Maritime Clusters and SSS

1. Maritime Clusters and SSS Merenduskonverents 2010

2. DNV Maritime Clusters Quick definition Who is involved Government Industry Markets Cause and effect New rules of the game Future regulations ECAs In the Baltic Short Sea Shipping (… and LNG) Characteristics of SSS in Baltic Sea ECA rules will force changes Options to comply Redeploy fleet Low S% fuel Scrubbers LNG Conclusions Return on Investment Save environment and save costs Presentation Overview

3. Who, What, How we do

4. Highly skilled people across the world 300 offices 100 countries 9,000 employees, of which 82% have university degree

5. A trusted player in shipping 130 Authorised by 130 national maritime authorities 17% DNV classed 17% of the world fleet orderbook in 2009 (in Gross Tonnes) 15.5% 15.5% of the world’s sailing fleet is to DNV Class (in Gross Tonnes)

6. Summary • Companies and society face a new risk reality • DNV helps identify, assess and manage risk • We do this through a unique combination of • risk methodology and management expertise • technical and operational expertise • independence • We help our customers • build trust and confidence towards their stakeholders • make qualified decisions based on independent assessments • achieve and maintain sustainable performance • ...and so turn risks into rewards

7. Maritime clusters

8. The maritime industry consists of The ship industry that produces and repair ships. The shipping industryproviding the seaborne transportation of goods Freight and infrastructure as service supplier focused directly towards the organisation of the transportation In addition, the maritime industry is provided with services, such as: classification financing insurance education Typical players

9. Company Competitiveness Long term industry performance Country Attractiveness Maritime cluster – a definition R&D & innovation Competence & HR strategy Public Policy Cluster dynamics Cluster dynamics Tax & subsidies Innovation pressure Knowledge sharing Financial Policy Knowledge diffusion Complementarity Complementarity Regulations Labour market Price & quality of resources Satisfaction with location

10. 2 3 1 Public policies are the catalyst of the cluster Public policies are prerequisites to attract business: • Labour mobility • Tax regime & financial policies • Local regulations • Education and training • Research & innovation culture Location attractiveness comprising the three elements of • ‘country’, • ‘company’ • ‘cluster’ can be influenced by the public policies of the location

11. Primary characteristics Regional legal-regulatory framework Sustainable local economy Stable political environment Secondary characteristics Highly developed infrastructure Strategic geographic location Company Competitiveness Internationalization R&D and innovation Competence and HR strategy Public Policy Long term Cluster dynamics Cluster dynamics relative Tax & subsidies Innovation pressure Innovation pressure Financial Policy industry Knowledge diffusion Knowledge diffusion Regulations performance Complementarity Complementarity Labour market Education R&D Country Attractiveness Price, quality, mobility & relevance of resources Satisfaction with domestic location & foreign attractiveness The country’s ability to keep and attract world class companies, determines its competitiveness

12. Company Competitiveness Internationalization R&D and innovation Competence and HR strategy Public Policy Long term Cluster dynamics Cluster dynamics Tax & subsidies relative Innovation pressure Innovation pressure Financial Policy industry Knowledge diffusion Knowledge diffusion Regulations performance Complementarity Complementarity Labour market Education R&D Country Attractiveness Price, quality, mobility & relevance of resources Satisfaction with domestic location & foreign attractiveness …influence how countries compete.. Industrial regions of the world compete to attract international business companies by • Excellent infrastructure • Attractive tax regimes Attracting the most competitive companies Key reasons for a locations attractiveness (for HQs) were identified: • Attractive tax rules • Availability of managers with experience and global mindset • High quality of life Source: AD Little …with different results What companies want • Manufacturing moves to low cost locations • Leading companies attract other companies from the same industry • Increasing industrial clustering Companies want to locate in attractive markets

13. New rules of the game

14. Future regulatory pressures

15. European ECAs – a real challenge ECA (Emission Control Area) requirements: • Maximum level of sulphur in fuel, new and sailing ships: • 1,00% by 1st July 2010 • 0,10% by 1st January 2015(or equivalent measure) • Nitrogen emission for newbuildings: • 80% reduction in NOx emissions from 1st January 2016 EU fuel requirements today: • 0,1% sulphur in ports and inland waterways (or equivalent measure) New ECA? ECA ECA New ECA?

