③ClassNK Alternative Fuels Insight

ClassNK Alternative Fuels Insight
The 23rd Taiwan Technical Committee

20 June 2024
Green Transformation Center
ClassNK
Ⓒ 2024 NIPPON KAIJI KYOKAI

Alternative fuels support (Ammonia / Methanol / LNG / LPG / Biofuel)
Introduction support
Trends
◼ Latest information on cost estimations, including regulatory
compliance, and fuel supply forecasts, etc. to contribute to the
consideration of the introduction of alternative fuels ships
Safety requirements
◼ "Guidelines for Ships Using Alternative Fuel" which provides guidance
on safety requirements and design of alternative fuels ships
Technical support
Newbuilding ships / retrofit support

◼ Technical support for newbuilding ships using alternative fuels and
retrofitting existing ships with alternative fuels
2
“ClassNK Alternative Fuels Insight” issued on 8 May 2024

Table of Contents
(English)
✓ 4 main topics: Understanding 1. regulations 2. trends 3. alternative fuels 4. costs
3
Today’s topics
1. Understanding regulations
✓ What kind of regulations will be introduced in international shipping in the future?
2. Understanding trends
✓ What is the status of deliveries and orderbooks for alternative fuel ships?
3. Understanding alternative fuels

✓ What will be the required volume of alternative fuels in international shipping in the future?
✓ What is the outlook for the production volume of alternative fuels?
4. Understanding costs
✓ What are the primary cost factors and uncertainties for alternative fuel ships?
5. Conclusion
4
Today’s topics

5. Conclusion
5
Introduction schedule of GHG-related regulations* *Only operational GHG-related regulations are listed here.
Mid-term
2018 IMO GHG Strategy 2023 IMO GHG Strategy
50% reduction in GHG emissions by 2050 Net-zero GHG emissions by 2050 measures
(compared to 2008)
CII
IMO-DCS
2018 2019 2023 2024 2025 2027
EU-MRV
EU-ETS for Shipping
European Green Deal FuelEU Maritime

55% reduction in GHG emissions by 2030
(compared to 1990)
✓ With IMO’s mid-term measures and EU’s EU-ETS for Shipping and FuelEU Maritime in place,
GHG emissions from ships will become a cost factor.
✓ It will be crucial for the maritime business to strategically reduce GHG emissions from ships.
6
Outline of the mid-term measures proposed to the IMO (As of March 2024, MEPC 81)
Schemes Proposed by Summary

• Gradual reduction of fuel’s GHG intensity (gCO2eq/MJ) on a Well-to-Wake (WtW) basis
Technical elements
GFS EU member • Flexibility mechanisms* for regulatory compliance are included.

(Greenhouse Gas Fuel Standard) states, EC *Transfer of excess compliance from ships that achieve regulatory limits to those that do not meet them
*Considering compliance with regulations through payment of contributions to the IMO
China, Brazil, • Gradual reduction of fuel’s GHG intensity (gCO2eq/MJ) on a Tank-to-Wake (TtW) basis
• Flexibility mechanisms for regulatory compliance* and preferential treatment for relaxation of regulatory
IMSF&F Norway, UAE,
limits for certain routes in developing countries recognized to be adversely affected by this regulation
(International Maritime Sustainable Fuels and Fund) Argentina, South *Transfer emission allowance of excess compliance from ships that achieve regulatory limits to those that do
Africa, Uruguay not meet them & Considering compliance with regulations through payment of contributions to the IMO
• Levying based on GHG emissions (WtW bssis or TtW basis)
Feebate Japan • Refunds for ships using zero-emission fuels on a WtW basis, without excluding support for developing
※Fee and rebate countries
Economic elements
• Levying based on GHG emissions (TtW basis)

Feebate ICS, Bahamas, Liberia
• Refunds for ships using zero-emission fuels on a WtW basis, also used for supporting developing countries
• Levying based on GHG emissions (WtW basis)
GHG Levy Island countries
• Levy is USD150/ton GHG, increasing every five years.
(Universal Mandatory Greenhouse Gas Levy) (9 countries) • The revenue from the levy is primarily utilized for supporting developing countries.
• Levying based on GHG emissions (TtW basis)
Unnamed Canada • Levy is USD90/ton GHG, increasing every year.
[New proposal] • The revenue from the levy is utilized through a fund approved by the IMO.
Green Balance Mechanism WSC

