container ship update NEWS FROM DNV TO THE CONTAINER SHIP INDUSTRY No

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1 First 2-stroke gas engine taking QUANTUM 1-STROKE FURTHER Trond Giske: NORWAY TAKES THE LEAD ON LNG Stefan Krüger: ENERGY EFFICIENCY DESIGN container ship update NEWS FROM DNV TO THE CONTAINER SHIP INDUSTRY No QUANTUM 9000, 2-STROKE LNG ENGINE

2 CONTENTS First 2-stroke gas engine taking Quantum 1-stroke further Energy Efficiency Design Index consequences for container shipping Norway takes the lead on LNG FIRST 2-STROKE GAS ENGINE TAKING QUANTUM 1-STROKE FURTHER...4 CONCEPT OVERVIEW...6 HULL DESIGN AND ARRANGEMENT...8 HANDLING LNG SAFETY...10 APL KICKS OFF AN AGGRESSIVE CONTAINER NEWBUILDING PROGRAMME...12 COST EFFICIENT AND RELIABLE CONTAINER SHIP OPERATION...14 CONTROLLING BALLAST WATER CONVENTION RISKS...18 ENERGY EFFICIENCY DESIGN INDEX CONSEQUENCES FOR CONTAINER SHIPPING...22 NORWAY TAKES THE LEAD ON LNG...24 LNG OFFERS BEST ECONOMIC PERFORMANCE...26 LNG OFFERS BEST IMPACT ON LOCAL ENVIRONMENT...27 LATEST IMO REGULATORY DEVELOPMENTS RELATING TO GHG, SOX AND NOX EMISSIONS...28 BOXSHIP RATES RESIST THE SEASONAL DOWNTURN...30 container ship update WE WELCOME YOUR THOUGHTS! Published by DNV Global Governance, Market Communications. Editorial committee: Jost Bergmann, Container Ship Segment Director Magne A. Røe, Editor Knut A. Døhlie, Associate Editor Lisbeth Aamodt, Production Design and layout: CoorMedia.com Please direct any enquiries to Online edition of container ship update: DNV (Det Norske Veritas AS) NO-1322 Høvik, Norway Tel: Fax: Det Norske Veritas AS 2 CONTAINER SHIP UPDATE NO

3 EDITORIAL A GAME CHANGER Jost Bergmann Container Ship Segment Director [email protected] How green should your container ship be? How big should it be? Will the new TEU container ships change the business in the future? The world we operate in is changing, but some fundamentals remain the same. The need for cost-efficient design and operation will always be there. The fuel mix may change, and the ship size certainly will. Designers and operators will adapt to the new reality. Once again, we bring you a new concept container ship, but this time it is much closer to present-day reality. The Quantum 9000 employs the new MAN GI LNG dual fuel engine. This is a two-stroke engine, because that is what it takes to propel a modern container ship. That is what the industry is used to. Now it is available for the first time. This update contains many interesting articles about LNG and the operational profile. Design the ship for the speed and deadweight at which they will operate. This may be obvious, but was not always done in the past. Professor Krüger talks about the EEDI and Capt. Tey talks about APL s growth plans. And there is some interesting news about ballast water. Happy reading! CONTAINER SHIP UPDATE NO

4 QUANTUM 9000 First 2-stroke gas engine taking Quantum 1-stroke further MAN/DNV joint press conference in London: By introducing a new solution for LNG-fuelled ships, DNV and MAN Diesel & Turbo are taking the Quantum concept ship one stroke further. Both the machinery and the hull design and arrangement have been improved. TEXT: MAN/DNV Pictures from press conference in London 14 March 2011 A year ago, DNV launched its container ship concept Quantum. This concept ship was designed to stir up a debate about shipping innovation. MAN Diesel & Turbo responded very positively, and over the past few months the engine manufacturer and the class society have worked closely together to move the concept one step nearer to becoming an actual ship. Now DNV is introducing the new Quantum This has been designed to be more efficient and environmentally friendly than existing ships without introducing major complications when the ship is to be built or operated. One of its major improvements is related to the engine. MAN Diesel & Turbo has developed a gas-fuelled two-stroke ME-GI engine. In addition to having dual-fuel engines, Quantum 9000 achieves full fuel flexibility and at the same time meets the upcoming ECA requirements. The ship s energy efficiency is also better than that of conventional existing container ships. Lars Ryberg Juliussen Senior Manager, MAN Diesel & Turbo, is proud of the results presented at a press briefing in London today: By making simple modifications, we have achieved high fuel efficiency, high fuel flexibility and high reliability. The Quantum 9000 introduces LNG to the preferred container ship propulsion system and thus makes LNG more available to container ship owners, he says. In addition to the use of gas, the engine solution includes waste heat recovery to improve the energy efficiency and exhaust gas circulation to reduce the emissions. A number of other improvements have been made possible by adopting a twin island arrangement, such as increased cargo capacity and reduced need for ballast water. Also the improved sightline from the bridge, which contributes to increasing the safety in operation, and the minimum fuel consumption, can be mentioned. The ship s LNG fuel capacity will be similar to that needed to sail from East Asia to the east coast of the US still without any loss of cargo space. Eirik Byklum, DNV s Project Manager, introduced the first version of the Quantum concept vessel a year ago and has been in charge of its second phase too. When we introduced this concept a year ago, we called it a concept ship. And it still is, but by improving the machinery as well as the hull design and arrangement, we have moved it one step closer to becoming a real ship. 4 CONTAINER SHIP UPDATE NO

5 FORECASTLE DECK MAIN DECK POOP DECK QUANTUM 9000 CONTAINER VESSEL QUANTUM 9000 CONCEPT Class: DNV CONTAINER CARRIER NAUTICUS(Newbuilding) E0 DG-P TMON BIS LCS-SI Optional notations: RC-1(1072/131) NAUT-AW CLEAN BWM-T COMF-V3 VIBR F-M B.L. D.B. MAIN PARTICULARS: Length betw. perpendiculars, Lbp m Length overall, Loa m Breadth moulded, B 48.0 m Depth moulded, D 26.4 m Draught moulded, T 15.0 m Design draught, Td 13.5 m Min. design draught at AP 13.5 m Min. design draught at FP 13.5 m Block coefficient, Cb (@Td) 0.58 Waterplane area coefficient, Cwp Deadweight, design Deadweight, scantling Lightship (esimated/preliminary) 81,155 t 98,618 t 34,432 t Design speed 22.0 kn (at design draught, 85% MCR / 15% sea margin) Crew Suez TANK CAPACITIES: Heavy Fuel Oil (HFO) Liquid Natural Gas (LNG) Marine Diesel/Gas Oil (MDO/MGO) Lubricating Oil Fresh Water Ballast Water All oil tanks according to MARPOL Oil Tank Protection Cruising range ENGINE PLANT: Main engine: Propeller: AUX engine/gen Sets : Emergency generator : Bow Thrusters: WHR plant MCR ISO): 4,000 m3 6,500 m3 1,600 m3 16 m3 360 m3 24,728 m3 approx. 16,000 nm MAN 9S80ME-C9.2-GI MCR: 40, rpm Fixed pitch, 4 blades, dia. 10 m 4 x 2,500 kw 1 x 250 1,800 rpm 2 x 2000 kw 2,709 kw CONTAINER STOWAGE: Container capacity (total) 8,708 TEU On deck: 5,570 TEU Below deck (cargo hold): 3,138 TEU Reefer capacity (total) 1,203 FEU On deck: 1,072 FEU Below deck (cargo hold): 131 FEU Rows (max) on deck / in cargo hold 19/17 Tiers (max) on deck / in cargo hold 9/9 Pontoon hatch covers (composite/light weight): Hatch 01C (1x): x m Hatch 02F PS & SB (2x): x m Hatch 02F C 09A C (14x): x m Hatch 02A PS 09A PS (13x): x m Hatch 02A SB 09A SB (13x): x m Stability: 14t/TEU, 8 6 high, 50% HcG 6,539 TEU CONTAINER SHIP UPDATE NO

