The LNG Fuel Solution in Shipping Dr Gerd Würsig (Segment Director)

The LNG fuel solution in shipping Dr Gerd Würsig (Segment Director),

1 DNV GL © SAFER, SMARTER, GREENER Gas for propulsion- before year 2000

. CNG as fuel in ships in Russia, Netherlands, US, Canada, Australia . Gas engine installations offshore (FPSOs) . LNG carriers (dual fuel boiler / steam turbine propulsion) . Today about 400 LNG Carriers

DNV GL ©

2 The development trend is moving from LOCAL …

2000 – 2013

Norway

3 DNV GL © … to GLOBAL …

4 DNV GL © 59 LNG fuelled ships in operation worldwide (1/2)

Ships in operation

Year Type of vessel Owner Class Year Type of vessel Owner Class 2000 Car/passenger ferry Fjord1 DNV 2012 PSV Eidesvik DNV 2003 PSV Simon Møkster DNV 2012 PSV Olympic Shipping DNV 2003 PSV Eidesvik DNV 2012 PSV Island Offshore DNV 2006 Car/passenger ferry Fjord1 DNV 2012 General Cargo Nordnorsk Shipping DNV 2007 Car/passenger ferry Fjord1 DNV 2012 PSV Eidesvik Shipping DNV 2007 Car/passenger ferry Fjord1 DNV 2012 PSV Island Offshore DNV 2007 Car/passenger ferry Fjord1 DNV 2012 Car/passenger ferry Torghatten Nord DNV 2007 Car/passenger ferry Fjord1 DNV 2012 Car/passenger ferry Torghatten Nord DNV 2008 PSV Eidesvik Shipping DNV 2012 Car/passenger ferry Torghatten Nord DNV 2009 PSV Eidesvik Shipping DNV 2013 PSV REM DNV 2009 Car/passenger ferry Tide Sjø DNV 2013 RoPax Viking Line LR 2009 Car/passenger ferry Tide Sjø DNV 2013 Car/passenger ferry Torghatten Nord DNV 2009 Car/passenger ferry Tide Sjø DNV 2013 Tug Incheon Port Authority KR 2009 Patrol vessel Remøy Management DNV 2013 General Cargo Eidsvaag DNV 2009 Car/passenger ferry Fjord1 DNV 2013 RoPax Fjordline DNV 2010 Patrol vessel Remøy Management DNV 2013 High speed RoPax Buquebus DNV 2010 Car/passenger ferry Fjord1 DNV 2013 Tug CNOOC CCS 2010 Patrol vessel Remøy Management DNV 2013 Tug CNOOC CCS 2010 Car/passenger ferry Fjord1 DNV 2013 Car/passenger ferry Norled DNV 2010 Car/passenger ferry Fjord1 DNV 2014 Car/passenger ferry Norled DNV 2010 Car/passenger ferry Fosen Namsos Sjø DNV 2014 Tug Buksér & Berging DNV 2011 PSV DOF DNV 2014 RoPax Fjordline DNV 2011* Oil/chemical tanker Tarbit Shipping GL 2014 Patrol vessel Finish Border Guard GL 2014 Tug Buksér & Berging DNV 2011 Car/passenger ferry Fjord1 DNV 2014 Gas carrier Veder Rederijzaken BV 2011 PSV Solstad Rederi DNV 2014 Gas carrier Veder Rederijzaken BV 2012* Car/passenger ferry Fjord1 DNV Updated 17.03.2015 * Conversion project Excluding LNG carriers and inland waterway vessels

5 DNV GL © 59 LNG fuelled ships in operation worldwide (2/2)

Ships in operation

Year Type of vessel Owner Class 2014 Gas carrier SABIC BV 2014 Gas carrier SABIC BV 2014 PSV Remøy Shipping DNV 2014 General Cargo Egil Ulvan Rederi DNV 2014 General Cargo Egil Ulvan Rederi DNV 2015 PSV Harvey Gulf International ABS 2015 Ro-Ro Norlines DNV GL

Updated 17.03.2015 * Conversion project Excluding LNG carriers and inland waterway vessels

