ClassNK Alternative Fuels Insight

Version 2.0
September 2024

Ⓒ 2024 NIPPON KAIJI KYOKAI

Issuance of ClassNK Alternative Fuels Insight―――Amidst the pressing need for society-wide reduction of GHG emissions, it is anticipated that GHG emission
regulations in international shipping, spearheaded by organizations like the IMO and the EU, will be further
strengthened. Consequently, we are entering an era where GHG emissions from ships become a cost factor. In

such a business environment, strategically reducing GHG emissions from ships is crucial. This necessitates
not only further energy efficiency improvements but also the essential adoption of alternative fuels withlower environmental impacts.

―――

On the other hand, there is a wide range of alternative fuels available for use in ships. When adopting
alternative fuels, it is crucial to select the appropriate fuel based on factors such as the ship type, size, androute. Therefore, it is essential to not only consider technical aspects but also to grasp the overall trend ofalternative fuels, including factors such as fuel availability and cost projections.

―――

The "ClassNK Alternative Fuels Insight," issued by ClassNK, aims to support your future fuel selection. We
hope that the ClassNK Alternative Fuels Insight will be a helpful resource in your efforts to reduce GHG
emissions.

Four Steps for Introducing Alternative Fuels
Step 1
Understanding
regulations

Step 2
Understanding
trendsStep 3
Understanding
alternative fuels

Step 4
Understandingcosts
2

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

Demand side

Supply side
Shipyard

In service:

37,800 ships*1

Newbuildings:

A transition of 36,500 ships toalternative fuels is necessary.
(Alternative fuel ships can use
zero-emission fuels.)
Conventional
fuel ships
36,500 ships(97%)

Alternativefuel ships*2
1,300 ships(3%)

Fuel consumption:

216 mil. tons/year*3*1 5,000 gross tonnage and above (as of the end of June 2024,
adjusted for fractions)*2 LNG-fueled LNG carriers are included.

1,300 ships*5

Other sectors✓ Methanol
Chemical, etc.

✓ Ammonia
Electricity, Agriculture,
Chemical, etc.

✓ Hydrogen
Conventional Alternativefuel ships
fuel ships
1,100 ships 200 ships
(85%)
(15%)

Electricity, Automobile, Steel,etc.

*5 5,000 gross tonnage and above (2023, adjusted for fractions)

The required amount for a full transition
to zero-emission fuels would be...

For methanol

440 mil. tons/year

For ammonia

470 mil. tons/year

Green fuel producers✓ Methanol
0.5 mil. tons/year*6✓ Ammonia 4.6 mil. tons/year*6✓ Methane 0.01 mil. tons/year*6✓ Hydrogen 1.5 mil. tons/year*6

Much of the green fuels and green
chemicals produced are expected
to be directed towards demand
from other sectors.

For methane/LNG 180 mil. tons/year
Conventional
fuel oil
200 mil. tons
(93%)

Alternative
fuel
16 mil. tons*4(7%)

For hydrogen

70 mil. tons/year*3 The annual fuel consumption for ships engaged in international
voyages with 5,000 gross tonnage and above (abt. 30,000 ships
subject to IMO DCS) in 2023 (conventional fuel oil equivalent)*4 Conventional fuel oil equivalent (of which 98% is LNG fuel.)*6 Operational, construction, FID (for all sectors)

While biofuels contribute to GHG emission
reductions, there are constraints on the
resource availability of biomass, which
serves as their raw material. Moreover,demand for biomass competes acrosssectors.

3

Correction / Revision Record
Version

Date

Page

Details

1.0

2024.5--2.0

2024.9Page 32.0

2024.9Page 14 – Page 24

2.02024.9Page 282.0

2024.9Page 37 – Page 39

2.02024.9Page 41

Update figures, Add information for methane

2.0

2024.9Page 42

Update figures, Add information for methane

2.0

2024.9Page 43

Add demand outlook for alternative fuels

2.0

2024.9Page 55 – Page 56

Add green methane production project

2.0

2024.9Page 58

Add steps from installation of onboard CCS systems to certification of
captured CO2 volume

2.0

2024.9Page 61

Add GHG emissions assessment of biofuels

2.0

2024.9Page 62

Update to the latest information

2.0

2024.9Page 63

Update to the latest information

2.0

2024.9Page 71 – Page 75

Update analysis with additional cost simulation example for ammonia
fueled ship

2.0

2024.9Page 81 – Page 91

Add appendix

Update figures
Update to information as of June 30, 2024
Add explanation
Add result of CII ratings

4

Table of Contents
Issuance of ClassNK Alternative Fuels Insight02<Reference>Result of CII ratings

37

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

03

Alternative fuel costs

40

Correction / Revision Record

04

Share of alternative fuels

41

Understanding regulations

06

Amount of renewable energy electricity required for green hydrogen production

42

Key Takeaways

07

Demand outlook for alternative fuels

43

Carbon pricing

08

Zero-emission fuels and zero-emission ships required for international shipping

44

Increase in the cost of GHG emissions

09

Alternative fuel production projects (Hydrogen, Ammonia, Methanol, Methane)45

IMO GHG Strategy

10

CCS projects

57

IMO mid-term measures

11

Steps from installation of onboard CCS systems to certification of captured CO 2 volume

58

European regional regulations

12

Feasibility of biofuel supply

59

Understanding trends

13

Use of biofuels

60

Key Takeaways

14<Reference>GHG emissions assessment of biofuels

61

Trends in alternative fuel ships

15

Regulatory trends

62

Trends in alternative fuel ships (by ship type)17

ClassNK’s guidelines

63

Understanding alternative fuels

25

Understanding costs

64

Key Takeaways

26

Key Takeaways

65

Fuel transition, technological options, and regulations in international shipping

27

Uncertain factors in costs (1. Shipbuilding costs, 2. Fuel costs, 3. Regulatory costs)

66

Fuel properties

28

Conducting cost simulation

70

Understanding fuel consumption

32

Route selection

34"CO 2 emissions (TtW)" vs. "GHG emissions (TtW)" vs. "GHG emissions (WtW)"

35

Contact

79

Comparison of CII ratings resulting from fuel transition

36

Appendix

81

ClassNK’s support
Towards net-zero GHG emissions by 2050

77
78

5

― Step 1

Understanding
regulations
When considering the adoption of alternative fuels,
understanding the GHG-related regulations thatare expected to be strengthened in the future is
crucial above all else. In this section, we will
introduce the GHG-related regulations of the IMO
and the EU, which will play a central role in GHG
emission

reductionmeasuresininternational

shipping moving forward.

6

Understanding regulations
Key Takeaways✓ Successive regulations promoting the use of zero or low-emission fuels are being introduced
in international shipping.
✓ The IMO is to implement the "mid-term measures," while the EU has "EU-ETS for Shipping"and "FuelEU Maritime" playing central roles.
✓ The additional costs that ships will incur due to these regulations depend on their specificprovisions. However, it’s possible that these costs could far exceed annual fuel costs in the
future.
✓ Since the scope of emissions targeted and the anticipated costs vary between eachregulation, it is crucial to thoroughly understand the details of each regulation in order tominimize regulatory costs across the fleet.
✓ ClassNK provides information to support understanding of these regulations.

7Understanding regulations
Carbon pricing
In order to further reduce GHG emissions from ships, successive regulations promoting the use of zero- and low-emission fuels are being introduced ininternational shipping. The IMO is currently discussing a new regulatory framework for mid-term measures, aiming for implementation in 2027. In Europe,
the European Union Emissions Trading System (EU-ETS), a carbon pricing mechanism, has been expanded to include the maritime sector since 2024. In
2025, FuelEU Maritime will be introduced to drive the decarbonization of shipping fuels. With these regulations in place, GHG emissions from ships will
become a cost factor, making it crucial for the future of maritime business to strategically reduce GHG emissions from ships.

Introduction schedule of GHG-related regulations**Only operational GHG-related regulations are listed here.

2018 IMO GHG Strategy

2023 IMO GHG Strategy

50% reduction in GHG emissions by 2050
(compared to 2008)

Net-zero GHG emissions by 2050

IMO-DCS

2018

2019

EU-MRV

Mid-term measures

CII

2023

2024

2025

2027

EU-ETS for Shipping
European Green Deal
55% reduction in GHG emissions by 2030
(compared to 1990)

FuelEU Maritime

8Understanding regulations
Increase in the cost of GHG emissions
The regulations set by the IMO and the EU are aimed at promoting the transition to zero- or low-emission fuels. Therefore, it is anticipated that the costs
associated with regulatory compliance (GHG emission costs) will gradually increase. Understanding the extent to which GHG emission costs will affect the
fleet in the future is the first step in considering the adoption of alternative fuels.

Image of increasing GHG emission costs (Continuing to use conventional fuel oil: e.g. 14,000 TEU containership)➢ The figure above illustrates the annual increase in GHG emission costs if a 14,000 TEU containership continues to use conventional fuel oil.
➢ Depending on the specifics of the IMO's planned mid-term measures*, there is a possibility that the annual GHG emission costs may surpass fuelcosts sooner rather than later.
*The figure assumes the introduction of GHG intensity regulations on a Well-to-Wake basis as part of the mid-term measures in 2027.

➢ Especially noteworthy is the difference between the EU regulations (EU-ETS and FuelEU Maritime), which only regulate GHG emissions from EUrelated voyages, and the IMO regulations, which cover GHG emissions from all voyages. Consequently, the introduction of the IMO regulations (midterm measures) is expected to have a significantly larger impact on the burden of GHG emission costs.
Detailed cost simulations are provided in Step 4.

9Understanding regulations
IMO GHG Strategy
In July 2023, the IMO revised its initial strategy on the reduction of GHG emissions from ships and adopted the "2023 IMO GHG Strategy," which includes
the goal of achieving net-zero GHG emissions by or around 2050. Serving as the foundation for future discussions on reducing GHG emissions frominternational shipping, understanding this strategy is crucial for the shipping industry. ClassNK has published a white paper titled "Pathway to ZeroEmission in International Shipping - Understanding the 2023 IMO GHG Strategy -" to facilitate understanding of this strategy.

IMO GHG reduction goal
White Paper "Pathway to Zero-Emission in International
Shipping - Understanding the 2023 IMO GHG Strategy -"Base year(2008)

Indicative checkpoints(20% - 30% reduction)

Indicative checkpoints(70% - 80% reduction)(English)Net-zero10Understanding regulations
IMO mid-term measures
Currently, the IMO is engaged in discussions to introduce new regulations (mid-term measures) aimed at promoting the use of zero- and low-emission
fuels. Scheduled to be finalized in 2025 and enforced in 2027, these mid-term measures will have a significant impact on the maritime industry. It is
important for stakeholders in the shipping business to closely monitor the progress and discussions at the IMO regarding these regulations.

