THE LNG USE AS A MARITIME FUEL: ENVIRONMENTAL CHALLENGES AND PERSPECTIVES BASDANI E.I., Mrs, C.

Eng, Transport Planning and Eng. MSc, Officer (Eng) HCG (rtd), 4-6 Tompazi, 18537 Piraeus, , :+302104936342, :+306932705628 elebas@in.gr LIGNOU M.N., Mrs, Mech.Engineer, Automation Systems MSc, Officer (Eng) HCG, , :+306972084570 m.lignou@yahoo.com. ABSTRACT IMO intending to reduce SOx, NOx and greenhouse gas (GHG) emissions from ships, in the context of MARPOL- Annex VI, started to set restrictions and develop mechanisms (EEDI, SEEMP) to achieve this aim. Moreover, the EUs maritime transport policy until 2018 focused on the gradual reduction in the carbon footprint of vessels. Since the LNG as fuel, compared to HFO, has the potential to reduce the CO2 emissions by around 2530%, SOx emissions to almost zero and NOx emissions by more than 80%, it is obvious that it is associated with environmental benefits. Therefore it is extremely interesting to approach the requirements of the LNG use as maritime fuel. Firstly, the development of the LNG market was examined in terms of LNG supply plants and LNG pricing trends, as well as the flexibility of LNG bunkering. Furthermore, an investigation of the technological development in the field of maritime transport has been undertaken to determine reduction of emissions from existing marine engines empowering the use of LNG as maritime fuel. Accordingly, marine engine industry and Classification Societies teamed up to form case studies for the conversion of existing vessels and new buildings to use LNG as fuel (dual-fuel engine). They have addressed technical and economical issues to assess robustness of business models. In terms of safety, after the IMOs Interim Guidelines on safety for natural gas-fuelled engine installations in ships (MSC.285(86)/2009 Resolution), the MSC has been charged to develop the International Gas Fuel-Code (IGF), scheduled for adoption in 2014. Finally, in order to decide whether an investment of LNG use as maritime fuel is worthwhile, initial expenditure, storage tank cost, operating costs, maintenance cost and environmental cost must be evaluated. In conclusion, potential investment in LNG use for marine propulsion under specific cost conditions seems to be attractive in general and especially in regions presenting environmental susceptibility.

KEYWORDS LNG maritime fuel; GHG emissions from ships; EEDI; IGF Code; LNG market; LNG bunkering

THE LNG USE AS A MARITIME FUEL: ENVIRONMENTAL CHALLENGES AND PERSPECTIVES

1. INTRODUCTION The aim of this study is to investigate the possibilities of extended use of LNG as maritime fuel, taking into account the environmental advantages in terms of exhaust emissions. For this purpose, the International and European legislative framework was reviewed concerning the existing restrictions of ships exhaust emissions and those coming in the near future. Furthermore, the environmental issues of the LNG use as maritime fuel were examined according to the recent developments in marine technology by presenting (3) case studies elaborated by joint teams of marine engine industry and Classification Societies. A focus on the safety aspects of LNG engines and storage facilities was given according to the relevant regulations of IMO (MSC.285(86)). Also, the LNG global market in terms of supply was reviewed and the pricing trends of LNG were investigated. In order to estimate the possibilities of successive application, many other aspects were examined like LNG bunkering, ship operating, maintenance and environmental costs, as well.

2. EMISSIONS FROM SHIPS, INTERNATIONAL AND EUROPEAN FRAMEWORK Although the environmental impact of shipping is the lowest compared with other transport modes, taking into account that shipping transfers the 90% of the world trade, more than 30.000 billion ton-miles per year, a lot of effort has been done in international basis to minimize this impact, Galani (2010). The combustion of the ship engine produces exhaust gas, a very hot mix of carbon dioxide (CO2), nitrogen oxides (NOx), surplus oxygen, sulphur dioxide (SOx) and carbon (PM10). The CO2 (as part of GHG emissions), NOx, SOx and PM10 are not environmental friendly. The mixture of these components depends on the fuel used in ship engine. The diesel oil (MDO) produces least dirt but is expensive. The so called heavy fuel (HFO) is much cheaper but it requires precleaning and heating, and it produces sludge and dirtier exhaust gases, Van Dokkum (2007). Emissions of air pollutants from international shipping are regulated by Annex VI of MARPOL, IMOs Convention, which was originally signed in 1997 and came into force in May 2005. Annex VI set limits on the sulphur content of marine fuel oils and on the emissions of NOx from new ship engines, (Fig. 1). Recently, the IMOs Marine Environment Protection Committee (MEPC) agreed to revise and strengthen the aforementioned emission limits which entered into force on 1st July 2010. Thus, the current global limit on sulphur in marine fuels (4.5%) will fall to 3.5% in 2012 and to 0.5% in 2020. Therefore, ships must use low-sulphur fuels or exhaust gas cleaning systems or other methods to limit their sulphur emissions. Emissions of NOx are controlled by emission standards for new ship engines. The revised Annex VI sets Tier II standards that apply from 2011 and will cut emissions by 16-22%. Tier III standards will apply only in the specially designated NOx emission control areas. Moreover, the current MARPOL Annex VI permits areas to be established in which the SOx or NOx content of fuels used on ships can be limited below the world wide limit. These areas are known as Emission Control Areas (ECA) and currently there are two, the Baltic and the North Sea. The US and Canada agreed to apply to MEPC for the North America Area (200 nautical

