24 september 2010 maritime clusters and sss merenduskonverents 2010

24 September 2010

Maritime Clusters and SSS

Merenduskonverents 2010

© Det Norske Veritas AS. All rights reserved.

24 September 2010

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Presentation Overview

DNV

Maritime Clusters - Quick definition- Who is involved

- Government- Industry- Markets

- Cause and effect

New rules of the game - Future regulations- ECAs- In the Baltic

Short Sea Shipping (… and LNG) - Characteristics of SSS in Baltic Sea- ECA rules will force changes- Options to comply

- Redeploy fleet- Low S% fuel- Scrubbers- LNG

- Conclusions- Return on Investment- Save environment and save costs


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Who, What, How we do


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Highly skilled people across the world

9,000employees, of which 82% have university degree

300offices

100countries


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A trusted player in shipping

15.5%15.5% of the world’s sailing fleet is to DNV Class (in Gross Tonnes)

17%DNV classed 17% of the world fleet orderbook in 2009 (in Gross Tonnes)

130Authorised by 130 national maritime authorities


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Summary

Companies and society face a new risk reality

DNV helps identify, assess and manage risk

We do this through a unique combination of - risk methodology and management expertise- technical and operational expertise- independence

We help our customers - build trust and confidence towards their stakeholders- make qualified decisions based on independent

assessments- achieve and maintain sustainable performance- ...and so turn risks into rewards


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Maritime clusters


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Typical players The maritime industry consists of

- The ship industry that produces and repair ships.

- The shipping industry providing the seaborne transportation of goods

- Freight and infrastructure as service supplier focused directly towards the organisation of the transportation

In addition, the maritime industry is provided with services, such as: - classification- financing- insurance- education


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Maritime cluster – a definition

CompanyCompetitiveness

R&D & innovation

Competence & HR strategy

CountryAttractiveness

Price & quality of resources

Satisfaction with location

Public Policy

Tax & subsidies

Financial Policy

Regulations

Labour market

Cluster dynamicsInnovation pressureKnowledge diffusion

Complementarity

Cluster dynamicsKnowledge sharing

Complementarity

Long term

industry

performance


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Public policies are the catalyst of the cluster

Public policies are prerequisites to attract business:

Labour mobility

Tax regime & financial policies

Local regulations

Education and training

Research & innovation culture

Location attractiveness comprising the three elements of

‘country’,

‘company’

‘cluster’

can be influenced by the public policies of the location


Internationalization

R&D and innovation

Competence and HR strategy


Price, quality, mobility & relevance of resources

Satisfaction with domestic location &

foreign attractiveness

Public Policy

Tax & subsidiesFinancial Policy

RegulationsLabour market

EducationR&D


Complementarity


Complementarity

Long term relative

industry performance

3

1

2


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The country’s ability to keep and attract world class companies, determines its competitivenessPrimary characteristics

Regional legal-regulatory framework

Sustainable local economy

Stable political environment

Secondary characteristics

Highly developed infrastructure

Strategic geographic location



R&D and innovation






Public Policy



EducationR&D


Complementarity


Complementarity

Long term relativeindustry

performance


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R&D and innovation






Public Policy



EducationR&D


Complementarity


Complementarity

Long term relativeindustry

performance

Attracting the most competitive companies

Companies want to locate in attractive markets

What companies want

Industrial regions of the world compete to attract international business companies by

Excellent infrastructure Attractive tax regimes

…influence how countries compete..

Manufacturing moves to low cost locations Leading companies attract other companies

from the same industry Increasing industrial clustering

…with different results

Key reasons for a locations attractiveness (for HQs) were identified:

Attractive tax rules

Availability of managers with experience and global mindset

High quality of life

Source: AD Little


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New rules of the game


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Future regulatory pressures


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European ECAs – a real challenge

ECA (Emission Control Area) requirements:

Maximum level of sulphur in fuel, new and sailing ships:- 1,00% by 1st July 2010- 0,10% by 1st January 2015

(or equivalent measure)

Nitrogen emission for newbuildings:- 80% reduction in NOx emissions

from 1st January 2016

EU fuel requirements today:

0,1% sulphur in ports and inland waterways (or equivalent measure)

ECAECA

New ECA?

New ECA?


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The Baltic Sea is slowly dying. Shipping partly to blame Multiple pollution sources

Extremely vulnerable sea

More than 2,000 ships operating at any time, 10 000 ships yearly

Ship emissions equals all land-based NOx, and twice the SOx emissions from Denmark and Sweden combined

Current annual ship emissions:- SOx: 135 000 tonnes- NOx: 400 000 tonnes- CO2: 19 million tonnes

Gothenburg, SWE

Lübeck and Rostock (GER)Gdansk and Gdynia (POL)

Kaliningrad

Klaipeda (LIT)

Tallinn (EST)

Kilpilahti (FIN)

Primorsk and St.Petersburg (RUS)


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Short Sea Shipping (… and LNG)


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Short Sea Shipping

Movement of cargo and passengers by sea between ports situated in geographical Europe or non European countries having a coastline on the enclosed seas bordering Europe.