The outline of the mid-term measures proposed to the IMO* (As of March 2024, MEPC 81)

Technical elements

Schemes

Summary••

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

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
limits for certain routes in developing countries recognized to be adversely affected by this regulation*Transfer emission allowance 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

Japan

•
•

Levying based on GHG emissions (WtW basis or TtW basis)
Refunds for ships using zero-emission fuels on a WtW basis, without excluding support for developing
countries

FeebateICS, Bahamas, Liberia••

Levying based on GHG emissions (TtW basis)
Refunds for ships using zero-emission fuels on a WtW basis, also used for supporting developing countries

GHG Levy(Universal Mandatory Greenhouse Gas Levy)

Island countries(9 countries)•••

Levying based on GHG emissions (WtW basis)
Levy is USD150/ton GHG, increasing every five years.
The revenue from the levy is primarily utilized for supporting developing countries.

UnnamedCanada•••Levying based on GHG emissions (TtW basis)
Levy is USD90/ton GHG, increasing every year.
The revenue from the levy is utilized through a fund approved by the IMO.

WSC

•
•

Levying on ships that fail to meet the GHG fuel intensity threshold
Refunds are provided to ships that exceed a certain percentage of the GHG fuel intensity threshold.

GFS(Greenhouse Gas Fuel Standard)

IMSF&F(International Maritime Sustainable Fuels and Fund)

Feebate※Fee and rebate

Economic elements

Proposed by*The mid-term measures are expected to be finalized
by combining the contents of these proposals.

[New proposal]

Green Balance Mechanism[New proposal]

EU memberstates, EC
China, Brazil,
Norway, UAE,
Argentina, South
Africa, Uruguay

11Understanding regulations
UPDATED

European regional regulations

In Europe, the implementation of the European Union Emissions Trading System (EU-ETS) in the maritime sector began in 2024, and in 2025, FuelEU
Maritime will be introduced. When assigning ships to European routes, it is essential to accurately understand the contents of these regulations in order tominimize regulatory compliance costs as much as possible. ClassNK has issued "FAQs on the EU-ETS for Shipping" and "FAQs on the FuelEU Maritime,"each explaining the overview of the regulations and the essential preparations for compliance in a Q&A format specific to European regional regulations.

FAQs to understand EU’s GHG-related regulations
FAQs on the EU-ETS for Shipping (Edition 2.1)

FAQs on the FuelEU Maritime (3rd Edition)(English)(English)12

― Step 2

Understanding
trendsWhen considering the adoption of alternative fuels,
itisimportanttounderstandthetrendsandfuture prospects of these options. Demand-side
trends also influence the fuel supply-side. In thissection, we will introduce the adoption trends ofalternative fuels, including their utilization acrossdifferent ship types and sizes.

13Understanding trends
Key Takeaways

UPDATED✓ClassNK periodically compiles data on the trends in the adoption of alternative fuels in shipping.

✓

The data includes ships with a gross tonnage of 5,000 and above, which are also subject to IMO DCS
and CII (these ships are likely to be subject to IMO's mid-term measures). Additionally, LNG carriers
have been excluded from the data on alternative fuel ships to provide a more accurate representationof the adoption status in ship types other than LNG carriers.

✓

LNG fueled ships remain the dominant type of alternative fuel ships in service (74% of the fleet), thetrend in fuel choice (orders) between January 2024 and June 2024 shows that the share of LNG fueled
ships in the total number of alternative fuel ships has decreased, while the share of methanol andammonia fueled ships has increased, indicating a trend towards a change in fuel choice. The growing
popularity of methanol fueled containerships has led to a corresponding increase in orders for othership types.

✓

By ship type, the percentage of alternative fuel ships in the orderbook increased for ship types withhigh rates of alternative fuel use (Vehicle carriers, LPG carriers, and Containerships), while the same
percentage decreased for ship types with low rates of alternative fuel use (Bulk carriers,
Product/Chemical tankers, and Crude oil tankers). The difference in the adoption of alternative fuels bydifferent ship types is becoming clearer.
14

Understanding trends
UPDATED

Trends in alternative fuel ships"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 June 2024 (Orderbook is included after 2024.)✓ 5,000 gross tonnage and above✓ LNG carriers are excluded from LNG fueled ships.
✓ Alternative fuel ready ships are not included.

✓ As of the end of June 2024 (Orderbook is included after 2024.)✓ 5,000 gross tonnage and above✓ LNG carriers are excluded from LNG fueled ships.
Source: The figures and tables presented in✓ Alternative fuel ready ships are not included.
this section are created by ClassNK based ondata from Clarkson Research Services Limited.

15

Understanding trends
UPDATED

Trends in alternative fuel ships
Share of alternative fuel ships
In service ―On order ―Details of alternative fuel ships (Dec. 2023 → Jun. 2024)

In service ―As of Dec. 31, 2023

As of Jun. 30, 2024

Number of vessels

522 vessels（1.4%）

628 vessels (1.7%)

Total GT33,560,005 GT（2.2%）

42,327,700 GT (2.7%)

During the past six months, there has been an increase of 106 vessels totaling 8.8
million GT. This growth can be attributed to the successive deliveries of LNG fueled
containerships, bulk carriers, vehicle carriers, and product/chemical tankers, etc. A
certain number of LPG fueled ships (LPG carriers only) have also been delivered.

On order ―✓ As of the end of June 2024
✓ 5,000 gross tonnage and above✓ LNG carriers are excluded from LNG fueled ships.
✓ Alternative fuel ready ships are not included.

As of Dec. 31, 2023

As of Jun. 30, 2024

Number of vessels

835 vessels (21.8%)

901 vessels (21.5%)

Total GT66,431,935 GT (30.9%)

69,624,584 GT (30.4%)

During the past six months, there has been an increase of 66 vessels totaling 3.2 million
GT. In terms of fuels, LNG, methanol and LPG (LPG carriers only) shared most of the
new orders, with the main fuel still uncertain. A certain number of vessels were alsoordered for ammonia fueled ships, despite the ongoing development of engines.

16Understanding trends
UPDATED

Trends in alternative fuel ships (by ship type)
In service ―✓ As of the end of June 2024 / 5,000 gross tonnage and above / Alternative fuelready ships are not included.

➢

LNG fueled ships make up the majority of ships of all types, with the exceptionof product/chemical tankers, which include methanol carriers, and LPG carriers.

On order ―✓ As of the end of June 2024 / 5,000 gross tonnage and above / Alternative fuelready ships are not included.

➢

Methanol fueled ships are expanding to other ship types besides containerships.
Ammonia fueled ships have also been ordered for some ship types.

17

Understanding trends
UPDATED

Trends in alternative fuel ships (by ship type)

Bulk carriers
In service ―On order ―Details of alternative fuel ships (Dec. 2023 → Jun. 2024)

In service ―As of Dec. 31, 2023

As of Jun. 30, 2024

Number of vessels

39 vessels (0.3%)

53 vessels (0.4%)

Total GT3,622,799 GT (0.7%)

5,072,048 GT (0.9%)

During the past six months, there was an increase of 14 vessels totaling 1.4 million GT.
By ship size, the majority of ships delivered are VLOC/Capesize and bulk carriers have amarked tendency to use alternative fuels, especially in the larger sizes. All delivered
ships were LNG fueled ships.

On order ―In service ―On order ―As of Dec. 31, 2023

As of Jun. 30, 2024

Number of vessels

63 vessels (5.5%)65 vessels (5.2%)

Total GT4,926,559 GT (10.3%)

5,070,849 GT (9.6%)

During the past six months, there was an increase of 2 vessels totaling 0.1 million GT.
While ammonia and methanol fueled ships have been ordered in VLOC/Capesize, no LNG
fueled ships have been ordered.

18

Understanding trends
UPDATED

Trends in alternative fuel ships (by ship type)Containerships
In service ―On order ―Details of alternative fuel ships (Dec. 2023 → Jun. 2024)

In service ―As of Dec. 31, 2023

As of Jun. 30, 2024

Number of vessels

75 vessels (1.3%)

113 vessels (1.9%)

Total GT9,683,956 GT (3.3%)

14,083,720 GT (4.5%)

During the past six months, there was an increase of 38 vessels totaling 4.4 million GT.
By ship size, the largest number of ships were delivered at 15,000 TEU, most of whichwere LNG fueled ships, while methanol fueled ships of less than 3,000 TEU and 15,000
TEU were also delivered.

On order ―In service ―On order ―As of Dec. 31, 2023

As of Jun. 30, 2024

Number of vessels

340 vessels (41.3%)

314 vessels (49.3%)

Total GT38,028,991 GT (56.5%)

35,665,036 GT (64.5%)

During the past six months, there was a decrease of 26 vessels totaling 2.4 million GT.
This was due to a number of deliveries and a decrease in new orders. By fuel type, themajority of new orders were for methanol fueled ships, in contrast to the trend indeliveries. Ammonia fueled ships were also ordered for the first time.

19Understanding trends
UPDATED

Trends in alternative fuel ships (by ship type)

Crude oil tankers
In service ―On order ―Details of alternative fuel ships (Dec. 2023 → Jun. 2024)

In service ―As of Dec. 31, 2023

As of Jun. 30, 2024

Number of vessels

57 vessels (2.5%)60 vessels (2.6%)

Total GT5,775,831 GT (2.4%)

6,060,939 GT (2.5%)

During the past six months, there was an increase of 3 vessels totaling 0.3 million GT.
The delivered ships were ULCC/VLCC and Aframax, all of which were LNG fueled ships.
No alternative fuel ships for Suezmax were delivered in the past six months.

On order ―In service ―On order ―As of Dec. 31, 2023

As of Jun. 30, 2024

Number of vessels

42 vessels (33.9%)57 vessels (28.5%)

Total GT3,736,624 GT (33.6%)

5,611,417 GT (27.9%)

During the past six months, there was an increase of 15 vessels totaling 1.9 million GT.
By ship size, the majority of orders were for ULCC/VLCC. By fuel type, LNG fueled ships
accounted for the majority of orders, while ammonia fueled ships were ordered for the
first time. There were no orders for methanol fueled ships.

20

Understanding trends
UPDATED

Trends in alternative fuel ships (by ship type)

Product/Chemical tankers
In service ―On order ―Details of alternative fuel ships (Dec. 2023 → Jun. 2024)

In service ―As of Dec. 31, 2023

As of Jun. 30, 2024

Number of vessels

83 vessels (1.4%)

95 vessels (1.5%)

Total GT2,596,463 GT (1.8%)

2,974,245 GT (2.1%)

During the past six months, there was an increase of 12 vessels totaling 0.4 million GT.
By ship size, while MR and LRII were delivered, no LRI were delivered. By ship type,
LNG fueled ships accounted for the majority of deliveries, while some methanol fueled
ships were also delivered.

On order ―In service ―On order ―As of Dec. 31, 2023

As of Jun. 30, 2024

Number of vessels

47 vessels (9.8%)

53 vessels (7.7%)

Total GT

1,280,079 GT (8.3%)

1,787,476 GT (8.5%)

During the past six months, there was an increase of 6 vessels totaling 0.5 million GT.
By ship size, LRII were the most ordered ships. By fuel type, LNG fueled ships accounted
for the majority of orders, with methanol fueled ships accounting for the remainder.