miles from the coasts) to become an ECA for both SOx and NOx. Any ship intending to operate in this ECA will be required to adhere to the NOx limits after 1/1/2016 and to the SOx limits, e.g. 1.00% max sulphur content fuel oil after 1/8/2012 and 0.10 % respectively after 1/1/2015. Ships will be required to have written change-over procedures and to change-over fuels prior to entry into ECA and maintain until the exit, (Fig. 1).

Fig. 1: Environmental requirements for shipping until 2020, (Plump et al. 2010). Moreover, in November 2003, the International Maritime Organization (IMO), by Resolution A.963(23), adopted on policies and practices related to the reduction of greenhouse gas emissions (GHG) from ships, proceeded to develop mechanisms to achieve limitation or reduction of the GHG emissions from international shipping. The date of the entry into force EEDI (Energy Efficiency Design Index) and SEEMP (Ship Energy Efficiency Management Plan), mandatory under MARPOL Annex VI would most likely be around January 2013, MEPC (2010a). EEDI is an algorithm including vessel parameters like deadweight, horsepower, speed, electric engine capacity, etc, in order to calculate the amount of CO2 exhausted per cargo tones. After the adoption of the Resolution each new building must have an EEDI lower than the upper limit being determined by IMO. Some delegations have expressed concerns that as a result of introduction of EEDI, future ships may be slow and may become under powered. Moreover concerns are expressed about the strength and safety of new vessels, (Zachariadi 2010). It is expected that EEDI, as mandatory mechanism will affect the ship operating cost, the chartering, the green taxes and the second hand prices, MEPC (2010c). However, in the recent IMO/MEPC 61st session (Oct. 2010) China, Brazil and others were against the mandatory enforcement of EEDI and believe that it should remain non mandatory as CO2 is not considered a pollutant. Moreover, market based measures (MBM) which aim to reduce GHG emissions using regulatory instruments have been on the agenda of the MEPC 61st. By putting a price on GHG emissions, ship yards and operators have more encouragement to reduce emissions. Three general types of MBM have been proposed: (a) levy, (b) emission trading and (c) efficiency based but there is no indication which type will prevail and a decision is only expected at the earliest at the next MEPC meeting in July 2011, MEPC (61 2010b; GL 2010a ).

As far as the European policy is concerned, the Directive 2005/33/EC determined SECAs the Baltic and North Sea and imposed requirements for all ships calling European ports to use low sulphur fuel, (Fig. 1). On the other hand, the European Parliament adopting on May 2010 the strategic goals and recommendations for the EUs maritime policy until 2018, acknowledged that considerable progress must be made on reducing emissions of SOx and NOx, PM10 and CO2 and this is necessary within the framework of the EU climate protection goals, van Dalen (2010). It calls Member States to work within the IMO to set and implement appropriate and globally applicable environmental standards. Also, it calls Member States to make more use, in conjunction with neighboring countries, of designating maritime emission control areas (ECA). In particular, it notes that shipping technology may reduce emissions from existing ships engines substantially by using liquid natural gas as a fuel and calls the Commission to investigate how their implementation might be accelerated, Meissner (2010).

