LNG

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Natural gas as fuel in shipping in Denmark • • • • • • • •

1. Background 2. Scope in ferries and short sea shipping 3. Reductions in emissions to air 4. Synergies to landbased transport sector 5. Operational consequenses 6. Challenges in logistics 7. Economy 8. Conclusion

Several things to be established before ship-owners can make investment decisions for natural gas as fuel (courtesy of DNV) LNG Available technology

Available Natural gas bunkering

Prerequisites for natural gas as fuel Strategic partnerships

Favorable fuel pricing

A financially viable solution

Lessons learned and relevance for Denmark LNG

CNG

• LNG propulsion technology in ships is mature and proven • Distribution network not yet developed for use in ships • Safety concerns are demanding but manageable • Can enter existing bunkering value chain

• Well developed for land based transport • Distribution network for natural gas exists in Denmark • Safety concerns are demanding but manageable • No large scale CNG seaborne value chains in operation

Operational aspects LNG and CNG

LNG

CNG

•Approx. 20 ships •Approx ½ action radius compared to similar size fuel storage capacity using conventional fuels •Focus on RoRo, RoPAX and superfast RoPAX ships

• 8 operating ships •Approx ¼ action radius compared to similar size fuel storage capacity using conventional fuels •Focus on RoRo, RoPAX and superfast RoPAX ships

LNG is already building a strong track record as fuel for ships

20 LNG-fuelled vessels in operation Year 2000 2003 2003 2006 2007 2007 2007 2007 2008 2009 2009 2009 2009 2009 2009 2010 2010 2010 2010 2010

Type of vessel car/passenger ferry offshore vessel offshore vessel car/passenger ferry car/passenger ferry car/passenger ferry car/passenger ferry car/passenger ferry offshore vessel car/passenger ferry car/passenger ferry car/passenger ferry car/passenger ferry patrol vessel offshore vessel car/passenger ferry patrol vessel car/passenger ferry car/passenger ferry patrol vessel

Vessel name Glutra Viking Energy Stril Pioner Bergensfjord Stavangerfjord Raunefjord Mastrafjord Fanafjord Viking Queen Moldefjord Tideprinsen Tidekongen Tidedronningen Barentshav Viking Lady Fannefjord Bergen Romsdalsfjord Korsfjord Sortland

Owner Fjord1 Eidesvik Simon Møkster Fjord1 Fjord1 Fjord1 Fjord1 Fjord1 Eidesvik Fjord1 Tide Sjø Tide Sjø Tide Sjø REM Eidesvik Fjord1 REM Fjord1 Fjord1 REM

Builder Kleven Kleven Aker Yards Aker Yards Aker Yards Aker Yards Aker Yards West Contractor Gdanska Stoczina STX France STX France STX France Myklebust verft West Contractor Gdanska Stoczina Myklebust verft Gdanska Stoczina Gdanska Stoczina Myklebust verft

Class DNV build DNV DNV DNV DNV DNV DNV DNV DNV DNV DNV DNV DNV DNV DNV DNV DNV DNV DNV DNV

Engine MHI Wârtsilla DF Wârtsilla Rolls Royce Rolls Royce Rolls Royce Rolls Royce Rolls Royce Wârtsilla DF MHI MHI gass/Scania MHI MHI MHI Wârtsilla DF MHI MHI MHI

The setting in Denmark (and this study) Numbers of ships calling DK ports Port calls Size Distances Types

Fuel

Ports

Ferries >100 (65)

Cargo ships >2000 (100)

518.981

21.914

From Egholm 20GT to Pearl of Scandinavia 40.000GT

(200-35.000GT)

From 200 m across a fjord or +350 nm to other countries

Short sea line traffic (Baltic Sea and North Sea; Southern European ports)

Small island ferries RO-PAX Fast Ferries

RO-RO LO-LO General cargo & Reefer ships

HFO 1.5% Sulphur (1%) MDO 0.5% Sulphur MGO 0.1% Sulphur

HFO 1.5% Sulphur (1%)

136 Danmarks Rederiforening, Danske Havne, rederier, havne og Danmarks statistik

Four scenarios in Denmark Scenario 1 Gross tonnage Ferries

Total Ports

Total vessels

Total LNG (t/y)

