“TANKER SEMINAR” Madrid 19 May 2010

Tanker Seminar INTERTANKO Tanker Shipping’s Record Key issues GHG Emission Reductions Piracy Other commercial/operational issues Markets and more Incident data

INTERTANKO Today members operating ca. 3,100 ships > 75% of the independent oil tanker fleet and > 85% of the chemical carrier fleet associate members: in oil and chemical tanker related businesses 15 Committees – 5 Regional Panels Principal Offices – London and Oslo Representative Offices in US, Asia and Brussels Observer Status at IMO, IOPC, OECD and UNCTAD International Association of Independent Tanker Owners

INTERTANKO’s Strategic Objectives To develop and promote best practices in all sectors of the tanker industry, with owners and operators setting the example. To be a positive and proactive influence with key stakeholders, developing policies and positions, harmonising a united industry voice, and engaging with policy and decision makers. To profile and promote the tanker industry, communicating its role, strategic importance and social value. To provide key services to Members, with customised advice, assistance and access to information, and enabling contact and communication between Members and with other stakeholders.

Global dependence on oil tanker transportation World Oil Consumption 3.8 billion ts Transported by sea 2.4 billion ts > 60% transported by sea

Tanker Incidents and accidental pollution Number incidents Based on data from LMIU, ITOPF + others

Accidental oil pollution from tankers Based on ITOPF/Fearnleys 1000 ts spilt 1000 bn tonne miles trade

Oil price and freight rate – real and nominal USD per barrel

Tanker Shipping’s GREEN Credentials This car, weighing one tonne, uses 1 litre of fuel to move 20 kms This oil tanker uses 1 litre of fuel to move one tonne of cargo 2,500 kms –more than twice as far as 20 years ago

Investment in New Tonnage - Move to Double Hulls More than USD 500 billion invested since 2000 with the result that ~95% of tanker fleet* double hulled by end 2010 * over 10,000 dwt

Average age of tanker fleet above 10,000 dwt Based on LRFairplay Average Age - Years

Tanker Industry is accustomed to being under the spotlight Watched by: Regulators Politicians Public Licences to trade rigorously applied by: Flag states Classification Societies Insurers Charterers Monitored by: Coastal and Port states

Key Issues for Tanker Owners Today Establishing and maintaining an international framework of consistent regulations and standards Delivering best environmental performance Ensuring availability of good people (and quality ships) Ensuring the welfare and well-being of ships’ crews Meeting the challenges of Piracy

Establishing an international framework of consistent regulations and standards Shipowners supporting: International rather than unilateral legislation Ratification of IMO (and ILO) Conventions IMO Member State Audit scheme (Flag & Coastal States) Harmonisation and uniformity across Port State Control regimes Development and Application of Common Structural Rules for Tankers Classification societies’ procedural requirements, unified requirements and unified interpretations Greater uniformity in chartering practices and standards

Delivering best environmental performance Air emissions - Green House Gases - Exhaust Gas emissions (Annex VI & its revisions) - VOC emissions Spill Prevention and Response Planning Ballast Water management Biofouling Antifouling systems Ship Recycling Port Reception Facilities (adequacy & affordability) Waste management (onboard and ashore) Radiated Noise pollution Cetacean strikes

Ensuring availability of good people - recruitment, training and retention Both a quantity and quality challenge ! Recruitment initiatives covering: Raising awareness of the industry: - and Careers outreach programmewww.maritimefoundation.com and DVD: Careers in International Shippingwww.careers-at-sea.org - Attracting entrants to the Maritime Professions (IMO: “Go to Sea” and other industry campaigns) Human Resources are respected as an asset, not treated as a cost !

The Maritime Industry Knowledge Centre OBJECTIVES To improve the image of shipping To heighten awareness of international shipping To attract young people both to the seafaring professions and to careers onshore

Ensuring availability of good people - recruitment, training and retention Both a quantity and quality challenge ! Training and retention initiatives covering: Provision of Cadet berths and training facilities on ALL new ships and maximum utilisation of cadet berths on existing ships Revision of STCW Convention Development of Tanker Officer Training Standards (TOTS), covering proficiency and experience, as the industry standard Establishment of Seafarer Focus Groups to provide feedback of experiences

Ensuring welfare and well-being of ships’ crews Initiatives covering: Unjustified criminalisation Support for IMO-ILO guidelines on Fair Treatment of Seafarers (in event of Maritime Accident) Improved conditions for shore leave and access Reduction in number of inspections Less bureaucracy and associated paperwork Guidelines for safe handling of cargoes and fuels, tank cleaning and entry Greater clarity in Operating Manuals Guidelines on implementing ILO Convention on “work and rest hours” Higher standards of accommodation as industry “norms” (including e.g. access to internet, etc.)