6 QUANTUM 9000 Concept overview Quantum 9000 has been designed to be more efficient and environmentally friendly than existing ships without introducing major complications in the building and operation of the ship. TEXT: EIRIK BYKLUM, KNUT A. DØHLIE, DNV The new solution for LNG machinery, the ME-GI engine, demonstrates that improvements in both the machinery and hull can be achieved by using existing and wellproven technology. The first Quantum concept study introduced a diesel-electric arrangement with pod propulsion. This is a proven system in the cruise industry, but is new to the container ship market, where a single-screw low-speed two-stroke solution has been the predominant choice for propulsion. Quantum 9000 introduces LNG to the preferred container ship propulsion system, making it more available to container ship owners. Twin island designs are common for bigger ships in the 12-14,000 teu range, while the single island design has been the common solution for the 9,000 teu size. Benefits such as increased container loading and improved vision from the bridge justify a twin island solution for the smaller size ship too. Collisions and groundings are among the most common incidents for container ships. The highlights of the new concept are outlined on the following pages. 6 CONTAINER SHIP UPDATE NO

7 QUANTUM 9000 MAIN FEATURES Gas-fuelled main engine two-stroke ME-GI Dual fuel auxiliary engines Full fuel flexibility (HFO/DFO/LNG) Full ECA compliance (Tier III) Optimised according to the operational profile Improved EEDI Cost-efficient solutions. MACHINERY Efficiency improvements and reduced emissions are obtained with the MAN B&W two-stroke ME-GI gas engine. The benefits are: Simple modifications Conventional engine room Proven performance High fuel efficiency High fuel flexibility High reliability Lars Rydberg Juliussen, MAN Diesel & Turbo CONTAINER SHIP UPDATE NO

8 QUANTUM 9000 Hull design and arrangement TEXT: MAN/DNV The hull design and arrangement have been optimised to allow maximum space utilisation, minimum hull fuel consumption, minimum need for ballast water and increased safety. The main benefits are: Better space utilisation with the twin island solution Greatly improved sightline from the bridge Sufficient LNG capacity without any loss of cargo space Pressurised type-c LNG storage tanks for maximum reliability Reduced need for ballast water Increased ship beam, reduced block coefficient 4-blade propeller optimisation. 8 CONTAINER SHIP UPDATE NO

9 QUANTUM 9000 Eirik Byklum, Business Development Manager, DNV CONTAINER SHIP UPDATE NO

10 LNG SAFETY Handling LNG safety The main safety challenges concerning the use of LNG as fuel are related to the explosion risk, extremely low temperatures and tank location. TEXT: EIRIK BYKLUM, DNV In its liquid form, LNG is neither explosive, corrosive nor toxic. Under atmospheric pressure it will, however, evaporate to form natural gas at temperatures above -162 C. And natural gas is flammable, as are all hydrocarbons and fuels, and explosive. However, natural gas will only ignite when mixed with air in a ratio of 5%-15% and at a temperature of above 500 C (in an airfuel mixture of about 10% methane in air, the auto ignition temperature is approximately 540 C, while the auto ignition temperature for diesel oil is in the range of 260 C to 371 C). LNG will be very cold if released, and may thus have a higher density than air even after evaporation. However, at approximately -110 C it becomes buoyant. At ambient temperatures, natural gas has a specific gravity of about 0.6, which means that natural gas vapours are much lighter than air and will rise quickly. While the high density at low temperatures increases the risk of gas being trapped, the high ignition temperature and limited flammability range show that natural gas is actually not that easy to ignite and that good design can overcome many risk factors. When skin touches an extremely cold body or LNG, heat is transferred from the skin and organs to the cold body or LNG. This will cause damage to the skin and underlying tissues. The normal functioning of the body may be disturbed by the cooling of internal organs, which will lead to a critical condition called hypo thermia. The cooling of the brain or heart is very dangerous. Proper procedures and the use of protective clothing and equipment to prevent any contact with the LNG are hence imperative. However, the extremely low temperatures are not only hazardous to people. While stainless steel will remain ductile, carbon steel and low alloy steel will become brittle and fractures are likely if they are exposed to such low temperatures. Standard ship steel must therefore be protected and insulated from any possible exposure to LNG. LNG storage tanks may be located above or below deck. The tank must be at least the lesser of B/5 or 11.5 m from the ship side and never less than 760 mm from the ship bottom. If the tank is above deck, A-60 insulation towards the accommodation, service stations, cargo spaces and machinery spaces is required, and a drip tray below the LNG tank is required if the tank has connections below the liquid level. Further, a water spray system is to be fitted, covering exposed parts of storage tanks, for cooling and fire prevention purposes. For tanks located below deck, the maximum allowable pressure is 10 bar. In addition, a secondary barrier is required around the LNG tank, built in stainless steel or an equi valent low-temperatureresistant material and designed to withstand maximum pressure build up. COLLISION RISK It is generally assumed that LNG-fuelled vessels can be designed in such a way that the LNG tank is not damaged by a collision. This may be a technological design challenge, but the consequences of a ship collision are not expected to impact the overall risk picture. Large gas carriers typically have a distance of between 2 m and 4 m from the outer shell to cargo. These will resist high energy collisions without any loss of cargo containment. Only a 90 side-on collision with a fully loaded very large oil tanker (VLCC) is considered to have a release of LNG as a likely outcome. It is therefore considered feasible to construct, locate and protect fuel tanks on LNG-fuelled container vessels in order to achieve a sufficiently low risk level. HAZID FOR LNG IN CONTAINER SHIPS The aspects listed below are potential hazards that should be evaluated and taken into account when designing an LNGfuelled vessel. Fire/explosion due to the ignition of gas leakage in the: LNG bunkering station/system Cold box/tank room Gas Regulation Unit (GRU) room Gas engines (incl. piping) Vaporizer Exhaust system Vent pipe Fire/explosion in other areas/systems escalating to the LNG system Leakage of liquid LNG causing loss of structural integrity/brittle fracture of structures Asphyxiation due to the lack of oxygen in the case of a release of LNG/gas in an enclosed or semi-enclosed area Human contact with surfaces or substances at extremely low temperatures Very high energy collisions may cause damage to the LNG/gas containment system and, in the most extreme cases, also to the LNG tank COLLISION STATISTICS, RISK ASSESSMENT During the 41-year period from 1970 to 2010, more than 71,500 vessel 10 CONTAINER SHIP UPDATE NO

11 LNG SAFETY 0,02 0,015 0,01 0,005 Top view Side view B Number of collisions per vessel year Gas tank Collisions Trend Min. the lesser of B/5 and 11.5 m Never less than 760 mm Min. the lesser of B/5 and 2 m Never less than 760 mm years were registered in IHS Fairplay. The fleet increased from some 200 vessels in 1970 to almost 5,000 vessels in collisions were registered, of which 493 occurred during the last 20 years and 350 during the last 10 years. Eight accidents were registered as fatal, of which three occurred during the last 10 years. As can be seen from the figure, an average of approximately one collision occurs per 100 vessel years. Since the turn of the millennium, there has only been one collision that has led to a total loss. However, even though the 29-year-old vessel was severely damaged and it was not considered economically feasible to repair it, it remained afloat and the structural damage would not have impaired a possible LNG tank or gas fuel system. A review of reported collisions involving container vessels showed that in 60% of cases the container vessel was the striking vessel, while it was hit in only 40% of cases. A simple geometrical evaluation indicates that the probability of a striking ship hitting a container vessel in the area where a LNG tank might be located is less than 10%, and probably not more than 5%. For the striking vessel to have the potential to penetrate so extensively into the hull of the other vessel so as to represent a threat to a possible LNG tank, it must hit at an angle close to 90, probably within +/- 15 and at least within +/- 30. Hence, even without taking the size and speed of the hitting vessel, or the structural resistance of the hull and LNG tank of the struck vessel, into account, the frequency of potentially hazardous collisions related to a possible LNG system is well below once in 10,000 vessel years. CONTAINER SHIP UPDATE NO