In the Baltic's … more than 78% share of all seabourne trade (Eurostat: 2008)

Includes domestic and international maritime transport, including feeder services, along the coast, to and from the islands, rivers and lakes.

Challenges!

Environment (external)

Profitable business (internal)


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ECA compliance is a ticket to trade

The optimum ECA strategy will: - Reduce business risk and technical challenges

- Align desired ECA solution with company’s financial policy - Ensure new market shares as competitors pull out

Ship owners will benefit from planning now, and seek well-informed partners

A strategy should be laid for different:• - Fleet segments• - Ship ages and conditions• - Types of freight and voyage contracts• - New-builds and ships in operation


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What are the options?

Switch to low sulphur fuel

Use of scrubbers

LNG

Re-deploy fleet away from Baltic's and all other ECAs- But how viable is this in the long-term?


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The sulphur leap in European ECAs

1%July ’10

0,1%January ’15

1,5% Now


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Low sulphur fuel.

Supply of 1,0% fuel seems OK, but what about 0,10%?

Fuel switch- HFO to MGO/MDO- Fuel change over procedures (time, cost, engine risk)

Technical challenges:- Viscosity, flash point- Boiler safety

Lowest Capital Expense (to change) but highest Operational Expense (to maintain in the long run)


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Regular fuel + exhaust cleaning (Scrubber)

Washing of exhaust gas in seawater or high pH solution

Waster purification system, creating sludge

Removal rates: - > 95% of the exhaust SOx, - 40-80% of the particles (PM)

BUT we need to consider a range of hidden extras- Scrubber technology well proven on land, but

limited at sea - 2% fuel penalty- Sludge production and disposal - Integration challenges: SOx scrubbers + NOx

catalysts/SCR- Wash water (Brackish water?). - Energy consumption

Medium high Capex, medium Opex (HFO vs distillate price)


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LNG -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

Relatively high Capex, low Opex

LNG availability - developing bunkering grid in the Baltic Sea, but…?


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LNG – The only solution for both SOx and NOx demands

Baltic Sea- Annual ship emissions:

- SOx: 135 000 tonnes- NOx: 400 000 tonnes- CO2: 19 million tonnes

- Equals all land-based NOx and twice the SOx emissions from Denmark & Sweden combined

When LNG replaces conventional fuels:- Nearly 100% reduction SOx / particle

emissions- 85-90% reduced NOx emissions- Approx 15% net reduction CO2 /GHG

emissions

Reduce the strain on road transport

547 TEU container vessel (5000 GT) Propulsion power 3960 kW

Yearly emissions, tonnes/year

SOx NOx CO2 PM

LNG0 31 5 500 0

Low-sulphur HFO (LS380 with 1% sulphur)

50 180 7 250 4Gothenburg, SWE

Lübeck and Rostock (GER) Gdansk and Gdynia (POL)

Kaliningrad

Klaipeda (LIT)

Tallinn (EST)

Kilpilahti (FIN)


Gothenburg, SWE

Lübeck and Rostock (GER) Gdansk and Gdynia (POL)

Kaliningrad

Klaipeda (LIT)

Tallinn (EST)

Kilpilahti (FIN)



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NOx reduction equals taking 22,000 cars off the road!

Viking Lady’s reduction in NOx emissions compared to diesel operation

LNG fuel

Diesel fuel


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Looking ahead - proposed LNG import terminals

Source: 2010 Google Maps

Proposed LNG Import Terminals

Plant Start-up

Sendout Capacity Country

Lithuania LNG 2010-2013 1,5 mill. tonnes/year

Lithuania

Gävle 2012 Sweden

Oxelösund 2012 Sweden

Estonia LNG 2012-2014 3 mill. tonnes/year Estonia

Wilhelmshaven LNG 2014 7,5 mill. tonnes/year

Germany

Świnoujście LNG 2014 7,5 mill. tonnes/year

Poland


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Conclusion


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Return on Investment

Among the three choices LNG has the lowest life cycle costs for ECA operation

• Applies for a typical general cargo ship

• Assumes 2m Euro investment

• LNG=450 USD in 10 years


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Conclusion … short sea shipping is the obvious start

BUT …

Use of LNG makes good sense … financially and environmentally

But, ship-owners will not invest until LNG fuel supply infrastructure is in place

LNG fuel suppliers will not invest in infrastructure without a large fleet

SO …

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

THEN …

Ship-owners to start ordering new ships running on LNG


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DNV

Trusted by governments, owners, industry and suppliers

Independent 3rd party provider of technical and advisory services

Development partner through whole life-cycle

Ongoing research and development

Thank you


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Safeguarding life, property and the environment

www.dnv.com

24 september 2010 maritime clusters and sss merenduskonverents 2010

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