3. THE ENVIRONMENTAL ISSUES OF LNG USE Within this decade, the shipping industry will be expected to implement no less than 13 major international regulations, all of which aim at limiting the environmental impact of maritime traffic. Ships will have to comply with many more regulations, emission limits will be lowered and energy-efficient ships are going to be high in demand. Even though a number of technologies improving the efficiency of ships and reducing emissions to the environment are available today, there is no doubt that an even greater effort will be required to make shipping more sustainable and green, GL (2010a). For the last three or four decades most cargo ships have followed an orthodox, or commonly accepted, template of engine design a large diesel power plant supported by three generators- burning heavy fuel oil (HFO). With the advent of statutory NOx and SOx emissions control, this may well change; the entry into force of the revised MARPOL Annex VI has set the stage for how these controls will be applied on an international level up to and beyond 2020, LR (2010). Concerns over emissions have also widened to include CO2. Aiming at reducing marine fuel cost, and exhaust emissions are driving the interest in alternative fuels, like hydrogen fuel cells, nuclear power, battery-powered ships, bio-fuels, gas-fuelled ships, LR (2010). Natural gas is widely regarded as a bridge to a low-carbon future. For the maritime industry gas could be regarded as a viable alternative to heavy fuel oil which will be phased out according to IMO within the next ten years. Gas has the potential to reduce dependence on other fossil fuels with heavier carbon impacts, GL (2010b). Liquefied natural gas (LNG) is gas (predominately methane, CH4) that has been converted temporarily to liquid form for ease of storage or transport. It is odorless, colorless, nontoxic and non-corrosive. The reduction in volume makes it much more cost-efficient to transport over long distances. The energy density of LNG is 60% of that of diesel fuel. Compared to oil, LNG has two key advantages: high efficiency and a lower environmental impact. It offers the prospect of 25% reductions in CO 2, a complete elimination of sulphur emissions and close to 90% reduction in nitrogen oxides (NOx), (Fig.2), (GL 2010b; Bennett 2010). According to IMOs Convention SOLAS (1974), LNG was allowed to be used only by LNG gas carriers. Given the public pressure related to the impact of global warming, IMO has started to amend this Convention. In 2004, Norway in particular proposed to IMO to develop a Code for gas as ship fuel. Earlier in 2000, a small ferry had been authorized by the Norwegian authorities to be operated on LNG but nowadays a number of ferries and offshore supply vessels are operating on LNG

in Norwegian territorial waters, thus a considerable experience has been obtained, GL (2010c). Also, engineers insist that engine problems and damage caused by low quality heavy fuel oils will be a thing of the past for ship owners switching to gas as a ship fuel. The short sea sector with its intensive ship traffic is an ideal region to build up the necessary LNG infrastructure.

Fig. 2: Comparative overview of ship engines emission values, (Bennett 2010). In conclusion, natural gas gives a far more environmentally friendly combustion and in addition there appear to be greater reserves available than oil, GL (2010b).

4. THE LNG MARKET AND PRICING Oil, gas, coal and other fossil fuels will still provide more than 75% of total global consumption by 2035 though hydroelectric and wind power would be the two fastest sources of world energy supply during this period according to the (US EIAS International Energy Outlook 2010; Global Lng Info 2011). In particular, natural gas will account for about a quarter of global energy demand by 2030 up from about 20% in 2008 and its production will increase at about 1.7% per year during 2005-2030, faster than either coal or oil, according to (Exxon Mobil Energy Outlook 2007; Global Lng Info 2011). Even though natural gas has grown to become a truly global energy source and it is seen as an essential fuel to meet the tree important pillars: energy security, environmental sustainability, economic competitiveness and growth, the economic crisis started in second half 2008 affected this trend. Last two years the economic recession continued reducing global gas production with the largest cuts evident in Russia, North Sea Basin countries and North America. In the opposite, a few countries like Qatar, Yemen, Indonesia, Malaysia, Peru, and Colombia showed relatively positive figures, (OECD 2009; Jensen 2004; Global Lng Info 2011). As far as maritime fuels are concerned the predominant position belongs to HFO for long distance carriers and to diesel oil for high speed vessels. Since the use of LNG as maritime fuel is very limited and experimental, it is interesting to investigate the LNG market supply and its possibilities to serve the shipping industry. 4.1 LNG supply

LNG is produced by cooling natural gas to a temperature of minus 162 degrees Celsius. At this temperature, natural gas becomes liquid and its volume reduces 615 times. Thus gas has high energy density which makes it useful for energy storage in double-walled, vacuum-insulated tanks. The production process of LNG starts with natural gas being transported to the LNG plant site as feedstock. After filtration and metering in the feedstock reception facility, the feedstock gas enters the plant and is distributed among the identical liquefaction systems. The best place to install the plant is near the gas source, otherwise gas is transported through pipelines or by truck to the LNG plants, MBEcomponents (2010). In 2008 LNG accounted for about 7% of natural gas consumption worldwide. As far the LNG worldwide production is concerned, the countries with predominant position in LNG supply are shown in Fig.3. Worldwide, there are (29) LNG Liquefaction Plants on-stream scattered in (18) countries and (5) plants under construction in Australia, Angola, N. Guinea and Qatar, (Global Lng Info 2011).
25 Qatar Indones ia 20 Malays ia A lgeria 15 A us tralia Nigeria 10 Trinidad E gypt O man 5 B runei A bu Dhabi 0 L NG produc tion 2006 US A L ibya

Fig. 3: The LNG production by country in 2006 (billion cubic meters), (lngpedia 2011). The evolution of LNG export within a period of 25 years is shown in following Fig.4. It is obvious that during the last decade new producers have started LNG exports forming the market increasing trend. The LNG market is growing rapidly attracting more players as it evolves into a more competitive, more transparent market that helps connect gas markets across the globe, lngpedia (2011).

