The Age of LNG

The age of LNG is here
Most cost efficient solution for ECAs

Tor Svensen, President DNV DNV Corporate 08 June 2010 by G. Meazzi Presented
What is keeping us back from using LNG for ships?

At DNV we struggle to understand:
- why the shipping industry is not moving faster - why shipowners are not seeing the opportunity
LNG as fuel for ships:

- is commercially viable - will address important environmental concerns
08 June 2010 Det Norske Veritas AS. All rights reserved. 2
The age of LNG is arriving

Technically no obstacles Safe Economically better Environmentally a winner
20 000 ships in Europe affected by ECA regulations

Baltic Sea: 10,000 ships annually English channel: 400 ships observed daily The North Sea fleet is also directly affected
The Baltic Sea is slowly dying

Multiple pollution sources
- Agricultural runoff - Untreated wastewater - Ship emissions
Primorsk and St.Petersburg (RUS) Kilpilahti (FIN)
Extremely vulnerable sea

- Shallow waters - Low water exchange rate - Algal blooms caused by pollution
Gothenburg, SWE
Tallinn (EST)
Klaipeda (LIT)
Kaliningrad Gdansk and Gdynia (POL)
Lbeck and Rostock (GER)
The DNV Baltic Report findings

More than 2,000 ships operating at any time Annual ship emissions:
- SOx: 135 000 tonnes - NOx: 400 000 tonnes - CO2: 19 million tonnes
Primorsk and St.Petersburg (RUS) Kilpilahti (FIN)
Ship emissions equals all land-based NOx and twice the SOx emissions from Denmark & Sweden combined
Tallinn (EST)
Gothenburg, SWE
Klaipeda (LIT)
Kaliningrad Gdansk and Gdynia (POL)
Lbeck and Rostock (GER)
More ECAs to come

North American coasts designated as ECA
- Starting Aug 2011 - SOx/NOx-control from 2015/2016
ECA in the Mediterranean

Over 200,000 merchant vessels of over 100 gt cross the Mediterranean Sea each year. More than 2,000 ferries, 1,500 cargo ships and 2,000 local commercial craft, including 300 tankers operate permanently in the Mediterranean, and about a third of the worlds total merchant shipping traffic either trades to seaports or passes through the Mediterranean. Ships take fuel from bunkers in many ports around the Mediterranean but the majority of supplies are delivered in a small number of hubs: Istanbul, Malta, Piraeus, Port Said and the ports around the Strait of Gibraltar/Algeciras. ECA status for the Mediterranean is unlikely in the short term, however, ships transiting to/from Northern Europe and North America will be compliant with the ECA rules. LNG bunkering may therefore be required in the Mediterranean area. As a result of the above, we are likely to see an increase in demand in the region for small scale LNG bunkering & storage facilities.
European ECAs - a real challenge

ECA (Emission Control Area) requirements: Maximum level of sulphur in fuel, all ships:
- 1,0% by 1st July 2010 - 0,1% by 1st January 2015 New ECA?
Nitrogen emission for newbuildings:

- 80% reduction in NOx emission from 2016 ECA
EU fuel requirements now: 0,1% sulphur in ports and inland waterways
ECA
New ECA?
IMO Emission Control Areas, ECA

The Baltic Sea and North Sea are regulated as ECAs with limitations on sulphur emissions (Previously termed SECA).
SOx
New ECA?
North American coasts designated as ECA by IMO, starting Aug 2011. SOx/NOx-control from 2015/2016.
ECA ECA
ECA
IMO/MARPOL Annex VI SOx limits (SiO + newbuilds)
SOx
EU Directive EC 2005/33: 0.1% sulphur limit for any fuel used onboard ships in EU ports now.
08 June 2010 Det Norske Veritas AS. All rights reserved. 25 November 2010 11 Slide 11
IMOs NOx limits for newbuilds are tightened. Non-LNG engines need exhaust cleaning to meet Tier III
NOx
New-builds only!
January 2000 January 2011
January 2016
RPM
Tier I (global): Applicable for engines in new ships with keel laid between 01.01.2000 01.01.2011 Tier II (global): Applicable for engines in new ships with keel laid after 01.01.2011 Tier III (in NOx ECAs):
Applicable for engines in new ships with keel laid after 01.01.2016. No current engine
on conventional fuel meets Tier III, hence need additional post treatment (e.g. SCR). LNG fuelled engines will likely be approved as Tier-III equivalent measure
08 June 2010 Det Norske Veritas AS. All rights reserved. 25 November 2010 12 Slide 12
LNG: The only solution catering both SOx and NOx demands
Effects of components:
CO2: SOx: NOx: NO2: Particulates: Greenhouse/climate effect Acidification of land, fish death Fertilizing effects, forms toxic ozone Toxic to humans Respiratory effects, Arctic smelting
N O O
When LNG replaces conventional fuels: - CO2 /GHG emissions: 20-25% net reduction - SOx and particulates (PM) emissions: Nearly 100% reduction - NOx emissions: 85-90% reduced The risk of accidental oil pollution is minimized when fuelling with LNG LNG: Ensures compliancy with new ECA rules
Environmentally a winner
20-25%
Reduced CO2 / GHG
08 June 2010 Det Norske Veritas AS. All rights reserved.
~100%
Reduces SOx and particulates
14
85-90%
Reduced NOx
Technically no obstacles and it is safe

