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Are Tankers Green Maritime Outlook Middle East Abu Dhabi 7 April 2009

Are Tankers Green Maritime Outlook Middle East Abu Dhabi 7 April 2009. Erik.Ranheim@INTERTANKO.com Manager Research and Projects. Tanker shipping serving some of the world’s biggest companies.

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Are Tankers Green Maritime Outlook Middle East Abu Dhabi 7 April 2009

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  1. AreTankersGreenMaritime Outlook Middle EastAbu Dhabi 7 April 2009 Erik.Ranheim@INTERTANKO.com Manager Research and Projects

  2. Tanker shipping serving some of the world’s biggest companies BP’s approach to managing the environmental impact of its operations is underpinned by the goal of continuous performance improvement We strive to conduct business in a manner that is protective of the environment, and that is compatible with the environmental and economic needs of the communities in which we operate. Meeting the world’s growing energy needs and protecting the environment requires new technology, new partnerships and new ways of operating. How to produce energy in environmentally responsible ways

  3. Are tankers Green? Challenges VOC = Volatile Organic Compounds ODS = Ozone Depleting Substances (cooling medium) CO2/GHG emission NOx, SOx, PMAnnex VI Life cycle Building to Decommissioning/ recycling Sewage Garbage Toxic Antifouling Accidentaloil pollution Ballast water

  4. Environmental challenges in shippingCleaner seas, cleaner air, a sound mother earth • Cleaner air • Annex VI implemented • GHG reduction • Currently the biggest challenge • Cleaner seas • Oil pollution • Acidification of oceans • Anti-fouling Systems • Garbage, other pollutions into the sea • Invasive spices – ballast water management

  5. Emission to air?

  6. The Challenges • The world demands greener shipping • Emission from shipping is dirty and harmful for the health and the environment • GHGs emission from shipping is not directly regulated under the Kyoto protocol • IMO assumed to regulate GHG emission • Shipping must react

  7. CO2 Emissions per Unit Loadby Transport Mode Large Tanker 1 Large Containership 3 Railway 6 Coastal Carrier 11 Standard-size Commercial Truck 49 Small-size Commercial Truck 226 Airplane 398 0 100 200 300 400 Units Relative Shipping energy efficient Source:Ministry of Land, Infrastructure and Transport (Japan): The Survey on Transport Energy 2001/2002 MOL (Japan): Environmental and Social Report 2004 7

  8. Engine break specific fuel consumption g per kWh Source: Lloyd’s Register Fuel efficiency in shipping has has improved

  9. Trends – Co2 emission, energy use, global trade Index There has been strong growth in shipping Source: Fearnleys/INTERTANKO

  10. World primary oil demand IEA the Reference Scenario mbd Source: IEA

  11. World primary energy demand IEA the Reference Scenario 1000 million tonnes oil equivalents Source: IEA

  12. MARPOL Annex VI

  13. Reducing harmful emission to air from shipping • Emission regulated by MARPOL Annex VI: • SOx • NOx • un-combusted hydrocarbon • Heavy metals • Soot • Volatile Organic Compounds - VOC

  14. The Annex VI package • All ships above 400GT • Reduction SOx, NOx, + PM • Compliance through fuel specification or • Equivalent measures accepted • Assumes supply of low sulphur fuel* • Bunker Delivery Note BDN important ** * Ships not punished if required fuel not available **Guidelines to asses compliance if BDN data is challenged by PSC or lab test results

  15. The world is moving away from HFOOil consumption by product - % share mbd % share Source: INTERTANKO/BP Review

  16. Why not scrubbers? • Still under testing (3 ship limited scale) • Large • Expensive • Difficult (impossible?) to install • CO2 emission (buffering effect) • leaves hazardous waste onboard which no-one wants • Tonnes of seawater need to be pumped through the ship and processed We are involved in transportation – not waste treatment

  17. New measures adopted at MEPC 58: SOx emissions Emission Control Area (ECA)1.0% limit Global 3.5% limit • ECA 0.1% limit: IMO review Global 0.5% limit Extension? 2010 2012 2015 2020 2025 2018 No measures against ships that do not receive adequate supply