0-499 500-9999 >10000 Ferries total

19 13 9 41

23 21 21 65

7500 99500 225000 332000

Cargo ships

14

100

104000

49

165

436000

Total Ports

Total vessels

Total LNG (t/y)

9

27

299000

4

63

94000

Ferry & Cargo ship port total

13

90

393000

Scenario 2 Scenario 3

45 23

128 127

425000 403000

Cargo ships

Ferry & Cargo ships and ports total

Scenario 4 Gross tonnage Ferries 500->10000 Cargo ships Cargo ship ports

Reduced scenarios in Denmark Scenario R3 Gross tonnage Ferries

Total Ports

Total vessels

Total LNG (t/y)

Ferries total

9

27

299000

Cargo ships

8

35

76000

17

62

375000

Total Ports

Total vessels

Total LNG (t/y)

Ferries total

9

27

299000

Cargo ship ports

4

20

64000

13

47

363000

Cargo ships

Ferry & Cargo ships and ports total

Scenario R4 Gross tonnage Ferries

Cargo ships

Ferry & Cargo ship port total

Annual LNG reduction (t/y) Fuel need Total ports Total vessels (as LNG t/y) Scenario 1

49

165

436000

Scenario 2

45

128

426500

Scenario 3 Scenario 4

23 13

127 90

403000 393000

Reduced scenarios

Fuel need Total ports Total vessels (as LNG t/y)

Scenario R3

17

62

375000

Scenario R4

13

47

363000

How much of existing fuel consumption does each scenario convert to natural gas Annual LNG consumption by scenarios 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Scenario 1

Scenario 2

Scenario 3

Scenario 4

Air emissions reduction potential SOX (%) 100% 80% 60%

Reductions in carbon emission also achievable (10-20%)

40% 20% 0% Scenario 1

Scenario 2

Scenario 3

Scenario 4

NOX (%)

PM (%)

100%

100%

80%

80%

60%

60%

40%

40%

20%

20%

0%

0% Scenario 1

Scenario 2

Scenario 3

Scenario 4

Scenario 1

Scenario 2

Scenario 3

Scenario 4

Air emissions reduction potential Scenario 1 Reduction potential for all Ferry & all Cargo ships Current emission from Ferry & Cargo

SOx (ton/y)

NOx (ton/y)

Current emissions Ferry

8800

28000

Current emission Cargo

3800

9300

12600

37300

SOx (ton/y)

NOx (ton/y)

Emission Ferry – Natural gas

~0

4800

Emission Cargo – Natural gas

~0

1900

Total Emission Ferry & Cargo

0

6700

12600

31000

Total current emission Ferry & Cargo

Emission reduction potential Ferry & Cargo

Total reduction potential Ferry & Cargo

Air emissions reduction potential Scenario 4 Reduction potential for all Ferry & all Cargo ships Current emission from Ferry & Cargo

SOx (ton/y)

NOx (ton/y)

Current emissions Ferry

8300

25700

Current emission Cargo

3500

8500

11800

34200

SOx (ton/y)

NOx (ton/y)

Emission Ferry - Natural gas

~0

4300

Emission Cargo – Natural gas

~0

1700

Total Emission Ferry & Cargo

0

6700

11800

27500

Total current emission Ferry & Cargo

Emission reduction potential Ferry & Cargo

Total reduction potential Ferry & Cargo

Quick conclusions • Most scenarios give a substantial reduction focusing on a few large consumers (ferries) • With installations on 27 ferries in nine ports 75% of the total fuel consumption in ferry sector is covered • With installations in four main cargo ports and on 20 vessels in the cargo sector >60% of reduction potential is achievable

Synergies with land transport

• LNG not established as fuel in land transport • CNG established as mature fuel in European land transport: • Busses, commercial vehicles, private cars, trucks (e.g. garbage collection services) – no railways • Taxes on natural gas as fuel the main obstacle in Denmark • No technical concerns from Danish land transport industry • Few technical synergies btw. shipping and land transport

Logistics LNG • A main storage and distribution facility • Transfer by ship or truck ship to local storage and ship to ship • Direct import to local storage in ports or direct onboard

CNG • No main storage as network exist • Compression locally for storage in ports or in regional centers • Distribution to port or final user by truck