Fig. 4: The world LNG export growth by country (1982-2007), (lngpedia 2011). Furthermore, the LNG market is set to grow about 50% from 2008 to 2013 as projects in various stages of development come on line to feed rising demand. LNG has traditionally been dominated by a few large gas-producing incumbents. However, as production grows the likes of BP, Shell and BG are being joined by a growing rank of new entrants looking to gain a foothold in the growing market, like Barkley Capital, Mercuria Energy, Gunvor Intern., Citigroup, Golar LNG, JP Morgan, Merrill Lynch, Credit Suisse, Goldman Sachs, etc. according to REUTERS (Aug. 2010), Reuters (2010). LNG will reach demand of about 500 MMT/Y balanced among Asia, North America and Europe in 2030 from a supply of a bit more than 100 MMT/Y in 2005, with Asia dominating with about 75% of that amount, according to (Exxon Mobil Energy Outlook 2007; Global Lng Info 2011). Table 1: The trade of LNG in 2007 (exports-imports), (lngpedia 2011).

The LNG trade network between export-import countries in 2007, which is undertaken by an LNG fleet, steadily increasing, is shown in Table 1. However, the LNG market is not as flexible as the world oil market due to high costs of LNG transportation. Only when

there is a surplus capacity in liquefaction plants and LNG tankers can compete in distant markets. Since LNG is by nature highly capital-intensive with substantial financial risks, the long-term contract will remain the mainstay of the LNG trade, Jensen (2004). A SWOT Analysis of the Global LNG Market, (visiongain 2011), revealed the following Strengths: Less pollution, decreasing costs, comparative safety and flexibility of trade, Weaknesses: Remaining higher cost than most fuels, regulations and public opposition, source of carbon dioxide emissions and demand uncertainty, Opportunities: Geopolitical advantages and floating LNG (FLNG), and Threats: Development of Shale Gas and political instability. 4.2 LNG pricing Natural gas prices are a function of market supply and demand. Due to limited alternatives for natural gas consumption or production in the short run, changes in supply or demand over a short period often result in large price movements to bring supply, Koskarian et al. (2006). Nevertheless, the declining costs of delivering LNG, the growing diversity of supply sources and a loosening of the traditional rigid industry structure, have created a system which can transmit price signals freely between previously isolated regional gas systems, Jensen (2004). However, European gas prices will remain explicitly linked to oil prices and this link will keep gas prices in Europe high for the foreseeable future, according to CERA report (2008) of Canada. US EIA projected that oil prices would average US$ 133/bbl by 2035 between US$ 51/bbl and US$ 210/bbl depending on certain supply and demand factors. Respectively, US EIA expected that natural gas prices will increase from the 2009 level of $ 3.95/MMBTU to $ 7.19/MMBTU in 2035 forcing the demand into balance, Global Lng Info (2011). Looking at the LNG pricing trends over a period of 20 years in the main markets (Japan, EU, UK, USA Canada) it is obvious that since 2003 and later on the prices increase steadily, (Fig.5), lngpedia (2011).

Fig. 5: LNG prices during 1984-2005 periods in Japan, EU, UK, USA, and Canada, (lngpedia 2011). Moreover, the LNG market will stay tight until 2015 and possibly beyond, driven by rising demand and delays in LNG supply projects according to Canadian Gas Association, (report 2008). The market is buoyant and long-term LNG contract prices are approaching the crude oil equivalent. The introduction of a price on carbon could push LNG prices beyond crude oil, Global Lng Info (2011). But taking into account the two last years price fluctuation (2009-2011), the energy equivalent price of natural gas is about the crude oil price, (Aegent).
Effective fuel prices (USD/t)

1600 1400 1200 1000 800 600 400 200 0

HFO Gas low Sulphur

Fig. 6: Base fuel price scenario, (Plump et al. 2010). For the purpose of this investigation it should be useful to compare fuel prices between alternatives like HFO, Gas and low-sulphur fuel. With reference to Fig.6 a scenario is presented along next fifteen years where prices increase but gas remains more expensive than HFO but more competitive to low-sulphur fuel, which should be used after 2015 according to international environmental restrictions, Plump et al. (2010).