LNG technology safe and well proven
- 40 years of LNG tanker operation - Used as marine fuel since 2001, now in 20 ships - Ongoing research to further improve technical and economical aspects
Technology is approved and available
Many manufactures are offering LNG fuelled engines: - Wrtsil Two engine concepts: - Rolls-Royce Lean burn LNG mono fuel - MAN Diesel Dual fuel (LNG + Diesel) - Mitsubishi Main challenges are the loss of cargo space due to cylindrical LNG storage tank, and a slight methane slip from engine when running on low load (continuous improvements) Development is ongoing to shift from spherical (volume consuming) to hull integrated tanks Fuel cells on LNG for ship propulsion are under development (FellowShip)
A typical Baltic Sea Cargo Ship when operating on LNG

547 TEU container vessel (5000 GT) Propulsion power 3960 kW
Yearly emissions, tonnes/year Particle SOx NOx CO2 emissions With LNG fuel: With low-sulphur HFO (LS380 with 1% sulfur):
0 50
31 180
5 500 7 250
0 4
Financial Drivers
Growing price disparity oil /gas predicted

Increasing distillate prices (demand/ production)?
Current LNG fuel sales price in Norway
LNG fuel price development?
Source: EIA
Economically better over 20 years

Alternatives to meet the future ECA requirements - Low sulphur fuel (0,1% sulphur), install scrubbers, switch to LNG LNG saves - 45% lower than MGO - 22% lower than HFO with scrubber
Ref the DNV Baltic Report
Net Present Value of costs over 20 years

30
Million USD
20
10
870 $/t
MGO
495 $/t
HFO + Scrubber
450 $/t
LNG
Economically better over 10 years

Alternatives to meet the future ECA requirements - Low sulphur fuel (0,1% sulphur), install scrubbers, switch to LNG LNG saves - 35% lower than MGO - 12% lower than HFO with scrubber
Ref the DNV Baltic Report
Net Present Value of costs over 10 years

20
Million USD
10
870$/t
0
495 $/t
HFO + Scrubber
450 $/t
LNG
MGO
A typical European short sea shipping owner or operator will benefit from installing LNG propulsion when sailing in ECAs
Net present value of costs over 10 years*
Vessel: General cargo ship with 3300 kW propulsion power Owner profile: Medium risk with a calculated discount rate of 7,5%
Results:
COSTS - Net Present Value over 10 years 100 % 80 % 60 % 40 % 20 % 0%
Sensitivity analysis:
Costs: Net Present Value over 10 yr
50
NPV MGO
NPV of added costs [million $]
40
NPV LNG
NPV HFO+Scrubber
47 mUSD
-47%
-62%
30
20
10
870 $/t
MGO (base case)
495 $/t
Scrubber
450 $/t*
LNG
0 400 450 500 550 600 650 700 750 800 850 900
HFO+
LNG price [$/tonne]
LNG is the key to ECA operation when LNG price below 700 USD/t!
*: Estimated future price, when an open LNG market develops
*: Costs include capex, voyex (fuel (LNG lower specific fuel consumption) + lube oil) and opex (reduced maintenance costs for LNG, 10-30%). Conclusion 08 June 2010 in general applicable for both retrofit and newbuild. LNG price set at steady 450$. LS380 price set at 495$, 10% above HFO price (average past 20 years), a rights yearly increase of 4.6%. MGO price set at 869$, 90% above HFO Det Norske Veritaswith AS. All reserved. 22 price (average past 20 years), with a yearly increase of 4.6%
Rules & Regulations
Safety standard for Gas as Fuelled Engines

DNV Rules Pt.6 Ch.13 Gas fuelled engine installations issued January 2001
Additional class notation:
Gas Fuelled
Use of gas as fuel in ships other than LNG carriers need acceptance by flag state due to lack of international conventions IMO work going on to make Interim Guidelines -> IGF Code. Reflecting DNV Rules
Rule Principles:
Rule Principles: *
* Emergency Shut Down (ESD)

LNG Infrastructure and Technology

Hypothesis for the near future: 1) Easier access to LNG. 2) Additional investment costs for LNG propulsion level off 3) Harmonization of regulations and practice
LNG fuel distribution
International rules and guidelines and national rules and guidelines