21

Understanding trends
UPDATED

Trends in alternative fuel ships (by ship type)

LPG carriers
In service ―On order ―Details of alternative fuel ships (Dec. 2023 → Jun. 2024)

In service ―As of Dec. 31, 2023

As of Jun. 30, 2024

Number of vessels

112 vessels (11.9%)

133 vessels (13.7%)

Total GT4,834,491 GT (17.4%)

5,816,222 GT (20.2%)

During the past six months, there was an increase of 21 vessels totaling 1.0 million GT.
VLGC (over 80,000m3) were mainly delivered, all of which were LPG fueled ships.

On order ―In service ―On order ―As of Dec. 31, 2023

As of Jun. 30, 2024

Number of vessels

91 vessels (54.5%)

127 vessels (59.1%)

Total GT

3,781,639 GT (55.8%)

4,952,445 GT (59.2%)

During the past six months, there was an increase of 36 vessels totaling 1.2 million GT.
In anticipation of increased demand for the transportation of ammonia fuel, orders for
LPG carriers have increased rapidly over the past six months. By ship size, VLGC (over80,000m3) accounted for the majority of orders, all of which were for LPG fueled ships.

22Understanding trends
UPDATED

Trends in alternative fuel ships (by ship type)

Vehicle carriers
In service ―On order ―Details of alternative fuel ships (Dec. 2023 → Jun. 2024)

In service ―As of Dec. 31, 2023

As of Jun. 30, 2024

Number of vessels

20 vessels (2.7%)31 vessels (4.1%)

Total GT

1,275,216 GT (3.3%)

2,023,411 GT (5.1%)

During the past six months, there was an increase of 11 vessels totaling 0.7 million GT.
All were around 7,000 cars in size, and all were LNG fueled ships.

On order ―In service ―On order ―As of Dec. 31, 2023

As of Jun. 30, 2024

Number of vessels

157 vessels (84.9%)

180 vessels (87.0%)

Total GT9,978,269 GT (82.5%)

11,563,177 GT (84.9%)

During the past six months, there was an increase of 23 vessels totaling 1.6 million GT.
By ship size, orders were seen across a wide range of sizes from 2,000 cars to 10,000
cars. By fuel type, LNG fueled ships accounted for the majority, but more methanol
fueled ships were ordered than ever before.

23

Understanding trends
UPDATED

Trends in alternative fuel ships (by ship type)

LNG carriers (for reference)
In service ―On order ―Details of alternative fuel ships (Dec. 2023 → Jun. 2024)

In service ―As of Dec. 31, 2023

As of Jun. 30, 2024

Number of vessels

681 vessels (92.5%)705 vessels (92.8%)

Total GT

70,096,187 GT (90.9%)

72,486,110 GT (91.2%)

During the past six months, there was an increase of 24 vessels totaling 2.4 million GT.
All were LNG fueled ships, and no other alternative fuel ships were delivered.

On order ―In service ―On order ―As of Dec. 31, 2023

As of Jun. 30, 2024

Number of vessels

339 vessels (99.7%)355 vessels (100.0%)

Total GT36,855,375 GT (99.9%)

39,722,960 GT (100.0%)

During the past six months, there was an increase of 16 vessels totaling 2.9 million GT.
All were LNG fueled ships, and no other alternative fuel ships were ordered. All ships onorderbook are LNG fueled ships.

24

― Step 3

Understanding
alternative fuels
When considering the adoption of alternative fuels,
it is important to understand the characteristics of
each

fuel,

emissions,

such
and

as

their

properties

to grasp factors

like

and

GHG

cost

and

projected supply. In this section, we will outline
theattributesofvarioususeinenvisagedforprovidinginsights

intoalternativeinternational
theircosts,

fuels

shipping,
supplyprospects, and other relevant factors.

25

Understanding alternative fuels
Key Takeaways✓ Each alternative fuel envisaged for use in international shipping has the potential to become
zero-emission or carbon-neutral fuel.
✓ Due to differences in calorific value, alternative fuels require larger fuel tank capacities compared
to conventional fuel oil, potentially resulting in reduced distance covered with the same fuel tankcapacity. Therefore, comprehensive fleet-wide consideration, including planned routes, isnecessary when adopting alternative fuel ships.
✓ The GHG emissions of each alternative fuel differ significantly not only during combustion but
also throughout their lifecycle. Therefore, it is important to fully understand the scope of GHG
emissions targeted by regulations and to weigh the pros and cons of each fuel under regulation.
✓ The cost of zero-emission or carbon-neutral fuels is generally considered to be lower for biomassderived fuels than for green hydrogen-derived fuels. However, biomass-derived fuels face supply
constraints, requiring careful attention to their availability.
✓ ClassNK has conducted surveys on the production volumes of zero-emission or carbon-neutral
fuels. Considering the demand for these fuels in international shipping, current production
volumes are vastly insufficient, necessitating rapid expansion of production scale.
26

Understanding alternative fuels
Fuel transition, technological options, and regulations in international shipping
Various alternative fuels are envisioned for use in shipping, and it remains uncertain which fuel will become predominant. Depending on the manufacturingmethod, each fuel has the potential to become zero-emission or carbon-neutral throughout its lifecycle, and it is essential to consider the manufacturing
technology trends, cost projections, and supply trends of each fuel when selecting fuels.

Timeline for fuel transition, etc.

2020

Fuel
transition

2050

2030

Fuel oilbio-/e-Diesel oil

LNG

bio-/e-Methane
LPG

bio-/e-LPG

Methanolbio-/e-Methanol
Ammonia
HydrogenTechnical
options

Wind-assisted propulsion systems
Shipboard CO2 capture and storage systems
Energy efficiency regulations (EEDI/EEXI), Carbon Intensity Indicator (CII)

Regulations

GHG intensity regulations, Carbon pricing
27

Understanding alternative fuels
Fuel properties - 1

UPDATEDAs alternative fuels vary significantly in energy density (per weight and volume) depending on the fuel type, the required fuel amount and necessary fueltank capacity can differ greatly compared to conventional fuel oil. Accurately understanding the physical properties of each fuel is the first step inconsidering the adoption of alternative fuels.

List of fuel properties (Overview)✓ While CO2 and GHG emission reductions are limited for onboard use of LNG, LPG, and methanol, significant
reductions are expected for ammonia and hydrogen.
✓ The fuel tank capacity of each alternative fuel is greaterthan that of conventional fuel oil. To get the same energy
as conventional fuel oil, LNG requires a fuel tank capacity
1.89 times larger than that of conventional fuel oil,methanol 2.47 times larger, ammonia 3.07 times larger,
and hydrogen 4.63 times larger.
✓ Ammonia does not explode unless it is present in theatmosphere at concentrations of 15.0 vol% or higher,
making it less explosive than other alternative fuels.
✓ Both methanol and ammonia are toxic, with ammonia
being of particular concern due to its extremely hightoxicity.
✓ When storing alternative fuels in liquid form, especially
LNG and hydrogen, extremely low temperatures are
required.
*TLV-TWA: Threshold Limit Value Time Weighted Average
Source: CO2 emission and GHG emission are calculated by ClassNK based on emission factors specified in the FuelEU
Maritime regulation.

28

Understanding alternative fuels
Fuel properties - 2Here, we focus on the environmental aspects as we introduce the characteristics of each fuel.

List of fuel properties (Environment-related)

Source: CO2 emission and GHG emission are calculated by ClassNK based on emission factors specified in the FuelEU Maritime regulation.

29

Understanding alternative fuels
Fuel properties - 3
Here, we focus on the design aspects as we introduce the characteristics of each fuel.

List of fuel properties (Design-related)30

Understanding alternative fuels
Fuel properties - 4Here, we focus on the safety aspects as we introduce the characteristics of each fuel.

List of fuel properties (Safety-related)*1 Toxicity criteria established by American Conference of Governmental Industrial Hygienist (ACGIH). TLV-TWA (Threshold Limit Value Time Weighted Average) represents theconcentration that is believed not to cause adverse health effects to workers who are repeatedly exposed to it during an average workday of 8 hours or a workweek of 40 hours.
*2 Toxicity criteria established by American Conference of Governmental Industrial Hygienist (ACGIH). TLV-STEL (Threshold Limit Value Short Term Exposure Limit) represents theconcentration that is believed not to cause adverse health effects to workers if exposed continuously for 15 minutes, provided that their daily exposure does not exceed the TLV-TWA.

31

Understanding alternative fuels
Understanding fuel consumption - 1
Alternative fuels have different calorific values compared to conventional fuel oil, resulting in changes in the required fuel volume (in tons) whentransitioning to alternative fuels. It is important to understand the estimated required fuel volume for each fuel type depending on the ship type and size
when considering the adoption of alternative fuels.

Image of annual fuel consumption (For conventional fuel oil: HFO) ― Bulk carrier, Containership, Crude oil tanker
Required amount of fuel when transitioning
to alternative fuels (tons)[Relative to conventional fuel oil]
LNG

0.84 times

LPG

0.87 times

Methanol 2.02 times
Ammonia 2.16 times
Hydrogen 0.34 times

32Understanding alternative fuels
Understanding fuel consumption - 2
Alternative fuels have different calorific values compared to conventional fuel oil, resulting in changes in the required fuel volume (in tons) whentransitioning to alternative fuels. It is important to understand the estimated required fuel volume for each fuel type depending on the ship type and size
when considering the adoption of alternative fuels.

Image of annual fuel consumption (For conventional fuel oil: HFO) ― Product/Chemical tanker, LPG carrier, Vehicle carrier, LNG carrier
Required amount of fuel when transitioning
to alternative fuels (tons)[Relative to conventional fuel oil]
LNG

0.84 times

LPG

0.87 times

Methanol 2.02 times
Ammonia 2.16 times
Hydrogen 0.34 times

33Understanding alternative fuels
Route selection
Alternative fuel ships cover shorter distances and require different fuel amounts (in tons) compared to conventional fuel ships, even with the same fuel tankcapacity. When considering the adoption of alternative fuel ships, it is important to select routes considering the type of fuel and bunkering locations.

Voyage distance on major routes
The amount of fuel required
for a 206,000 DWT bulk
carrier to sail one way(laden)
from
Japan
to
Australia over a distance of
3,500 nm.

