2020 Sulphur Cap. Challenges and Opportunities. Delivering Maritime Solutions.

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1 2020 Sulphur Cap Challenges and Opportunities Delivering Maritime Solutions

2 About the Wallem Group Wallem Group is a maritime services company with headquarters in Hong Kong and an established global network of 46 offices in 17 countries. The Group delivers a wide range of solutions with a trusted reputation built up over 115 years of service to the maritime industry. Services include Ship Management, Ship Agency, Technical Services and Commercial Services with an emphasis on safety, quality and operational efficiency. About the Sulphur Cap & Your Fuel Options Due to the latest requirements of MARPOL Annex VI coming into force on 1st January 2020, we will see a reduction in the Sulphur content of Fuel being used onboard, from 3.5% to 0.5% by mass. The Wallem Technical team have years of experience in providing reliable and cost efficient services and in finding technical solutions to protect our owners' assets. The team has done extensive research on the various fuel options available to ship owners. This white paper presents an outline of our professional opinion on your available options. Distillate Non-compliant fuel + Scrubber Compliant Fuel Hybrid Fuel / Ultra Low Sulphur Fuel Oil Available options LNG Alternative Fuel July

3 Compliance with 2020 using Non-compliant fuel & Scrubber Class approved system Commission under provision of class Renew IAPP certificate Documents to be prepared: SOx Emission Compliance Plan Onboard Monitoring Manual A Emission Technical Manual EGC Record Book Regulatory Requirement Time Frame Initial Planning and Feasibility Study 2 weeks Basic Engineering and Project Planning 8-12 weeks Detail Engineering, construction, installation and commissioning 6-9 months Non-compliant fuel & Scrubber $ Cost Equipment USD1-4 million Installation USD0.5-1 million Class fee USD50K Pros & Pros Continued use of HFO exceeding 0.5% S content HFO specifications and operational challenges are well known As per current price difference between HFO and compliant fuel, expect to break even after 1-3 years More attractive to charterer Open-loop scrubber has simple system and design Closed-loop scrubber can be operated in most ports High CAPEX and docking probably required (except for dry-type scrubber) Direct discharge of open-loop scrubber may be prohibited in some ports Storage and disposal of sludge necessary for closed-loop scrubber Uncertainty of penalties if scrubber malfunctions Contact the Wallem Technical Team for further information on the above and to assist in the selection of the most suitable scrubber for your ship or fleet. July

4 Timeline for installation of Scrubber onboard 2 weeks Initial Planning Feasibility study 8 12 weeks Basic engineering / Project planning Detailed engineering and procurement 6 9 months Approvals and commissioning truction and installation July

5 Compliance with 2020 using Distillate Time Frame Tank cleaning Manual: 3-5 days per tank Chemical: 2-3 months Modification 2 weeks Distillate $ Cost Chiller Installation and Engine Modification required for certain make/model - ~USD 50k Pros & Pros Simple option Low CAPEX Distillate fuel oil's specifications and operational challenges are well known Current availability in the marine bunker market As per current price differential, distillate fuel is more expensive than HFO Contact the Wallem Technical Team for further information on preparing your vessel for prolonged operation on Distillate Fuel. July

6 Compliance with 2020 using Hybrid Fuel / Ultra Low Sulphur Heavy Fuel Oil Time Frame Engine and Boiler minor modification may be required on a case by case basis, depending on Hybrid fuel specification Tank Cleaning Manual: 3-5 days per tank Chemical: 2-3 months Hybrid Fuel / Ultra Low Sulphur Heavy Fuel Oil $ Cost Case by case basis Pros & Pros Simple and cost-effective solution No major modification Fuel oil specifications and operational challenges are not well known yet No specific ISO standard for this fuel as of now (can be DMA.DMB/DMX or residual grade as well) Supply/distribution and availability uncertain Stability and Compatibility issues Extra care needed to clean bunker tank to avoid compatibility issues Contact the Wallem Technical Team for further information on preparing your vessel for prolonged operation on Hybrid Fuel / Ultra Low Sulphur Heavy Fuel Oil. July

7 Compliance with 2020 using LNG A Regulatory Requirement Comply with IGF Code STCW requirement Time Frame Retrofit (dual fuel engine) depends on vessel configuration Initial planning Feasibility Study Engineering truction / Modification ~ 6 months LNG $ Cost Engine Retrofit (dual fuel engine) up to USD5 million and more for 1 engine Fuel Tank / Fuel system retrofit USD8 million and more Pros & Pros Zero SOx emission, ensures compliance to strictest SOx restriction Lower fuel cost compared to Distillate Dual fuel engine is also available (LNG and FO) Limited Bunker facilities world wide Requires extra space for larger fuel tanks and auxiliary system for conditioning gas fuel tanks Specialised training for crew is required High cost of modification Contact the Wallem Technical Team for further information on preparing your vessel for prolonged operation on LNG. July

8 Compliance with 2020 using Alternative Fuel There are plenty of other possible choices for future bunker fuel. However, due to the maturity of technologies at this stage, these can only be applied in niche sectors and for specific trading patterns. Information and knowledge of implementation of these fuel options onboard vessels is currently limited, but may prevail in the future if the Green House Gas limitation comes in. LPG Hydrogen Methanol Alternative Fuel Biofuel Fuel Cell Battery Wind Assist Propulsion Nuclear Contact the Wallem Technical Team for further information and the latest developments on Alternative Fuel. July

9 2020 Sulphur Cap Compliance Conclusion With the Sulphur Cap regulation coming into force in 2020, ship owners and operators find themselves in unchartered territory. The decision on how best to operate the vessel while in compliance when 2020 comes around is a purely commercial decision. Unfortunately there are many variables that need to be considered in order to make this decision. Information from various stakeholders such as bunker suppliers, equipment manufactures and financial institutions, which is often conflicting, also has to be taken into account. There are technological pros and cons for the three main options for compliance. Each one of them can be the preferred option depending on what assumptions one makes on various elements such as HFO to ULSFO to MGO price differential, fuel type availability, equipment price and availability, etc. Our role as ship manager is to assist you in understanding the technical and operational implications of each option available in order to comply with this regulation. It is then to use our expertise to help to implement the selected option for the vessels under management. We hope this whitepaper has helped to provide a useful overview of all options available. Please do not hesitate to contact the Wallem Technical Team for more information and assistance in finding the best and most economical solution for your vessel / fleet of vessels. July

10 CONTACT Fleet Manager Gavin Dsouza Superintendent, Fleet Optimisation Alex Chiu Disclaimer This document is property of the Wallem Group and may not be distributed externally or reproduced for external distribution in any form without the express permission of the Wallem Group. The information is provided for general information purposes only and is not intended to represent advice on which the reader should rely; and nothing in the document should be relied on without independent and/or professional advice. Whilst we have taken care to ensure the accuracy and quality of the information provided at the time of original publication, Wallem Group companies cannot accept any responsibility in respect of any loss or damage of any kind whatsoever which may arise from reliance on this information. Copyright Wallem Group Limited All rights reserved. Delivering Maritime Solutions