6 DNV GL © 80 confirmed LNG fuelled newbuilds – DNV GL also first choice for future projects (1/2)

Confirmed orderbook

Year Type of vessel Owner Class Year Type of vessel Owner Class 2015 Ro-Ro Norlines DNV GL 2015 PSV Siem Offshore DNV GL 2015 Car/passenger ferry Society of Quebec ferries LR 2015 PSV Siem Offshore DNV GL 2015 Car/passenger ferry Society of Quebec ferries LR 2015* Oil/chemical tanker Furetank Rederi BV 2015 Car/passenger ferry Society of Quebec ferries LR 2015 Container ship TOTE Shipholdings ABS 2015 PSV Harvey Gulf Int. ABS 2016 Container ship TOTE Shipholdings ABS 2015* Oil/chemical tanker Bergen Tankers LR 2016 PSV Harvey Gulf Int. ABS 2015 Car/passenger ferry AG Ems DNV GL 2016 Icebreaker Finnish Transport Agancy LR 2015* Car/passenger ferry AG Ems DNV GL 2016 PSV Siem Offshore DNV GL 2015 Car/passenger ferry Samsoe municipality DNV GL 2016 PSV Siem Offshore DNV GL 2015 Tug CNOOC CCS 2016 Gas carrier Chemgas Shipping 2015 Tug CNOOC CCS 2016 Oil/chemical tanker Terntank BV 2015 Tug Drydocks World 2016 Oil/chemical tanker Terntank BV 2015 PSV Siem Offshore DNV GL 2016 Oil/chemical tanker Terntank BV 2015 PSV Siem Offshore DNV GL 2016* Ro-Ro TOTE Shipholdings ABS 2015 PSV Simon Møkster Shipping DNV GL 2016* Ro-Ro TOTE Shipholdings ABS 2015 PSV Harvey Gulf Int. ABS 2016 Car carrier UECC LR 2015 PSV Harvey Gulf Int. ABS 2016 Car carrier UECC LR 2015 PSV Harvey Gulf Int. ABS 2016 Car/passenger ferry Boreal DNV GL 2015 Tug NYK NK 2016 Car/passenger ferry Boreal DNV GL 2015 Gas carrier Chemgas Shipping 2016 Container ship GNS Shipping ABS 2015 Gas carrier Evergas BV 2016 Container ship GNS Shipping ABS 2015 Gas carrier Evergas BV 2016 Ro-Ro SeaRoad Holdings DNV GL 2015 Gas carrier Evergas BV 2016 Car/passenger ferry BC Ferries LR 2015 Bulk ship Erik Thun LR 2016 Car/passenger ferry BC Ferries LR 2015 Container ship Brodosplit DNV GL 2016 Gas carrier Ocean Yield DNV GL 2015 Container ship Brodosplit DNV GL 2016 Gas carrier Ocean Yield DNV GL Updated 17.03.2015 * Conversion project Excluding LNG carriers and inland waterway vessels

7 DNV GL © 80 confirmed LNG fuelled newbuilds – DNV GL also first choice for future projects (2/2)

Confirmed orderbook

Year Type of vessel Owner Class 2016 Car/passenger ferry Seaspan Ferries BV 2016 Car/passenger ferry Seaspan Ferries BV 2016 Gas carrier Navigator Gas ABS 2016 Gas carrier Navigator Gas ABS 2016 Gas carrier Navigator Gas ABS 2016 Gas carrier Navigator Gas ABS 2016* RoPax Baleària BV 2016 Container ship Universal Marine DNV GL 2016 Container ship Universal Marine DNV GL 2016 Cable layer DEME Tideway DNV GL 2017 Container ship Universal Marine DNV GL 2017 Container ship Universal Marine DNV GL 2017 Tug Østensjø Rederi 2017 Tug Østensjø Rederi 2017 Tug Østensjø Rederi 2017 RoPax Rederi AB Gotland DNV GL 2017 Oil/chemical tanker Groupe Desgagnés BV 2017 Oil/chemical tanker Groupe Desgagnés BV 2017 Container ship GNS Shipping ABS 2017 Container ship GNS Shipping ABS 2017 Car/passenger ferry BC Ferries LR 2017 Oil/chemical tanker Terntank BV 2017 Container ship Crowley Maritime DNV GL 2017 Container ship Crowley Maritime DNV GL 2017 Car/passenger ferry Tallink BV 2018 Container ship Matson Navigation DNV GL 2018 Container ship Matson Navigation DNV GL Updated 17.03.2015 * Conversion project Excluding LNG carriers and inland waterway vessels