1 20 1 1 20 2 1 20 3 1 20 4 1 20 5 1 20 6 1 20 7 1 20 8 1 20 9 2 20 0 2 20 1 2 20 2 2 20 3 2 20 4 25
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5. REGULATIONS FOR SAFE USE OF LNG AS SHIP FUEL According to the IGC-Code (International Code for the Construction and Equipment of Ships carrying liquefied Gases in Bulk) liquefied gas carriers are allowed to use the vapour or boil off gas of methane as fuel in machinery spaces. Since 2000 a few vessels fuelled by LNG have come in service. These vessels are not covered by the IGC-Code and need therefore the permission of the national administration. The increasing trend to use gas as ship fuel is expedited by the scheduled environmental requirements. The usage of gas as fuel is associated with environmental benefits compared to any oil based fuel. LNG as fuel has the potential to reduce the CO2, SOx, NOx and particulate emissions, Wursig (2011). The promotion of gas as ship fuel requires a new set of safety regulations by IMO and related institutions. In early June 2009, the IMO Committee on Maritime Safety (MSC) lifted the ban on natural gas as a ship fuel by adopting Resolution MSC.285(86) called Interim Guidelines on safety for Natural Gas-Fuelled Engine Installations in Ships which is the standard for the coming years until the general code will have been developed. The goal of Resolution MSC.285(86) is to provide criteria for the arrangement and installation of machinery for propulsion and auxiliary purposes using natural gas as fuel. The IMO subcommittee on Bulk Liquid and Gases (BLG) is working on a general Code for gas as a ship fuel. The so-called IGF Code is currently under development and is expected to enter into force with the revision of SOLAS 2014, to overcome missing international regulatory requirements. The IGF Code is, in fact, expected to be addressing technical matters (engine room arrangement, onboard gas supply, energy conversion systems, etc), (Wursig 2011; Wursig 2008), with special focus on safety related aspects. The IGF Code will replace the Interim Guidelines and will be the basis for design of ships using natural gas as fuel. While the Guidelines are not mandatory for the flag states they represent the state of the art rules for ship construction and are widely accepted as the design basis by flag states. Governments with a strong agenda to combat global warming will apply the Interim Guidelines to gas-fuelled ships, GL (2010c). The European Commission has drafted guidance for LNG carriers seeking to use boil-off gas during European Union port calls in order to comply with low-sulphur requirements. Boil-off gas could become the primary fuel at berth and anchor given that it produces lower sulphur emissions than the 0.1% limit set out in EU legislation. Whereas most ships have to switch to ultra-low sulphur fuel or shoreside electricity to comply within existing EU law, LNG vessels are frequently fitted with dual fuel (DF) boilers allowing a combination of boil-off gas and heavy fuel oil to be used, GL (2010c). It is obvious that the aforementioned special focus on safety related aspects combined with rule development, for the handling of gas in a safe way is, of course, of great importance and requires the adequate integration of the entire chain, from the bunkering stations at shipside to the engine inlet, until the stored hydrocarbon energy is finally converted into power.

6. TECHNOLOGICAL APPLICATIONS / CASE STUDIES Following aforementioned legislative requirements and relative investors market research triggered by ship-owners trends to overcome the new regulations in the best economical way, marine engine industry and Classification Societies teamed up to form case studies for the conversion of existing vessels and new buildings to use LNG as fuel.

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6.1 Case Study 1: RoRo, full time in ECA / DF engine (DNV - Wrtsil), (Bennett 2010) Accordingly, the first case has investigated feasibility of the dual fuel (DF) engine applications on board a RoRo, embracing three alternative engine and fuel types: (a) 116V32 running on HFO together with an SCR (Selective Catalytic Reduction: NOx control system) plant and use of a scrubber (desulphurization technique), (b) 116V32 running on MGO together with an SCR plant, and (c) 116V34DF running on LNG, supplied via a 105m3 LNG storage tank, assuming that the vessel could bunker LNG once a week, during 52 weeks comparison time. 6.2 Case Study 2: Capesize Bulk Carrier/ 4 alternative engines (DNV - Wrtsil), (Bennett 2010) Second case is investigating the feasibility of study of a capesize bulker propelled by a gas-based plant keeping four alternatives under consideration: (a) conventional 2-stroke plant (reference case), (b) conventional 2-stroke plant combined with emission abatement technologies in order to meet with SOx and NOx levels requirements, (c) DF-powered machinery (twin engine installation, father-son configuration), and (d) DF-powered machinery (single main engine installation). Additionally to case studies 1 and 2, a special engine model fitted by Wrtsil, the LNGPac dual-fuel (DF) engine, produces 80% less NOx, 20% less CO2 and practically zero SOx in gas mode, Karlsson et al. (2010). 6.3 Case Study 3: Gas-fuelled Feeder Container Vessel / DF engine (GL - MAN), (Plump et al. 2010) Last but not least, the third case study includes replacement of a conventional MAN 8L58/64, 11200 kW engine fitted on a 166.15 m l.o.a. vessel, by the dual fuel engine MAN 9L51/60DF, as well as the adequate constructive modifications of the engine rooms (LNG-tanks designed as a pressure vessel (Type-C) according to the IGC-Code are located in the aft cargo hold, outer tanks reduction to the aft due to the shape of the hull and to keep the required distance from the outer shell of the vessel, gas processing equipment for gas conditioning is located above the LNG containment system and designed in accordance to MSC.285(86), both rooms are planned next to the engine room to minimize hazardous areas and the potential risk that might affect the safety of the ship, personnel and equipment, LNG containment system, piping, gas-tight enclosures, etc), (Fig.7).