Availability of LNG where ships need it is the crucial missing piece of the LNG puzzle • In Norway, LNG for use as fuel is liquefied in small scale plants, as a result the price is about 3 times the natural gas spot price • Conclusion: LNG should be bought from international market and distributed from full size carriers, this cuts the Norwegian price in half • LNG tanks should be built in conventional bunker stations for ships

Regulation on LNG and CNG Design – standards developed: DS/EN 1473 (LNG) DS/EN 1532 (LNG) CNG: PED (Trykbeholderdirektivet) ATEX Safety: Risk evaluation 96/82/EC

IMO standards: SOLAS prohibits flash value >60˚C Current fleet have deviation permit New IGF code expected 2014

Pros: LNG and CNG LNG – Proven technology – Less storage requirement – Probably the chosen methodology for cargo ships and large ferries

CNG – Easily available from existing infrastructure – Short bunkering time – Accepts biogas – More feasible for users with short routes

Cons: LNG and CNG LNG – Energy loss 10-15% from transport and liquefaction – Requires investment on infrastructure and logistics – Long bunkering time – Manageable safety issues regarding supercooled storage

CNG – Energy loss 5-8% from transport and compression – Requires investment on infrastructure and logistics – Manageable safety issues regarding pressurised storage

Barriers LNG • A first mover or stimuli is necessary initially • Confidence in fuel supply is key to shipowners’ investment decision • Second-hand value of ship: what modifications are needed to sell it to a conventional trade?

CNG – A first mover or stimuli is necessary initially – Safety issues in small ports? – More uncertainty of secondhand value and flexibility of trades

Assumptions about investment in ports Ports

Capacity, m3

Investments, m DKK

Use in business case, m DKK

Terminal

3.500 -5.000

82-100

91

Source: Incentive Partners

The analysis is based on LNG. Around the world, there are ships operating on CNG today, but cases are few. CNG requires 2½ times the volume of LNG because CNG is less compressed. On the other hand, cost of terminals may be lower because the gas distribution network exists. It is assumed that one terminal is needed in each port. The terminal serves both passenger and cargo ships. The number of ports vary between 49 in Scenario 1 and 13 in Scenario 4.

Assumptions about investment in ships Ships

Installed power, mW

Extra investments, m DKK

Use in business case, m DKK

Assumed distribution

Newbuildings

2 -8

15-80

29

25%

Retrofits

2-20

40-100

40

75%

Total

-

-

32

100%

Source: DNV and Incentive Partners

The cost cover gas tanks, gas engines etc. Retrofits are generally more expensive than newbuildings The number of vessels vary between 165 in Scenario 1 and 90 in Scenario 4

Assumptions on fuel cost savings Price, DKK/ton LNG

2.500

MGO

3.960

Source: DNV and Incentive Partners

The cost of LNG is compared to MGO as the relevant alternative when stricter regulation is implemented. The price for LNG is based on experience from long term contracts and is assumed to include delivery (DES). The MGO price is average traded price in 2010. Due to the difference in heating values, 14% more tonnes LNG than MGO is needed. The extra cost is included in the scenarios. The investment period is 25 years, discount rate 10%

Fuel savings does not seem to cover investments 12 10 8 Ports

Bn DKK

6 4

2

Ships

0 Fuel savings

-2 -4 -6 Scenario 1

Scenario 2

Scenario 3

Scenario 4

Reduced scenarios investments in ports 14

Four scenarios

12 10 8

Ports

Bn DKK

6 4

Ships

2

Fuel savings

0 -2 -4

-6 Scenario 1

Scenario 2

Scenario 3

Scenario 4

Preliminary conclusions • In reduced scenarios fuel savings may cover the investment cost and still achieve 75% of full scenarios for ferries • Public regulation or subsidies may accelerate the use of LNG and CNG • Use of gas will result in lower SOx (100%), NOx (>60%) and CO2 emissions

Choice of fuel for Denmark – LNG or CNG? • • • • •

A proven track record for LNG Distribution system exist for CNG Engines, fuel tanks, and fuel transfer systems available LNG is the probable choice in other countries for shipping CNG is a choice of other transport systems

Choice of fuel for Denmark – LNG and CNG! • LNG the choice for cargo and large/fast ferries • LNG terminals needed in key ports • CNG choice on shorter voyages in same or few ports – Canal boats, smaller ferries

• Possibly also economical cases for tugs, pilot boats, supply vessels

So, is natural gas an option for Danish shipping?

Open discussion

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