• Levying on ships that fail to meet the GHG fuel intensity threshold
[New proposal] • Refunds are provided to ships that exceed a certain percentage of the GHG fuel intensity threshold.
✓ The mid-term measures are expected to be finalized by combining the contents of these proposals.
✓ The mid-term measures are expected to be finalized in spring 2025 (MEPC 83).
7
EU-ETS for Shipping and FuelEU Maritime

FAQs on the EU-ETS for Shipping (Edition 2.1) FAQs on the FuelEU Maritime (1st Edition)
(English) (English)
✓ ClassNK issues FAQs on the "EU-ETS for Shipping" and the "FuelEU Maritime," each explaining the
overview of the regulations and the essential preparations for compliance in a Q&A format.
✓ These FAQs are regularly updated to reflect any revisions to the regulations.
8
Today’s topics

5. Conclusion
9
Source: The figures and tables presented in this section are created by ClassNK
Trends in alternative fuel ships - 1 based on data from Clarkson Research Services Limited.
"Newbuilding" alternative fuel ship trend "In service" alternative fuel ship trend*
*Cumulative number of ships delivered since 2015, without considering scrapping
✓ As of the end of December 2023 (Orderbook after 2024) ✓ As of the end of December 2023 (Orderbook is included after 2024.)
✓ 5,000 gross tonnage and above ✓ 5,000 gross tonnage and above
✓ LNG carriers are excluded from LNG fueled ships. ✓ LNG carriers are excluded from LNG fueled ships.
✓ While there is a noticeable increase in orders for methanol fueled ships, LNG fueled ships still
dominate the orderbook for alternative fuel ships.
10
Trends in alternative fuel ships - 2

Share of alternative fuel ships
In service ― On order ― Details of alternative fuel ships (Jun. 2023 → Dec. 2023)
In service ―
As of Jun. 30, 2023 As of Dec. 31, 2023
Number of vessels 429 vessels (1.2%) 519 vessels (1.4%)
Total GT 26,539,215 GT (1.8%) 33,461,484 GT (2.2%)
During the past six months, there has been an increase of 90 vessels totaling 7.0 million
GT. This growth can be attributed to the successive deliveries of LNG fueled
containerships, bulk carriers, and LPG fueled LPG carriers, leading to an increase in
alternative fuel ships.
On order ―
As of Jun. 30, 2023 As of Dec. 31, 2023
Total GT 58,698,042 GT (30.1%) 61,732,161 GT (30.9%)
✓ As of the end of December 2023 During the past six months, there has been an increase of 113 vessels totaling 3.0
✓ 5,000 gross tonnage and above million GT. Particularly notable is the high number of orders for methanol fueled ships,
✓ LNG carriers are excluded from LNG fueled ships. expanding in various ship types such as especially for 16,000 TEU- containerships with
bulk carriers, vehicle carriers, and product/chemical tankers.
11
Trends in alternative fuel ships - 3 (by ship type)

In service ― On order ―
✓ As of the end of December 2023 ✓ As of the end of December 2023

✓ 5,000 gross tonnage and above ✓ 5,000 gross tonnage and above
➢ With the exception of LPG carriers and product/chemical tankers, which ➢ Adoption of methanol fueled ships is expanding, especially among
include methanol carriers, LNG fueled ships constitute the majority in the containerships. Additionally, orders for ammonia fueled ships have been
adoption of alternative fuels. observed in some ship types.
12
Trends in alternative fuel ships - 4 (by ship type)

