Seaborne trade

CO2 emission

There has been strong growth in shipping

World primary oil demand IEA the Reference Scenario

Source: IEA

mbdmbd

0

5

10

15

20

25

1980 2000 2007 2015 2030

N America

Europe

Pacific

E.Euro/Eurasia

Other asia

China

India

Middle East

Africa

L America

Marine bunkers

World primary energy demand IEA the Reference Scenario

Source: IEA

1000 million tonnes oil equivalents1000 million tonnes oil equivalents

0

1

2

3

4

5

1980 2000 2006 2015 2030

Coal +2%

Oil +1%

Gas +1.8%

Nuclear +0.9%

Hydro +1.9%

Biomass +1.4%**

Renewables +1.6%

MARPOL Annex VI

Reducing harmful emission to air from shipping

• Emission regulated by MARPOL Annex VI:• SOx• NOx• un-combusted hydrocarbon• Heavy metals• Soot• Volatile Organic Compounds - VOC

The Annex VI package

All ships above 400GTReduction SOx, NOx, + PMCompliance through fuel specification orEquivalent measures accepted

Assumes supply of low sulphur fuel*Bunker Delivery Note BDN important **

* Ships not punished if required fuel not available

**Guidelines to asses compliance if BDN data is challenged by PSC or lab test results

The world is moving away from HFOOil consumption by product - % share

Source: INTERTANKO/BP Review

% share mbd

11%

16%

21%

26%

31%

36%

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

5

21

37

53

69

85

Mdl distil. - % share

Fuel oil - % share

Total - ts

Why not scrubbers?Why not scrubbers?

• Still under testing (3 ship limited scale)

• Large • Expensive• Difficult (impossible?) to install• CO2 emission (buffering effect)• leaves hazardous waste onboard which no-one wants• Tonnes of seawater need to be pumped through the ship and processed

We are involved in transportation – not waste treatment

New measures adopted at MEPC 58: SOx emissions

Emission Control Area (ECA) 1.0% limit

2010 2012 2015 202520202018

Global 3.5% limit

ECA 0.1% limit:

IMO review

Global 0.5% limit

Extension?

No measures against ships that do not receive adequate supply

New measures adopted at MEPC 58: NOx emissions

Current regulation Tier I: existing ships built after 2000, base line

2010 2011 2016

Tier I: ships built 1990s engine>5000 kWh, cylinders = >90 ltrs

Tier II: 15.5% - - 21.8% reduction

ships built on, after 1 Jan 2011

Many preconditions: engine rating, fuel consumption, durability, cost/benefit, availability of efficient upgrading system , upgrading at

the ship’s first renewal survey

Tier II: 80% reduction ships built on, after 1 Jan 2016

Power output > 750 kWIn Emission Control Areas (ECAs) ONLY

Switching to distillates will Switching to distillates will

Cleaner, Simpler and more Efficient ships

Reduce global emissions• SO2 - 60-80%,• PM - 80-90%• NOx -15%• No heavy metals, less soot

Improve conditions for crew and dockworkers

Cause no safety problem in connectionCause no safety problem in connection with with fuel switching fuels entering ECAsfuel switching fuels entering ECAs

Causes less engine breakdowns and Causes less engine breakdowns and potential pollution accidentspotential pollution accidents

Cause far less pollution when spilled Provides opportunity for the development of Provides opportunity for the development of more efficient engines (w. less emission) more efficient engines (w. less emission)

Fit all ships and current engines Fit all ships and current engines Be easy for authorities to control Be easy for authorities to control ChallengeChallenge to produce sufficient clean fuel to produce sufficient clean fuel

GHG emission

Shipping’s tools to reduce GHGs?

• Indices• Design• Operational

• Market instruments • Emission trading Scheme

(ETS), to stimulate entrepreneurship?

• Levy, equal to tax?• Offset charges (ref IOPC)?

• Ship Efficiency Management Plan

No general agreement on how to regulate GHG emission from

shipping

CO2 reduction

Reference

World Fleet Energy Consumption

World Fleet Energy Consumption

On-shore targetOn-shore target

40 - 80 % increase ifno efficiencymeasures taken

20 - 30 % absolute reduction onshore

Bridgeable gap??