12 APL APL kicks off an aggressive container newbuilding programme We need to speed up the growth of our fleet to maintain a strong position in the container market, says Captain Tey Yoh Huat, APL s Vice President, Technical Services, in an interview with Container Update. The Singapore-based global container operator announced it had ordered a series of newbuildings in Fleet growth is necessary to keep up with the market. Economy of scale is crucial in this business, says Captain Tey. TEXT: TORE HØIFØDT, DNV Quality operations and reliability are a must. All our suppliers, including class, must be aware of this fact and provide their services to support our business model. Captain Tey Yoh Huat, APL s Vice President, Technical Services 12 CONTAINER SHIP UPDATE NO

13 APL APL is a wholly owned subsidiary of Singapore-based Neptune Orient Line, a global transportation and logistics company engaged in shipping and related business. APL operates its fleet of container vessels with a staff of 4,000 and more than 200 offices worldwide. Container vessels are continuously getting larger do you see a size limit? Such a limit exists only in our imagination. There are already concepts for a 24,000 TEU container vessel. Whether or not such a project will materialise is too early to say. The important consideration is to realise that such huge vessels are commercially viable. We have to manage the logistics flow. Ports and terminals have to be able to handle such vessels efficiently, says Captain Tey. There are clear advantages with ultra large vessels. You get economy of scale. You also reduce the emissions to air per container transported. But you also have operational limitations that need to be overcome, he says. For meeting the environmental challenges, do you consider LNG a fuel for the future? Other industries are shifting to cleaner fuels. The general public expects shipping to make the same shift. Scrubbers and other means to clean emissions are necessary for the current heavy fuel oil usage. Therefore we have to put more effort into the search for cheaper and cleaner fuels. Here LNG will quickly play an important part in the energy mix, says Captain Tey. Large gas discoveries are being made, ensuring the availability of LNG. CO2 emissions drop by 20% when LNG is used. Other pollutants are reduced by close to 100%. We are talking to MAN and others to assess the applicability of LNG as fuel. What is clear is that an immediate shift to LNG is not possible. The bunkering infrastructure is not there. It takes time before the supply of LNG can be ensured. We need to take things step by step, says Captain Tey. To reduce energy consumption, do you favour slow steaming? Slow steaming reduces the fuel consumption straight away and has the immediate effect of reducing carbon emissions. This reduces overall total emissions, including SOx, NOx, CO2 and particulate matter. This is the most effective way to cut emissions without resorting to expensive counter measures, says Captain Tey. However, we still need to find a clean, renewable and cheap way of reducing energy consumption in the longer term. Is quality a competitive advantage in your shipping operations? Poor quality is not an option, Captain Tey answers. Customers expect and demand arrivals on the hour. We are part of a complex logistics chain, and disruptions create huge problems. Quality operations and reliability are a must. All our suppliers, including class, must be aware of this fact and provide their services to support our business model. Quality operations and reliability are a must. All our suppliers, including class, must be aware of this fact and provide their services to support our business model. What are the main contributions you expect from classification societies? Class needs to find its identity. It is entering into a new role due to the developments in shipping. Class should be the research arm of the shipping companies. We need the classification societies expertise to explore ways of designing, building and operating vessels in an optimal manner. That does not necessarily mean to the highest standard. The policing role is still there, and it is an important one. But we would like to see more solutions coming from the classification societies. Too much of their mindset is still anchored in the policing role. I can see a lot of room for change here, concludes Captain Tey. CONTAINER SHIP UPDATE NO

14 HULL PMS Cost efficient and reliable container ship operation How can class contribute to cost-efficient and reliable container ship operation? It is about sharing knowledge, making it available to seagoing officers and helping the company to better look after the ship s hull and structure. DNV is now introducing a new survey arrangement for container ships. It is based on the experience gained from running pilot schemes with two highly reputable container ship managers for seven years. TEXT: KNUT A. DØHLIE, DNV ASSET MANAGEMENT An operational hull planned maintenance system will improve asset management and give more predictable maintenance costs. Improved cooperation with class comes as an added benefit. Frequent inspections mean that potential problems may be discovered at an early stage. The inspections can be carried out when time allows and compartments are available. Trained sea-going officers with well established programmes and visual inspection manuals could conduct the inspections during long sea passages. A working record-keeping system containing photographs and acceptance criteria is a necessary feature. Good recordkeeping and documentation on board empowers the personnel to take responsibility. The management office keeps the cross-fleet overview revealing fleet trends and sister ship experience. The proactive role taken through Hull PMS. Identification of potential problems provide an opportunity to take necessary actions at an early stage. When following the traditional survey arrangement, problems are identified at a later stage. 14 CONTAINER SHIP UPDATE NO

15 HULL PMS HULL PMS DNV is introducing a new survey arrangement called HULL PMS (hull planned maintenance system) Now DNV surveyors can make use of the inspection results and documentation that ship managers keep on board. Surveyors can adjust their inspection scope to take account of the work already done by ship managers. Surveyors can focus more on problem-solving than on verifying good conditions. Sea-going officers inspect as planned and agreed with DNV DNV is putting emphasis on the proactive role reducing the risk of potential problems, rather than on dealing with problems that have already occurred. This enables better planning of and budgeting for ship maintenance. Where to look - identification of critical structural details by visual means. AREAS OF ATTENTION Inspectors need to know what they are looking for. DNV has experience of ships built to all class standards through class transfers of ships built to other class societies standards. Typical defects and critical areas are identified and updated and included in an inspection manual, thus providing guidance to inspectors. Side shell fatigue can be an issue for older container ships. Fatigue cracks develop over time, depending on the design details and ship operations. The expected fatigue life can be calculated and provide guidance on inspection frequency. The timely discovery of fatigue cracks will reduce the risk of more comprehensive repairs and unscheduled off-hire. The cracks can be repaired by fitting brackets according to calculated design modifications. A ship was transferred to DNV class with side shell fatigue crack problems about 4½ years after delivery, before the first class renewal survey. The problem was minimised as DNV and the manager had DNV shares its experience of container ships in operation built to different class societies standards by identifying critical areas. co-operated on a hull PMS system, with DNV being involved at once in providing a solution. Two well known container ship managers have operated hull PMS pilot schemes in co-operation with DNV for more than 5 years. Our new survey arrangement is based on and incorporates this experience. CONTAINER SHIP UPDATE NO

16 HULL PMS VISUAL INSPECTION MANUALS Knowing where to look and what to look for can help to find defects at an early stage. Sea-going officers are not naval architects and need effective guidance in inspecting a ship s structural integrity. DNV prepares inspection manuals to make this guidance available on the job in a handy format and with a protective cover. The manual may be prepared ship specific. The manuals are visual, using photos and structural drawings together with 3D computer models. An inspection is about finding potential problems. The officers on board can perform inspections. Only the DNV surveyor can perform surveys, which consist of inspections and an assessment of the findings against DNV rules and acceptance criteria. A 24/7 support service is provided by the DNV experts at our head office. Problems can be submitted by from ship officers (or the management office) and advice can be given by return to the people on board. A docking planning document that incorporates the results from the last class period will be prepared to assist the manager during dockings. (11) 1 CALCUATED FATIGUE LIFE (YEARS) (14) W.B.T 3 4 < > 30 (14) (13) (14) (14) 20 (13) 9 (11) (13) 23 (36) (36) (20) (36) 1 2 (36) (12) W.B.T F.O.T (14) (15) (36) (20) (14) (14) (14) Lars Rydberg Juliussen, MAN Diesel & Turbo (middle) (21) (20) (18) Fatigue life calculation of a container ship. Note the side shell fatigue life which may be less than required, as indicated by red markers (16) 16 CONTAINER SHIP UPDATE NO

