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1 The Marine industry is experiencing a high level of uncertainty; conversely there is the opportunity for developing new fuel and lubricant technologies. 1

2 Freight rates for 2015 were at an all time low due to a weak global economy. Analysts suggest world fleet capacity could double over the next 20 years, with overcapacity until Asia s importance in global shipping is growing, with 8 of the world s largest ports, the majority being in China. 2

3 In recent years several trends have emerged: The global fleet has increased with new ships using state of the art technology. Gross tonnage is significantly exceeding the number of ships, suggesting that the size of ships is increasing. Diesel engines are still the main marine propulsion system. And heavy fuel oil remains the main bunker fuel for most of the marine industry. 3

4 The OEM market share has been fairly consistent. MAN leads the 2 stroke market... 4

5 And Wärtsilä leads the 4 stroke market. We will watch with interest the Winterthur Gas & Diesel, joint venture of the China State Shipbuilding Corporation and Wärtsilä s 2 stroke engine business. 5

6 We see a fragmented market landscape emerging, as LNG grows in the marine sector. Wärtsilä and Rolls Royce, as first entrants, gained over 50% of the market, although new entrants continue to emerge. 6

7 Sulfur and NOx emissions regulations impact the marine industry. Open sea regulations limit fuel sulfur to 3.5%, though that may decrease to 0.5% in the future. Open sea NOx regulations, will remain at Tier 2 limits for the foreseeable future. In emission control areas or ECAs, the sulfur limit was cut from 1% to 0.1% in January For NOx, since January 2016, Tier 3 limits apply. As ECAs grow, ship owners must adapt to comply with the new tightened limits. 7

8 The 80% reduction in NOx emissions, which started this January, will have a significant impact on the emissions control technology used on ships. A wide variety of solutions are available, which means complexity and cost may increase. Because many of the technology approaches can impact lubricant formulation, co engineering of the hardware and marine lubricant will be increasingly important. 8

9 Sulfur level reductions are also driving significant change. Vessels operating within ECAs, are opting for a single fuel strategy, using either high sulfur residual fuels with an exhaust gas scrubber, or running solely on more expensive low sulfur fuel. Some are adopting a dual fuel strategy switching from high sulfur residual fuel in international waters to low sulfur diesel fuel or liquid natural gas in ECAs. Although there are cost and availability challenges associated with each approach, heavy fuel oil will likely remain the fuel choice for most marine applications. 9

10 Regardless of fuel choice, cylinder oils need to deliver sufficient protection. Higher sulfur fuels require a high base number oil for acid neutralization, while low sulfur fuels, need a base number of 40 or less. A single lubricant approach would be valuable but is increasingly difficult to achieve as sulfur levels continue to fall. One option being introduced is Blend On Board. The system blends in additional additive, tailoring the base numbers from 30 to 120 depending on need. However, some OEMs have concerns about the system s ability to blend finished oils meeting their requirements. 10

11 The drive to cut CO 2 emissions will also intensify. The International Maritime Organization (IMO) reports that shipping accounts for over 3% of global CO 2 emissions annually and it is expected to rise in the coming years. The IMO has introduced measures to reduce CO 2 but lower operating cost is the real driver for OEMs to improve engine, propeller, and hull designs. 11

12 To optimize voyage efficiency, many shipping companies are adopting slow steaming and cutting out of the turbocharger. However, combining them with new engine designs and EGR, can result in cold corrosion of the liners, a particular concern for 2 stroke marine engines. Choosing the correct lubricant is a challenge. While a 100 base number oil may seem right to prevent cold corrosion, other factors including engine type and fuel sulfur level also have an influence. Low sulfur fuel, harsh operating conditions, and slow steaming, require a cylinder oil optimized for acid neutralisation, detergency, and dispersancy. 12

13 In our view, diesel engines running on heavy fuel oil will continue to be the main source of propulsion. As Sulfur and NOx limits tighten, increased use of low sulfur fuels will need new tailored lubricants. As engine design and ship operation change for fuel economy, it is essential a solution is found for cold corrosion. In our view, collaboration will be key to ensure hardware technology and marine lubricant systems are successfully co engineered. 13