  18. New measures adopted at MEPC 58: NOx emissions Current regulation Tier I: existing ships built after 2000, base line Tier II:15.5% - 21.8%reductionships built on, after 1 Jan 2011 Tier II: 80%reduction ships built on, after 1 Jan 2016Power output > 750 kW In Emission Control Areas (ECAs) ONLY Tier I: ships built 1990s engine>5000 kWh, cylinders = >90 ltrs 2010 2011 2016 Many preconditions: engine rating, fuel consumption, durability, cost/benefit, availability of efficient upgrading system , upgrading at the ship’s first renewal survey

  19. Switching to distillates will • Reduce global emissions • SO2 - 60-80%, • PM - 80-90% • NOx -15% • No heavy metals, less soot • Improve conditions for crew and dockworkers • Cause no safety problem in connectionwith fuel switching fuels entering ECAs • Causes less engine breakdowns and potential pollution accidents • Cause far less pollution when spilledProvides opportunity for the development of more efficient engines (w. less emission) • Fit all ships and current engines • Be easy for authorities to control • Challenge to produce sufficient clean fuel Cleaner, Simpler and more Efficient ships

  20. GHG emission

  21. Shipping’s tools to reduce GHGs? • Indices • Design • Operational • Market instruments • Emission trading Scheme (ETS), to stimulate entrepreneurship? • Levy, equal to tax? • Offset charges (ref IOPC)? • Ship Efficiency Management Plan No general agreement on how to regulate GHG emission from shipping

  22. CO2 reduction 40 - 80 % increase if no efficiency measures taken World Fleet Energy Consumption Bridgeable gap?? 20 - 30 % absolute reduction onshore On-shore target Reference

  23. The Stern Report • Conclusions • Climate change may initially have small positive effect, but longer term the effects will be very damaging Benefits of strong, early action outweigh the costs. • Policy of action to be based on 3 elements: • Carbon pricing • Technology • Behavioural change Later the situation is said to be much more serious that outlined in The Stern Report Lord Stern of Brentford

  24. Energy efficiency design index (EEDI) • Will mandate a minimum acceptable fuel efficiency for new ships • Deliver real, sustainable CO2 reductions based on an agreed emissions reduction trajectory. • Wide support in IMO, except • Some developing countries* • Initial EEDI will form the baseline for the most efficient ships today Sea trial Esther Spirit To be based on, installed power, specific fuel consumption, correction factors to account for specific design elements, speed, dwt, the contribution from auxiliary machinery *Wants “common but differentiated responsibilities” agreed under UNFCCC and the Kyoto Protocol.

  25. The CO2 operational index • An instrument for evaluating quantitatively the effect of operational fuel efficiency measures, such as speed reduction or optimum navigation • Charterers greatest influence • Not immediately mandatory • No direct link to design index

  26. A Market Based Instruments (MBI) should • Reduce CO2 emission levels in real terms byadditional amounts to normal reductions by stimulating • The development of better technology or improved operation, or • Buying credits to reduce emission in other sectors • Be easy to administer, monitor and enforce. • Ensure simple allocations of emission allowances • Not unduly distort competition and be non- discriminating of ship types and flags • Be difficult to evade • Be legally, politically and institutionally acceptable • Preferably be global and regulated by IMO

  27. Aviation ETS scheme • All* flights to/from EU included as of 2012 • Reduction 2012 3%, later 5% cut p.a.** • Operators must submit plans by 30.03.11 • Use of revenues generated by auctioning allowances decided by EU by members • Complemented by technical/ operational CO2 reducing measures • Further unilateral and other agreements on global measures to reduce greenhouse gas emissions from aviation. • On 7 October the Environment Committee of the European Parliament called for shipping to be included in the revision of the European Union's Emissions Trading Scheme (EU-ETS). *smallest planes excluded ** Reduction target based of average emissions 2004-06 Europe basis for shore based ETS - decided aviation ETS - shipping?