8 DNV GL © LNG uptake by vessel segment

Updated 17.03.2015 Excluding LNG carriers and inland waterway vessels

9 DNV GL © DNV GL – trusted partner for LNG fuel projects

Updated 17.03.2015 Excluding LNG carriers and inland waterway vessels

10 DNV GL © LNG as a fuel for ships - the content in the rules exist -

. 2001 first DNV Class rules for gas fuelled ships 2000 . 2004 NMD proposal to develop the IMO IGF Code . 2010 IMO MSC.285(86) in force . 2014 IMO IGF-Code: International Code of safety for ships using Gases or other low- flashpoint Fuels (approved in principle by MSC 94 in Nov 2014) . 2013 ISO Guidelines for systems and installations for supply of LNG as fuel to ships (ISO TS 18683, Jan 2015) . DNV-GL RP-G106: Recommended Practice for the development and operation of LNG bunker facilities (published Nov 2013) 2013

March 2015: In operation: 59 ships (2000/2014) Under construction: 80 ships (2015/2018)

Adopted EU Recycling Regulation

US BW requirements

EEDI phase 1 EEDI phase 2

NOx tier III for new 0.1% ECA sulphur EU 0.5% sulphur builds in North EEDI phase 3 limit cap America

2015 2016 2018 2020 2025 2030

Ballast Water EU CO2 monitoring, Operational BC, noise, bio- Convention - entry reporting and requirements on fouling and VOC EEDI phase 4 into force verification CO2 regulation

Additional ECAs 0.5% global sulphur established cap

HK Recycling convention ratified

Global CO2 monitoring, reporting Possible and verification 0.5% global sulphur cap

DNV GL ©

12 What happened to the energy prices during the life time of a ship (25 years: 1990/2015)?

Middle of March 2015 4 • IFO 380: 9,09 $/mmBTU=349 $/t 6 • MGO 0,1% S: 15,34 $/mmBTU= 622 $/t • Gas TTF: 7,86 $/mmBTU (lhv) 5 2

1 3

1 4

2 5

3 6 Prices in the figures: yearly average until 2014. 2014 spot prices at the beginning of the month

Lhv used for gas.

13 DNV GL © DNV GL internal use only Low oil price is not possible even on the mid term time scale

14 DNV GL © There are different options for dealing with ECAs, each with unique risk aspects making investment decisions difficult

Main options for most ships to comply in ECA: Alternative options:

Biofuels LNG Scrubber Fuel switch Methanol Option Hydrogen • Lower bunker cost • Easier retrofit No additional • Compliance Battery • Investment cost CAPEX needed • Proven solution Other fuels? Benefits

• Technical maturity • Availability • Operating cost High operating • Price • Handling cost

Risk Technical maturity • chemicals

15 DNV GL © MGO Scrubber LNG Other

(LNG Ready service) (Methanol, Battery ++)

Fuel decision ECA and fuel decision support  Business Case

Concept Scrubber Concept Detailed tech review Concept selection & design feasibility HAZID benchmarking review study

Engine/tank Makers Concept selection selection HAZID review review

Initial Technology Technology design Approval Qualifica- Qualification in principle tion

Risk assessment Risk assessment

DNV GL © 16 DNV GL internal use only GAS READY (X1, X2, X3, …) where qualifier XN is:

XN Content Comment GAS D The design for the ship with LNG as fuel is found to be in Mandatory READY compliance with the GAS FUELLED notation rules applicable for the new-building, ref. Pt.1 Ch.1 Sec.2 A300. S Structural reinforcements to support the fuel containment system (LNG fuel tank(s)) are installed, and materials to support the relevant temperatures are used T Fuel containment system (LNG fuel tank(s)) is installed P The ship is prepared for future gas fuel system installations: Pipe routing, structural arrangements for bunkering station, gas valve unit space, fuel preparation space if relevant (optional) MEc Main engine(s) installed can be converted to dual fuel Mandatory (can be replaced with MEi)

MEi Main engine(s) installed can be operated on gas fuel AEc Auxiliary engines installed can be converted to dual fuel The auxiliary engine capacity after conversion shall be sufficient for the ship power balance.

AEi Auxiliary engines installed can be operated on gas fuel B Boilers installed are capable of burning gas fuel Misc Additional systems and equipment are installed on board from Based on agreement between new building stage. owner and yard, and detailed list provided to Society for acceptance.

