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SHIPPING 2020

TECHNOLOGY INVESTMENTS IN THE NEW MARKET REALITY


Claus Winter Graugaard
28. Jan 2013, Poland

CONTENTS

WHY Shipping 2020

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METHODOLOGY AND
ASSUMPTIONS

FINDINGS

BEYOND 2020

CONTENTS

WHY Shipping 2020

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WHY SHIPPING 2020

What is Shipping 2020


QUESTION:

What technologies should be installed


to meet new environmental regulations
and higher fuel prices?
CHALLENGE:

Uncertainties associated with market trends


and drivers, fuel choices, technology
developments and other variables.
The wrong investment decisions
will be detrimental to both the industry
and individual ship owners.
Wrong decisions impact the financial
bottom line and the environment.

ANSWER:

Shipping 2020 aims to indicate which


technologies are most likely to be adopted
by the industry by 2020.

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METHODOLOGY AND ASSUMPTIONS

Megatrends and external drivers


ECONOMIC GROWTH
AND DEMAND FOR
TRANSPORT

REGULATORY AND
STAKEHOLDER
PRESSURE

FUEL TRENDS

Boom or bust?

Growth level and level


of contracting

Global or local
regulations?

Sustained
high fuel prices?

Overcapacity of
vessels?

Further requirements on
GHG emissions?

LNG cheaper
than HFO?

Rating schemes and


requirements from
charterer and public

Development of
LNG infrastructure

Impact of sulphur
regulations

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METHODOLOGY AND ASSUMPTIONS

The Process the regulatory future is demanding

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CONTENTS

METHODOLOGY AND
ASSUMPTIONS

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METHODOLOGY AND ASSUMPTIONS

The process the big picture


Scenario
A

Environmental
regulations

Technology
trends

Scenario
B

Scenario
C

Fuel trends
(price, mix)

SIMULATION
MODEL

RESULTS

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Scenario
D
World economy
and demand
for transport

Investment profile
and ship
characteristics

METHODOLOGY AND ASSUMPTIONS

Scenarios created to capture uncertainties


ECONOMIC
GROWTH

SCENARIO A:
FULL STEAM AHEAD

HIGH

SCENARIO B:
KNOWING THE ROPES

High growth scenario

High economic growth

Higher prices for all types of fuels

Cost of emissions up
and on the rise in 2020

Little regulatory or stakeholder


pressure on the environment

LNG price decoupling from oil prices


and significantly lower

LOW

HIGH
Low economic growth

Low economic growth


LNG price decoupling
from oil prices

Limited implementation of MBM results


in a medium price on CO2 emissions

Little regulatory or stakeholder


pressure on the environment

Low fuel prices in general, but high


demand keeps the MGO price up

SCENARIO D:
IN THE DOLDRUMS

SCENARIO C:
SINK OR SWIM
LOW

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REGULATORY
AND
STAKEHOLDER
PRESSURE

METHODOLOGY AND ASSUMPTIONS

Technologies have been assessed against


relevant regulations
MOTIVATING REGULATIONS
TECHNICAL MEASURE

RETRO-FIT

SECA 1%S

SECA 0.1%S

GLOBAL 0.5%S

NOX TIER III

EEDI

Low sulphur heavy fuel oil


SOx scrubber
Distillate fuel
Pure LNG engine

20 %

Dual-fuel engine

20 %

Exhaust gas recirculation


Selective catalytic reduction
Propulsion efficiency devices

2%

Waste heat recovery

4%

Shaft generators

0-1%

Hull shape optimisation

5%

Contra-rotating propulsion

4%

Air cushion

6%

Wind power

2%

Smaller engine/de-rating (speed reduction)

10 %

System efficiency improvement


Hybrid propulsion system (Diesel-Mechanical-Electric)
Ballast Water Treatment System
Water injection
Water in fuel
Low NOx tuning

Considered, but not selected due to limited impact/effect

Lightweight constructions
Reduction of seawater ballast capacity

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ENERGY
EFFICIENCY

BALLAST
WATER

METHODOLOGY AND ASSUMPTIONS

Ship owner survey motivation and barriers


Compliance and fuel efficiency are the main motivation,
and cost and technology maturity are the main barriers

Main motivation

Main barriers

Source: DNV survey (23 respondents)

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METHODOLOGY AND ASSUMPTIONS

Ship owner survey investment preferences


Investment horizon (payback requirements) and how much of the fuel cost
is paid by the ship owner impact the cost-effectiveness of many measures