Bulk carriers
In service ― On order ― Details of alternative fuel ships (Jun. 2023 → Dec. 2023)
In service ―
As of Jun. 30, 2023 As of Dec. 31, 2023
Total GT 2,831,602 GT (0.5%) 3,622,799 GT (0.7%)
During the past six months, there was an increase of 10 vessels, totaling 0.8 million GT.
By ship size, more than half of the increase is accounted for by VLOC/Capesize,
indicating that, in line with previous trends, alternative fuel ships are often adopted in
larger sizes. It's worth noting all deliveries were LNG fueled ships.
On order ―
In service ― On order ― As of Jun. 30, 2023 As of Dec. 31, 2023
Total GT 3,635,838 GT (9.0%) 4,926,559 GT (10.3%)
During the past six months, there was an increase of 13 vessels, totaling 1.3 million GT.
By ship size, VLOC/Capesize and Panamax accounted for the majority. By fuel type,
methanol fueled ships were the most common. Additionally, orders for ammonia fueled
ships were observed in the VLOC/Capesize category.
13
Today’s topics

5. Conclusion
14
Required volume of zero-emission fuels in international shipping

Fuel Consumption of ships subject to the IMO DCS (5,000 gross tonnage and above engaged in international voyages) [Unit: ton]
Heavy Fuel Oil Light Fuel Oil Diesel/Gas Oil LPG LPG Total
LNG Methanol Ethanol Other
(HFO) (LFO) (MDO/MGO) (Propane) (Butane) (HFO eq)
2022
(28,834 ships) 116,576,283 57,077,835 28,285,802 10,950,408 88,774 16,673 35,523 10,890 226,739 218,339,992
(1.29 bn GT)
abt. 220 mil. tons

If we aim to replace all 220 million tons of Heavy Fuel Oil (HFO) with alternative fuels...
HFO eq 220 mil. tons For all methanol 440 mil. tons of methanol needed
HFO eq 220 mil. tons For all ammonia 470 mil. tons of ammonia needed
HFO eq 220 mil. tons For all hydrogen 70 mil. tons of hydrogen needed
✓ Considering the GHG emission assessment throughout the lifecycle (Well-to-Wake), green
methanol/ammonia/hydrogen are likely to be needed in these volumes in the future.
15
Alternative fuel production projects - 1 (Green methanol)

Distribution of green methanol production projects (Operational/Construction/FID, for all sectors, as of October 2023)
Country/ Number of Annual production

Region projects capacity (total)
China 3 365,867 tons CH3OH/year
Europe 9 119,675
Asia 1 3,918
Europe
0.11 Total 13 489,461
USA China
0
Middle East 0.36 Source: Prepared by ClassNK based on IEA (2023), Hydrogen Production Projects Database
Japan
0
North and 0
Central America
0 Africa
Asia
0
<0.1
South America
0 Oceania
0
Australia
0
Unit: million tons CH3OH/year
Main bunkering ports for conventional fuel oil
✓ Due to insufficient demand in other sectors, the production volume of green methanol is expected
to be very small at this moment.
16
Alternative fuel production projects - 2 (Green methanol)

Projected production capacity of green methanol (for all sectors, as of October 2023)
Projected production capacity by year Projected production capacity by country/region (as of 2030*)
*After 2030, there are no projects planned.
➢ The green methanol production capacity is ➢ Many of the green methanol projects slated to
expected to increase gradually, but most of the start production by 2030 are located in Europe
projects are still in the feasibility study or and the USA.
conceptual stages.
Source: Prepared by ClassNK based on IEA (2023), Hydrogen Production Projects Database
17
Alternative fuel production projects - 3 (Green ammonia)

Distribution of green ammonia production projects (Operational/Construction/FID, for all sectors, as of October 2023)
Country/ Number of Annual production

Region projects capacity (total)
Middle East 3 2,523,652 tons NH3/year
China 11 1,385,574
Asia 3 535,113
Europe
<0.1
Middle East
South America 3 82,168
USA
China
<0.1
Europe 4 46,880
2.52 1.38 Japan
0
North and
Central America
USA 1 18,824
0 Africa
<0.1 Asia Australia 1 9,621
0.53
South America Africa 2 481
Oceania
<0.1
0
Australia Total 28 4,602,313
<0.1
Unit: million tons NH3/year
Main bunkering ports for conventional fuel oil
✓ Green ammonia production volume is expected to increase in the near future, but the supply
volume for international shipping is uncertain.
18
Alternative fuel production projects - 4 (Green ammonia)