Fig. 7: Tank design of the gas-fuelled feeder container vessel, (source TGE Marine Gas Engineering), (Plump et al. 2010)

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On the other hand, NK has started in Sept. 2010 a joint R&D project on arrangement of LNG-fuelled engine driven ships gathering some owners, shipyards, etc, to promote building LNG fuelled vessels in Japan, but there is no outcome to be opened for the time being, ClassNK (2008).

7. LNG BUNKERING / BARGES The LNG supply chain, with respect to ship bunkering issues, is considered to be rather flexible as its availability can be assured either via refueling from local onshore LNG terminals / plants (local tanks on quay-side, refueled by small scale LNG carriers or semitrailers, Johansson (2010), or alternatively by means of LNG bunkering barges for smaller scale applications. Current developments in Northern Europe indicate that LNG as fuel will be available for bunkering within the next years at existing stations due to new liquefaction plants like NORDIC LNG Plant, located in Stavanger/Norway. These developments will establish the basis for a LNG supply chain for dedicated markets. Further a re-export from existing large-scale LNG terminals is a feasible option to feed the supply chain for LNG fuel gas as shown by the loading of Coral Methane at Zeebrugge in May 2010, Plump et al. (2010). Small scale LNG carriers (~10000 m3, build for regional supply) will then be the link between these liquefaction plants or re-export terminals and bunkering in harbours. A number of small LNG carriers like Norgas Innovation, Coral Methane and Pioneer Knudsen are already in service and further new buildings are under construction, Plump et al. (2010). In conclusion, in the case of extended LNG use as maritime fuel, a more dense network of LNG plants, as well as a more thorough utilization of bunkering stations system along coastline are required and alternatively a flexible fleet of LNG carriers or barges linking these plants for bunkering applications to meet the increasing demand.

8. INVESTMENT, OPERATING, MAINTENANCE AND ENVIRONMENTAL COST. Concerning the parameters stated in the technological applications section, the interested parties have addressed economical issues to the technical specifications to assess robustness of business models, as follows: 8.1 Case Study 1: RoRo, full time in ECA/DNV- Wrtsil, (Bennett 2010) The relevant feasibility study has included various parameters (i.e. fuel consumption, consumables expenses and estimated machinery related capital expenses, as well as annual operating and maintenance costs) and has concluded that the DF solution is preferable by any means as it presents the lowest operating expenses expressed in terms of annual machinery related cost, even if it implies a higher investment cost. Besides that, for an IMO Tier III compliant vessel the DF solution is the best. Over a long period operating costs for DF engines are far cheaper than the similar HFO, basically due to extra maintenance required with residual fuel and therefore higher labor costs. It is mentioned that space impact of LNG tank, SCRs, Scrubber, Urea tank, FW production plant, FW storage (closed-loop scrubber) should also be evaluated. 8.2 Case Study 2: Capesize Bulk Carrier/DNV- Wrtsil, (Bennett 2010)