Source: DNV survey (23 respondents)

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METHODOLOGY AND ASSUMPTIONS

Which technologies do ship owners envisage


using in the future?
FIGURE 3: FAMILIARITY AND EXPERIENCE WITH TECHNOLOGIES

FIGURE 4: LIKELIHOOD OF IMPLEMENTING TECHNOLOGIES

Ballast Water Treatment System


Low sulphur heavy fuel oil
System efficiency improvement (Aux)
Hull shape optimisation
Waste heat recovery
Propulsion efficiency devices
Distillate fuel
EGR system
Low NOx tuning
Shaft generators
Smaller engine/de-rating (speed reduction)
Reduction of seawater ballast capacity
SCR system
SOx scrubber
Lightweight constructions
Dual-fuel engine
Water emulsification
Humid air motor/ direct water injection
Hybrid propulsion system
Counter-rotating propulsion
Pure LNG engine
Air cushion
Wind & solar power

Low sulphur heavy fuel oil


Distillate fuel
Shaft generators
Ballast Water Treatment System
Waste heat recovery
Propulsion efficiency devices
Hull shape optimisation
SOx scrubber
System efficiency improvement (Aux)
Smaller engine/de-rating (speed reduction)
Low NOx tuning
Reduction of seawater ballast capacity
EGR system
Counter-rotating propulsion
Dual-fuel engine
SCR system
Hybrid propulsion system
Pure LNG engine
Water emulsification
Lightweight constructions
Air cushion
Humid air motor/ direct water injection
Wind & solar power
1
Low

3
Score

5
High

1
Low

Familiarity with technology

Likely to be retrofitted

Tested

Likely to be implemented on new builds

3
Score

5
High

Source: DNV survey (23 respondents)

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METHODOLOGY AND ASSUMPTIONS

Time spent in ECA


Approximately 40% of the world fleet enters into the North America
or Northern Europe ECA during a year

Half of these vessels spend less than 5% of their time there

Time spent in ECA

Share of fleet
Source: AIS Data

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METHODOLOGY AND ASSUMPTIONS

Model illustration: Simulation of individual ships


Investment profile
and ship
characteristics

Generate a
representative
sample of the
current world fleet

Technology
alternatives

Assign each ship a


ship owner
investment profile

Results

Technology cost
decreases with
more installations
Annual technology
and fuel type
decisions per ship

2020
2019
2018
2017
2016
2015
2014
2013
2012

Fuel price
and regulatory
requirements
Add newbuildings to
the fleet each year
Growth in seaborne
transport

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Remove scrapped ships


from the fleet each year

18

METHODOLOGY AND ASSUMPTIONS

Fleet used in the simulation model


In total 48,400 ships in 2011 comprising the international trading fleet
except passenger ships and ferries

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Example: Container Feeder (2500 TEU)


Engine and operation

Scrubber

30%

20,0

Annual operating time

250 days

18,0

Installed power

21 MW

16,0

Annual fuel consumption

16800 tonnes

Increased FC - scrubber

3%

Fuel cost
HFO

750 $/tonne

MGO

1000 $/tonne

LNG

15 $/MMBtu

LNG installation price (mill $)

Time in ECA

Fuel Switch

LNG

14,0
12,0
10,0
8,0
6,0
4,0
2,0

Financial

0,0

Discount rate

15%

Investment horizon

5 years

0,0

2,0

4,0

6,0

8,0

Scrubber price (mill $)

The colours show which solution is the best option given the
assumption on the left and the capital cost of scrubber and LNG

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10,0

Example: Container Feeder (2500 TEU)


Engine and operation

Scrubber

Time in ECA

30%

Annual operating time

250 days

18,0

Installed power

21 MW

16,0

Annual fuel consumption

16800 tonnes

Increased FC - scrubber

3%

LNG

20,0

LNG installation price (mill $)

Fuel cost

Fuel Switch

14,0
12,0

LNG price 75% of HFO10,0

HFO

750 $/tonne

MGO

1000 $/tonne

LNG

11 $/MMBtu

8,0
6,0
4,0
2,0

Financial

0,0

Discount rate

15%

Investment horizon

5 years

0,0

2,0

4,0

6,0

8,0

Scrubber price (mill $)

The colours show which solution is the best option given the
assumption on the left and the capital cost of scrubber and LNG

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10,0

Example: Container Feeder (2500 TEU)