2006 2010 2025

The Stern Report

Conclusions

Climate change may initially have small positive effect, but longer term the effects will be very damaging Benefits of strong, early action outweigh the costs.

Policy of action to be based on 3 elements: Carbon pricing Technology Behavioural change

Lord Stern of Brentford Later the situation is said to be much more serious that outlined in The Stern Report

Energy efficiency design index (EEDI)

Will mandate a minimum acceptable fuel efficiency for new shipsDeliver real, sustainable CO2 reductions based on an agreed emissions reduction trajectory.Wide support in IMO, exceptSome developing countries*Initial EEDI will form the baseline for the most efficient ships today

To be based on, installed power, specific fuel consumption, correction factors to account for specific design elements, speed, dwt, the contribution from auxiliary machinery

Sea trial Esther Spirit

* Wants “common but differentiated responsibilities” agreed under UNFCCC and the Kyoto Protocol.

The CO2 operational index

An instrument for evaluating quantitatively the effect of operational fuel efficiency measures, such as speed reduction or optimum navigation

Charterers greatest influence

Not immediately mandatory

No direct link to design index

A Market Based Instruments (MBI) should

Reduce CO2 emission levels in real terms by additional amounts to normal reductions by stimulating

• The development of better technology or improved operation, or• Buying credits to reduce emission in other sectors

Be easy to administer, monitor and enforce. Ensure simple allocations of emission allowances Not unduly distort competition and be non-

discriminating of ship types and flags Be difficult to evade Be legally, politically and

institutionally acceptable Preferably be global and

regulated by IMO

Aviation ETS scheme

*smallest planes excluded** Reduction target based of average emissions 2004-06

All* flights to/from EU included as of 2012

Reduction 2012 3%, later 5% cut p.a.** Operators must submit plans by 30.03.11 Use of revenues generated by auctioning

allowances decided by EU by members Complemented by technical/

operational CO2 reducing measures Further unilateral and other

agreements on global measures to reduce greenhouse gas emissions from aviation.

On 7 October the Environment Committee of the European Parliament called for shipping to be included in the revision of the European Union's Emissions Trading Scheme (EU-ETS).

Europe basis for shore based ETS - decided aviation ETS - shipping?

Cap-and-trade

On the "Cap and Trade" system was easy to On the "Cap and Trade" system was easy to implement for major sources of emissions, but implement for major sources of emissions, but harder to implement for the multitude of small sources. It It is also giving rise to distortions and transactions is also giving rise to distortions and transactions costs. A key issue is how to allocate emission rights, costs. A key issue is how to allocate emission rights, which are a which are a valuable asset, worth perhaps $2 trillion annually (or 5% of global GDP). This issue annually (or 5% of global GDP). This issue has become a major stumbling block in reaching a has become a major stumbling block in reaching a global agreement, and the attempt to avoid taking on global agreement, and the attempt to avoid taking on full implications of this issue is one of the reasons for full implications of this issue is one of the reasons for distortionary policies (or for carbon in different uses distortionary policies (or for carbon in different uses being priced differently).being priced differently).

Joseph Stiglitz Nobel prize economics

Professor at Columbia University (United States) Formerly Chief Economist at the World Bank

Cap-and-trade

The quotas system has already The quotas system has already contributed with contributed with investments in the non-Annex I countries which will reduce of CO2 emission by 1,800 m tonnes (1.2% annually) for the period (1.2% annually) for the period 2008-122008-12

Word emission 2004 27,000 m ts, Word emission 2004 27,000 m ts, today some 30,000 m tstoday some 30,000 m ts Carbon Point

Levy on bunkers

• Little support from governments

• Sympathy from some ship owners organisations

• Regarded as taxation

The 400% increase in bunker prices over the last 4 years untilAug 2008 provided the shipping industry with a significant economic driver to improve its energy efficiency and thus reduce CO2 emission

Prices HFO 380 CST, Fujairah

0

100

200

300

400

500

600

700

Aug

-00

Aug

-02

Aug

-04

Aug

-06

Aug

-08

Gasoline price at the pump

0.00

0.30

0.60

0.90

1.20

1.50

USA Japan Germany UK

Long haul freightratesMarketing*

Oil price

Tax

Cost elements making up the gasoline price:

* Refining/marketing and profit. Based on Dec 08/Jan 09 figures from IEA and the Baltic Exchange