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They examined (4) alternative engines and they concluded that the DF solution implies a higher investment cost but has the lowest operating expenditure. In particular for an IMO Tier III compliant vessel the DF solutions are the best alternatives (similar total machinery related cost to the reference case). The LNG tank selection and related capital impact could be reevaluated in a later stage when the study will be refined. Other parameters like space impact of LNG tank, SCRs, Scrubber, Urea tank, FW production plant, FW storage (closed-loop scrubber) should be evaluated in a later stage. After having taken into account inherent operating cost and capital expenses parameters, the conclusion remains unaltered, thus the DF engine is considered to be the best alternative. 8.3 Case Study 3: Gas-fuelled Feeder Container Vessel/GL- MAN, (Plump et al. 2010) The economical analysis documented the cost advantages for a gas-fuelled container feeder vessel operating in an ECA from 2015 on. A cost-benefit analysis was performed using the HFO/MGO-fuelled vessel as reference design. According to the basic fuel scenario used (Fig.6), the price of MGO will be 80% higher than for HFO from 2015 on and the price of LNG will remain linked to HFO. In addition, a 20% premium for LNG distribution was added. The base case for the cost-benefit analysis considered only the fuel cost differences, the investment for the gas supply system, the DF engine and structural changes as well as a slightly reduced earning capacity due to the use of the aft most cargo hold as gas tank space. The base scenario assumes a delivery of the vessel in 2014 and gas-fuelled operation starts fully in 2015. It is noted that in 2009, LNG prices decreases significantly compared to our base scenario and this would lead to even larger cost advantages for gas-fuelled vessels if the LNG price would remain on this level. 8.4 Environmental Cost In order to decide whether an investment of LNG use as maritime fuel is worthwhile, besides the initial expenditure, storage tank cost, operating costs and maintenance cost, the environmental cost must be evaluated. Since, the additional advantage in CO2 emission that a gas powered engine brings cannot be monetarized as there are no evaluation tools available at present, it is suggested that the cost of substantial reduction (CO2, NOx) or total elimination (SOx) of the of ships emissions using LNG as fuel compared with HFO use should be estimated. Generally speaking, the techniques for evaluating environmental impact of transport emissions and in particular shipping emissions are quite primitive since they dont take into account all the parameters or adverse consequences. The polluter pays principle suggests that the ship operators should be made aware of the external costs they generate by paying a charge equal to the Marginal Environmental Cost (MEC) as shown in Fig.8. In order to calculate the optimal pollution charge it is necessary to have reliable information about MEC curve. It is equally possible rather than operate the charging mechanism, the desired output could be obtained by setting emission standards, as MARPOL, Annex VI has posed in ECA areas. Nevertheless, in highly competitive markets like long-distance shipping where the size of industry depends upon new entrants or firms leaving, some researchers suggested that pollution charges (ships emission levy) have important advantages over regulations for the encouragement of a rapid adoption of cleaner technologies (e.g. DF ship engine). Thus the pollution charging policy, as Market Based Measures, offers an incentive in excess of an emission standard to move to the cleaner technology which should be the ultimate goal, (Button 1993). Each type of vessel may be charged according to the average emissions associated with its use. Since vessels using LNG as fuel, cause lower emissions, they should be charged respectively less than those using HFO. Thus, the environmental

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cost of shipping may be expressed by the optimum emission charge and it would be reflected in the price of goods whose transport causes pollution.

Fig. 8: The optimum emission charge for transport (t), (Button 1993). MPC: marginal private cost MEC: marginal environmental cost MSC = MPC + MEC D: demand curve In the aforementioned case studies of LNG use as maritime fuel, the cost advantage will be increased if the optimum emissions charge is included in the analysis. Taking into account these environmental restrictions to maritime industry and the related costs, the DNVs recent prediction that the majority of new buildings until 2020 will relate to LNG-fuelled ships even though the cost of construction will increase about 10%, maybe proved, The Sea Nation (2011). 9. CONCLUSIONS PERSPECTIVES RECOMMENDATIONS IMO has regulated shipping emissions in terms of SOx, NOx and designated Emission Control Areas by revised MARPOL, Annex VI since 1997 and set into force in 2005. Moreover, MEPC is working to eliminate the GHG emissions from shipping by adopting special measures like EEDI, SEEMP and MBM. EU within the framework of climate protection goals calls M-S to work within IMO to implement appropriate and globally applicable environmental standards for shipping. Aiming at reducing exhaust emissions from shipping, the interest is attracted by alternative fuels. The question is whether LNG could be a viable alternative to HFO due to its key advantages: high efficiency and lower environmental impact. Even though the LNG market has shown increasing trends particularly during the last decade and provides a secure meaning of supply, gas prices will remain explicitly linked to oil prices and this link will keep gas prices high for the foreseeable future. By the time the IGF Code will have come into force, it is assumed that the relative case studies and associated business models together with pilot applications will have become more robust through the considerable experience gained for the safe transition to the use of LNG as a maritime fuel. The aforementioned (3) case studies prove the feasibility of such research

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projects being run and have not reported any identified technical obstacles for the integration of a gas-fuelled propulsion system onboard of either a RoRo full time in ECA, or a capesize bulk carrier or a container feeder vessel. In particular, the relative cost benefit analysis revealed lower ship operating and maintenance costs, even though the environmental cost in terms of optimum emission charge is not yet included, fact that could prove the LNG use as fuel more attractive. With respect to LNG availability issues as a maritime fuel, it has to be noted that LNG bunkering is rather promising as well as flexible, as it can be realized either from fixed LNG plants or by using small scale LNG carriers linking these plants, or even during port calls by using dedicated LNG bunker boats (ship to ship LNG bunkering project), even though the density of the supply network may need modifications to follow the new-coming increased demand requirements. Thus, LNG as maritime fuel has the potential to be the solution for the shipping industry to cope with its emission challenges in the years to come, especially in ECAs. It should be a challenge to evaluate a possible designated ECA in the Aegean Sea within the policy of island green development and alternative tourism, taking into account the short sea sector with its intensive ship traffic being an ideal region to build up the necessary LNG infrastructure.