17 HULL PMS TRAINING BY DNV The training of sea-going and office personnel is provided by DNV. This can be arranged at the manager s premises as 1-2 days of classroom training covering such topics as The planning and execution of effective inspections Areas of attention and typical defects on container ships Corrosion and how to assess it Acceptance criteria Photos as a means of reporting Effective reporting IT-based training programmes are available and continuously being developed. Content of the hull inspection manual a useful tool when carrying out self-inspections. REPORTING TOOLS Fully fledged IT-based reporting and maintenance tools are available from DNV but are not a prerequisite for the Hull PMS survey arrangement. A simplified spreadsheet reporting tool is available from DNV and is being successfully used by managers. This may serve as a starting point for companies that are new to hull planned maintenance systems. Classroom course in Mumbai DNV training ship officers. CONTAINER SHIP UPDATE NO

18 BALLAST WATER TREATMENT Controlling ballast water convention risks The International Convention for the Control and Management of Ships Ballast Water and Sediments is one of the most significant environmental and operational challenges faced by the maritime industry today. Once it enters into force, the Convention will require compliance by all ships and offshore structures designed to carry ballast water, regardless of their age or size. TEXT: SOFIA FÜRSTENBERG, VEBJØRN J. GUTTORMSEN, DNV As the ratification process draws to a close, the Convention is receiving increased attention from the entire shipping industry. With Malaysia ratifying the Convention in late September 2010, the Convention has now been ratified by 27 states representing over 25% of the world s tonnage. Only three more signatory states and another 10% of world tonnage are needed for the Convention to enter into force. The ratification criteria are expected to be met by the end of 2011 or early in 2012, with entry into force one year later TIMELY INVESTMENT With an estimated investment of USD 1-3 million in new and to a large extent unproven technology, ship owners are concerned about the timing of the investment, how to ensure sufficient yard capacity for the retrofit boom expected in the next five to ten years, and how to select the most feasible and robust technology. Many owners and operators have adopted a wait and see approach since the entry into force of the Convention has not appeared imminent. However, due to the complexity of these systems and the fact that the Convention will have retroactive validity, it is important that owners start their planning process Vessels constructed from 2009 to 2011 (greater than 5,000 cubic metres) Existing vessels (less than 5,000 cubic metres) Existing vessels (between 1,500 and 5,000 cubic metres) now in order to comply with the IMO implementation schedule. As a minimum, owners should ensure that new vessels facilitate an easy retrofit of the required treatment systems when the Convention comes into force. Newly constructed vessels (greater than 5,000 cubic metres) Newly constructed vessels (less than 5,000 cubic metres) Figure 1: Estimated number of vessels required to install ballast water treatment system based on data submitted by Japan to MEPC 61. MANAGING THE RETROFIT BOOM The Japanese delegation at MEPC 61 stated that more than 70,000 type-approved ballast water treatment systems will have to be installed on ships by According to these projections and during the most 18 CONTAINER SHIP UPDATE NO

19 BALLAST WATER TREATMENT critical period, , over 40,000 ships will need to install an approved treatment system. This amounts to an average daily installation rate of over 40 systems. A study conducted by Frost & Sullivan shows that cumulative investments of more than USD 30 billion in ballast water treatment systems are expected during this decade. Such an implementation rate is unlikely. The number of system suppliers is still perceived to be fairly limited and the shipyard capacity is limited. Furthermore, the situation may be even more challenging for ships with a special design or unconventional ballast systems, such as heavy lifts, semi-submersibles, barges and supply ships. The treatment system suppliers may not be able to cater for such specific design requirements. DNV recommends early negotiations with yards and manufacturers to prepare for a retrofit. Yards can also provide insight into specific feasibility issues, and thus be helpful in the planning process. AVOIDING COSTLY FEASIBILITY ADAP- TATIONS With more than ten systems now available in the market and ratification of the Convention awaiting, ship owners have the opportunity to evaluate how these systems manage to meet specific feasibility requirements before the Convention enters into force. The minimum treatment efficiency required by IMO is outlined in the so-called D-2 standard, compliance with which often necessitates both physical and chemical treatment. Although the IMO standard is challenging, the USCG has proposed even more stringent requirements which are causing confusion and concern in the market. The result is an increased risk of having noncompliant treatment systems when operating in US waters. Although type approval is necessary for compliance with the Convention, such approval is no guarantee that the treatment system meets the ship-specific needs. The challenges are particularly pertinent in the case of retrofits. Due to the very limited space available, restrictions on the electrical load and the complex integration of control systems, careful selection of the treatment system is crucial. DNV often encounters sub-optimal Ballast Water Management Plans which further add to the challenges of implementing treatment systems. Depending on the ship s trading route, other feasibility issues may arise. Tests indicate that a system using electrolysis may not be as efficient in brackish or fresh water. UV systems may need increased maintenance when operating in river water and certain filters may have a higher incidence of clogging in icy or muddy water. Operational experience is necessary to completely overcome feasibility limitations, as is the case for all new technologies. At present, major barriers to dealing effectively with the huge quantities of ballast water needed for ships such as bulk carriers and tankers still exist in scaling treatment technologies. In February 2011, the IMO Sub-Committee on Bulk Liquids and Gases (BLG) agreed on guidelines for scaling type-approved ballast water treatment systems. These guidelines, prepared by DNV and submitted through the Norwegian and German Administrations, are important for ship owners to check whether treatment systems scaled up to meet higher flow rates have been tested on board and proven to be efficient from not only a biological, but also an environmental and safety viewpoint. The guidelines will be published as a circular if MEPC agrees to them during the July 2011 session. Due to the significant investment required in a ballast water treatment system, suppliers need to know that long-term global support will be provided. As the ballast water treatment market is only in its infancy and awaiting further ratification of CONTAINER SHIP UPDATE NO

20 BALLAST WATER TREATMENT Figure 2: Rating of different ballast water treatment systems based on owners requirements. the Convention, there is an apparent risk that some system suppliers may be forced to leave the market in a few years time. Some suppliers might also specialise in the retrofit market only. HOW CAN DNV HELP? Careful selection of a treatment system is important in order to meet specific feasibility requirements, such as space constraints, electrical load limitations, the integration of control systems, etc. The uncertainties regarding when the Ballast Water Convention will enter into force still exist, and the risks relating to the implementation of treatment systems are many and complex. A treatment system that is optimal for one vessel may not be the best solution for another. Cost and technical feasibility are normally the most important issues to be evaluated. However, it is also important to gain insight into the manufacturer s commercial reliability, the support network and the quality of supply capabilities. As advisors to the shipping industry, DNV has assessed these risks and developed decision-support services to help ship owners select the right systems for their ships. Vital system requirements are identified in a workshop with the owner and several treatment systems are determined to be relevant for the owner s ship(s). Each system is then evaluated based on how they meet the owner s requirements, and a total score is presented in a spider diagram as shown in the figure above. This effectively visualizes each system s benefits and flaws, and will form the basis for more in-depth feasibility studies on the selected systems. EXEMPTION FROM THE REGULATIONS The Ballast Water Convention stipulates that a flag state may grant exemptions to the Convention s requirements for a vessel on a voyage or voyages between specified ports or locations where risk assessments according to certain guidelines show that the risk of invasive species is sufficiently low. Such exemptions are effective for a period of no more than five years and subject to intermediate review. DNV Advisory Services can conduct the risk assessments necessary for such an exemption. THE NEXT LEVEL OF INNOVATION Many ballast-technology manufacturers are preparing for the introduction of 2nd and 3rd generations of their treatment systems, offering systems with lower energy demand, less need for maintenance or a smaller footprint. At the same time, an increasing number of innovative ballast-free ship designs are being presented, such as DNV s Quantum and Triality concepts. DNV has a strong position in the market and expertise in ballast water management and type approval of treatment technologies. DNV undertakes type approval on behalf of flag states, supports installation-related issues like approval, design review and certification, and also actively participates in various decision-making forums, such as IMO and IACS. In 2010, DNV was the first classification society to publish Newbuilding Rules that include requirements for vessels to comply with the International Convention for the Control and Management of Ships Ballast Water and Sediments. 20 CONTAINER SHIP UPDATE NO