16. Primorsk and St.Petersburg (RUS) Kilpilahti (FIN) Tallinn (EST) Gothenburg, SWE Klaipeda (LIT) Kaliningrad Gdansk and Gdynia (POL) Lübeck and Rostock (GER) The Baltic Sea is slowly dying. Shipping partly to blame • Multiple pollution sources • Extremely vulnerable sea • More than 2,000 ships operating at any time, 10 000 ships yearly • Ship emissions equals all land-based NOx, and twice the SOx emissions from Denmark and Sweden combined • Current annual ship emissions: • SOx: 135 000 tonnes • NOx: 400 000 tonnes • CO2: 19 million tonnes

17. Short Sea Shipping (… and LNG)

18. Short Sea Shipping Movement of cargo and passengers by sea between ports situated in geographical Europe or non European countries having a coastline on the enclosed seas bordering Europe. In the Baltic's … more than 78% share of all seabourne trade (Eurostat: 2008) • Includes domestic and international maritime transport, including feeder services, along the coast, to and from the islands, rivers and lakes. Challenges! • Environment (external) • Profitable business (internal)

19. ECA compliance is a ticket to trade • The optimum ECA strategy will: • - Reduce business risk and technical challenges- Align desired ECA solution with company’s financial policy • - Ensure new market shares as competitors pull out • Ship owners will benefit from planning now, and seek well-informed partners • A strategy should be laid for different: • - Fleet segments • - Ship ages and conditions • - Types of freight and voyage contracts • - New-builds and ships in operation

20. What are the options? • Switch to low sulphur fuel • Use of scrubbers • LNG • Re-deploy fleet away from Baltic's and all other ECAs • But how viable is this in the long-term?

21. 1,5% Now 1% July ’10 0,1% January ’15 The sulphur leap in European ECAs

22. Low sulphur fuel. • Supply of 1,0% fuel seems OK, but what about 0,10%? • Fuel switch • HFO to MGO/MDO • Fuel change over procedures (time, cost, engine risk) • Technical challenges: • Viscosity, flash point • Boiler safety • Lowest Capital Expense (to change) but highest Operational Expense (to maintain in the long run)

23. Regular fuel + exhaust cleaning (Scrubber) • Washing of exhaust gas in seawater or high pH solution • Waster purification system, creating sludge • Removal rates: • > 95% of the exhaust SOx, • 40-80% of the particles (PM) • BUT we need to consider a range of hidden extras • Scrubber technology well proven on land, but limited at sea • 2% fuel penalty • Sludge production and disposal • Integration challenges: SOx scrubbers + NOx catalysts/SCR • Wash water (Brackish water?). • Energy consumption • Medium high Capex, medium Opex (HFO vs distillate price)

24. LNG -Technically no obstacles and it is safe • LNG technology safe and well proven • 40 years of LNG tanker operation • Used as marine fuel since 2001, now in 20 ships • Ongoing research to further improve technical and economical aspects • Relatively high Capex, low Opex • LNG availability - developing bunkering grid in the Baltic Sea, but…?

25. Baltic Sea Annual ship emissions: SOx: 135 000 tonnes NOx: 400 000 tonnes CO2: 19 million tonnes Equals all land-based NOx and twice the SOx emissions from Denmark & Sweden combined When LNG replaces conventional fuels: Nearly 100% reduction SOx / particle emissions 85-90% reduced NOx emissions Approx 15% net reduction CO2 /GHG emissions Reduce the strain on road transport LNG – The only solution for both SOx and NOx demands 547 TEU container vessel (5000 GT) Propulsion power 3960 kW

26. NOx reduction equals taking 22,000 cars off the road! LNG fuel Diesel fuel Viking Lady’s reduction in NOx emissions compared to diesel operation

27. Looking ahead - proposed LNG import terminals Source: 2010 Google Maps

28. Conclusion

29. Return on Investment • Applies for a typical general cargo ship • Assumes 2m Euro investment • LNG=450 USD in 10 years Among the three choices LNG has the lowest life cycle costs for ECA operation

30. BUT … Use of LNG makes good sense … financially and environmentally But, ship-owners will not invest until LNG fuel supply infrastructure is in place LNG fuel suppliers will not invest in infrastructure without a large fleet SO … EU and governments to be frontrunners Publicly owned ships to run on LNG LNG fuel to be easily available LNG fuel to be available at a fair price THEN … Ship-owners to start ordering new ships running on LNG Conclusion … short sea shipping is the obvious start

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