IMO - IGC Code:
Rules for the bunker boat, which is a small LNG carrier
IMO - IGF Code:

Rules for the receiving ship, the ship using LNG as fuel Revised 2012? Ongoing work
SIGGTO:
Guidelines for LNG transfer
OCIMF:
Guidelines for Oil transfer, ship to ship oil bunker procedures
Port regulations:
Local regulations to be taken into account! Risk assessments Public awareness, perception
Class Societies rules for LNG fuelled ships:

DNV has had rules for 5 years Other Class societies are developing rules now
Challenge Speed and standardisation
LNG bunkering station and LNG terminals (Gasnor etc)
Maritime LNG providers: Gasnor (dominates N Europe)

Nordic LNG (Norway) Skagerak Energi (Norway) Barents LNG (Norway) Gassum OY (Finland) Clean Energy (USA) Excelerate Energy (USA)
Norway 2010
08 June 2010 Det Norske Veritas AS. All rights reserved.
Baltic Sea 2015?

30
LNG bunkering today

Truck to boat Dedicated terminal to boat
Pictures: GAS NOR
What needs to be clarified before LNG bunkering can be performed?
Port to be approved for LNG activities Authorities Port Bunkering procedure (including HAZID and Risk Assessment) to be approved from Authorities & Port Class society Bunkering area to be approved for LNG Authorities Port
32
Pictures: LNG ship to ship bunker project
08 June 2010
Det Norske Veritas AS. All rights reserved.
Ship to ship LNG bunkering project
Bunkering during loading and unloading procedures, typically Ro-Ro and Ro-Pax ships LNG bunker boat - larger volumes than for truck solutions, more flexibility than the onshore tank solution Bunker operation should not prolong stay in port Bunkering in port close to urban areas Total bunker operation, max 50 minute LNG transfer rate, approx 150 ton (300 m3)/hour
LNG bunkering ship to ship project from DNV perspective

This project phase Next project phase
Step 1 Project framing
Dec09
Step 2 Initial HAZID workshop
Jan10
Step 3 Concept development

Information and discussion with steering committee and stakeholders in between and during each activity is integral for project success
Spring 10
Step 4 Approval in principal
May10
Step 5 Detailed development
Project Office Management - Communication and benefit tracking
The Hazard identification workshop identified potential hazards and risk that needs to be managed in the concept development phase
Preparations
Statistics and data HAZID methodology Project experience
Role
Equipment HAZID responsibuiliy Shipping company Ship designer NGO
Company
Cryo AB Det Norske Veritas Fjordtank Rederi FKAB Gasfreningen I.M. Skaugen SSPA Sweden AB Svenskt Marintekniskt Forum Topoil AB Transportstyrelsen Viking Line ABP White Smoke
1.
Workshop facilitation
LNG shipping company Consultant NGO

5 10 15 20 25
Documentation and reporting
2.
12
16
20
Bunker company GA Shipping company Shipping company
12
15
2
Less than once
10
3.
The analysis identified a number of hazard areas that needs to be managed in the concept evaluation phase
Environmental Hazards
Probability
Hazards generated by malfunctions Leakage of liquid LNG causing loss of structural integrity
Electrical hazards Mechanical hazards External Hazards Other hazards generated by materials and substances Fire/explosion
Pollution Grounding Collisions
Hazards generated by neglecting ergonomic principles & human intervention
Consequence
The risk analysis provided input into the concept development

Risk identification
Risk mitigation
Many technical solutions evaluated
Receiving vessel Bunker vessel LNG/Vapour return/Diesel Lube oil/Sludge Drip free break away couplings Spill tray
Bunker port position Bollards position
Mooring plan
The project has developed:LNG ship to ship bunkering procedure including relevant checklists Technical conceptual solution for fast and safe bunkering of LNG
DNV classification assessment of ship to ship LNG bunkering project

DNVs classification branch has examined the output from the Ship to ship LNG bunkering project. DNVs assessment is that the output from the project is a suitable solution for a LNG ship to ship bunkering scheme, provided that bunker vessel and receiving vessel fulfils class rules and other relevant rules and regulations.
i.e. DNV acknowledge the solutions developed and they are deemed feasible from a class society perspective
Final product!
Schematic overview of intended bunkering procedure
Total time of operation approx. 50 minutes
Before bunkering
Call Arrival Mooring Checklist to receiving ship Connection link Connection hose Return of signed checklist Open manual valves Ready signal both ships
During bunkering After bunkering