Projected production capacity of green ammonia (for all sectors, as of October 2023)
Projected production capacity by year Projected production capacity by country/region (as of 2043*)
*After 2043, there are no projects planned.
➢ The green ammonia production capacity is expected ➢ Many of the green ammonia projects slated to
to increase gradually, but most of the projects are start production by 2043 are located in Australia,
still in the feasibility study or conceptual stages. Africa, South America, and Asia.
19
Today’s topics

5. Conclusion
20
Uncertain factors in costs (1. Shipbuilding costs, 2. Fuel costs, 3. Regulatory costs)
3. Regulatory IMO
3. Regulatory Down costs mid-term
costs measures
2. Fuel costs
FuelEU
2. Fuel costs Up Maritime
EU-ETS
1. Shipbuilding 1. Shipbuilding
costs
costs Up
Conventional fuel ship Alternative fuel ship
✓ The primary factors contributing to regulatory costs are the EU's EU-ETS and FuelEU Maritime, as
well as IMO's mid-term measures.
✓ While EU regulations target GHG emissions in EU-related voyages, IMO regulations are likely to
cover GHG emissions in all voyages, potentially leading to relatively higher regulatory cost burdens.
21
Uncertain factors in costs (1. Shipbuilding costs)

The historical trend of shipbuilding costs (ship prices) and the shipbuilding costs of alternative fuel ships
Entering an upward trend

from around 2020
Shipbuilding costs of alternative fuel ships

(relative to conventional fuel ships)
LNG +19%
LPG +19%
Methanol +11%
Ammonia +19%
Source: Prepared by ClassNK based on data from Clarkson Research Services Limited
✓ The shipbuilding costs of alternative fuel ships are typically 10% to 20% higher compared to
conventional fuel ships, depending on the ship type and size.
22
Uncertain factors in costs (2. Fuel costs)

Image of fuel costs
✓ Alternative fuels can be broadly categorized

into "biomass-derived fuels" and "e-fuels
produced from green hydrogen and
captured CO2."
✓ The main cost factor for "biomass-derived
fuels" is the price of biomass itself. The
price of biomass is influenced by factors
such as the availability of biomass resources
and the demand trends in other sectors.
✓ The main cost factor for "e-fuels produced
from green hydrogen and captured CO2"
is the price of green hydrogen. The price
of green hydrogen is influenced by the costs
of renewable energy and electrolysis
Source: Maersk Mc-Kinney Moller Center for Zero Carbon Shipping (2021), Position Paper Fuel Option Scenarios
equipment.
23
Uncertain factors in costs (3. Regulatory costs)

The three major GHG regulations in international shipping going forward
1. EU-ETS (2024 -) Transition of the price of allowances at

✓ It requires the surrender of emission allowances corresponding to the targeted GHG the European Energy Exchange (EEX)
emissions.
✓ Emission allowances must be procured through the market, and their prices fluctuate
daily based on supply-demand balances, etc.
✓ The fluctuating prices of emission allowances are a major uncertain factor in
EU-ETS costs.
2. FuelEU Maritime (2025 -)
✓ It sets limits for the GHG intensity of fuels (GHG emissions per unit of energy) and
requires ships exceeding these limits to pay penalties.
Source: Prepared by ClassNK, based on the emission allowance price
✓ The total amount of penalties is determined by the "degree of excess over the limit" data publicly available from the EEX
and the "amount of energy consumed."
✓ Flexibility mechanisms (banking, borrowing, pooling) are available to avoid penalties,
and the adept use of these flexibility mechanisms affects the costs of FuelEU
Maritime.
3. IMO mid-term measures (Scheduled for 2027 -)
✓ The contents of the regulation itself are not fixed (the regulation details are
expected to be finalized in 2025).
24
ClassNK conducts cost simulations