• Fuel oil
• LNG
• LPG
• Methanol• Ammonia• Hydrogen:500 tons:420 tons:435 tons:1,010 tons
:1,080 tons
:170 tons

Major ports

34

Understanding alternative fuels"CO2 emissions (TtW)" vs. "GHG emissions (TtW)" vs. "GHG emissions (WtW)"The scope of emissions targeted by regulations varies, including "CO2 or GHG" and "Tank-to-Wake or Well-to-Wake." To minimize regulatory compliancecosts, it is important to understand the default values of emission factors in each regulation and the differences in emissions for each fuel. (TtW: Tank-toWake, WtW: Well-to-Wake)

Emissions per unit of energy
Emissions targeted by each regulation
The emissions targeted by regulations within the
IMO and the EU include the following:✓ CII:CO2 (TtW)✓ EU-ETS:GHG (TtW)(2026-)✓ FuelEU Maritime:GHG (WtW)✓ IMO mid-term measures :To be determined
Most emission cost-competitive fuel
The fuel with the lowest emissions in each
emission scope is as follows* (excluding zeroemission/carbon-neutral fuels):✓ For CO2 (TtW):LNG✓ For GHG (TtW):LNG✓ For GHG (WtW):LPG*When compared using the emission factors
specified in the FuelEU Maritime regulation
Source: Calculated by ClassNK based on emission factors specified in the FuelEU Maritime regulation

35

Understanding alternative fuelsComparison of CII ratings resulting from fuel transition
The adoption of alternative fuels is also highly effective in improving CII ratings. Here, we present a comparison of CII ratings for a handymax-sized bulk
carrier transitioning from a conventional fuel ship to either a methanol or LNG fueled ship. (CII: Carbon Intensity Indicators)

Comparison of CII ratings (Conventional fuel oil ship vs. Methanol fueled ship vs. LNG fueled ship: e.g. Handymax bulk carrier)
CII ratings

Fuel type
Conventional fuel oil
Methanol[10% CO2 reduction compared toconventional fuel oil]

LNG
[27% CO2 reduction compared toconventional fuel oil]

Image of CII rating transition

2023

2024

2025

2026

(5%)

(7%)

(9%)

(11%)

After 2027
(TBD)

C

C

D

D

-

B

C

C

C

-

A

A

B

B

-

The reduction rate (compared to 2019) from the CII reference line in setting the required CII is provided in parentheses.

➢ Based on the average energy efficiency performance in 2022, the CII rating for a handymax-sized bulk carrier (using conventional fuel oil) would be
C as of 2023, and it will follow the trends as indicated in the table (without assuming energy efficiency improvements).
➢ If it transitions from conventional fuel oil to methanol, the CII rating would improve from C to B as of 2023 (without assuming fuel efficiency
improvements).
➢ If it transitions from conventional fuel oil to LNG, the CII rating would improve from C to A as of 2023 (without assuming fuel efficiency
improvements).

36

Understanding alternative fuelsNEW<Reference>Result of CII ratings (2023, verified by ClassNK）

Rating

Total
(NK)

Total
(IMO)

A

27 %

22 %

B

27 %

25 %

C

29 %

31 %

D

12 %

16 %

E

5%

6%

SourceVerified by ClassNK(as of June 2024)

Calculated based on
MEPC 82/6/38, Table 1➢ ClassNK compiled the CII ratings of ships whose voyage data it verified. As ClassNK-verified ships tended to be relatively young,meaning they had good design energy efficiency, the CII ratings of ClassNK-verified ships were better than the overall average.

37Understanding alternative fuels<Reference>Result of CII ratings (2023, verified by ClassNK, by year built）

NEW

EEDI applied➢ The CII rating results show that younger ships, which tend to have better design energy efficiency, have achieved better ratings.
This trend is particularly evident after 2015 when the EEDI applicable ships are available.

38

Understanding alternative fuelsNEW<Reference>Result of CII ratings (2022 vs. 2023, verified by ClassNK）

Average speed
11.2 kn
10.8 kn▼0.4 kn

14.8 kn
14.2 kn▼0.6 kn

12.0 kn
11.8 kn▼0.2 kn

11.9 kn
11.9 kn±0 kn

13.6 kn
13.5 kn▼0.1 kn

15.0 kn
14.9 kn▼0.1 kn

14.2 kn
14.0 kn▼0.2 kn➢ ClassNK compared the CII rating results between the 2022 and 2023 voyage data. As a result of factors such as slow
steaming, the CII ratings in the 2023 voyage data were better than those in the 2022 voyage data.

39

Understanding alternative fuels
Alternative fuel costs
Alternative fuels available for ships vary widely, but the cost of each alternative fuel is expected to be 1.5 to 4 times higher than that of conventional fuel oil
by 2030. While the cost gap between conventional fuel oil and alternative fuels is expected to narrow in the future as production expands and regulations
are introduced, price trends based on supply and demand remain uncertain. Therefore, when considering the adoption of alternative fuels, it is crucial toassess the trend of fuel costs.

Production pathways and costs of alternative fuels (The costs are projected as of 2030. )40

Understanding alternative fuels
UPDATED

Share of alternative fuels

Alternative fuels such as LNG, LPG, and methanol account for only 7% of the annual fuel consumption of the world fleet, which is 216 million tons (as of2023). With an expected increase in orders for alternative fuel ships, this proportion is expected to increase. Therefore, further expansion of production
capacity is essential to meet the growing demand for alternative fuels in the future.

Fuel Consumption of ships subject to the IMO DCS (5,000 gross tonnage and above engaged in international voyages) [Unit: ton]

2021
(28,171 ships)(1.25 bn GT)

2022(28,834 ships)(1.29 bn GT)

2023(28,620 ships)(1.30 bn GT)

LPG(Propane)

LPG(Butane)Total(HFO eq)

Heavy Fuel Oil(HFO)Light Fuel Oil(LFO)

Diesel/Gas Oil(MDO/MGO)

LNG

109,169,447

64,479,128

25,732,999

12,623,121

34,973

2,028

13,031

4,849

170,501

217,710,495

116,576,283

57,077,835

28,285,802

10,950,408

88,774

16,67335,523

10,890226,739

218,339,992

130,441,745

40,416,174

26,600,016

12,890,011

192,405

49,887

93,876

4,137

428,263

215,833,384

Methanol

Ethanol

Other

If we aim to replace all 216 million tons of Heavy Fuel Oil (HFO) with alternative fuels...
HFOeq 216 mil. tons

For all methanol

440 mil. tons of methanol needed (Current global production volume for all sectors:

106 mil. tons/year*)

HFOeq 216 mil. tons

For all ammonia

470 mil. tons of ammonia needed (Current global production volume for all sectors:

183 mil. tons/year*)

HFOeq 216 mil. tons

For all methane/LNG 180 mil. tons of methane needed (Current global production volume for all sectors:

388 mil. tons/year*)

HFOeq 216 mil. tons

For all hydrogen

95 mil. tons/year*)

70 mil. tons of hydrogen needed (Current global production volume for all sectors:*Approximately 99% of the production volume isderived from fossil resources.

41

Understanding alternative fuels
Amount of renewable energy electricity required for green hydrogen production

UPDATED

Expanding the production of green hydrogen, which serves as the raw material for green ammonia and green methanol, requires an increase in the
adoption of renewable energy. Here, we introduce an estimate of the renewable energy electricity capacity needed for green hydrogen production.

Amount of renewable energy electricity required for green hydrogen production
Trend of global renewable energy capacity

Annual fuel consumption in international shipping*1*1 Subject to ships 5,000 gross tonnage and above engaged in international voyages

HFO eq 216 mil. tons

Methanol eq

Ammonia eq

Methane eq

Hydrogen eq

440 mil. tons

470 mil. tons

180 mil. tons

70 mil. tons

Required Hydrogen

Required Hydrogen

Required Hydrogen

84 mil. tons

85 mil. tons

90 mil. tons

Source: IRENA (2024), Renewable capacity statistics 2024,
International Renewable Energy Agency, Abu Dhabi. (Highlights)➢

Required renewable energy electricity capacity*2
530 GW

540 GW

570 GWx 365 days of operation*2 The calculated power consumption is based on 5.0 kWh per Nm3-H2.

450 GW

Renewable energy capacity (GW) is increasing,and the capacity required for green hydrogenproduction (as shown in the left figure) has
been met, but currently, most of it is useddirectly as electricity. For the decarbonizationof international shipping, the key point moving
forward will be finding ways to introduce andexpand the use of renewable energy for greenhydrogen production purposes.

42Understanding alternative fuels
Demand outlook for alternative fuels

NEW

Understanding the demand outlook for alternative fuels is critical for securing alternative fuels and estimating procurement costs.
Here we presents an estimated demand forecast for alternative fuels based on orderbook data for alternative fuel ships.
Maximum demand outlook for alternative fuels

Estimate maximum demand
based on orderbook information✓ ClassNK has estimated the maximum* demand for each alternative fuelthrough 2026, using orderbook data for alternative fuel ships as ofJune 30, 2024.
*For alternative fuel ships delivered after 2024, it is assumed that they will operate
solely on alternative fuels, with no pilot fuel use.

✓ LNG: The mass delivery of LNG fueled ships, on a scale comparable tothe current fleet, could lead to a peak demand of 24 million tons by
2026.
✓ Methanol: The successive delivery of methanol fueled ships, especiallycontainerships, could lead to a peak demand of 4.5 million tons by2026.
✓ LPG: Given that the only ship type anticipated to use this fuel is the
LPG carrier, the peak demand is forecast to be capped at 1 million
tons by 2026.
✓ 5,000 gross tonnage and above / LNG carriers are included. / Alternativefuel ready ships are not included.
✓ The data for 2023 are from the IMO DCS.

✓ Ammonia and Hydrogen: Despite the current limited demand, future
growth is anticipated as these fueled ships are delivered.

43

Understanding alternative fuels
Zero-emission fuels and zero-emission ships required for international shipping
The "2023 IMO GHG Strategy" has set new GHG reduction targets, and international shipping will now chart a course towards achieving net-zero GHG
emissions by or around 2050. Here, we introduce the volume of zero-emission fuels and zero-emission ships needed along this pathway.

Introduction volume of zero-emission ships/fuels needed to achieve the 2030 indicative checkpoint in the IMO’s GHG reduction goal

Introduction volume of zero-emission ships/fuels
needed to achieve the 2030 indicative checkpoint(Well-to-Wake)*:*Calculations for ships of 5,000 gross tonnage and above
engaged in international voyages (ships subject to IMO DCS)

✓ Zero-emission fuels
25% of the fuel used in international shipping to be zeroemission fuel (as of 2030)• For all green methanol:106 million tons
• For all green ammonia:114 million tons

✓ Zero-emission ships
Zero-emission ships needed to consume the above fuelvolume (as of 2030)• 352 million gross tonnage
Please refer to the ClassNK-issued white paper titled"Pathway to Zero-Emission in International Shipping Understanding the 2023 IMO GHG Strategy" for more details.

44

Understanding alternative fuels
Alternative fuel production projects - 1 (Green hydrogen)
Understanding the projected supply of each fuel is essential when adopting alternative fuels. Here, we present the production scale (including planned
production) of green hydrogen. Hydrogen can be used not only directly as marine fuel but also as a raw material for ammonia and methanol. Please notethat production projects are not limited to the shipping sector.