Pump start sequence Transfer sequence Pump stop sequence Shut manual valves Purgeing of cargo lines Disconnection of hose Inerting of cargo lines (receiver) Disconnection link Delivery cargo document Un-mooring Departure Inerting cargo lines (bunker ship)
Transfer rate 150 ton/h 30 minutes
On order: Coastal oil bunker vessel with new type LNG tanks!
A-type under approval
Fuel from cargo boil-off Low cost propulsion
Short engine room

Design: Rolls Royce Merchant Solutions
Example of new space-efficient LNG tank. Panel Insulation for IMO type A LNG Fuel Tanks
Insulation with full secondary barrier. Designed for temperature down to 163 C. Protecting the hull structure against harmful temperature fluctuations and absolute temperatures during operation. Act as full secondary barrier in case of leakage from LNG fuel tank.
What must happen NOW:

EU and governments to be frontrunners Publicly owned ships to run on LNG LNG fuel to be easily available LNG fuel to be available at a fair price Shipowners to start ordering new ships running on LNG Short sea shipping is the most obvious start The DNV Baltic Report confirms this
Summing up
Short sea shipping is the ideal case for LNG fuel DNV will actively influence the whole shipping industry including governments and regulators DNV will continue to invest in technology and competence to support the transformation to LNG DNV will assist shipowners in developing business cases for LNG
DNV is world leader on LNG as fuel

DNV has proven rules for LNG since 2001
The worlds ships on LNG fuel built to DNV class!*

* LNG tankers excluded
LNG fuelled vessels in operation, some more examples
Glutra Stril Pioner Viking Energy Mastrafjord, Raunefjord, Patrol vessels Barentshav, Bergen, Sortland Moldefjord Viking Queen Bergensfjord, Stavangerfjord Tidekongen, Tidedronningen, Tideprinsen
Safeguarding life, property and the environment

www.dnv.com

The Age of LNG

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The Age of LNG

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The age of LNG is here

Most cost efficient solution for ECAs

What is keeping us back from using LNG for ships?

LNG as fuel for ships:

08 June 2010 Det Norske Veritas AS. All rights reserved. 2

The age of LNG is arriving

08 June 2010 Det Norske Veritas AS. All rights reserved. 3

20 000 ships in Europe affected by ECA regulations

08 June 2010 Det Norske Veritas AS. All rights reserved. 4

The Baltic Sea is slowly dying

Extremely vulnerable sea

Kaliningrad Gdansk and Gdynia (POL)

Lbeck and Rostock (GER)

08 June 2010 Det Norske Veritas AS. All rights reserved. 5

The DNV Baltic Report findings

Kaliningrad Gdansk and Gdynia (POL)

Lbeck and Rostock (GER)

08 June 2010 Det Norske Veritas AS. All rights reserved. 6

More ECAs to come

08 June 2010 Det Norske Veritas AS. All rights reserved. 7

ECA in the Mediterranean

08 June 2010 Det Norske Veritas AS. All rights reserved. 8

European ECAs - a real challenge

Nitrogen emission for newbuildings:

EU fuel requirements now: 0,1% sulphur in ports and inland waterways

08 June 2010 Det Norske Veritas AS. All rights reserved. 9

IMO Emission Control Areas, ECA

08 June 2010 Det Norske Veritas AS. All rights reserved. 10

IMO/MARPOL Annex VI SOx limits (SiO + newbuilds)

January 2000 January 2011

08 June 2010 Det Norske Veritas AS. All rights reserved. 13

Technically no obstacles and it is safe

08 June 2010 Det Norske Veritas AS. All rights reserved. 15

Technology is approved and available

A typical Baltic Sea Cargo Ship when operating on LNG

08 June 2010 Det Norske Veritas AS. All rights reserved. 18

Growing price disparity oil /gas predicted

Current LNG fuel sales price in Norway

LNG fuel price development?

Economically better over 20 years

Net Present Value of costs over 20 years

08 June 2010 Det Norske Veritas AS. All rights reserved. 20

Economically better over 10 years

Net Present Value of costs over 10 years

08 June 2010 Det Norske Veritas AS. All rights reserved. 21

LNG price [$/tonne]

Rules & Regulations

08 June 2010 Det Norske Veritas AS. All rights reserved. 23

Safety standard for Gas as Fuelled Engines

Additional class notation:

08 June 2010 Det Norske Veritas AS. All rights reserved. 24

08 June 2010 Det Norske Veritas AS. All rights reserved. 25

* Emergency Shut Down (ESD)

LNG Infrastructure and Technology

08 June 2010 Det Norske Veritas AS. All rights reserved. 27

LNG fuel distribution

International rules and guidelines and national rules and guidelines

IMO - IGF Code:

Class Societies rules for LNG fuelled ships:

LNG fuel distribution

Challenge Speed and standardisation

08 June 2010 Det Norske Veritas AS. All rights reserved. 29

LNG bunkering station and LNG terminals (Gasnor etc)