21 BALLAST WATER TREATMENT The introduction of invasive marine species into new environments by ships ballast water has been identified as one of the four greatest threats to the world s oceans. In 2004, IMO adopted the International Convention for the Control and Management of Ships Ballast Water and Sediments. The Convention will enter into force 12 months after it has been ratified by 30 states representing 35 per cent of the world s merchant shipping tonnage. At the time of writing, 27 states representing more than 25% of the world s tonnage have ratified the Convention. The Convention will apply to all ships and offshore structures that carry ballast water and are engaged in international voyages. The Convention stipulates two standards for discharged ballast water. The D-1 standard covers ballast water exchange while the D-2 standard covers ballast water treatment. Depending on the ship s date of construction and ballast water capacity, D-1 will be phased out and replaced by D-2 as shown in the table below. Table 1 Dates of entry into force of the Ballast Water Management Convention BALLAST WATER CAPACITY DATE OF CONSTRUCTION OF SHIP 4, 5 BEFORE OR LATER 2012 OR LATER < 1500 m³ Ballast water exchange or treatment until Ballast water treatment only after m³ Ballast water exchange or treatment until Ballast water treatment only after Ballast water exchange or treatment until Ballast water treatment only from Ballast water exchange or treatment until Ballast water treatment only from Ballast water treatment Ballast water treatment > 5000 m³ Ballast water exchange or treatment until Ballast water treatment only after Ballast water exchange or treatment until Ballast water treatment only after Ballast water treatment 1 The ship shall conduct Ballast Water Management that at least meets the standard described in Regulation D-2 (i.e. treatment) not later than the first intermediate or renewal survey, whichever occurs first, after the anniversary date of delivery of the ship in The ship shall conduct Ballast Water Management that at least meets the standard described in Regulation D-2 (i.e. treatment) not later than the first intermediate or renewal survey, whichever occurs first, after the anniversary date of delivery of the ship in The ship shall conduct Ballast Water Management that at least meets the standard described in Regulation D-2 (i.e. treatment) not later than the second annual survey, but not later than 31 December Constructed in respect of a ship means a stage of construction where:.1 the keel is laid; or.2 construction identifiable with the specific ship begins; or.3 assembly of the ship has commenced comprising at least 50 tonnes or 1 percent of the estimated mass of all structural material, whichever is less; or.4 the ship undergoes a major conversion. 5 Major conversion means a conversion of a ship:.1 which changes its ballast water carrying capacity by 15 percent or greater, or.2 which changes the ship type, or.3 which, in the opinion of the Administration, is projected to prolong its life by ten years or more, or.4 which results in modifications to its ballast water system other than component replacement in-kind. Conversion of a ship to meet the provisions of regulation D-1 shall not be deemed to constitute a major conversion for the purpose of this Annex. CONTAINER SHIP UPDATE NO

22 EEDI Energy Efficiency Design Index consequences for container shipping The IMO Energy Efficiency Design Index is a benchmarking scheme and an indication of a merchant ship s CO2 output in relation to its value for society. This is one of the first steps of IMO s technical measures to reduce CO2 emissions from shipping. The EEDI compares compares theoretical CO2 emissions and transport work of a vessel and will eventually be benchmarked against an IMO-set requirement. Prof. Dr-Ing. Stefan Krüger is chairman of DNV s German Technical Committee. We asked him about his views on EEDI. TEXT: MAGNE A. RØE, DNV What are the consequences of implementing EEDI for the container ship industry in general terms. EEDI will result in a significant reduction in the installable main engine power. Therefore, EEDI is in principle a hidden speed limit. At present, larger ships seem less affected but, as further reductions in the permissible EEDI (baseline values) are being discussed, it is to be expected that EEDI will in future also significantly limit the permissible main engine power of the larger container vessels. This development leaves future newbuildings at a competitive disadvantage, as EEDI is to be applied to newbuildings only. Expanding on the question above, what are the consequences for the large ocean-going container ships from some 7,000 teu and up? What about the ships made for short sea shipping, feeder container ships? The larger container vessels operate on long routes and have more potential for speed reduction than feeder vessels. The impact of EEDI is proving to be more significant for smaller ship sizes, which brings regular service schedules in short sea shipping into conflict with significant speed reductions. Is reduced engine power the only way to comply with EEDI? As a matter of fact: yes. We have proven by theoretical investigations that the effect of commonly used technical optimisations on the EEDI value is very limited or nonexistent. The only way to influence EEDI is through technologies which reduce the carbon footprint of primary energy generation, such as LNG, WHR or Sails. What are the safety issues of less power vs demands for ship speed in, for instance, rough weather conditions? We have investigated this issue in depth and found out that, for some ship types, EEDI will result in underpowered ships. But this will soon not hold for container vessels. However, the question remains - how far can the permissible EEDI values be lowered before container vessels also become underpowered. If the power and speed are reduced, more ships are needed in the logistics chain to transport the same number of containers. What will be the net effect on carbon emissions as you see it? This is difficult to answer. Again we have to distinguish between short sea shipping and ocean-going services. In short sea shipping, more ships are not an alternative. And, as EEDI only applies to newbuildings, a reduction of carbon emissions is questionable anyway because the alternative is always to continue operating existing vessels, as they are more competitive with respect to speed. This will only change when fuel becomes expensive enough. What are the critical issues to focus on when ordering a new ship? This strongly depends on the initial situation: if a large newbuilding is being ordered, most probably nothing will happen because most of the larger ships have no problems with the existing EEDI baselines. For smaller ships, the situation is different. The selection of a proper full scantling draft will be most efficient for these ships, as the related deadweight has by far the largest impact on the EEDI value. For this draft, the ship will be optimised to get the highest possible speed and installable power. We can expect to see a lot of so-called paragraph designs. A cost-benefit analysis of EEDI vs emissions, safety and investments for the container ship owners? 22 CONTAINER SHIP UPDATE NO

23 EEDI Prof. Dr.-Ing. Stefan Krüger, Head of Department, Institute of Ship Design and Ship Safety. I cannot see any real benefit for the owners as we will, according to my understanding, see more paragraph ships because the opportunities to cope with EEDI on a technical basis are very limited. It is further to be expected that future newbuildings will be benchmarked on the basis of the attained EEDI value, which is more or less a benchmark of the designer s ability to struggle with the paragraphs. All this does not make the owner s business any easier. Generally speaking, bigger ships equal more power and more speed. Smaller ships mean less power and perhaps less profitable operations. Will EEDI potentially change the entire logistics chain for seaborne container feeder traffic? Related to question 2 above. This is not necessarily the case. In fact, some larger ships utilise less power than smaller ships. This only depends on the regression results for the ship-type dependent base line. However, for container vessels the results are such that larger ships can indeed have more power installed compared to smaller vessels, and the values are such that larger vessels seem to be unaffected. However, we cannot access all ports with big ships, and that means it can be asked whether the present EEDI approaches punish certain transport tasks. Can ship owners buy CO2 certificate quotas instead of implementing EEDI measures and will this really have a positive impact on global CO2 emissions? Any development that replaces EEDI with an instrument which directly measures fuel consumption (or related emissions) is to be recommended from my point of view. But I am not sure whether the door is open for such developments. In view of other global activities within the maritime cluster how effective is EEDI and how does it complement other initiatives to reduce CO2 emissions? In your view, will it be productive, neutral or counterproductive? What are the alternatives? EEDI will not contribute to a measurable CO2 reduction. This is for two reasons: first, it only affects newbuildings, which are a small part of the existing fleet. Second, the big CO2 polluters will remain more or less unaffected and the small ships will be punished, which in total will have no effect on global CO2 emissions. And the world fleet is still growing, leaving us with increased emissions every year. To me, the only alternative is measures which increase the fuel price significantly, but this must be on a fair international basis. And I do not see any such kind of developments taking place. CONTAINER SHIP UPDATE NO