Engine and operation

Scrubber

50%

20,0

Annual operating time

250 days

18,0

Installed power

21 MW

16,0

Annual fuel consumption

16800 tonnes

14,0

Increased FC - scrubber

3%

Fuel cost
HFO

750 $/tonne

MGO

1000 $/tonne

LNG

11 $/MMBtu

LNG installation price (mill $)

Time in ECA

Fuel Switch

LNG

12,0
10,0
8,0
6,0
4,0
2,0

Financial

0,0

Discount rate

15%

Investment horizon

5 years

0,0

2,0

4,0
6,0
Scrubber price (mill $)

8,0

The colours show which solution is the best option given the
assumption on the left and the capital cost of scrubber and LNG

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10,0

FINDINGS

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FINDINGS

Finding 1

No LNG fuelled ships

B
5,000 LNG fuelled ships

More than 1 in 10 new buildings in the next 8 years


will be delivered with gas fuelled engines

From 2012-2019 the LNG price is the main

Share of LNG fuelled newbuildings


Scenario D

contributing factor,

From 2020 the global sulphur limit and EEDI are


the main drivers

In scenario D, we foresee about 1,000


newbuildings from 2012-2020 and some 6-700
retrofits

In addition, there will be many smaller vessels


fitted with gas engines

Ferries, passenger vessels, tugs

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FINDINGS

Finding 2

No scrubbers

Scrubbers are a significant option after 2020 (but not before)

Few ships spend more than 30% of their time in and

Ship owner investment profile

ECA justifying a scrubber before 2020

In 2020, with the global sulphur requirements,


scrubbers become a significant solution

Scrubbers can be retrofitted and can take 25%


of the market, 15-20,000 ship

Still, 70% of ships will run on distillates

SOx reduction options in 2020

In the short term LNG can only take a small part


of the market

Uncertainty about the 2020 limit will slow technology


development and uptake

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C
20,000 scrubbers

FINDINGS

Finding 3

No ships on destillates

In 2020, the demand for marine distillates


could be as high as 200-250 million tonnes annually

A 0.1% limit in ECAs (2015) is expected to increase


the demand to 45 million tonnes

The current annual global demand for marine distillates


is about 30 million tonnes

With a global sulphur limit HFO demand may drop


from 300-350 million tonnes to only 80-110 million
tonnes in 2020

Depends on the number of scrubbers in use

Energy efficiency measure will only slow the fuel


demand in the short term

The use of LNG will not significantly impact the


demand of other fuels

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Fuel mix in 2020

40,000 ships on destillates

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FINDINGS

Finding 4

3,000 ships
>10% CO2 reduction

B
8,000 ships
>10% CO2 reduction

Newbuildings in 2020 will emit up to 10 to 35% less CO2 than todays ships.
The EEDI will be a driver for more than half of this reduction

Phase 0 of EEDI (2013) will encourage

CO2 emission reduction on newbuildings

cost-effective measures

In Phase 1 (2015) and 2 (2020), up to half the


reductions are motivated by EEDI alone

Due to short investment horizon and low fuel


burden, these reductions are not cost effective
for the ship owner

But in the long-term these are cost-effective

EEDI reduction on newbuildings

Small differences between scenarios

Fuel prices are already so high that any


variation does not affect uptake

Operational measures not included

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FINDINGS

C
A

Finding 5

No BW treatment

Ballast water treatment systems will be installed


on at least half of the world fleet

The Ballast Water Management Convention

Annual expected ballast water


treatment installations

has not yet entered into force, but

The schedule for mandatory treatment of BW is


fixed (2019)

The US has decided to implement a similar scheme


for all ships in US waters (2013)

Other countries have local requirements

This will motivate a significant part of the world


fleet to implement a treatment system irrespective
of BWMC progress

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BW treatment for all ships

FINDINGS

Finding 6

No ships with EGR or SCR

2,500 ships with EGR or SCR

At least 30-40% of newbuildings


will be fitted with EGR or SCR by 2016

Both EGR and SCR are currently under


NOx treatment installations

development and need more time to mature

LNG is an alternative but does not seem to


replace EGR or SCR installations, even with
low LNG prices

Will a ship owner opt for a Tier III engine


even if the ship is initially not planned
for sailing in an ECA?