Distribution of green hydrogen production projects (Operational/Construction/FID, for all sectors, as of October 2023)
Country/
RegionEurope
0.44

USA

China

0.15

Middle East

0.73

Japan

Number of
projects

Annual production
capacity (total)

China

32

732,049 tons H2/year

Europe223

447,093USA29

155,849

Australia

26

61,687

North andCentral America

16

40,462Asia

26

12,493

South America

15

4,381

Japan

16

2,150

Africa2

1,286

Middle East4

239

Oceania

1

195

390

1,457,884<0.1North andCentral America

Africa

<0.1

<0.1

<0.1

Asia
<0.1

South America
Oceania<0.1

Australia

<0.1

<0.1

Unit: million tons H2/year
Main bunkering ports for conventional fuel oil

Total

Source: Prepared by ClassNK based on IEA (2023), Hydrogen Production Projects Database45

Understanding alternative fuels
Alternative fuel production projects - 1 (Green hydrogen)
The majority of green hydrogen projects slated to commence production by 2040 are still in the feasibility study or conceptual stages and have not reached
the final investment decision. It is necessary to continue monitoring the progress of these projects to assess the expected production volume in the future.

Projected production capacity of green hydrogen (for all sectors, as of October 2023)
Projected production capacity by year

Projected production capacity by country/region (as of 2040*)*After 2040, there are no projects planned.

➢ The green hydrogen production capacity is expected to increase
rapidly after 2030, but most of the projects are still in the feasibility
study or conceptual stages.

➢

Many of the green hydrogen projects slated to start production by 2040
are located in Europe, followed by South America and Australia, which
are considered suitable locations for green hydrogen production.
Source: Prepared by ClassNK based on IEA (2023), Hydrogen Production Projects Database46

Understanding alternative fuels
Alternative fuel production projects - 2 (Blue hydrogen)
Here we introduce the production scale of blue hydrogen (including planned production). Hydrogen can be used not only directly as marine fuel but also as
a raw material for ammonia and methanol. Please note that production projects are not limited to the shipping sector.

Distribution of blue hydrogen production projects (Operational/Construction/FID, for all sectors, as of October 2023)
Country/
RegionEurope
1.06

USA

China

0.31

Middle East？

North andCentral America

<0.1

Japan
0

Africa
0
Asia

0.44

Number of
projects

Annual production
capacity (total)

Europe4

1,060,151 tons H2/year

North andCentral America

4440,000

USA3

316,155

China

254,575

Asia

1

1,825

Middle East

1

?

15

1,872,706

Total

<0.1

South America
0

Oceania0Australia
0

Unit: million tons H2/year
Main bunkering ports for conventional fuel oil
Source: Prepared by ClassNK based on IEA (2023), Hydrogen Production Projects Database47

Understanding alternative fuels
Alternative fuel production projects - 2 (Blue hydrogen)
The majority of blue hydrogen projects slated to commence production by 2035 are still in the feasibility study or conceptual stages and have not reached
the final investment decision. It is necessary to continue monitoring the progress of these projects to assess the expected production volume in the future.

Projected production capacity of blue hydrogen (for all sectors, as of October 2023)
Projected production capacity by year

Projected production capacity by country/region (as of 2035*)*After 2035, there are no projects planned.

➢ The blue hydrogen production capacity is expected to increase in thelatter half of the 2020s, but most of the projects are still in thefeasibility study or conceptual stages.

➢ Most of the blue hydrogen projects slated to start production by2035 are located in Europe.

Source: Prepared by ClassNK based on IEA (2023), Hydrogen Production Projects Database48

Understanding alternative fuels
Alternative fuel production projects - 3 (Green ammonia)
Here we introduce the production scale of green ammonia (including planned production). Ammonia is expected to be used not only directly as marine fuelbut also as a hydrogen carrier. Please note that production projects are not limited to the shipping sector.

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

Europe<0.1

USA

Middle East

China

2.52

1.38

<0.1

North andCentral America
0Africa<0.1

South America

Japan
0

Asia
0.53

Country/
RegionNumber of
projects

Annual production
capacity (total)

Middle East

32,523,652 tons NH3/year

China

11

1,385,574

Asia

3

535,113South America

382,168Europe446,880USA

118,824Australia

1

9,621

Africa

2

481

Total

28

4,602,313

Oceania<0.1

Australia

0<0.1

Unit: million tons NH3/year
Main bunkering ports for conventional fuel oil
Source: Prepared by ClassNK based on IEA (2023), Hydrogen Production Projects Database49

Understanding alternative fuels
Alternative fuel production projects - 3 (Green ammonia)
The majority of green ammonia projects slated to commence production by 2043 are still in the feasibility study or conceptual stages and have not reached
the final investment decision. It is necessary to continue monitoring the progress of these projects to assess the expected production volume in the future.

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 to increase
gradually, but most of the projects are still in the feasibility study orconceptual stages.

➢ Many of the green ammonia projects slated to start production by
2043 are located in Australia, Africa, and South America, etc.

Source: Prepared by ClassNK based on IEA (2023), Hydrogen Production Projects Database50

Understanding alternative fuels
Alternative fuel production projects - 4 (Blue ammonia)
Here we introduce the production scale of blue ammonia (including planned production). Ammonia is expected to be used not only directly as marine fuelbut also as a hydrogen carrier. Please note that production projects are not limited to the shipping sector.

Distribution of blue ammonia production projects (Operational/Construction/FID, for all sectors, as of October 2023)
Country/
Region

USA

欧州
0

2.00

Middle East
China

1.00
North andCentral America
？

0

Japan

Number of
projects

Annual production
capacity (total)USA

52,000,000 tons NH3/year

Middle East

11,000,000

Japan

1

3,887

North andCentral America

1

?

Total

8

3,003,888<0.1

Africa0Asia0South America
0

Oceania0Australia
0

Unit: million tons NH3/year
Main bunkering ports for conventional fuel oil
Source: Prepared by ClassNK based on IEA (2023), Hydrogen Production Projects Database51

Understanding alternative fuels
Alternative fuel production projects - 4 (Blue ammonia)
The majority of blue ammonia projects slated to commence production by 2030 are still in the feasibility study or conceptual stages and have not reached
the final investment decision. It is necessary to continue monitoring the progress of these projects to assess the expected production volume in the future.

Projected production capacity of blue ammonia (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 blue ammonia production capacity is expected to increase
gradually, but most of the projects are still in the feasibility study orconceptual stages.

➢ Most of the blue ammonia projects slated to start production by
2030 are located in the USA.

Source: Prepared by ClassNK based on IEA (2023), Hydrogen Production Projects Database52

Understanding alternative fuels
Alternative fuel production projects - 5 (Green methanol)
Here we introduce the production scale of green methanol (including planned production). Methanol is not only used directly as marine fuel but also
required for the production of biodiesel such as FAME (Fatty Acid Methyl Ester). Please note that production projects are not limited to the shipping sector.

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

Annual production
capacity (total)

China

3

365,867 tons CH3OH/year

Europe9

119,675

Asia

1

3,918

Total

13

489,461

Europe
0.11

China

USA
0
North andCentral America
0Middle East0
Africa
0

0.36

Japan
0
Asia
<0.1

South America
0Australia
0

Oceania0

Unit: million tons CH3OH/year
Main bunkering ports for conventional fuel oil
Source: Prepared by ClassNK based on IEA (2023), Hydrogen Production Projects Database53

Understanding alternative fuels
Alternative fuel production projects - 5 (Green methanol)
The majority of green methanol projects slated to commence production by 2030 are still in the feasibility study or conceptual stages and have not reached
the final investment decision. It is necessary to continue monitoring the progress of these projects to assess the expected production volume in the future.

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 expected to increase
gradually, but most of the projects are still in the feasibility study orconceptual stages.

➢ Many of the green methanol projects slated to start production by
2030 are located in Europe and the USA.

Source: Prepared by ClassNK based on IEA (2023), Hydrogen Production Projects Database54

Understanding alternative fuels
NEW

Alternative fuel production projects - 6 (Green methane)

Here we introduce the production scale of green methane (including planned production). Although methane is a potent GHG, progress in reducing
methane slip is mitigating its negative impacts, thereby attracting attention. Please note that production projects are not limited to the shipping sector.

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

Annual production
capacity (total)

Europe19

12,419 tons CH4/year

USA

1

86

Japan

1

25

Total

21

12,530

<0.1

USA
<0.1

North andCentral America
0Middle East
0

China
0

Japan
<0.1

Africa0Asia0South America
0Australia
0

Oceania0

Unit: million tons CH4/year
Main bunkering ports for conventional fuel oil
Source: Prepared by ClassNK based on IEA (2023), Hydrogen Production Projects Database55

Understanding alternative fuels
Alternative fuel production projects - 6 (Green methane)NEW

The majority of green methane projects slated to commence production by 2030 are still in the feasibility study or conceptual stages and have not reached
the final investment decision. It is necessary to continue monitoring the progress of these projects to assess the expected production volume in the future.

Projected production capacity of green methane (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 methane production capacity is expected to increase
gradually, but most of the projects are still in the feasibility study orconceptual stages.

➢ Many of the green methane projects slated to start production by
2030 are located in Europe and the USA.

Source: Prepared by ClassNK based on IEA (2023), Hydrogen Production Projects Database56

Understanding alternative fuels
CCS projects
To reduce GHG emissions from ships, not only the use of alternative fuels, but also the utilization of onboard CCS (Carbon Capture and Storage) are
effective measures. In the utilization of onboard CCS, it is important to consider where the captured CO2 will be unloaded and stored. Here, we introduce
the trends and distribution of CCS facility development.

Development trends and distribution of CCS facilities
Development trends of CCS facilities➢ There were approximately 49 million tons*1 of CO2 storage
capacity worldwide in 2023.
*1 Equivalent to emissions from about 16 million tons of heavy fuel oil

Distribution of CCS facilities➢ As of 2023, operational facilities*2 are concentrated in the USA, butconstruction and development are progressing in various regions
worldwide, including Europe.
*2 Most of these are CO2 storage aimed at enhanced oil recovery.

Source: Global CCS Institute, 2023. The Global Status of CCS: 2023. Australia.

57Understanding alternative fuels
Steps from installation of onboard CCS systems to certification of captured CO2 volume

NEW

Utilizing onboard CCS requires a comprehensive approach, including site selection of CO2 unloading and storage, selection of onboard CCS system, andcertification for the captured CO2 volume. Also, the standards have yet to be established by the IMO for assessing CO2 reductions from onboard CCS,
meaning that flag state approval is required to recognize these reductions in regulations. Here we outline key considerations for onboard CCS and our
supports including flag state approval.

Steps from installation of an onboard CCS system to certification of captured CO 2 volume

STEP 01

STEP 02

STEP 03

Planning CO2 capture

Installing onboard CCS systems

Capturing/unloading CO2 and certification• Planning for capture volume• Selecting onboard CCS systems andchecking safety requirements• Preparing for surveys• Maintaining onboard CCS systems• Complying with regulations related to capture andstorage• Confirming captured CO2 volume

ClassNK’s support

ClassNK’s support

ClassNK’s support✓ Providing information
Notation “SCCS-Ready”✓ Reviewing plans✓ Initial surveys✓ Periodical surveys

Guidelines for Shipboard CO2 Capture and Storage Systems• Outlines onboard CCS systems• Stipulates safety requirements for
systems and its onboard installation
These guidelines can be accessed from the"Guidelines" menu on the ClassNK website's
My Page after logging in.
https://www.classnk.or.jp/account/en/rules_
guidance/ssl/login.aspx✓ Certification of captured CO2 volume✓ Support for regulatory compliance

Notation “SCCS”

A notation will be granted to a ship that comply withthe requirements of the guidelines.
CO2 Capture and Storage Systems
SCCS-Full
CO2 Capture Systems

CO2 Storage Systems

SCCS-Capture

SCCS-Storage

SCCS: Shipboard Carbon dioxide Capture and Storage

58

Understanding alternative fuels
Feasibility of biofuel supply
Biofuels are considered carbon-neutral fuels over their entire lifecycle because the plants used as their raw materials absorb CO2 from the atmosphere
during their growth. Additionally, they attract attention as drop-in fuels that can be used without extensive modification of existing engines. However,biofuels face constraints due to the limited availability of biomass resources, and competition for these resources with other sectors highlights theimportance of ensuring stable procurement.

