Alternative fuels LNG a short or a medium term solution?

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1 Alternative fuels LNG a short or a medium term solution? Ketil Djønne Vice President, External Relations

2 The Age of LNG FUEL is hereis here History of modern LNG carriers goes back to years. Today: ~ 350 LNG/C All LNG carriers used to be LNG fuelled gas fuelled ships is not a new concept History of LNG fuelled ships other than LNG carriers since years Today: ~ 22 LNG fuelled vessels are in operation Around same number of LNG fuelled ships on order Increasing interest for LNG fuel around the world Different LNG distribution projects in progress

3 The drivers

4 Key driver - stricter environmental requirements Existing fleets Requirement 2010: SOx < 1,0% (ECA) 2015: SOx < 0,1% (ECA) 2020: SOx < 0,5% (global) Compliance tech. HFO + scrubber Distillate fuels LNG, other fuels(?) Newbuilds Requirement 2011: NOx Tier 2 (global) 2016: NOx Tier 3 (ECA) Compliance tech. Tuning, SCR, HAM, water emulsion, EGR, LNG, other fuels(?) CO2 regulations on the way 4

5 Key drivers shrinking crude reserves, increasing prices and some environmentally-conscious owners/first movers LNG powered RoRo freight ship (gas only) Two ships under construction for delivery in (India Bharati) 5

6 So why LNG?

7 The full list of future fuel alternatives Heavy Fuel Oil (with exhaust cleaning) Distillate fuel oils LNG CNG LPG GTL (incl methanol) Biofuels / biogas and alcohols Hydrogen (as energy carrier) Batteries (as energy carrier) Nuclear Our bet is that hydrocarbons will dominate the future mix We believe it boils down to oil and natural gas 7

8 1. Environmental performance 2. Economics 3. Safety 4. Infrastructure & Supply 5. Conclusions

9 Environmental performance

10 LNG environmental performance But what about methane slip? 10

11 New engines ready to be commercialised Engines used until today mostly based on old technology RR, MAN and Wärtsilä and others: strong focus on reducing GHG in general and methane in particular Rolls-Royce spark ignited lean burn gas Net GHG reduction (including methane) of +/- 25 % expected on the new (available) generation of engines Wärtsilä Dual fuel low pressure MAN Dual fuel high pressure

12 Economics

13 Expected economic benefits LNG price expected to develop more favourably than crude prices LNG more energy efficient and therefore lower consumption Maintenance costs are lower But, economic equation will vary from case to case

14 Triality the environment friendly VLCC

15 Breakdown Triality Expected PV b.t. compared to a conventional VLCC run on HFO (MUSD) Steel -1.3 LNG Tanks & Systems Engines & Boilers -3.9 VOC Systems & Tanks -3.0 CoolAir -0.1 Coating +0.4 Scrubber +4.4 Ballast System +4.8 Reduced Voyage Costs TRIALITY +24.0

16 The LNG price is varied due to a lack of a global market Price levels as of Q USD/mmbtu 8-10 USD/mmbtu USD/mmbtu 16

17 Safety

18 The safety aspects of LNG Two main concerns with LNG: - Cryogenic effects (corrosion, strength etc) - Formation of gas clouds/flammability But LNG has a strong track record - No significant incidents with ships - Very few incidents on land This performance is due to: - Good safety behaviour based on sound procedures 18

19 Status on rules, regulation, and standardization Gas fuelled ships DNV class rules published 2001 Norwegian Maritime Directorate developed rules Interim Guidelines for IGF code published 2010 Port and bunker operations for LNG Less experience and documentation Standards does not address this completely Development: - STS Gothenburg - Bungas - Hamburg - EU funded study - ISO project Crew training 19

20 Infrastructure & Fuel supply

21 LNG is available across Europe, North America and Asia 21

22 So why is LNG for ships not developing faster? Fuel availability / infrastructure, chicken and egg Authorities can incentivise more rapid LNG uptake Bunkering regulations needed Technology / cost issues specific to each business case 22

23 LNG import terminal Zeebrugge, Belgium May 2010

24 LNG - more than just small scale

25 Conclusions

26 Key take-aways Each business case is different but LNG makes sense for a lot of them short and medium term Environmental performance (incl GHG) will improve Bunkering regulations needed - but industry is now developing practices and standards (ref ISO) Authority promotion, support and possibly incentives welcome to accelerate LNG growth - Promotion and highlighting of the possibilities - Incentive schemes like the Norwegian NOx Fund - Investment support for ports and terminals, ship builders and possibly owners (Marco Polo) - Support in standard and rulemaking as well as by dissemination and implementation - TEN-T? LNG can ensure one-stop solution to several challenges 26

27 Safeguarding life, property and the environment 27