Other current commercial/operational issues Mercury in crudes Chinese Marine Pollution Regulations Sanctions on oil products to Iran Model clauses – Piracy, Vetting, Virtual arrival Facilitation payments “Smart vetting” – multiplicity of inspections Conditions of Class project Reaction in the USA to Deepwater Horizon spill

Key Dates Outcome of COP15 IMO (MEPC) Programme “Virtual Arrival” Industry study/TEEMP/Other Low Sulphur Fuel Issues Greenhouse Gas & Low Sulphur Emissions

Shipping’s GHG Emissions Selected Key Dates 12/2009 UNFCCC COP15 Meeting, Copenhagen 3/2010 IMO MEPC /2010 Industry Study Group 5-6/2010 UNFCCC, Bonn 5 to 8 /2010 IMO MBM-Expert Group 6-7/2010 IMO MEPC Intersessional 9-10/2010 IMO MEPC /2010 UNFCCC COP16 Meeting, Cancun 7/2011 IMO MEPC 62 12/2011 EU Deadline for IMO/International Agreement

IMO/MEPC Challenge remains ! IMO Principle: “No More Favourable Treatment” Versus Kyoto Protocol principle: “Common But Differentiated Responsibility”

COP15, Copenhagen 2009 What was the outcome ? NO targets NO resolution of Kyoto/IMO Treaty conflict NO direct reference to international shipping in Copenhagen Accord No change yet !

IMO Programme To develop: EEDI for new ships SEEMP & EEOI for all ships and, if possible/needed: Market Based Measure (Instrument) for shipping

Intersessional Working Group To improve the text for mandatory requirements of EEDI and SEEMP in terms of: coverage of ship types and ship sizes for the EEDI; establishment of EEDI baseline(s); frequency of reducing the mandatory value of EEDI (reduction in 3 phases); reduction rate from the baseline for the phases for the EEDI; To develop various guidelines: on the method of calculation of EEDI; for the calculation of baselines for attained EEDI; to support the regulatory framework for verification of the EEDI

MBM – Expert Group Group of MBM schemes which would require all ships to pay a contribution: 1. International Fund for Greenhouse Gas emissions from ships – suggested by Denmark and supported and complemented by some other Administrations such as Cyprus, Marshall Islands and Nigeria. 2. Global Emission Trading System for International Shipping, as proposed by Norway, France and Germany; and a Global Emissions Trading System for GHG Emissions from International Shipping, as proposed by UK. Group of MBM schemes which provide rewards to more energy efficient ships: 3. Leveraged Incentive Scheme based on the International GHG Fund - proposed by Japan. 4. Trading with Efficiency Credits based on Efficiency Standards for All Ships - proposed by the USA. 5. Vessel Efficiency System - proposed by the World Shipping Council.

Virtual Arrival OCIMF /INTERTANKO project Virtual Arrival is all about managing time and managing speed. It’s not about blanket speed reduction to match current market conditions. Virtual arrival is about identifying delays at discharging ports, then managing the vessel’s arrival time at that port/terminal through well managed passage speed, resulting in reduced emissions but not reducing capacity.

Virtual Arrival - Summary Cooperation between Charterer (Terminal Operator) and Owner Speed is “optimised” when ship’s estimated arrival is before the terminal is ready Owners and Charterers agree a speed adjustment May use an independent 3 rd party to calculate / audit adjustment Owners retain demurrage, while fuel savings and any carbon credits are split between parties Next Steps: OCIMF-INTERTANKO running joint workshops Charter Parties being reviewed (INTERTANKO/BIMCO/BP/Chevron) – indemnity and liability issues, including bills of lading Individual oil majors and owners “trialling” system Bulk carrier sector examining feasibility

GHG emissions - OTHER TEEMP – Tanker Energy Efficiency Management Plan Industry Study – RT, OCIMF, WSC: Achievable targets ? Cooperation with others – e.g. Carbon War Room ?