24 NORWAY TAKES THE LEAD ON LNG Norway takes the lead on LNG Trond Giske, Minister of Trade and Industry What has helped Norway the most to achieve its position as the leader in the LNG shipping sector? We are leaders in the LNG field today because of our maritime industry. It is adaptable and has a high level of expertise and a clearly green profile. In addition, the government s maritime strategy entitled Steady Course contains several measures which have encouraged the increasing use of LNG in the maritime sector. We have also stipulated requirements as to the use of natural gas when inviting tenders for highway ferry services. This has resulted in 10 LNG-fuelled ferries now sailing several ferry stretches. The NOx fund is also an important tool for reducing the maritime sector s nitrogen oxide emissions. The use of LNG is an important means to reach our emissions target. Negotiations are currently being held on a continuation of the Norwegian Environmental Agreement and the NOx Fund. In addition, several of the schemes run by the Research Council of Norway and Innovation Norway can provide support to projects linked to the use of LNG in the maritime sector. The efforts of both the authorities and industry have contributed to Norway s current position in this field. Several players, including DNV, contributed to the Fellowship project which conducted research into the use of fuel cells and LNG in the maritime sector. The research environment in Trondheim also has an important role to play in this context. Marintek- SINTEF and the Norwegian University of Science and Technology have conducted research for several years and are world leaders in this area. How important is it for Norway to be a pioneering nation when it comes to cleaner, more environmentally friendly shipping? Our maritime strategy s main goal is for Norway to be a world leading maritime nation that delivers the most innovative and environmentally friendly solutions for the future. One tool in these efforts is the increased use of LNG in shipping. It is important to make it clear that the work of creating an environmentally friendly shipping industry in Norway is about more than just LNG. The International Maritime Organisation (IMO), the UN body responsible for measures to, among other things, prevent marine pollution, also does important work. In such a global industry, global environmental solutions are required and the further work in the IMO will be a priority for Norway. What opportunities arise for Norway and Norwegian industry due to the country s leading position in gas operations? This opens up opportunities for a wide range of companies in the Norwegian maritime cluster. We have a lot of experience in this area through our classification societies, engine manufacturers, shipbuilders, natural gas distributors, shipping companies and research work. We can show the rest of the world that the technical solutions relating to LNG operations are well developed and have been tested out during many years of operation. The transition to an increased use of LNG as fuel will not only represent considerable business opportunities for the Norwegian maritime industry, it will also provide a new market for Norwegian gas. As from 2015, the North European waters will be an ECA (Emission Control Area), which means that the sulphur content of a ship s bunkers must be 0.1% (down from the present 1.0%). LNG seems to be the obvious solution. What will be done in Norway to arrange for an LNG infrastructure? Will Norway be a driving force in relation to the EU and rest of the world? LNG (Liquefied Natural Gas) as a ship fuel is an environmentally friendly alternative that can contribute to more sustainable growth for the shipping industry. This is a form of transport that is expected to increase in the future and will lead to reduced emissions of climate gases, SOx, NOx and particulate matter. The use of LNG as a fuel removes all emissions of sulphur and particulate matter. In addition, NOx emissions are reduced by 90% and CO2 emissions are cut by 15-20%. This is why we regard it as important to promote the increased use of LNG. However, challenges related to availability and price remain to be overcome in order to increase the use of LNG in local shipping. This is a chicken and egg problem, in that distributors do not want to develop a supply network until there is a demand from shipping, and vice versa. In Norway, the national budget allocates funds to Enova for running a support scheme to establish a natural gas infrastructure. These funds are intended to realise the goal of an increased use of natural gas in Norway, with particular emphasis on contributing to a change-over from heavier fuels to natural gas in the manufacturing industry and in shipping and other transport industries. In order to achieve a critical mass for the use and distribution of LNG, 24 CONTAINER SHIP UPDATE NO

25 NORWAY TAKES THE LEAD ON LNG THE GOVERNMENT shipping. We have helped to finance an opportunities study involving several EU countries that will look into the distribution of LNG for maritime use around the North Sea and Baltic Sea. As part of this project, Fjordline will later take part in a pilot project with its dual fuel ferries (both conventional and LNG-operated) on the route between Norway and Denmark. DNV launched a research project called Container Ship for the Future earlier this year, and launched a similar project relating to large tankers last week. Both solutions are based on LNG as fuel. DNV is becoming a leading international player in the field of LNG. What are Mr Giske s views on this and how can this be utilised by the Norwegian shipping cluster in an international perspective? Trond Giske, Norwegian Minister of Trade and Industry. Photo: Henrik Kreilisheim international measures are required. In both bilateral and multilateral meetings with our international contacts, we give priority to promoting LNG in local shipping. This is very positively received and confirms the dawning international interest in maritime natural gas. As part of Norway s chairmanship of the Council of the Baltic Sea States (CBSS), Norway chairs the Expert Group on Maritime Policy (EGMP). During this period, until June 2011, sustainable shipping in the Baltic Sea region will be an important area of focus. In March, the Norwegian Ministry of Trade and Industry is planning to hold a seminar in Oslo to discuss LNG in shipping in this region, and an important goal here will be to increase the knowledge about and create synergy effects between various measures in the countries in this region. The EU also has an increasing focus on this area and its Baltic Sea strategy includes several projects linked to LNG in DNV plays an extremely important role when it comes to strengthening the expertise of both the industry and authorities when they are considering the use of LNG in the maritime industry. Sea-Cargo s new cargo ships for local shipping, which will start to operate in 2011, are the first vessels to be introduced based on purely commercial considerations. It is only a question of time before this applies to tankers and other maritime transport segments. In this way, DNV s projects in these areas will be an important contribution to shipping companies strategic choices. There is also still a need to develop international standards and regulations for the construction, modification and operation of LNG ships and for LNG bunkering for both the transfer of fuel and operation of bunkering stations. Here, too, DNV will play an important role as a company with expertise and a classification society. CONTAINER SHIP UPDATE NO

26 GREENER SHIPPING IN NORTH AMERICA LNG offers best economic performance DNV has established economic models for the above mentioned three solutions for meeting the ECA requirements. These models were developed for comparing the three different ECA abatement measures, hence only differential costs between low sulphur fuel, scrubbers and LNG fuel are included. Revenue is not included in the models. An example calculation is presented here for a typical general cargo ship of approximately 2,700 gross tonnes, 3,300 kw main engine and 5,250 yearly sailing hours. New ships with LNG propulsion typically have an added investment cost of 10 20%. The additional cost is mainly due to the sophisticated LNG storage tanks, the fuel piping system and in some cases a slightly larger ship. Based on experience from ships built and currently under construction, the additional investment cost for the LNG fuelled general cargo ship mentioned above has been estimated to USD 3.6 million. There is little experience and limited available information on scrubber installation costs, but DNV believes a realistic estimate to be around USD 1 million for this particular engine size. Investment costs for changing to Million USD MGO HFO + Scrubber LNG Present value of costs over 20 years relative to conventional fuel MGO will in general be small compared to LNG propulsion or scrubbers, and has been considered negligible in the analysis. DNV s fuel price estimates are based on bunker statistics and projections for MGO and MDO and on long-term contract prices plus distribution mark-up for LNG fuel. In a 20 year perspective, which would be a conservative lifetime for a ship, it is estimated that the LNG solution has the lowest present value of costs with USD 4 million less than the scrubber option and USD 12 million less than the MGO option. In general, the economic advantage of LNG fuel is strengthened with increasing fuel consumption. Note that the ship presented above had a relatively small engine and a modest number of sailing hours, and still the LNG fuel option was found most cost efficient. Including possible future taxes on emissions such as NOx and CO2 further benefits the LNG case. For sailing ships the assessment of course is more uncertain than for newbuilds, this is due to higher costs related to conversion, and in many cases more difficult to fit the fuel tanks onboard. What will be the best solution for ECA compliance for existing ships is therefore very dependent on ship type, size, and age. «With projected fuel pricing, economic calculations strongly favour LNG» SENSITIVE PARAMETERS TO THE ECONOMIC ANALYSIS Fuel price Currently there is significant variation in the LNG price between various geographic regions dollars per million Btu Thanks to the surge in shale gas availability, 25 North America has the lowest natural gas price, with Henry Hub trading below 5 USD/mmbtu. For 20 comparison, crude oil is currently trading closer to 20 USD/mmbtu. 15 As for the future development of these prices, the US Energy Information Administration forecasts the disparity to be maintained, and even widen in the future. In order to accommodate for uncertainty in the prices, and also downstream 10 5 Crude oil Natural gas distribution, DNV has used significantly higher LNG prices in the economic comparisons presented in this report. Investment cost The added investment cost of choosing LNG fuel for new ships is expected to decrease in the future. By how much and how soon is largely dependent on the number of LNG-fuelled ships being contracted. LNG investment costs will also vary significantly between ship types and must be assessed from case to case. Investment cost for retrofitting LNG machinery will vary even more between ship types, but experience indicates that it can be profitable even without ECA requirements. 26 CONTAINER SHIP UPDATE NO