  28. Cap-and-trade On the "Cap and Trade" system was easy to implement for major sources of emissions, but harder to implement for the multitude of small sources. It is also giving rise to distortions and transactions costs. A key issue is how to allocate emission rights, which are a valuable asset, worth perhaps $2 trillion annually (or 5% of global GDP). This issue has become a major stumbling block in reaching a global agreement, and the attempt to avoid taking on full implications of this issue is one of the reasons for distortionary policies (or for carbon in different uses being priced differently). Joseph StiglitzNobel prize economics Professor at Columbia University (United States) Formerly Chief Economist at the World Bank

  29. Cap-and-trade The quotas system has already contributed with investments in the non-Annex I countries which will reduce of CO2 emission by 1,800 m tonnes (1.2% annually) for the period 2008-12 Word emission 2004 27,000 m ts, today some 30,000 m ts Carbon Point

  30. Levy on bunkers • Little support from governments • Sympathy from some ship owners organisations • Regarded as taxation The 400% increase in bunker prices over the last 4 years untilAug 2008 provided the shipping industry with a significant economic driver to improve its energy efficiency and thus reduce CO2 emission Prices HFO 380 CST, Fujairah

  31. Gasoline price at the pump Dollar per litre Levy

  32. Accidental oil pollution into the sea

  33. Tanker Incidents and accidental pollution ’000 ts pollution Number incidents Source: INTERTANKO, based on data from LMIU, ITOPF + others

  34. Accidental oil spills from tankers 1978-2008 ’000 ts pollution Source: ITOPF + others

  35. Accidental oil pollution into the sea and tanker trade 1000 ts spilt bn tonne-miles Source: INTERTANKO/ITOPF/Fearnleys

  36. Incidents attended by ITOPF over the past 5 years Number Source: ITOPF

  37. Will history repeat itself? Or have necessary measure been implemented to ensure that catastrophes do not repeat themselves? Lack of good incident data prevent us from doing accurate analysis. Let’s look at some indications

  38. Will history repeat itself? • Hull failure (?) • Tanker Year Spill ts Location • Kirki 1991 17,280 Pacific, West Australia Lost bow • World Horizon 1991 850 Off South Africa Lost bow • Katina P 1992 74,000 off Mozambique • Tochal 1994 200 NW of Cape Town Lost bow • Thanassis A 1994 20,000 700 km off Hong Kong • Nakhodka 1997 17,500 Japan • Erika 1999 20,000 Off Britanny • Prestige 2002 63,000 Spain • New regulations/precautions: • Enhanced Special Periodical Survey Programme - adopted by the 18th session of the IMO Assembly in November 1993 • DH requirements • Common Structural Rules (initiated by INTERTANKO) • Stricter vetting, age discrimination after ERIKA • Recorded hull failures/incidents: • 2002 7 (Prestige) + 2 minor spills 2006 3 1 2,000 ts spill • 2003 6 1 minor spill 2007 9 1 minor spill • 2004 4 1 minor spill 2008 3 zero spills • 2005 3 1 minor spill 1Q09 1 zero spills Segregated Ballast Tank Coated Areas 260,000 ton VLCC HULL TYPE Square Meters pre-Marpol 25,000 Marpol 80,000 Double Hull 225,000

  39. Will history repeat itself? • Collision/Grounding/ContactTanker Year Spill ts Location • BT Nautilus 1990 1,000 New York (contact reef bottom) - HFO • Athos I 2004 850 Delaware River (contact object btm) • Al Samidoon 2004 9,000 Suez Canal (HFO) • Grigoroussa I 2006 3,000 Suez Canal (HFO) • Bright Artemis 2006 4,500 East Indian Ocean (contact/rescue) • Hebei Spirit 2007 11,000 Off Korea (rammed by crane) • SKS SatillaDH 2009 zero Outside Galveston (ctct object btm) • New regulations • INTERTANKO US Port and Terminal Safety Study 1996/2002 • INTERTANKO Terminal Vetting Database • DH requirements • Traffic separation schemes and other ship routeing systems have now been established in most of the major congested, shipping areas of the world, and the number of collisions and groundings has often been dramatically reduced.