The gap between "supply and demand" and "growth time and usage time"

Bio-products andfuel manufacturing

Manufacturing
Construction Cement

Plastic
Heating

Low Supply
Slow GrowthHigh Demand

Electricity

Aviation
Shipping

Fast Usage
CO2
absorption

carbon neutral？

CO2
emission59

Understanding alternative fuels
Use of biofuels
Reducing GHG emissions from ships is important, and the use of biofuels stands out as a significant option. However, it's crucial to fully understand theconsiderations associated with their use and to identify in advance the types of biofuels acknowledged for their GHG reduction effects under regulations.

Two steps to using biofuels
1. Understand safety precautions

Biofuels vary widely in their characteristics depending on the feedstock
and production methods. When using them, it's essential to understandthe features of each fuel, any precautions for use, and potential issues
that may arise. ClassNK provides support for the use of biofuels throughinformation in the "Technical Guide for Using Biofuels."
2. Make arrangements to use recognized biofuels for GHG reduction
Biofuels that are recognized for their GHG reduction effects may varydepending on regulations. When arranging to use biofuels, please ensure
beforehand whether the biofuels meet the requirements of the regulations.
→ Compliance with the requirements can be confirmed by a Proof of
Sustainability or equivalent, arranged by the fuel supplier.

Technical Guide for
Using Biofuels (Edition 1.1)
April 2024

This technical guide can be accessed from the"Guidelines" menu on the ClassNK website's
My Page after logging in.
https://www.classnk.or.jp/account/en/Rules_
Guidance/ssl/guidelines.aspx

Image of
Proof of Sustainability

60

Understanding alternative fuelsNEW<Reference>GHG emissions assessment of biofuels
The GHG emissions assessment of biofuels in the CII, EU-ETS for Shipping, and FuelEU Maritime are as follows.
Regulation

CII(Scope: TtW)

Requirements for biofuels to contribute to
GHG emissions reductions

GHG emissions assessment（in case of B-100*3）

Temporary measures in place until the IMO finalizes its LCA guidelines

Temporary measures in place until the IMO finalizes its LCA guidelines• Certified by an international certification scheme(ISCC, RSB, etc.), meeting its sustainability
criteria• Not exceeding WtW GHG intensity 33gCO2eq /MJ*1e.g.) In case of biofuels derived from used cooking oil*4*1 Reduction of at least 65% compared to the 94gCO2eq/MJ (MGOeq)

EU-ETSfor Shipping(Scope: TtW)

• Compliance with the sustainability and GHG
emissions reduction criteria*2 as defined in the
EU Renewable Energy Directive (RED)*2 Reduction of at least 65% compared to the 94gCO2eq/MJ*3 In the case of blended oils like B-24 and B-29, the GHG emissions
reduction is attributed solely to the biofuel component.

*4 WtW GHG intensity 14.9gCO2eq/MJ

Approx. 80% reduction compared to conventional fuel oil<Explanation>✓ TtW emissions=0, but recognize WtW as TtW emissions
WtW GHG intensity 14.9gCO2eq/MJ × LCV 0.037MJ/g fuel= 0.551gCO2eq/g fuelRegardless of the origin of the biofuel
Approx. 99% reduction compared to conventional fuel oil<Explanation>✓ TtW CO2 emissions=0✓ Recognize and account TtW CH4 and N2O emissions

e.g.) In case of biofuels derived from used cooking oil*5
FuelEU Maritime(Scope: WtW)

*5 WtW GHG intensity 14.9gCO2eq/MJ

Approx. 80% reduction compared to conventional fuel oil<Explanation>✓ TtW CO2 emissions=0✓ Recognize and account TtW CH4 and N2O emissions

61

Understanding alternative fuels
UPDATED

Regulatory trends

The IMO has been actively developing rules and guidelines for various alternative fuels, including zero- and low-emission fuels. Here, we introduce the rules
and guidelines of the IMO regarding each alternative fuel, as well as the corresponding rules and guidelines provided by ClassNK.

Rules and guidelines concerning alternative fuels
Alternative fuels/
Relatedtechnologies

IMO Rules/Guidelines

Rules for the Survey and Construction of Steel Ships / GuidancePart GF SHIPS USING LOW-FLASHPOINT FUELSLNGIGF Code

MethanolInterim Guidelines for the Safety of Ships Using Methyl /Ethyl alcohol as Fuel
(MSC.1/Circ.1621)

LPG
Ammonia
Hydrogen
Fuel Cell

ClassNK Rules/Guidelines

Guidelines for Ships Using Alternative Fuels (Edition 3.0)

Interim Guidelines for the Safety of Ships Using LPG Fuels(MSC.1/Circ. 1666)

Under development(The finalization is scheduled for September 2024 at CCC10.)

Part APart B
Part CPart D
Annex 1

Guidelines for Ships Using Methyl/Ethyl Alcohol as Fuels
Guidelines for Ships Using LPG as Fuel
Guidelines for Ships Using Ammonia as Fuel
Guidelines for Ships Using Hydrogen as Fuel
Alternative Fuel Ready

Under development(The finalization is scheduled for September 2024 at CCC10.)Interim Guidelines for the Safety of Ships Using Fuel Cell
Power Installations(MSC.1/Circ.1647)
Existing rule

Existing guidelines

Guidelines for Fuel Cell Power Systems On Board
Ships [Second Edition]
Guidelines under development

62

Understanding alternative fuels
UPDATEDClassNK’s guidelines

ClassNK provides technical support for various aspects, such as issuing Approval in Principle and retrofitting alternative fuel ships, through the issuance ofvarious guidelines. When considering the adoption of alternative fuel ships, we encourage you to make use of these guidelines.

ClassNK List of alternative fuel-related guidelines

Guidelines forTechnology Qualification
March 2022

Guidelines for Approval in Principle
and General Design Approval
March 2022

Guidelines for Large-capacity
Storage Batteries
January 2023
updatedGuidelines for Fuel Cell Power
Systems On Board Ships
September 2023
updatedTechnical Guide for
Using Biofuels
April 2024
updatedGuidelines for Ships
Using Alternative Fuels
July 2024
updatedGuidelines for Shipboard CO2
Capture and Storage Systems
June 2023
updatedGuidelines for Wind-Assisted
Propulsion Systems for Ships
July 2024
updatedGuidelines for Liquefied
Hydrogen Carriers
August 2023
updated

These guidelines can be accessed from the"Guidelines" menu on the ClassNK website's
My Page after logging in.
https://www.classnk.or.jp/account/en/rules_guidance/ssl/login.aspx

63

― Step 4

Understanding
costs
When considering the adoption of alternative fuels,
understanding

the

total

cost

for

each

fuel

is

paramount. In this section, we will introduce thecost factors to consider during fuel transition anddiscuss the cost simulation conducted by ClassNK.

64

Understanding costs
Key Takeaways✓ The main costs associated with the adoption of alternative fuel ships are shipbuilding costs,
fuel costs, and regulatory costs.
✓ Regulatory costs to comply with IMO and EU regulations depend on the GHG emissions
resulting from fuel use. To understand regulatory costs, it's necessary to grasp each ship's
GHG emissions, including the potential for reduction through fuel transition.
✓ It's worth noting that EU regulations (EU-ETS for Shipping and FuelEU Maritime) target GHG
emissions in EU-related voyages, while IMO regulations (mid-term measures) may cover
GHG emissions in all voyages. Consequently, the regulatory cost burden may be relatively
higher, requiring attention.
✓ ClassNK is prepared to conduct cost simulations for fuel transition. As soon as the contentsof IMO regulations (mid-term measures) are finalized in 2025, ClassNK will provide
calculation services for cost simulations.

65Understanding costs
Uncertain factors in costs (1. Shipbuilding costs, 2. Fuel costs, 3. Regulatory costs)
When considering the adoption of alternative fuels, it's crucial to understand the total costs associated with each fuel option for comparison. Among thevarious cost factors, shipbuilding costs, fuel costs, and regulatory costs stand out as significant components. It's essential to forecast how these costs willchange in the future and make the right fuel selections at the appropriate timing, as this will determine the competitive advantage in the maritime businessgoing forward.

Image of primary costs

3. Regulatory
costs

Down

3. Regulatory
costs

IMO
mid-term
measures✓ The adoption of alternative fuel ships is
expected to result in increased shipbuilding
costs
and
fuel
costs
comparedtoconventional fuel ships, while regulatory
costs are anticipated to decrease.

FuelEU
Maritime✓ The
primaryfactors
contributing
toregulatory costs are the EU's EU-ETS and
FuelEU Maritime, as well as IMO's mid-term
measures.

2. Fuel costs
2. Fuel costs

Up

EU-ETS
1. Shipbuilding
costs

Conventional fuel shipUp

1. Shipbuilding
costs

Alternative fuel ship

✓ While EU regulations target GHG emissions in
EU-related voyages, IMO regulations arelikely to cover GHG emissions in all voyages,
potentially leading to relatively higher
regulatory cost burdens.

66Understanding costs
Uncertain factors in costs (1. Shipbuilding costs)
The shipbuilding cost of alternative fuel ships, which require different fuel tanks and fuel supply systems, is expected to be higher than that of conventional
fuel ships. The outlook for shipbuilding costs until 2050 is uncertain due to significant fluctuations in steel prices, but it's important to invest based on along-term assessment of ship pricing levels.

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 cost of alternative fuel ships
is typically 10% to 20% higher compared toconventional fuel ships, depending on theship types and sizes.

67Understanding costs
Uncertain factors in costs (2. Fuel costs)
There is a wide range of alternative fuels available for use in ships, but it is anticipated that the cost of each alternative fuel will be higher than conventional
fuel oil. However, with the expected expansion of production and the introduction of regulations in the future, the cost gap between alternative fuels andconventional fuel oil is expected to narrow. When considering the adoption of alternative fuels, it is crucial to closely monitor the trends in fuel costs.

Image of fuel costs✓

Alternative fuels can be broadly categorized into
"biomass-derived fuels" and "e-fuels produced from greenhydrogen and captured CO2."✓

The main cost factor for "biomass-derived fuels" is theprice 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.

✓

For "e-fuels produced from green hydrogen and captured
CO2," the main cost factor is the price of green hydrogen.
The price of green hydrogen is influenced by the costs ofrenewable energy and electrolysis equipment.