Industry Study Group: Possible Abatement Measures Gas fuelled engines Electronic engine control Waste heat recovery Air cavity lubrication Contra-rotating propeller Fuels cells as auxiliary engines Frequency converters Exhaust gas boilers on auxiliary engines Energy efficient light systems Wing generator Wind power – kite Wind power – fixed sails or wings Solar panels Trim/draft optimising Weather routing Voyage execution Steam plant operational improvements Speed reduction due to port efficiency Propeller condition Speed reduction due to fleet increase Hull condition Propulsion efficiency devices Cold ironing Engine monitoring Reduced auxiliary power usage

Low Sulphur Fuel Issues EU Sulphur Directive - 0.1% at berth requirement - Revision timetable - Finnish concerns & Annex VI Revision CARB requirements – legal challenge North American ECA Regulation without recognition of the impact on seafarers Greater consideration of the ramifications of new regulations and legislation at IMO and elsewhere/ Somebody has to make it work - or carry the can if it doesn’t !

Meeting the challenges of Piracy Gulf of Aden / Somali Basin Guidance: Register Company and Ship with MSCHOA Plan for Transit Following Best Management Practices (V2) Report regularly to UKMTO Dubai (or MARLO) A problem in many regions, including South China Sea, Somali Basin and Gulf of Aden, Gulf of Guinea and South America !

Piracy: Development update Industry involvement via UN Contact Group/SHADE/IMO-MSC Encouraging continuing Naval support but also a new strategy for Western Indian Ocean Issues on under active discussion: - push for prosecutions – gathering/providing evidence - impact of US “Ban” on Ransom Payments - increasing calls for the Arming of Ships Industry developing: Best Management Practices – Version 3 Guidance to companies, masters & crews on: - “Capture to Release” - the care of seafarers & others who have been hijacked New focus on the Gulf of Guinea / Malacca Straits

Markets and More ! Tanker Markets Today ? Demand down, but recovering ? Supply up, and still growing ? Rates down, and ?

Markets and more Demand : World oil trade Supply : Ships on Order & Fleet development Tanker market Shipbuilding capacity

World Oil Demand vs. GDP Source: Clarksons (September 2009)

Orderbook – All ships (>999GT) Source: Clarksons, April 2010 Orderbook Development (All ship types)

Orderbook by ship type (as % existing fleet) Source: Clarksons (September 2009)

Tanker Contracting Source: Clarksons, April 2010

Fleet Growth VLCCSmaxAmaxPmaxMRHandy % change y-o-y *Includes slippage, cancellation and removal ideas Source: Clarksons, April 2010

Tanker Fleet Development deadweight (million) tanker handy MR Panamax Aframax Suezmax VLCC Source: Clarksons (September 2009)

Newbuilding Tanker Prices Jan-76Jan-78Jan-80Jan-82Jan-84 Jan-86Jan-88Jan-90Jan-92Jan-94Jan-96Jan-98Jan-00Jan-02Jan-04 Jan-06Jan-08 Jan-10 $ million VLCCSuezmaxAframaxPanamaxMR Product Source: Clarksons, April 2010

Tanker Age Profile no of vessels Handy MR Panamax Aframax Suezmax VLCC Source: Clarksons, April 2010

Tanker Fleet Comparisons VLCCSuezmaxAframaxPanamaxMRHandy percentage of exisiting fleet non-double hullOn OrderBuilt since 2000 Source: Clarksons, April 2010

Where next for Single Hull Tankers ? Current trading status 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% VLCCSuezmaxAframaxPanamaxMRHandyTotal Fleet % of single hull fleet Storage% Inactive% Domestic Trading% Normal Trading% Source: Clarksons, April 2010 (datasource: Clarksons/LLI)

Where next for Single Hull Tankers ? Trading beyond 2010 ? AustraliaNo ChinaNo EU No Mexico No Romania No S KoreaNo* PhilippinesNo* UAE No* (*No official note sent to IMO yet) BahamasYes BarbadosYes Liberia Yes Marshall Isl.Yes Panama FlagYes Japan Yes SingaporeYes India Yes Hong KongYes** (** Max. 20 years old) Flag/Port State positions re MARPOL 13G trading up to the age of 25 years United States N/A (OPA90)

Tanker sales for demolition and VLCC freight rate Source: INTERTANKO m dwt USD / day * Until week ending 4 September ** Sales for demolition until 4 September *** Clarkson Freight rate AG-Japan week ending 4 September

Source: Baltic Exchange/INTERTANKO USD/day Average tanker freight rates (based on Baltic Exchange rates)

Market Forecast ! or

Lower Freight Rates & Fleet surpluses Implications ? Challenge to maintain quality and standards, - e.g. maintenance, training Challenge to meet the issues of the day – e.g. including environmental challenges Potentially made even worse if new ships are of low standard ?

