1. 24 September 2010 Maritime Clusters and SSS Merenduskonverents 2010

2. © Det Norske Veritas AS. All rights reserved. 24 September 2010 2 Presentation Overview  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

3. © Det Norske Veritas AS. All rights reserved. 24 September 2010 3 Who, What, How we do

4. © Det Norske Veritas AS. All rights reserved. 24 September 2010 4 Highly skilled people across the world 9,000 employees, of which 82% have university degree 300 offices 100 countries

5. © Det Norske Veritas AS. All rights reserved. 24 September 2010 5 A trusted player in shipping 15.5% 15.5% of the world’s sailing fleet is to DNV Class (in Gross Tonnes) 17% DNV classed 17% of the world fleet orderbook in 2009 (in Gross Tonnes) 130 Authorised by 130 national maritime authorities

6. © Det Norske Veritas AS. All rights reserved. 24 September 2010 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. © Det Norske Veritas AS. All rights reserved. 24 September 2010 7 Maritime clusters

8. © Det Norske Veritas AS. All rights reserved. 24 September 2010 8 Typical players  The maritime industry consists of - The ship industry that produces and repair ships. - The shipping industry providing 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

9. © Det Norske Veritas AS. All rights reserved. 24 September 2010 9 Maritime cluster – a definition Company Competitiveness R&D & innovation Competence & HR strategy Country Attractiveness Price & quality of resources Satisfaction with location Public Policy Tax & subsidies Financial Policy Regulations Labour market Cluster dynamics Innovation pressure Knowledge diffusion Complementarity Cluster dynamics Knowledge sharing Complementarity Long term industry performance

10. © Det Norske Veritas AS. All rights reserved. 24 September 2010 10 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 3 1 2

11. © Det Norske Veritas AS. All rights reserved. 24 September 2010 11 The country’s ability to keep and attract world class companies, determines its competitiveness 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 Country Attractiveness Price, quality, mobility & relevance of resources Satisfaction with domestic location & foreign attractiveness Public Policy Tax & subsidies Financial Policy Regulations Labour market Education R&D Cluster dynamics Innovation pressure Knowledge diffusion Complementarity Cluster dynamics Innovation pressure Knowledge diffusion Complementarity Long term relative industry performance

12. © Det Norske Veritas AS. All rights reserved. 24 September 2010 12 Company Competitiveness Internationalization R&D and innovation Competence and HR strategy Country Attractiveness Price, quality, mobility & relevance of resources Satisfaction with domestic location & foreign attractiveness Public Policy Tax & subsidies Financial Policy Regulations Labour market Education R&D Cluster dynamics Innovation pressure Knowledge diffusion Complementarity Cluster dynamics Innovation pressure Knowledge diffusion Complementarity Long term relative industry performance Attracting the most competitive companies Companies want to locate in attractive markets What companies want Industrial regions of the world compete to attract international business companies by  Excellent infrastructure  Attractive tax regimes …influence how countries compete..  Manufacturing moves to low cost locations  Leading companies attract other companies from the same industry  Increasing industrial clustering …with different results 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

13. © Det Norske Veritas AS. All rights reserved. 24 September 2010 13 New rules of the game

14. © Det Norske Veritas AS. All rights reserved. 24 September 2010 14 Future regulatory pressures

15. © Det Norske Veritas AS. All rights reserved. 24 September 2010 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) ECA New ECA?

16. © Det Norske Veritas AS. All rights reserved. 24 September 2010 16 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 Gothenburg, SWE Lübeck and Rostock (GER) Gdansk and Gdynia (POL) Kaliningrad Klaipeda (LIT) Tallinn (EST) Kilpilahti (FIN) Primorsk and St.Petersburg (RUS)

17. © Det Norske Veritas AS. All rights reserved. 24 September 2010 17 Short Sea Shipping (… and LNG )

18. © Det Norske Veritas AS. All rights reserved. 24 September 2010 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. © Det Norske Veritas AS. All rights reserved. 24 September 2010 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. © Det Norske Veritas AS. All rights reserved. 24 September 2010 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. © Det Norske Veritas AS. All rights reserved. 24 September 2010 21 The sulphur leap in European ECAs 1% July ’10 0,1% January ’15 1,5% Now

22. © Det Norske Veritas AS. All rights reserved. 24 September 2010 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. © Det Norske Veritas AS. All rights reserved. 24 September 2010 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. © Det Norske Veritas AS. All rights reserved. 24 September 2010 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. © Det Norske Veritas AS. All rights reserved. 24 September 2010 25 LNG – The only solution for both SOx and NOx demands 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 CO 2 /GHG emissions  Reduce the strain on road transport 547 TEU container vessel (5000 GT) Propulsion power 3960 kW Yearly emissions, tonnes/year SOxNOxCO2PM LNG 0315 5000 Low-sulphur HFO (LS380 with 1% sulphur) 501807 2504

26. © Det Norske Veritas AS. All rights reserved. 24 September 2010 26 NOx reduction equals taking 22,000 cars off the road! Viking Lady’s reduction in NOx emissions compared to diesel operation LNG fuel Diesel fuel

27. © Det Norske Veritas AS. All rights reserved. 24 September 2010 27 Looking ahead - proposed LNG import terminals Source: 2010 Google Maps Proposed LNG Import Terminals Plant Start-up Sendout CapacityCountry Lithuania LNG2010-20131,5 mill. tonnes/yearLithuania Gävle2012Sweden Oxelösund2012Sweden Estonia LNG2012-20143 mill. tonnes/yearEstonia Wilhelmshaven LNG20147,5 mill. tonnes/yearGermany Świnoujście LNG20147,5 mill. tonnes/yearPoland

28. © Det Norske Veritas AS. All rights reserved. 24 September 2010 28 Conclusion

29. © Det Norske Veritas AS. All rights reserved. 24 September 2010 29 Return on Investment Among the three choices LNG has the lowest life cycle costs for ECA operation Applies for a typical general cargo ship Assumes 2m Euro investment LNG=450 USD in 10 years

30. © Det Norske Veritas AS. All rights reserved. 24 September 2010 30 Conclusion … short sea shipping is the obvious start 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

31. © Det Norske Veritas AS. All rights reserved. 24 September 2010 31 DNV Trusted by governments, owners, industry and suppliers Independent 3rd party provider of technical and advisory services Development partner through whole life-cycle Ongoing research and development Thank you

32. © Det Norske Veritas AS. All rights reserved. 24 September 2010 32 Safeguarding life, property and the environment www.dnv.com