✓ Calculate while focusing solely on the major components of costs,
namely shipbuilding costs, fuel costs, and regulatory costs, which
constitute the majority of the total costs.
✓ Compare the total costs of adopting conventional fuel ships with
those of alternative fuel ships for ships of the same type and size.
✓ Assumptions regarding fuel costs and regulatory costs can be
set as follows:
• Gradual transition case (Regulatory costs: low, Zero-emission fuel costs: high)
A case assuming a gradual transition to decarbonization in shipping. GHG emission
regulations are lenient, and the cost decrease of zero-emission fuels progresses
gradually.
• Stepwise transition case (Regulatory costs: middle, Zero-emission fuel costs: middle)
A case that falls between the "gradual transition case" and the "rapid transition case."
• Rapid transition case (Regulatory costs: high, Zero-emission fuel costs: low)
A case assuming a rapid transition to decarbonization in shipping. GHG emission
regulations are stringent, and the cost decrease of zero-emission fuels progresses
rapidly.
✓ Once the contents of the IMO’s mid-term measures are finalized

(scheduled for 2025), more accurate calculations will be possible.
ClassNK plans to provide cost simulation calculation services
in response to this.
25
Cost simulation example

Conventional fuel ship vs. Ammonia fueled ship 64,000 DWT bulk carrier: Stepwise transition case
＜Assumption＞
✓ Delivery in 2031
✓ The shipbuilding cost is accumulated
annually over a 20-year period.
＜How to read the graph＞
✓ The bar graph on the left side:
The cumulative cost if a conventional fuel
ship is adopted. (Fuel selection limited to
HFO only)
✓ The bar graph on the right side:
The cumulative cost if an ammonia fueled
ship is adopted. (Fuel selection options
include HFO or e-Ammonia)
✓ For the ammonia fueled ship, from 2040 onwards, choosing e-Ammonia would be cost-effective
("e-Ammonia fuel cost" < "HFO fuel cost + regulatory cost").
✓ The cumulative cost of an ammonia fueled ship will fall below that of a conventional fuel ship in 2042.
26
(Reference) Assumptions for cost simulation example

The assumptions for the cost simulation example for a 64,000 DWT bulk carrier are as follows:
The items in blue represent the main uncertainties in costs.
2024
Category Unit 2031 2050 Comments
(ref.)
USD 39,270,000
Newbuilding price (Ammonia fueled ship) - - - -
(Conventional fuel ship+19%)
Fuel consumption (HFO) ton - 5,000 5,000 Same energy consumption in ammonia fueled ship
522.6
Fuel price (HFO) USD/ton 522.6 522.6
(=13.0 USD/GJ)
Base 855.6
Gradual transition case USD/ton 735.8 410.7 2.0% decrease each year compared to 2024
(=46.0 USD/GJ)
855.6
Fuel price (e-Ammonia) Stepwise transition case*1 USD/ton 723.8 366.2 2.2% decrease each year compared to 2024
(=46.0 USD/GJ)
855.6
Rapid transition case USD/ton 711.9 321.7 2.4% decrease each year compared to 2024
(=46.0 USD/GJ)
Emissions subject to EU reg. (% in total emissions) % 12 12 12
Gradual transition case USD/tonCO2eq 70.0 74.9 88.2 1% increase each year compared to 2024
EU
EU-ETS allowance price Stepwise transition case*1 USD/tonCO2eq 70.0 84.7 124.6 3% increase each year compared to 2024
regulations-
related Rapid transition case USD/tonCO2eq 70.0 94.5 161.0 5% increase each year compared to 2024
HFO’s GHG intensity (gCO2eq/MJ) is 91.7.

FuelEU Maritime costs - As per the reg. As per the reg. As per the reg.
e-Ammonia’s GHG intensity is 0.0.
Emissions subject to IMO reg. (% in total emissions) % 100 100 100
IMO
regulation- IMO mid-term measures
The same contents
The same contents The same contents HFO’s GHG intensity (gCO2eq/MJ) is 91.7.
- as FuelEU Maritime
related costs*2 (2027)
as FuelEU Maritime as FuelEU Maritime e-Ammonia’s GHG intensity is 0.0.
*1The cost simulation example in the previous slide was calculated under the "stepwise transition case."
*2The IMO’s mid-term measures are aligned with FuelEU Maritime, and the emissions targeted by the regulations cover emissions in all voyages.
27
Today’s topics