✓

It is possible that the cost of alternative fuels will remain
higher than that of conventional fuel oil even by the year
2050.

✓

It is important to note that the actual procurement pricecan vary depending on supply and demand conditions.

Biomass-derived

e-fuelSource: Maersk Mc-Kinney Moller Center for Zero Carbon Shipping (2021), Position Paper Fuel Option Scenarios

68Understanding costs
Uncertain factors in costs (3. Regulatory costs)
In the future, a series of regulations encouraging the use of zero and low-emission fuels will be introduced in international shipping. In Europe, theEuropean Union Emissions Trading System (EU-ETS) is expanding to the maritime sector from 2024, and the FuelEU Maritime is set to be introduced in
2025. Meanwhile, the IMO is discussing a new regulatory framework (mid-term measures) for implementation in 2027. Each regulation entails
uncertainties in the resulting costs, necessitating caution in total cost estimations.

The three major GHG regulations in international shipping going forward
1. EU-ETS (2024 -)✓ It requires the surrender of emission allowances corresponding to the targeted GHG
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.

Transition of the price of allowances at
the European Energy Exchange (EEX)

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.
✓ The total amount of penalties is determined by the "degree of excess over the limit" and the"amount of energy consumed."✓ Flexibility mechanisms (banking, borrowing, pooling) are available to avoid penalties, andthe adept use of these flexibility mechanisms affects the costs of FuelEU Maritime.

Source: Prepared by ClassNK, based on the emission allowance pricedata publicly available from the EEX

3. IMO mid-term measures (Scheduled for 2027 -)✓ The contents of the regulation itself are not determined (the regulation details are expected
to be finalized in 2025).

69

Understanding costs
Conducting cost simulation
ClassNK conducts cost simulations with the aim of supporting your future fuel selections, particularly regarding the transition (replacement) of conventional
fuel ships to alternative fuel ships. Here, we provide an overview of the cost simulation process.

Overview of cost simulation✓

Calculate while focusing solely on the major components of costs, namely
shipbuilding costs, fuel costs, and regulatory costs, which constitute themajority of the total costs.

✓

Compare the total costs of adopting conventional fuel ships with those ofalternative fuel ships for ships of the same type and size.

✓

Calculated the expected fuel costs and regulatory costs based on the fueltype and fuel consumption. 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 toprovide cost simulation calculation services in response to this.

70Understanding costs
NEW

Cost simulation example - 1

When adopting alternative fuel ships, it's important to consider fuel costs and regulatory costs while aiming for a timely transition to zero-emission fuels.
Here, we present a comparison of total costs between adopting conventional fuel ships and ammonia fueled ships in a stepwise transition case, using a
64,000 DWT bulk carrier as an example.

Cost simulation example (Conventional fuel ship vs. Ammonia fueled ship 64,000 DWT bulk carrier: Stepwise transition case)← Ammonia fueled ship

← Conventional fuel ship

Annual costs ver.

<Assumption>✓ Delivery in 2031 (Lifetime 20 years)✓ Shipbuilding costs→ Amortized over 20 years✓ Fuel price→ HFO: Fixed
13.0 USD/GJ (=522.6 USD/ton)→ e-Ammonia: Decrease annually【2031】38.9 USD/GJ (=723.8 USD/ton)【2050】19.7 USD/GJ (=366.2 USD/ton)<How to read the graph>✓ Bar graph on the left side:

Selected fuel →Annual costs in case a conventional fuel ship is adopted(Fuel selection: HFO only)✓➢ Identify the timing when annual costs will cross over(In this case, for the ammonia fueled ship, selecting e-Ammonia from 2040 onwards will be more cost-effective, meaning that “e-Ammonia
fuel costs” < “HFO fuel costs + regulatory costs”, and the annual costs will be less than those of the conventional fuel ship from 2040.)

Bar graph on the right side:
Annual costs in case an ammonia fueled ship is adopted(Fuel selection options include HFO or e-Ammonia)(Select the fuel that lowers total costs each year)71Understanding costs
NEW

Cost simulation example - 1

When adopting alternative fuel ships, it's important to consider fuel costs and regulatory costs while aiming for a timely transition to zero-emission fuels.
Here, we present a comparison of total costs between adopting conventional fuel ships and ammonia fueled ships in a stepwise transition case, using a
64,000 DWT bulk carrier as an example.

Cost simulation example (Conventional fuel ship vs. Ammonia fueled ship 64,000 DWT bulk carrier: Stepwise transition case)
Cumulative costs ver.

← Ammonia fueled ship

← Conventional fuel ship

2.

1.

<Assumption>✓ Delivery in 2031 (Lifetime 20 years)✓ Shipbuilding costs→ Amortized over 20 years✓ Fuel price→ HFO: Fixed
13.0 USD/GJ (=522.6 USD/ton)→ e-Ammonia: Decrease annually【2031】38.9 USD/GJ (=723.8 USD/ton)【2050】19.7 USD/GJ (=366.2 USD/ton)<How to read the graph>✓ Bar graph on the left side:

Selected fuel →Cumulative costs in case a conventional fuel ship is adopted(Fuel selection: HFO only)✓➢ 1. Identify the timing when cumulative costs will cross over (2042 in this case)➢ 2. Identify the lifetime total cost difference (approx. 50 million USD over 20 years in this case)Bar graph on the right side:
Cumulative costs in case an ammonia fueled ship is adopted(Fuel selection options include HFO or e-Ammonia)(Select the fuel that lowers total costs each year)72Understanding costs
NEW<Reference>Assumptions for cost simulation example - 1
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.
Category
Newbuilding price (Ammonia fueled ship)

2050

Comments
USD 39,270,000(Conventional fuel ship+19%)

-

-

-

ton

-

5,000

5,000

USD/ton522.6(=13.0 USD/GJ)

522.6(=13.0 USD/GJ)

522.6(=13.0 USD/GJ)

Gradual transition case

USD/ton855.6(=46.0 USD/GJ)

735.8(=39.6 USD/GJ)

410.7(=22.1 USD/GJ)

2.0% decrease each year compared to 2024

Stepwise transition case*1

USD/ton855.6(=46.0 USD/GJ)

723.8(=38.9 USD/GJ)

366.2(=19.7 USD/GJ)

2.2% decrease each year compared to 2024

Rapid transition case

USD/ton855.6(=46.0 USD/GJ)

711.9(=38.3 USD/GJ)

321.7(=17.3 USD/GJ)

2.4% decrease each year compared to 2024

%

12

12

12

Gradual transition case

USD/tonCO2eq

70.0

74.9

88.2

1% increase each year compared to 2024

Stepwise transition case*1

USD/tonCO2eq

70.0

84.7

124.6

3% increase each year compared to 2024

Rapid transition case

USD/tonCO2eq

70.0

94.5

161.0

5% increase each year compared to 2024

FuelEU Maritime costs--

As per the reg.

As per the reg.

Emissions subject to IMO reg. (% in total emissions)

%

-

100

100

IMO mid-term measurescosts*2--

The same contents
as FuelEU Maritime

The same contents
as FuelEU Maritime

Fuel price (HFO)

Base
Fuel price (e-Ammonia)

Emissions subject to EU reg. (% in total emissions)IMO
regulationrelated

2031

-

Fuel consumption (HFO)

EU
regulationsrelated2024(ref.)

Unit

EU-ETS allowance priceSame energy consumption in ammonia fueled ship

HFO’s GHG intensity (gCO2eq/MJ) is 91.7.
e-Ammonia’s GHG intensity is calculated as 0.0.

HFO’s GHG intensity (gCO2eq/MJ) is 91.7.
e-Ammonia’s GHG intensity is calculated as 0.0.

*1 The cost simulation example on pages 71 & 72 was calculated under the "stepwise transition case."*2 The IMO’s mid-term measures are aligned with FuelEU Maritime, and the emissions targeted by the regulations cover emissions in all voyages.

73Understanding costs
NEW

Cost simulation example - 2

When adopting alternative fuel ships, it's important to consider fuel costs and regulatory costs while aiming for a timely transition to zero-emission fuels.
Here, we present a comparison of total costs between adopting conventional fuel ships and methanol fueled ships in a stepwise transition case, using a
14,000 TEU containership as an example.

Cost simulation example (Conventional fuel ship vs. Methanol fueled ship 14,000 TEU containership: Stepwise transition case)← Methanol fueled ship

← Conventional fuel ship

Annual costs ver.

<Assumption>✓ Delivery in 2031 (Lifetime 20 years)✓ Shipbuilding costs→ Amortized over 20 years✓ Fuel price→ HFO: Fixed
13.0 USD/GJ (=522.6 USD/ton)→ e-Methanol: Decrease annually【2031】 52.5 USD/GJ (=1,043.8 USD/ton)【2050】 26.5 USD/GJ (=528.1 USD/ton)<How to read the graph>✓ Bar graph on the left side:

Selected fuel →Annual costs in case a conventional fuel ship is adopted(Fuel selection: HFO only)✓➢ Identify the timing when annual costs will cross over(In this case, for the methanol fueled ship, selecting e-Methanol from 2041 onwards will be more cost-effective, meaning that “e-Methanol
fuel costs” < “HFO fuel costs + regulatory costs”, and the annual costs will be less than those of the conventional fuel ship from 2042.)

Bar graph on the right side:
Annual costs in case a methanol fueled ship is adopted(Fuel selection options include HFO or e-Methanol)(Select the fuel that lowers total costs each year)74Understanding costs
UPDATED

Cost simulation example - 2

When adopting alternative fuel ships, it's important to consider fuel costs and regulatory costs while aiming for a timely transition to zero-emission fuels.
Here, we present a comparison of total costs between adopting conventional fuel ships and methanol fueled ships in a stepwise transition case, using a
14,000 TEU containership as an example.

Cost simulation example (Conventional fuel ship vs. Methanol fueled ship 14,000 TEU containership: Stepwise transition case)
Cumulative costs ver.

← Methanol fueled ship

← Conventional fuel ship

2.

1.