27 GREENER SHIPPING IN NORTH AMERICA LNG offers best impact on local environment Of the three options for meeting the ECA requirements, LNG fuel has the lowest emission of all three local pollutants NOx, SOx, and particles, as well as the global green house gas CO2: NOx emissions are reduced by 85 90%, SOx and particles by close to 100%, and net GHG emissions by 15 20%. ENVIRONMENTAL EMISSIONS FOR ALTERNATIVE CONCEPTS FOR A TYPI- CAL GENERAL CARGO SHIP Of currently proven technology, LNG is the only one of the three options mentioned above that both meet the 2015 SOx demands and the 2016 Tier III NOx requirements. To obtain equally low levels of NOx emission from engines with conventional fuel, Selective Catalytic Reduction (SCR) technology is required. It is still uncertain whether SCR technology and scrubbers will function jointly, and if they will be sufficiently efficient. This discussion of environmental effects is focusing solely on emissions 100% 75% 50% 25% 0% Ship emissions LNG s share of total fuel consumption Baseline 135,000 t SOx, 400,000 t NOx 19 million CO2, unknown PM Ship emission reduction potential NOx Global environment SOx, PM Local environment 25% 50% 75% 100% during LNG combustion. However, by considering the entire life cycles of these fuels, LNG fuel is still the better option: It has lower acidification and eutrophication potential than all other marine fuels, and the GHG emissions from the lifecycle is the lowest. IMPACT ON NORTH AMERICAN SHIPPING The potential for reduction of ship emissions in North American waters is significant. Based on the conclusions of LNG fuel being the most economical choice for shipowners in ECAs, there is reason to be hopeful that LNG will become a common fuel in this region. In addition to newbuildings, DNV expects that a significant number of refittings will be done in the near future for newly built ships where LNG tanks relatively easily can be installed. The graph shows how increasing the share of LNG fuel used will reduce total ship emissions. It shows that if a significant number of ships are switched to LNG fuel the shipping industry will eliminate close to all its emissions that impact the local environment. «LNG practically eliminates local pollution from shipping» SOx Emissions (Tonnes/year) NOx Emissions (Tonnes/year) Particle Emissions (Tonnes/year) LNG fuel Low Sulphur fuel* Conventional Conventional fuel** + fuel** scrubber 0 LNG fuel Low Sulphur fuel* Conventional Conventional fuel** + fuel** scrubber 0 LNG fuel Low Sulphur fuel* Conventional Conventional fuel** + fuel** scrubber ENVIRONMENTAL EMISSIONS FOR ALTERNATIVE CONCEPTS FOR A TYPICAL GENERAL CARGO SHIP * Low sulphur fuel contains maximum 0.10% sulphur **Conventional fuel as per 1 July 2010, containing maximum 1.0% sulphur CONTAINER SHIP UPDATE NO

28 LATEST IMO REGULATORY DEVELOPMENTS Latest IMO regulatory developments relating to GHG, SOx and NOx emissions IMO s work on measures to enhance ships energy efficiency and thereby control and reduce their greenhouse gas emissions has three distinct building blocks, the Energy Efficiency Design Index (EEDI), Ship Energy Efficiency Management Plan (SEEMP) and Market Based Measures (MBM). TEXT: TORE LONGVA, DNV IMO s work on measures to enhance ships energy efficiency and thereby control and reduce their greenhouse gas emissions has three distinct building blocks, the Energy Efficiency Design Index (EEDI), Ship Energy Efficiency Management Plan (SEEMP) and Market Based Measures (MBM). The IMO MEPC met for its 61st session in London from 27 September 1 October. Minor adjustments to the calculation and verification guidelines were endorsed by the MEPC. Furthermore, provisional majority agreement was reached on the regulatory text for the EEDI, including entry into force dates and reduction rates for the ship-type segments covered (see table). However, the committee was divided on whether the proposal should be approved for inclusion in MARPOL Annex VI. In November 2010, Australia and a number of other countries instructed IMO to send the draft regulation for circulation to national authorities, thus allowing the possibility of formal adoption at MEPC62 (summer 2011). It should be noted that the outcome of the adoption vote at MEPC62 is in question, as a 2/3 positive vote amongst signatories to MARPOL Annex VI is required. China and a number of other countries have also sent a letter to IMO pleading that this approach to adoption is not consistent with IMO s procedures and practices. MEPC61 was unable to finalise work on the guidelines detailing the regulation and therefore established a correspondence group to work on this issue towards MEPC62. Similarly, work on the SEEMP was also deferred until MEPC62. A practical implication of this is that there is an extensive amount of outstanding work remaining; the outcome of this will be highly significant for ship designers and builders as well as operators. MEPC62 will therefore remain a crucial meeting for the future of the EEDI and SEEMP. MEPC61 was also the first meeting of the Committee where MBMs were debated in detail. A significant element in the debate was the report produced by the IMO Expert Group on Market Based Measures (EG-MBM) which it was agreed to establish at MEPC60. Despite the great effort expended by the EG-MBM in analysing and evaluating the various proposed MBMs, the results were to a large degree discounted by representatives of the developing countries as the report was not perceived to have addressed their key concerns. Given the highly political nature of the debate on MBMs, this was not unexpected; the IMO debate on MBMs remains to a large degree hostage to the progress, or lack thereof, at the international climate negotiations ongoing in the UNFCCC. It is considered highly unlikely that significant results will be forthcoming on this issue unless there is a breakthrough in the UNFCCC negotiations. Regarding new ECAs, the USA submitted a proposal to include Puerto Rico and the US Virgin Islands as an ECA. However, due to the lack of time, the proposal was deferred until MEPC62. Solutions in Emission Control Areas Based on a review of existing marine engine technology and expected technology developments, ship owners currently have three choices if they wish to continue sailing in ECAs from 2015: switch to low sulphur fuel, install an exhaust gas scrubber, or switch to LNG fuel (liquefied 28 CONTAINER SHIP UPDATE NO