ACKNOWLEDGEMENTS The following individuals are thanked for their contribution and advice: Mr. A. Dalakas, ClassNK, Piraeus Office, Mr. D. Fokas, Germanischer Lloyd, Piraeus Office, Mr. M. Mantzafos, Lloyds Register, Piraeus Office, Mr. K. Vlachiotis, DNV, Piraeus Office, and Miss K. Theofani, maritime economist.

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REFERENCES Association of Greek Shipowners, Environmental pollution prevention from ships, legislation and compensation schemes and industry standards, special edition, 2011. Bennett Paul, Value Proposition / Business Case for LNG as fuel, DNV LNG as fuel Forum, Nov. 2010. ClassNK, Guidelines for dual Fuel Diesel Engines, November 2008. DNV, Rules for Classification of ships / high speed, light craft and naval surface craft / Gas fuelled engine installations, Jan. 2010. Dr. Galani, K., The influence of green development, ecology and environment protection in the design and operation of merchant ships, Hellenic Institute of Marine Technology Conference, Athens, December 2010. Dr. Gerd Wrsig, MSC.285(86) and Code for gas-fuelled ships (IGF-Code) technical challenges and perspectives - Germanischer Lloyd AG, Gastech, 21-24 March 2011. Dr. Gerd Wrsig, Gas as ship fuel - Status of International Legislation, Germanischer Lloyd, 2008. Hopkins, P., LNG as a fuel Regulatory Aspects, Health and Safety Executive, UK. IMO Resolution MSC.285(86), Interim Guidelines on safety for natural gas-fuelled engine installations in ships, June 2009. Jensen, T.J., The development of a global LNG market is it likely? If so when?, Oxford Institute for Energy Studies, 2004. Johansson M., Making LNG available as a maritime fuel LNG ship to ship bunkering joint industry project, DNV LNG as fuel Forum, Nov. 2010. Juenet, J.J., Natural Gas for passenger ships, Veristar news, Newsletter of the Marine Division BV, March 2011. Karlsson, S., Sonzio, L., Enabling the safe storage of gas onboard ships with the Wartsila LNGPac, Wartsila Technical Journal, issue no 01/2010. Koskarian, M., Michailidou, K., Theofani, K., Demand and Supply of LNG vessels, University of Piraeus / Dept. of Maritime studies, 2006, (unpublished). K.J. Button, Transport Economics, 2nd edition, Heinemann Educational Books, 1993. Lloyds Register, Shipping and the Environment: an insight look at the environmental issues that are affecting the shipping industry, Lloyds Register edition, March 2010.

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Meissner, G., Report on Integrated Maritime Policy (IMP) - Evaluation of Progress made and new challenges, European Parliament/Committee on Transport and Tourism, October 2010. MEPC 60, Agenda Item 4: Prevention of air pollution from ships, Agenda Item 5: Consideration and adoption of amendments to mandatory instruments (ECA), Proceedings, July 2010. MEPC 61, Agenda Item 4: Prevention of air pollution from ships, Proceedings, Oct. 2010. MEPC 61, Oil Companies Intern. Marine Forum Representatives Report, IMO Headquarters in London, Sept-Oct 2010. NAFTEMPORIKI, The first tanker using gas as fuel, 10 Jan. 2011. OECD/International Energy Agency, Natural gas market review 2009: towards a global gas market, Paris, 2009. Plump, R., Scholz, B., Gas-Fuelled feeder container vessel, Germanischer Lloyd, 2010. Torsten Schramm, The CO2 Emission Challenge and the benefits of using Gas as Ship Fuel, Hellas Committee Meeting, Germanischer Lloyd, Nov. 2010. Van Dalen, P., Report on strategic goals and recommendations for the EUs maritime transport policy until 2018, European Parliament/Committee on Transport and Tourism, May 2010. Van Dokkum, K., Ship Knowledge, a modern encyclopaedia, Germanischer Lloyd, 2007. Zachariadi, P., The EEDI index and the conflict in IMO, Naftika Chronika, issue no 133, Oct. 2010. WEBSITES REFERENCES www.aegent.ca/documents/NG_Market_Review.pdf . www.dnv.com > DNVs Triality Project, 15.12.2010. www.dnv.com > The Quantum project, 07.04.2010. www.globallnginfo.com > Future & Fundamental Developments - Some Keypoints, 2011. www.gl-group.com > Gas as ship fuel: current status at IMO, November 2010. www.gl-group.com > Gas as ship fuel: GL guidelines in force, November 2010. www.gl-group.com > Smarter shipping-MEPC 61 leads the way. www.lngpedia.com > LNG Statistics, 2011.

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www.MBE-components.com > LNG plant equipment, 2010. www.reuters.com > Sectors & Industries > Energy, 2010. www.TheSeaNation.gr> March 2011. www.visiongain.com/energy/reports/The-liquefied-Natural-Gas-(LNG)-Market, 2011. April

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