Shipbuilding capacity A future unknown factor !

Shipbuilding output and forecast Source: Worldyards/INTERTANKO Aug 09 m cgt

Shipbuilding output potential Source: Worldyards/INTERTANKO Aug 09 m cgt Worldwide estimates in m cgt - small and big ships (Aug 09)

Shipyard output potential - surplus Implications ? Distressed sales / lower prices Quality and standards maintained or weakened Pressure on suppliers and sub-contractors Greater customer focus & customisation and any government interventions ?

Incident data Learning from feedback and analysis Sharing information

Tanker Incidents and accidental pollution Number incidents Based on data from LMIU, ITOPF + others

Sharing Information – Tanker incidents in 2009 Based on data from LMIU + others

Tanker hull & machinery incidents Number of MACHINERY incidents Based on data from LMIU, ITOPF + others Year<10 years10-24 years>25 yearsTotal Average age Total

Muchas gracias / Thank you For more information, please visit: London, Oslo. Washington, Singapore and Brussels

Kyoto Protocol Established under UN Framework Convention on Climate Change (UNFCCC) and adopted in 1997 Ratified by 181 countries – not the USA Categorises Annex 1 (Developed) Countries and Non- Annex 1 (Developing) Countries Annex 1 Countries are committed to make GHG reductions with set targets, but also flexible mechanisms Runs through to 2012, with Conference of Parties (COP15) to meet in Copenhagen in Dec 2009 to develop successor Kyoto recognises “common but differentiated responsibilities”, i.e. developed countries produce more GHGs and should be “responsible” for reductions Kyoto looks to IMO to address Shipping and ICAO to address Aviation, and as such these emissions are currently excluded from Kyoto targets

IMO Principles for MBMs 1.Effective in contributing to the reduction of total global GHG emissions 2.Binding & equally applicable to all flag States 3.Cost-effective 4.Able to limit or effectively minimize competitive distortion 5.Based on sustainable environmental development without penalizing global trade and growth 6.Based on a goal-based approach and not prescribe specific methods 7.Supportive of promoting and facilitating technical innovation and R&D in the entire shipping sector 8.Accommodating to leading technologies in the field of energy efficiency 9.Practical, transparent, fraud free and easy to administer

Industry Study

Virtual Arrival - a way to reduce emissions Background Potential emission reduction for existing shipping said to be up to 15% (at no cost?) Fuel represents 60-80% of operation/running costs for owners What drives/restricts emission reduction? It is recognised that commercial and practical restrictions sometimes apply Virtual Arrival is a project that involves several stakeholders Virtual Arrival implies co-operation and removing commercial restrictions

Virtual Arrival - a way to reduce emissions by taking advantage of known inefficiencies in the supply chain and reducing speed when the terminal is not ready to discharge the cargo In addition to directly reduced emissions, other benefits are: Reduced congestion and emissions in the port area Improved safety Reduced use of fuels Potentially increased use of weather routing Important pre-conditions: The safety of the vessel remains paramount The authority of the vessel’s Master remains unchanged The basic terms of trade remain the same

What is needed to do to make Virtual Arrival work? 1.A known delay at the discharge port 2.A mutual agreement between two (or more) parties to adapt the ship’s arrival time to take advantage of the delay 3.An agreed Charter Party clause that establishes the terms for reducing the speed to adapt to the new arrival time 4.An agreement on how to calculate and report the Virtual Arrival and the performance of the vessel 5.This may involve a Weather Analysis Provider (WAP) 6.OCIMF/INTERTANKO and class are producing transparent standards for verification of WAPs But mainly it’s a win–win situation for all, based on trust and transparency

Squeeze on costs = Squeeze on Quality ? Challenge to maintain quality and standards, - e.g. maintenance, training Challenge to meet the issues of the day – e.g. including environmental challenges

Acting together - examples Pilotage in international straits as per IMO recommendations Development of a Marine Electronic Highway Establishment of a lifeboat user group with manufacturers to seek remedies for shortcomings Campaign to ensure availability of safety-related information on the characteristics of dangerous cargoes Development of Incident Information exchanges Development of guidelines on tanker maintenance and repair procedures