17 DNV GL © Some thoughts on future ship fuel

. Ships built today will need to be prepared for low sulphur fuels after 2020/2025 (LNG, Scrubber, Fuel Switch) . Beyond 2016 additional NOx reduction is needed to be able to approach USA/Canada . LNG is not the only fuel alternative but we see it as the most relevant: – LNG is the only clean fuel which is world wide available on a large scale to meet the needs of world wide shipping for the foreseeable future – LNG price will not depend on shipping needs because shipping will not become a dominant user of natural gas. – Pricing for LNG depends on energy prices for power production, households and feed stock prices for chemical industry but not for shipping

18 DNV GL © DNV GL internal use only Some thoughts on future ship fuel

. LNG as a fuel has the potential to be price competitive with oil as ship fuel . Natural gas has the potential to become cheaper than the oil based alternatives – Future 0,5% sulphur fuels are expected to cost about 80% of 0,1% sulphur MGO – Natural gas resources will last longer than oil resources . The LNG bunker infrastructure is developing – Bunkering during cargo operation done in Sweden and Norway – First bunker vessels ordered (7 bunker ships on order) – Bunkering possible in Antwerp, Rotterdam other ports will follow . Renewable energy will not play a role as ship fuel in the foreseeable future – Production of liquid fuels for shipping from renewable sources will not happen before oil and gas resources are exhausted or the use of oil and gas is banned

. Source: BP, comp HFO capacity GEWUE 21 3 2015.xlsx

www.dnvgl.com

SAFER, SMARTER, GREENER

ESTIMATES ONLY – VESSEL WITH 100% ECA EXPOSURE Cumulative discounted cost [MUSD]

1. LNG at 9.4 USD/MMBtu 14 Fuel switch 2. LNG at 11.4 USD/MMBtu

12 Payback: - 2 years to Scrubber 10 - 2.5 years to Fuel Switch

8 Scrubber LNG 6

• IFO 380: 14,98 $/mmBTU=575 $/t 4 • MGO 0,1% S: 21,74 $/mmBTU=880 $/t 2 2 • Gas TTF: 9,35 $/mmBTU (lhv) Cumulative discounted cost [MUSD] [MUSD] cost discounted Cumulative 1 HFO 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 -2 Year

Fuel Switch HFO Base line Scrubber LNG @ 11.4USD/MMBtu LNG @ 9.4USD/MMBtu

ESTIMATES ONLY – VESSEL WITH 100% ECA EXPOSURE Cumulative discounted cost [MUSD]

16 IFO 380: 9,09 $/mmBTU=349 $/t 1. LNG at 8 USD/MMBtu • Fuel switch 14 2. LNG at 10 USD/MMBtu • MGO 0,1% S: 15,34 $/mmBTU= 622 $/t 12 Payback: • Gas TTF: 7,86 $/mmBTU (lhv) - 5 years to Fuel Switch 10 2 8 LNG

6 Scrubber 4 1

2 Cumulative discounted cost [MUSD] [MUSD] cost discounted Cumulative HFO 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 -2 Year

Fuel Switch HFO Base line Scrubber LNG @ 10USD/MMBtu LNG @ 8USD/MMBtu

The future of HFO as ship fuel: Nearly no HFO may be produced any more

. Assist owners who at new building stage want to include preparation for a potential later conversion to LNG fuel operation . Provide a useful framework for contract negotiations between owner and yard . Provide clear guidance on a relevant scope for all involved parties in the NB project: Yard, o w n e r, banks, designer, approval engineers, surveyors

. The notation has different levels and corresponding requirements. . The minimum mandatory level includes: – Verification of compliance with GAS FUELLED rules of the overall design for future LNG fuel operations – Installation of main engine(s) capable of being converted to dual fuel operation . In addition optional levels may be included, i.e. it can be chosen to include preparation for later installations, or actual installation and certification of parts of the LNG fuel systems.

. The GAS READY class notation provide compliance with rules in force at the time of Contract for Construction for the new-building. . The rules and international regulations in force at the time of a later ship conversion to LNG fuel will be applicable: – At time of conversion, documentation shall be submitted for approval. The design verification from the new building stage will be used to support the approval.

. GAS READY (D, MEc, S) – the future LNG fuelled design is examined and found to be in compliance with rules in force at time of new building – the installed main engine is of a type which can be converted to gas/duel fuel operation – the ship is constructed with the necessary structural reinforcement and low temperature materials for the future LNG fuel tank (s) – If the details of the LNG tank system is not known at NB stage, a relevant weight can be included in calculations for global strength, and a relevant temperature to be assumed. Details of the local supports can be prepared later. The chosen weights/ temperature will then pose limitations to the later conversion.