5. Conclusion
28
5. Conclusion
A Snapshot of the Current State of Energy Transition in International Shipping
29
5. Conclusion
Towards net-zero GHG emissions by 2050

✓ The international shipping industry is expected to undergo a significant fuel transition period
toward achieving net-zero GHG emissions by or around 2050. Under this circumstance, adoption of
alternative fuel ships will be required for all shipping companies in the near future.
✓ ClassNK has released “ClassNK Alternative Fuels Insight” to support your future fuel selection
through providing the overall trend of alternative fuels, including factors such as fuel availability and
cost projections. ClassNK Alternative Fuels Insight will continue to be updated.
✓ ClassNK supports your seamless transition to zero emissions through ClassNK Transition Support
Services.
(English)
30
for your kind attention
Nippon Kaiji Kyokai (ClassNK) TEL: +81-3-5226-2031

Green Transformation Center E-mail: gxc@classnk.or.jp

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ClassNK Alternative Fuels Insight

The 23rd Taiwan Technical Committee

Ⓒ 2024 NIPPON KAIJI KYOKAI

Newbuilding ships / retrofit support

“ClassNK Alternative Fuels Insight” issued on 8 May 2024

✓ 4 main topics: Understanding 1. regulations 2. trends 3. alternative fuels 4. costs

3. Understanding alternative fuels

3. Understanding alternative fuels

2018 2019 2023 2024 2025 2027

European Green Deal FuelEU Maritime

Schemes Proposed by Summary

GFS EU member • Flexibility mechanisms* for regulatory compliance are included.

• Levying based on GHG emissions (TtW basis)

Green Balance Mechanism WSC

EU-ETS for Shipping and FuelEU Maritime

3. Understanding alternative fuels

Trends in alternative fuel ships - 2

Number of vessels 429 vessels (1.2%) 519 vessels (1.4%)

Total GT 26,539,215 GT (1.8%) 33,461,484 GT (2.2%)

Number of vessels 722 vessels (21.2%) 835 vessels (21.8%)

Total GT 58,698,042 GT (30.1%) 61,732,161 GT (30.9%)

Trends in alternative fuel ships - 3 (by ship type)

✓ As of the end of December 2023 ✓ As of the end of December 2023

Trends in alternative fuel ships - 4 (by ship type)

Number of vessels 29 vessels (0.2%) 39 vessels (0.3%)

Total GT 2,831,602 GT (0.5%) 3,622,799 GT (0.7%)

Number of vessels 50 vessels (5.0%) 63 vessels (5.5%)

Total GT 3,635,838 GT (9.0%) 4,926,559 GT (10.3%)

3. Understanding alternative fuels

Required volume of zero-emission fuels in international shipping

abt. 220 mil. tons

Alternative fuel production projects - 1 (Green methanol)

Country/ Number of Annual production

China 3 365,867 tons CH3OH/year

Unit: million tons CH3OH/year

Main bunkering ports for conventional fuel oil

Alternative fuel production projects - 2 (Green methanol)

Alternative fuel production projects - 3 (Green ammonia)

Country/ Number of Annual production

Middle East 3 2,523,652 tons NH3/year

Unit: million tons NH3/year

Main bunkering ports for conventional fuel oil

Alternative fuel production projects - 4 (Green ammonia)

3. Understanding alternative fuels

Conventional fuel ship Alternative fuel ship

Uncertain factors in costs (1. Shipbuilding costs)

Entering an upward trend

Shipbuilding costs of alternative fuel ships

Uncertain factors in costs (2. Fuel costs)

✓ Alternative fuels can be broadly categorized

Uncertain factors in costs (3. Regulatory costs)

1. EU-ETS (2024 -) Transition of the price of allowances at

ClassNK conducts cost simulations

✓ Once the contents of the IMO’s mid-term measures are finalized

Cost simulation example

(Reference) Assumptions for cost simulation example

HFO’s GHG intensity (gCO2eq/MJ) is 91.7.

3. Understanding alternative fuels

A Snapshot of the Current State of Energy Transition in International Shipping