29 LATEST IMO REGULATORY DEVELOPMENTS REDUCTION FACTORS (IN PERCENTAGE) FOR THE EEDI RELATIVE TO THE REFERENCE LINE FOR EACH SHIP TYPE. Bulk Carriers Gas tankers Tanker and combination carriers Container ships General Cargo ships Refrigerated cargo carriers Size Phase 0 1 Jan Dec 2014 >20,000 Dwt 10-20,000 Dwt >10,000 Dwt 2-10,000 Dwt >20,000 Dwt 4-20,000 Dwt >15,000 Dwt 10-15,000 Dwt >15,000 Dwt 3-15,000 Dwt >5,000 Dwt 3-5,000 Dwt 0% n/a 0% n/a 0% n/a 0% n/a 0% n/a 0% n/a Phase 1 1 Jan Dec % 0-10%* 10% 0-10%* 10% 0-10%* 10% 0-10%* 10% 0-10%* 10% 0-10%* Phase 2 1 Jan Dec % 0-20%* 20% 0-20%* 20% 0-20%* 20% 0-20%* 20% 0-20%* 20% 0-20%* Phase 3 1 Jan 2025 onwards 30% 0-30%* 30% 0-30%* 30% 0-30%* 30% 0-30%* 30% 0-30%* 30% 0-30%* *The reduction factor is to be linearly interpolated between the two values depending on the vessel size. The lower value of the reduction factor is to be applied to the smaller ship size. natural gas). Marine Gas Oil (MGO) and Marine Diesel Oil (MDO) can be supplied with a sulphur content of less than 0.10%. Switching to such fuels only requires minor modifications to the fuel system on board the ships. On the negative side, the availability of low sulphur fuel is already limited and rising demand is expected to increase its price uncertainty. An exhaust gas scrubber can be installed to remove sulphur from the engine exhaust gas by using chemicals or sea water. Scrubbers are bulky and require significant alterations on board: additional tanks, pipes, pumps and a water-treatment system. The sulphur-rich sludge produced is categorised as special waste, to be disposed of at dedicated facilities. Moreover, scrubbers increase the power consumption, thereby increasing CO2 emissions. On the positive side, scrubbers can relatively easily be retrofitted to ensure ECA compliance for existing fleets. The third alternative is to fuel the ship with LNG. Natural gas is the cleanest form of fossil fuel available and, when fuelling a ship with LNG, no additional abatement measures are required in order to meet the ECA requirements. However, an LNG-fuelled ship requires purpose-built or modified engines and a sophisticated system of special fuel tanks, a vaporizer and double-insulated piping. Available space for cylindrical LNG fuel tanks on board ships has been a key challenge, but new hull-integrated tanks are expected to simplify this issue. For new ships delivered after 1 January 2016, exhaust gas purification by Selective Catalytic Reduction (SCR) or LNG fuel are the only two currently available abatement measures to reduce NOx emissions and meet the Tier III ECA requirements. Novel engine designs with advanced EGR systems and WHR to reduce overall fuel consumption are also expected to meet the requirements. IMO CO2 INITIATIVES EEDI (Energy Efficiency Design Index): the EEDI is a complex mathematical formula that provides a specific energy-efficiency figure for an individual ship design, expressed in grams of CO2 per ship s capacity-mile, e.g. tonne-mile. A smaller EEDI value means a more energyefficient ship design. Reducing the required EEDI, over time, will stimulate the continued technical development of all the components that influence a ship s fuel efficiency and provide a transparent mechanism for comparing the energy efficiency of individual ships. SEEMP (Ship Energy Efficiency Management Plan): the SEEMP provides an approach for monitoring ship and fleet efficiency performance over time, and encourages the shipowner, at each stage of the plan, to consider new technologies and practices when seeking to optimise ship performance. The SEEMP also applies to existing vessels. MBM (Market-Based Mechanisms): economic measures that could be applied globally to shipping in order to encourage emission reductions. MBM proposals under review range from a contribution or levy on all CO2 emissions from international shipping or only from those ships not meeting the EEDI requirement, via emission trading systems, to schemes based on a ship s actual efficiency according to both its design (EEDI) and operation (SEEMP). CONTAINER SHIP UPDATE NO

30 MARKET Boxship rates resist the seasonal downturn Containership timecharter rates developed positively in the 2nd half of The recovery of the demand for boxships proved to be surprisingly strong throughout the year, losing stamina only slightly in the 4th quarter. Hence worldwide handling of containers is estimated to have increased by a staggering 13 % during 2010, reaching a new all time high of 524 million TEU. Ordering activity has also increased noticeably and for the first time since summer 2008, the orderbook has actually increased slightly whilst the fleet has been growing. TEXT: ISL As of now, the upturn in box-ship contracting does not seem as aggressive as the precrisis ordering spree. True, there remain box-ships with slots for 3.8 M TEU to be delivered over the next years and especially in 2011 markets could be volatile as supply and demand growth are roughly in line and hence more susceptible to seasonal fluctuations. Still, most vessels are already back in service and demand growth seems to have returned to a reasonable path, which should see both the orderbook as well as the existing fleet utilised in 2013 the latter being the delivery focus of the recent ordering activity. STRONG ECONOMIC PERFORMANCE DRIVING BOXSHIP DEMAND IN 2010 Typically, container handling is a derived demand, being driven by increases in economic activity. Hence the forecasts of handling volumes are taking into account the latest forecasts of the economic activity. Late in 2010, the relationship has almost worked the other way around. At that time, handling volumes of containers in the ports continued their strong growth compared to 2009 and it became more and more likely that the IMF would revise its forecast of economic output growth for This finally took place early in 2011, when the IMFs assessment of the increase in world output was revised to 5 % (+ 0.2 % compared to the previous estimate). The forecast output growth for the years currently stands at 4.6 % on average and thus exceeds the average economic growth of the 1990s While certain demand boosters like China s ascension to the WTO or the containerisation of general cargoes are certainly going to lose influence, the outlook for the demand side of the container shipping markets remains positive. Before the drastic events in Japan unfolded, ISL estimated container handling to increase by 9 % in 2011 and approximately 8 % on average during This could be slowed down by the tragedy that took place and is still taking place in Japan. To which extent remains to be seen. BOXSHIP ORDERING ACTIVITY BUOYED The intensive demand for boxships came to a standstill with the downturn of demand and the collapse of freight rates in After almost two years with virtually zero ordering activity, both operating and non-operating owners have resumed discussions with the yards and some of these discussions have already materialised into new orders. As of January 1st 2011, the orderbook stood at 3.8 M TEU according to IHS Fairplay, showing for the first time in two years a slight increase versus the previous quarter. At the same time, the cellular fleet amounted to 14.1 M TEU, of which about TEU have been reported as inactive by the industry observers of AXS Alphaliner during recent months. Currently, the orderbook is equivalent to 27 % of the existing fleet. With most of the ships active and trading, the additional capacity is set to be absorbed by the markets in the coming years. Hence the recent revival of boxship ordering is (not yet) aggressive but appears to be appropriate considering the forecast demand growth. Yet shipping markets tend to be full of surprises and especially in 2011 it will be exciting to see how the markets will react to quite a large inflow of tonnage. CHARTER MARKETS DOING WELL So far, the charter markets performed well against the background of the seasonal downturn early in Although according to AXS Alphaliner both utilisation levels and freight earnings have 30 CONTAINER SHIP UPDATE NO

31 MARKET 40,000 One year time charter rates for different vessel sizes 35,000 30,000 US$ per day 25,000 20,000 15,000 10,000 5, TEU gearless 3500 TEU gearless 2500 TEU geared 1100 TEU geared 0 Source: ISL 2011 basen on Howe Robinson I.2006 Million. TEU III.2006 I.2007 III.2007 I.2008 III.2008 I.2009 III.2009 I.2010 III.2010 I Fully cellular container fleet and orderbook Fleet Orderbook Source: ISL based on IHS Fairplay M. TEU 8.5 M. TEU 8.8 M. TEU 9.2 M. TEU 9.5 M. TEU 9.8 M. TEU 10.1 M. TEU 10.4 M. TEU 10.8 M. TEU 11.1 M. TEU 11.5 M. TEU 11.9 M. TEU 12.1 M. TEU 12.4 M. TEU 12.6 M. TEU 12.7 M. TEU 12.9 M. TEU 13.1 M. TEU 13.5 M. TEU 13.9 M. TEU 14.1 M. TEU M. TEU Jan/ M. TEU 4.5 M. TEU Jul/ M. TEU 4.4 M. TEU Jan/ M. TEU 5.6 M. TEU Jul/ M. TEU 6.9 M. TEU Jan/ M. TEU 6.8 M. TEU Jul/ M. TEU 6.2 M. TEU Jan/ M. TEU 5.5 M. TEU Jul/ M. TEU 4.8 M. TEU Jan/ M. TEU 4.0 M. TEU Jul/ M. TEU 3.8 M. TEU Jan/ 11 been dropping from their peaks in 2010, carriers seem to cling to the tonnage, which has kept rates stable for the larger vessels (>=2.000 TEU) and has finally also revived rates for the smaller vessels, which have been missing out on most of the rally of the charter markets in According to Howe Robinson, time charter rates for vessels with a nominal capacity of TEU exceeded US$ 10,000 / day in March 2011 for the first time since summer As the industry is approaching the seasonal peak, rates are set to remain fairly stable. However one should not be surprised to experience some downward pressure in the winter months to come because the capacity of the fleet has been increasing throughout the year and the demand side is caught by the regular seasonal downturn. CONTAINER SHIP UPDATE NO

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