Dollar per litreDollar per litre

LevyLevy

Accidental oil pollution into the sea

Tanker Incidents and accidental pollution

Number incidentsNumber incidents

0

210

420

630

840

1050

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

0

120

240

360

480

600

Misc

Security

Fire/Expl

Hull & Machinery

Grounded

Coll/Contact

Oil pollution

2009 is a projection based on 68 days

’’000 ts pollution000 ts pollution

Source: INTERTANKO, based on data from LMIU, ITOPF + othersSource: INTERTANKO, based on data from LMIU, ITOPF + others

Accidental oil spills from tankers 1978-2008

’’000 ts pollution000 ts pollution

Source: ITOPF + othersSource: ITOPF + others

0

10

20

30

40

50

60

707

0

72

74

76

78

80

82

84

86

88

90

92

94

96

98

00

02

04

06

08

Year Tanker Ts spill1991 ABT Summer 260,0001991 Haven 144,0001991 Kirki 17,7001992 Agean Sea 74,0001992 Katina P 72,0001993 Braer 85,0001997 Nakhodka 14,0001996 Sea Empress 72,0001999 Erika 20,0002002 Prestige 63,0002003 Tasman Spirit 30,0002004 Al Samidoon 9,0002005 DBL 152 9,4652006 Bright Artemise 4,5002007 Hebei Spirit 10,5002008 Tintomara 1,400

Largest spills in each year: 2004 - 2008

Accidental oil pollution into the sea and tanker trade

Source: INTERTANKO/ITOPF/Fearnleys

10001000ts spiltts spilt

bn bn tonne-milestonne-miles

0.0

0.7

1.4

2.1

2.8

3.5

1970s 1980s 1990s PR00s

0

21

42

63

84

105

1000 ts spilt

'0000 bntonne-miles

- 63% -6% -85%

Incidents attended by ITOPF over the past 5 years

NumberNumber

Source: ITOPFSource: ITOPF

2

89147 1317121014

0

3

6

9

12

15

18

2004 2005 2006 2007 2008

Tankers: 40 Non tanker: 66

Or have necessary measure been implemented to ensure that catastrophes do not repeat themselves?

Lack of good incident data prevent us from doing accurate analysis.

Let’s look at some indications

Will history repeat itself?

Will history repeat itself?Hull failure (?) (?)Tanker Year Spill ts LocationKirki 1991 17,280 Pacific, West Australia Lost bow Lost bowWorld Horizon 1991 850 Off South Africa Lost bowWorld Horizon 1991 850 Off South Africa Lost bowKatina P 1992 74,000 off MozambiqueTochal 1994 200 NW of Cape Town Lost bow Lost bow Thanassis A 1994 20,000 700 km off Hong KongNakhodka 1997 17,500 JapanErika 1999 20,000 Off Britanny Prestige 2002 63,000 Spain

New regulations/precautions:• Enhanced Special Periodical Survey Programme - adopted by the 18th session of the IMO Assembly in November 1993 • DH requirements• Common Structural Rules (initiated by INTERTANKO)• Stricter vetting, age discrimination after ERIKA

Recorded hull failures/incidents:2002 7 (Prestige) + 2 minor spills 2006 3 1 2,000 ts spill2003 6 1 minor spill 2007 9 1 minor spill2004 4 1 minor spill 2008 3 zero spills2005 3 1 minor spill 1Q09 1 zero spills

Segregated Ballast Tank Coated Areas260,000 ton VLCCHULL TYPE Square Meterspre-Marpol 25,000Marpol 80,000Double Hull 225,000

Will history repeat itself?Collision/Grounding/ContactTanker Year Spill ts LocationBT Nautilus 19901990 1,000 New York (contact reef bottom) - HFO 1,000 New York (contact reef bottom) - HFOAthos I 2004 850 Delaware River ( (contact object btm)contact object btm)Al SamidoonAl Samidoon 20042004 9,000 9,000 Suez Canal (HFO) (HFO)Grigoroussa I 2006 3,000 Suez Canal (HFO) (HFO)Bright Artemis 2006 4,500 East Indian Ocean (contact/rescue)Hebei Spirit 2007 11,000 Off Korea (rammed by crane)SKS Satilla DH 20092009 zero Outside Galveston (Outside Galveston (ctct object btm)ctct object btm)

New regulations• INTERTANKO US Port and Terminal Safety Study 1996/2002• INTERTANKO Terminal Vetting Database• DH requirements

Traffic separation schemes and other ship routeing systems have now been established in most of the major congested, shipping areas of the world, and the number of collisions and groundings has often been dramatically reduced.