Lower second-hand value due to the loss of


geographic flexibility

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The study shows that 4-7 million tons of LNG p.a is required by 2020
corresponds to 0.2-0.3% of global LNG production 2010

2020

Supply

1000 LNG fuelled


ships

4-7 Million tons


p.a of LNG as
fuel for shipping

2013

Demand

37 ships in
operation & 31
ships on order

Limited volume of
LNG as fuel for
shipping

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Approx. 1000 vessels will be fuelled by LNG and sailing


within regions, primarily in the ECA zones
1200

Forecast of LNG fuelled ships


per ship segment

Under low economic growth and little


environmental pressure scenario D, the
number of new buildings has been
estimated to be around 1000 by 2020

1000
800
600

YTD 28 ships in operation and


29 ships in order book

400

Offshore vessels and ferries dominate the


LNG fuelled fleet and order book today, but
there are on-going projects to develop
concepts and designs for most ship types

200

2010
2011
2012
2013
2014
2015
Tank Bulk Container RoRo Offshore

2016
2017
General cargo

2018
2019
Passenger ships

Combined with stricter emissions control


regulations, Europe and North America
will experience a growth in LNG fuelled
offshore ships

0
2020
Other

Forecast of the LNG fuelled ships


per region

Australia & New Zealand


China
South America
Japan & Korea
Midde East & India
South East Asia

Asia will play an important role, after 2020,


driven by stricter regulations nations such
as Singapore and Hong Kong

North America
Europe
Tank

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Bulk

Container

50
RoRo

100

150

Offshore

200

250

General cargo

300

350

400

Passenger ships

450
Other

37 LNG fuelled ships in operation worldwide


Ships in operation
Year
2000
2003
2003
2006
2007
2007
2007
2007
2008
2009
2009
2009
2009
2009
2009
2010
2010
2010
2010
2010
2010
2011
2011
2011
2011

Type of vessel
Car/passenger ferry
PSV
PSV
Car/passenger ferry
Car/passenger ferry
Car/passenger ferry
Car/passenger ferry
Car/passenger ferry
PSV
PSV
Car/passenger ferry
Car/passenger ferry
Car/passenger ferry
Patrol vessel
Car/passenger ferry
Patrol vessel
Car/passenger ferry
Patrol vessel
Car/passenger ferry
Car/passenger ferry
Car/passenger ferry
PSV
Chemical tanker
Car/passenger ferry
PSV

Owner
Fjord1
Simon Mkster
Eidesvik
Fjord1
Fjord1
Fjord1
Fjord1
Fjord1
Eidesvik Shipping
Eidesvik Shipping
Tide Sj
Tide Sj
Tide Sj
Remy Management
Fjord1
Remy Management
Fjord1
Remy Management
Fjord1
Fjord1
Fosen Namsos Sj
DOF
Tarbit Shipping
Fjord1
Solstad Rederi

Class
DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
GL
DNV
DNV

Year
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2013
2013

Type of vessel
Car/passenger ferry
PSV
PSV
PSV
General Cargo
PSV
PSV
Car/passenger ferry
Car/passenger ferry
Car/passenger ferry
PSV
RoPax

Owner
Fjord1
Eidesvik
Olympic Shipping
Island Offshore
Nordnorsk Shipping
Eidesvik Shipping
Island Offshore
Torghatten Nord
Torghatten Nord
Torghatten Nord
REM
Viking Line

Class
DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
LR

Updated 10.01.2013
Excluding LNG carriers and inland waterway vessels

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34

34 confirmed LNG fuelled newbuilds


Confirmed orderbook
Year
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013

Type of vessel
Car/passenger ferry
Harbor vessel
High speed RoPax
Ro-Ro
Ro-Ro
RoPax
RoPax
General Cargo
Car/passenger ferry
Car/passenger ferry
Ro-Ro
Ro-Ro
Tug
PSV
PSV
Patrol vessel
Car/passenger ferry
Tug
Tug

Owner
Torghatten Nord
Incheon Port Authority
Buquebus
Sea-Cargo
Sea-Cargo
Fjordline
Fjordline
Eidsvaag
Norled
Norled
Norlines
Norlines
Buksr & Berging
Harvey Gulf Int. Marine
Harvey Gulf Int. Marine
Finish Border Guard
Society of Quebec ferries
CNOOC
CNOOC

