Commercial 4, 27th October 2016 LNG as a marine fuel – challenges and opportunities

Emission regulations, stakeholder pressure and economics are driving change.

A key factor for ship owners considering new tonnage is the choice of primary fuel. Many fuel and propulsion options are available.

The importance of reducing organisational carbon footprint is being added to the environmental, economic and operational advantages that will be achievable. Mainstream propulsion options.

Executive summary

Challenges and opportunities?

One element is driving change.

The fuel choices available.

This presentation includes forward-looking statements. Actual future conditions (including economic conditions, energy demand, and energy supply) could differ materially due to changes in technology, the development of new supply sources, political events, demographic changes, and other factors.

55 container ships ranging from 1,000 to 9,400 TEUs

32 tankers ranging 3,800 to 115,000 dwt + 1 LNG carrier

3 bulkers ranging from 45,000 to 50,000 dwt

2 con/ros ranging from 7,300 to 8,400 dwt

2 Service Operation Vessels (SOVs)

General

100% German family-owned company,based in Hamburg.Over 130 years of shipping experienceOffices in all major shipping locations

Bernhard Schulte

4 primary business areas

Ship owningShip managementNewbuilding and conversion supervisionValue Added Services

Owned vessels

One element is driving change

Three reasons for reducing carbon

1) International agreement on carbon reduction targets across all industries and activities.The Paris accord aims to limit global temperature increases to two degrees centigrade, and will be triggered after it is ratified by at least 55 countries, accounting for 55 percent of global greenhouse gas emissions.

2) CO2 monitoring for all ships to establish a base line for future reduction. EU leading the way, but a global system is under negotiation at the IMO.

3) It is likely that your customer will demand carbon footprint reduction because his customer demands it to meet the corporate sustainability targets set by most major corporations.

Monitoring, Reporting and Verification (MRV)

The EU is calling for a global approach to reducing greenhouse gas emissions from international shipping – a large and growing source of emissions. As a first step, large ships using EU ports will be from 2018 required to report their verified annual emissions and other relevant information.

Shipping emissions are predicted to increase between 50% and 250% by 2050 –depending on future economic and energy developments.This is not compatible with the internationally agreed goal of keeping global temperature increase to below 2°C compared to pre-industrial levels, which requires worldwide emissions to be at least halved from 1990 levels by 2050.

http://ec.europa.eu/clima/policies/transport/shipping/index_en.htm

Fuel choices and IMO carbon ranking

Fuel Type IMO emission factors(in tons of CO2/ton of fuel

Heavy Fuel Oil – ISO 8217 RME - RMK 3.114

Light Fuel Oil – ISO 8217 RMA - RMD 3.151

MDO/Gas Oil – ISO 8217 DMX - DMB 3.206

LPG - Butane 3.030

LPG - Propane 3.000

LNG - Methane 2.750

Methanol 1.375

Ethanol 1.913

Hydrogen zero

Propulsion options

Engine Type Pros & Cons

Diesel direct drive / liquid fuel Efficient established option with global fuel availability. Higher CO2 emission.

Diesel direct drive (MEGI) / methane New technology, lower CO2 emission, evolving supply infrastructure for ships other than LNGCs.

DFDE / liquid fuel or methane with pilot fuel Established and flexible technology, lower CO2 emission, evolving supply infrastructure for ships other than LNGCs.

Steam turbine direct drive** / liquid fuel or methane

** via gearbox

Established option for LNGCs, may be less efficient, lower emissions if using gas. Modern systems provide efficiency gains.

Gas turbine direct** or electric drive / liquid fuel or methane

Established option. New technology can improve efficiency and emissions running on gas.

Electric direct or pod drive / battery Limited range, zero emission and ideal for small craft on predictable short routes.

Electric direct or pod drive / fuel cell The zero emission future for many modes of transport when hydrogen production becomes more economic and infrastructure evolves.

What fuels will drive our industry forward?

The choices made will certainly cover a combination of solutions.

Options available for new ships differ dramatically from those available to existing ships.

It is becoming clear that as carbon dioxide emissions will be measured and targeted across all industries.

Use of natural gas as a cleaner ‘one carbon’ fuel will gain market share.

“We also anticipate natural gas demand in the marine sector to increase significantly, stimulated by new emission standards. By 2040, gas is likely to account for about 10 percent of total marine fuels, up from less than 1 percent now, with about two-thirds of the growth in developing countries.”

ExxonMobil Outlook for Energy – A View to 2040

The only thing that is constant is change

Change of primary fuel choice is nothing new: wind, coal, oil, natural gas.

The time taken for tonnage replacement and infrastructure development will be driven by market forces.

Powering the fleet of the future?

Methane, the original one carbon fuel, has two significant advantages over the fuels discussed earlier and will drive our industry forward:

1. Lower NOX, SOX, CO2 and particulate emissions.2. Global availability of natural gas with adequate quantities to sustain competitive pricing.

There are also two challenges that our industry must meet to access a lower carbon future:

1. The LNG bunkering infrastructure is not mature. It will require substantial investment and scale afloat and ashore.

2. Effective training, procedures and selection of equipment to transfer, store and burn this cryogenic fuel safely must be paramount.

Natural gas is often referred to as the bridging fuel between the hydrocarbon and the hydrogen economy. This leap to fuel cell technology will only be possible when the economics of hydrogen production improve.

This is likely to take some time, which should underpin the investment that the shipping industry will need to make natural gas a viable and sustainable fuel choice.

Challenges & Opportunities

The introduction of natural gas as a marine fuel will be driven by the environmental and economic advantages that can be achieved.

We believe that LNG bunkering offers opportunities for early movers to secure a market leading position ashore and afloat.

This will be a sophisticated supply chain, dealing with simultaneous operations, (SIMOPS), and other factors not normally associated with the LNG sector.

The Gas Supply Vessel (GSV) developed by Schulte Group and Babcock Group.

Priority one: SAFETY

The LNG industry has an excellent safety record which the new fuelling sector must continue.

Careful selection and training of personnel for this new type of ship, (plus the crew on the ship receiving the fuel), will be critical. This will be our primary focus to ensure incident free operations.

New systems and procedures will be developed in cooperation with Flag and Port authorities.

Equipment manufacturers will be fully involved to make training as effective as possible.

The importance of uniform global standards

For natural gas to become a global fuel choice, it is essential that international standards are adopted to promote safety and conformity in this new energy sector.

As an industry body, building on the work carried out by SIGTTO, SGMF is playing an essential role defining procedures and technology standards.

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