  40. Will history repeat itself? • Place of refuge • Tanker Year Spill ts Location • Erika 1999 20,000 Off Britanny • Prestige 2002 63,000 Spain • Castor* 2000 zero Western Mediterranean Sea. • New initiatives • IMO Resolution A.949(23) after INTERTANKO initiative • EU directive • Under discussion in the US • *The ABS said the conclusions have implications for how ships are inspected and wider implications for how the new generation of double-hulled tankers should be built and maintained. At the least, the ABS said, rules should be amended regarding how and when ships are inspected and what surveyors should look for.

  41. Will history repeat itself? Human failure On March 24, 1989, the tanker Exxon Valdez, en route from Valdez, Alaska to Los Angeles, California, ran aground on Bligh Reef in Prince William Sound, Alaska spilling 35,000 tonnes of Prudhoe Bay crude oil. Failure of navigation, deviation from separation zones (got permission to use inbound lane), inexperienced and tired officer on the Bridge, Captain who was in his cabin had been drinking alcohol. People do not work in a vacuum and the company culture, training, systems, procedures and technology has to be take into account that mistakes will be made. • INTERTANKO Human Element Committee • Guidance booklet on Seafarers’ Hours of work and Rest - 2008 • Best Practice - Cadet Berths • Tanker Officers Training Standards (TOTS).

  42. Will history repeat itself? • Fire and explosions • Tanker Year Spill ts Location • Khark 5* 1989 80,000 185 km off Morocco • ABT summer ** 1991 260,000 coast of Angola • . • Most important tanekr safety measure: • Inert Gas Stems IGS • Inerting double hull spaces in emergency situations • * Explosion following ballast tank leak • **Explosion due to leak from cargo tanks Kashmir due Jebel Ali after collision

  43. Will history repeat itself? • Pilotage • Tanker Year Spill ts Location • Aegean Sea* 1992 74,000 La Coruna harbor, Spain • Sea Empress** 1996 72,000 entrance to Milford Haven, Wales • . • New initiatives • INTERTANKO/BIMCO/ICS International Best Practices for Maritime Pilotage • * Grounded following loss of steering in bad weather • **Pilot misjudged tide (similar to Torrey Canyon 18 March 1967)

  44. Other challenges

  45. Anti-fouling • Chemical Pollution • Tin-based antifouling caused: • Shell fish sex-changes, male to female • Thinning of oyster shells, collapse of oyster fisheries • Hormone changes in higher sea mammals • Anti-fouling Systems (AFS) Convention • Entered into force 17 September 2008 • Tin-based systems banned • Mechanism to ban other biocides in the future • INTERTANKO • Move towards biocide-free systems • Comparison of silicon systems

  46. Biofouling • Biological Pollution • Invasive species issue • Organisms on ‘niche’ areas of the hull • Air emissions issue? • Biofouling Management • IMO Voluntary Guidelines under development • INTERTANKO • Good practice • Reduce invasive species • Improve vessel performance – reduce air emissions • Support management guidelines • Ports must allow hull management operations

  47. Ballast Water Management • Biological Pollution • Invasive species • IMO Ballast Water Convention • Question over entry into force • Will the technology work? • Regional rules • INTERTANKO • Share information on experience with new technology • Management plans as standard practice for over 5 years • Understand and Implement the IMO guidelines • Ensure compliance by sharing information on regional and national regulations

  48. Environmental challenges • Even in a bad market • High standards – • a precondition for good risk management Ms Littlefield (IUMI president)said there were strong signs that the safety culture at sea was taking root. But she warned Ship operators are being buffeted from all sides in the growing economic crisis. But to cut corners on maintenance or training can only have one result in the long term: more casualties, higher claims on insurers, and higher premium and deductible levels for shipowners. IUMI, in its first snapshot of 2008

  49. Cypriot oil tanker "Haven" burning in the Gulf of Genoa The sea get sick, but it never dies Healing is a matter of time, But also of opportunity Greek proverbs Thank you

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