Will history repeat itself?

Place of refuge Tanker Year Spill ts LocationErika 1999 20,000 Off Britanny Prestige 2002 63,000 SpainCastor* 2000 zero Western Mediterranean Sea.

New initiatives• IMO Resolution A.949(23) after after INTERTANKO initiative• EU directive• Under discussion in the US

*The ABS said the conclusions have implications for how ships are inspected and wider implications for how the new generation of double-hulled tankers should be built and maintained. At the least, the ABS said, rules should be amended regarding how and when ships are inspected and what surveyors should look for.

Will history repeat itself?

Human failure On March 24, 1989, the tanker Exxon Valdez, en route from Valdez, Alaska to Los Angeles, California, ran aground on Bligh Reef in Prince William Sound, Alaska spilling 35,000 tonnes of Prudhoe Bay crude oil. Failure of navigation, deviation from separation zones (got permission to use inbound lane), inexperienced and tired officer on the Bridge, Captain who was in his cabin had been drinking alcohol.

People do not work in a vacuum and the company culture, training, systems, procedures and technology has to be take into account that mistakes will be made.

INTERTANKO Human Element Committee• Guidance booklet on Seafarers’ Hours of work and Rest - 2008• Best Practice - Cadet Berths • Tanker Officers Training Standards (TOTS)Tanker Officers Training Standards (TOTS).

Will history repeat itself?

Fire and explosions Tanker Year Spill ts LocationKhark 5* 1989 80,000 185 km off MoroccoABT summer ** 1991 260,000 coast of Angola. Most important tanekr safety measure:Inert Gas Stems IGS

• Inerting double hull spaces in emergency situations

* Explosion following ballast tank leak**Explosion due to leak from cargo tanks

Kashmir due Jebel Ali after collision

Will history repeat itself?

PilotageTanker Year Spill ts LocationAegean Sea* 1992 74,000 La Coruna harbor, SpainSea Empress** 1996 72,000 entrance to Milford Haven, Wales.

New initiatives• INTERTANKO/BIMCO/ICS International Best Practices for Maritime Pilotage

* Grounded following loss of steering in bad weather**Pilot misjudged tide (similar to Torrey Canyon 18 March 1967)

Other challenges

• Chemical Pollution– Tin-based antifouling caused:

• Shell fish sex-changes, male to female• Thinning of oyster shells, collapse of oyster fisheries• Hormone changes in higher sea mammals

• Anti-fouling Systems (AFS) Convention– Entered into force 17 September 2008– Tin-based systems banned– Mechanism to ban other biocides in the future

• INTERTANKO– Move towards biocide-free systems– Comparison of silicon systems

Anti-fouling

• Biological Pollution– Invasive species issue– Organisms on ‘niche’ areas of the hull– Air emissions issue?

• Biofouling Management– IMO Voluntary Guidelines under development

• INTERTANKO– Good practice

• Reduce invasive species• Improve vessel performance – reduce air emissions

– Support management guidelines– Ports must allow hull management operations

Biofouling

Ballast Water Management

• Biological Pollution– Invasive species

• IMO Ballast Water Convention– Question over entry into force– Will the technology work?– Regional rules

• INTERTANKO– Share information on experience with new technology– Management plans as standard practice for over 5 years– Understand and Implement the IMO guidelines– Ensure compliance by sharing information on regional and national

regulations

Environmental challenges

Even in a bad market

High standards – a precondition for good risk management

Ms Littlefield (IUMI president) said there were strong

signs that the safety culture at sea was taking root. But she warned Ship operators are being buffeted from all sides in the growing economic crisis. But to cut corners on maintenance or training can only have one result in the long term: more casualties, higher claims on insurers, and higher premium and deductible levels for shipowners.

IUMI, in its first snapshot of 2008

Cypriot oil tanker "Haven" burning in the Gulf of Genoa

The sea get sick, but it never dies

Healing is a matter of time,

But also of opportunity

Greek proverbs

Thank you