Class
DNV

Year

Type of vessel

Owner

2014

Car/passenger ferry

Society of Quebec ferries LR

DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
DNV
ABS
ABS
GL
LR
CCS
CCS

2014

Car/passenger ferry

Society of Quebec ferries LR

2014

Tug

Buksr & Berging

DNV

2014

PSV

Harvey Gulf Int. Marine

ABS

2014

PSV

Harvey Gulf Int. Marine

ABS

2014

Gas carrier

SABIC

BV

2014

Gas carrier

SABIC

BV

2014

PSV

Remy Shipping

DNV

2014

PSV

Siem Offshore

DNV

2015

PSV

Harvey Gulf Int. Marine

ABS

2015

Container Ship

TOTE Shipholdings

ABS

2015

Container Ship

TOTE Shipholdings

ABS

2015

LEG Carrier

Evergas

BV

2015
2015

LEG Carrier
LEG Carrier

Evergas
Evergas

BV
BV

Class

Updated 15.01.2013
Excluding LNG carriers and inland waterway vessels

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Sailing LNG fuelled vessels, examples

Stril Pioner
Viking
Energy
Mastrafjord, Raunefjord,
Patrol vessels
Barentshav,
Bergen,
Sortland
Moldefjord
Viking
Lady also with
Fuel
cell!
Bergensfjord,
Stavangerfjord
Tidekongen,
Tidedronningen,
Tideprinsen

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Larger ships and new ship types for gas as ship fuel
Source: Rolf Jensen

Source: Theo Van Loon

Sea Cargo Express; Nov 2012

Source: Incat

New ferry of Buquebus

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Concept studies

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Global LNG bunker demand by 2020

Europe & the Baltic Sea


China

1.4 2.2 million

0.3 0.8 million

North America

0.07 0.09 million

Japan & Korea

0.3 0.5 million

Middle East & India

0.9 1.4 million

0.3 0.7 million

SEA
0.4 0.7 million

South America
Australia & NZ

0.3 0.4 million

0.1 0.2 million

LNG Bunkering demand 2012

LNG Bunkering demand 2020


Equivalent to 4 -7 million tons of LNG

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Current and forecast of global LNG bunkering infrastructure


by 2020

Tadoussac

Duluth

Europe*
Incheon

Tacoma

New York

Shaanxi
Fujairah

Fourchon

Hubei

Tokyo Bay
Busan

Singapore

Buenos Aires

Existing

Bass Strait

Planned (Feasibility study, risk study, proposed locations, pending approval)

Proposed (currently being discussed)


* See detailed map

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LNG Bunkering grid in Europe by 2020


Existing
1.
2.
3.
4.
5.

Flor
CCB
Halhjem
Snurrevarden
Risavika
6

Proposed
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.

Gothenborg
Pori
Turku
Sillame
Helsinki
Paldiski
Riga
Swinoujscie
Lubeck
Rostock
Helsingborg
Copenhagen
Aarhus
Aberdeen
Dunkerque
Marseilles
Barcelona
Algeciras

1
7
2
3
4
5

Planned
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.

Bod
Mongstad
ra
Lysekil
Porvoo
Stockholm
Tallin
Klapeida
Hirtshals
Brunsbttel
Hamburg
Rotterdam
Antwerp
Zeebrugge
Ghent
Vestbase

Existing

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21

23

17

16

25 12 27
22

34
18

11

14

35

33
15

10 26

13

28

32
31 30

29

19
20
36

37
38

39

Planned (Feasibility study, risk study, proposed locations, pending approval)

41

Proposed (currently being discussed)

FINDINGS

Future delivery capacity of technologies and fuel


Ballast water and sulphur regulations
set requirements on ships in operation

In 2020 60,000 ships have to switch fuel


or clean the exhaust

Are 20,000 scrubbers retrofitted


between 2019 and 2020 possible?

Will there be enough low sulphur fuel available


and at what price?

Will the availability uncertainty of LNG bunkering


facilities slow uptake of gas fuelled engines?

By 2020 30-60,000 ships will have to install


a ballast water treatment system

How many ballast water systems


can be retrofitted each year?

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FINDINGS

Two-tier second-hand and charter market


Will there be a two-tier charter market,
and which technologies would give a price premium?

Todays ships will compete with increasingly


more energy efficient ships

Ships built after 2016 with a NOx Tier II


compliant engine will not be able
to enter an ECA

Will a ship with a scrubber or LNG


as fuel have a higher second-hand value?

Will many ship owners build beyond todays


requirements and aim for 2020 standards?

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BEYOND 2020

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BEYOND 2020

Future regulations
Numerous regulations can become important after 2020

GHG

High attention today, but little progress

Black carbon and particulate matter

Increasing attention, but difficult to measure and control

Hull bio-fouling (transport of alien species)

Guidelines developed, may results in regulations


over the next 10-15 years

Underwater noise

Raising concerns about possible impact on


ocean-dwelling mammals, but science remains unclear

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Safeguarding life, property


and the environment
www.dnv.com

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