<Assumption>✓ Delivery in 2031 (Lifetime 20 years)✓ Shipbuilding costs→ Amortized over 20 years✓ Fuel price→ HFO: Fixed
13.0 USD/GJ (=522.6 USD/ton)→ e-Methanol: Decrease annually【2031】 52.5 USD/GJ (=1,043.8 USD/ton)【2050】 26.5 USD/GJ (=528.1 USD/ton)<How to read the graph>✓ Bar graph on the left side:

Selected fuel →Cumulative costs in case a conventional fuel ship is adopted(Fuel selection: HFO only)✓➢ 1. Identify the timing when cumulative costs will cross over (2045 in this case)➢ 2. Identify the lifetime total cost difference (approx. 184 million USD over 20 years in this case)Bar graph on the right side:
Cumulative costs in case a methanol fueled ship is adopted(Fuel selection options include HFO or e-Methanol)(Select the fuel that lowers total costs each year)75Understanding costs<Reference>Assumptions for cost simulation example - 2
The assumptions for the cost simulation example for a 14,000 TEU containership are as follows:
The items in blue represent the main uncertainties in costs.
Category
Newbuilding price (Methanol fueled ship)

2050

Comments
USD 199,800,000(Conventional fuel ship+11%)

-

-

-

ton

-

23,00023,000

USD/ton522.6(=13.0 USD/GJ)

522.6(=13.0 USD/GJ)

522.6(=13.0 USD/GJ)

Gradual transition case

USD/ton

1,233.8(=62.0 USD/GJ)

1,061.1(=53.3 USD/GJ)

592.2(=29.8 USD/GJ)

2.0% decrease each year compared to 2024

Stepwise transition case*1

USD/ton

1,233.8(=62.0 USD/GJ)

1,043.8(=52.5 USD/GJ)

528.1(=26.5 USD/GJ)

2.2% decrease each year compared to 2024

Rapid transition case

USD/ton

1,233.8(=62.0 USD/GJ)

1,026.5(=51.6 USD/GJ)

463.9(=23.3 USD/GJ)

2.4% decrease each year compared to 2024

%

20

20

20

Gradual transition case

USD/tonCO2eq

70.0

74.9

88.2

1% increase each year compared to 2024

Stepwise transition case*1

USD/tonCO2eq

70.0

84.7

124.6

3% increase each year compared to 2024

Rapid transition case

USD/tonCO2eq

70.0

94.5

161.0

5% increase each year compared to 2024

FuelEU Maritime costs--

As per the reg.

As per the reg.

Emissions subject to IMO reg. (% in total emissions)

%

-

100

100

IMO mid-term measurescosts*2--

The same contents
as FuelEU Maritime

The same contents
as FuelEU Maritime

Fuel price (HFO)

Base
Fuel price (e-Methanol)

Emissions subject to EU reg. (% in total emissions)IMO
regulationrelated

2031

-

Fuel consumption (HFO)

EU
regulationsrelated2024(ref.)

Unit

EU-ETS allowance priceSame energy consumption in methanol fueled ship

HFO’s GHG intensity (gCO2eq/MJ) is 91.7.
e-Methanol’s GHG intensity is calculated as 0.0.

HFO’s GHG intensity (gCO2eq/MJ) is 91.7.
e-Methanol’s GHG intensity is calculated as 0.0.

*1 The cost simulation example on pages 74 & 75 was calculated under the "stepwise transition case."*2 The IMO’s mid-term measures are aligned with FuelEU Maritime, and the emissions targeted by the regulations cover emissions in all voyages.

76ClassNK’s support
ClassNK provides services to support your efforts
in achieving a smooth transition to zero emissions.

77

ClassNK’s support
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. However, the infrastructure for supplying zero-emission fuels is currently underdeveloped. Therefore,
in the meantime, it is necessary to transition to zero emissions while utilizing various GHG emission reduction measures. ClassNK has
launched the "ClassNK Transition Support Services" to provide comprehensive support for seamless transitions to zero emissions forour clients by leveraging insights gained from activities such as issuing Approval in Principle (AiP) for alternative fuel ships,
participating in demonstration projects for energy efficiency improvement technologies and onboard CCS, and verifying GHG
emissions. We encourage you to take advantage of our "ClassNK Transition Support Services" for your efforts to reduce GHG
emissions from ships.

ClassNK Transition Support Services

For inquiries regarding ClassNK
Transition Support Services in general,please contact us at the following:(English)

NIPPON KAIJI KYOKAI (ClassNK)
Green Transformation Center
TEL:+81-3-5226-2031
E-mail: gxc@classnk.or.jp

78

Contact
ClassNK Alternative Fuels Insight will continue to be updated according to the alternative fueltrends. For more detailed information about the contents of this document or for any feedback
or requests, please contact us.

NIPPON KAIJI KYOKAI (ClassNK)

Green Transformation Center
4-7, Kioi-cho, Chiyoda-ku, Tokyo
102-8567
Administration Center
TEL:+81-3-5226-2031
E-mail: gxc@classnk.or.jp

79Copyrights and Trademarks:
Copyrights and trademarks (company name, trademark, logo, and service marks) of the content carried on this document (text, reference materials,
images, etc.) belong to ClassNK, its group and related companies, and third parties protected under copyright law and relevant treaties and laws ofrespective countries. Duplicating, diverting, or reproducing, etc. is prohibited.
Disclaimer:
ClassNK takes the utmost caution in carrying information on this document, but ClassNK does not guarantee or accept any responsibility for the usefulness
and accuracy of the content of this document. ClassNK will not be held liable for any damages accrued through the use of this document.

Appendix
To provide a more comprehensive view of thechanging adoption of alternative fuels, we present
data on the number of alternative fuel ships inservice and on order as of December 31, 2023.

81Understanding trends
Trends in alternative fuel ships"Newbuilding" alternative fuel ship trend

As of the end of December 2023

"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)✓ 5,000 gross tonnage and above✓ LNG carriers are excluded from LNG fueled ships.
✓ Alternative fuel ready ships are not included.

✓ As of the end of December 2023 (Orderbook after 2024)✓ 5,000 gross tonnage and above✓ LNG carriers are excluded from LNG fueled ships.
Source: The figures and tables presented in✓ Alternative fuel ready ships are not included.
this section are created by ClassNK based ondata from Clarkson Research Services Limited.

82Understanding trends
As of the end of December 2023

Trends in alternative fuel ships
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

432 vessels（1.2%）

522 vessels（1.4%）

Total GT26,637,736 GT（1.8%）

33,560,005 GT（2.2%）

During the past six months, there has been an increase of 90 vessels totaling 6.9 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 inalternative fuel ships.

On order ―✓ As of the end of December 2023
✓ 5,000 gross tonnage and above✓ LNG carriers are excluded from LNG fueled ships.
✓ Alternative fuel ready ships are not included.

As of Jun. 30, 2023

As of Dec. 31, 2023

Number of vessels

722 vessels (21.2%)

835 vessels (21.8%)

Total GT58,698,042 GT (30.1%)

66,431,935 GT (30.9%)

During the past six months, there has been an increase of 113 vessels totaling 7.7
million GT. Particularly notable is the high number of orders for methanol fueled ships
spanning various ship types, notably 16,000 TEU- containerships, bulk carriers, vehicle
carriers, and product/chemical tankers.

83Understanding trends
As of the end of December 2023

Trends in alternative fuel ships (by ship type)
In service ―✓ As of the end of December 2023 / 5,000 gross tonnage and above / Alternativefuel ready ships not included.

➢

LNG fueled ships make up the majority of ships of all types, with the
exception of product/chemical tankers, which include methanol carriers,and LPG carriers.

On order ―✓ As of the end of December 2023 / 5,000 gross tonnage and above / Alternativefuel ready ships not included.

➢

Adoption of methanol fueled ships is expanding, especially amongcontainerships. Additionally, orders for ammonia fueled ships have been
observed in some ship types.

84Understanding trends
As of the end of December 2023

Trends in alternative fuel ships (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

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%)

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 inlarger 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

Number of vessels

50 vessels (5.0%)

63 vessels (5.5%)

Total GT3,635,838 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.

85

Understanding trends
As of the end of December 2023

Trends in alternative fuel ships (by ship type)Containerships
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

55 vessels (1.0%)

75 vessels (1.3%)

Total GT7,349,369 GT (2.6%)

9,683,956 GT (3.3%)

During the past six months, there was an increase of 20 vessels, totaling 2.4 million GT.
By ship size, the majority of deliveries were of the 15,000 TEU, with some 7,000 TEU
and 23,500 TEU. By fuel type, the majority were LNG fueled ships, although there werealso deliveries of methanol fueled ships.

On order ―In service ―On order ―As of Jun. 30, 2023

As of Dec. 31, 2023

Number of vessels

300 vessels (33.9%)340 vessels (41.3%)

Total GT34,360,667 GT (48.7%)

38,028,991 GT (56.5%)

During the past six months, there was an increase of 40 vessels, totaling 3.6 million GT.
By ship size, around 16,000 TEU accounted for half of the deliveries. By fuel type,methanol fueled ships accounted for more than half. There is an expanding trend in the
adoption of methanol fueled ships.

86Understanding trends
As of the end of December 2023

Trends in alternative fuel ships (by ship type)

Crude oil tankers
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

48 vessels (2.1%)

57 vessels (2.5%)

Total GT4,725,855 GT (1.9%)

5,775,831 GT (2.4%)

During the past six months, there was an increase of 9 vessels, totaling 1.1 million GT.
By ship size, ULCC/VLCC accounted for more than half, with the remaining being
Aframax (all LNG fueled). It is noteworthy that there were no confirmed deliveries ofalternative fuel ships in the Suezmax during this period.

On order ―In service ―On order ―As of Jun. 30, 2023

As of Dec. 31, 2023

Number of vessels

37 vessels (44.0%)

42 vessels (33.9%)

Total GT3,303,019 GT (48.4%)

3,736,624 GT (33.6%)

During the past six months, there was an increase of 5 vessels, totaling 0.4 million GT.
By ship size, Suezmax, which had been lagging behind in the adoption of alternative
fuels, were the most ordered, followed by ULCC/VLCC. By fuel type, LNG fueled ships
were the most ordered, followed by methanol fueled ships.

87Understanding trends
As of the end of December 2023

Trends in alternative fuel ships (by ship type)

Product/Chemical tankers
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

74 vessels (1.2%)

83 vessels (1.4%)

Total GT2,213,494 GT (1.6%)

2,596,463 GT (1.8%)

During the past six months, there was an increase of 9 vessels, totaling 0.4 million GT.
By ship size, LRII and MR each accounted for half of the deliveries, while there was noincrease in LRI during this period. By fuel type, LNG fueled ships dominated, although
there were also a few deliveries of methanol fueled ships.

On order ―In service ―On order ―As of Jun. 30, 2023

As of Dec. 31, 2023

Number of vessels

41 vessels (11.4%)

47 vessels (9.8%)

Total GT

1,212,658 GT (10.5%)

1,280,079 GT (8.3%)

During the past six months, there was an increase of 6 vessels, totaling 0.1 million GT.
By ship size, there were more orders for MR. By fuel type, the majority were methanol
fueled ships.

88Understanding trends
As of the end of December 2023

Trends in alternative fuel ships (by ship type)

LPG 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

Number of vessels

85 vessels (9.4%)

112 vessels (11.9%)

Total GT3,560,569 GT (13.5%)

4,834,491 GT (17.4%)

During the past six months, there was an increase of 27 vessels, totaling 1.2 million GT.
By ship size, VLGC (over 80,000m3) were predominant. All vessels were LPG fueled
ships, and no deliveries other than LPG fueled ships were confirmed.

On order ―In service ―On order ―As of Jun. 30, 2023

As of Dec. 31, 2023

Number of vessels

87 vessels (67.4%)

91 vessels (54.5%)

Total GT3,959,686 GT (72.4%)

3,781,639 GT (55.8%)

During the past six months, there was an increase of 4 vessels and a decrease of 0.2
million GT. By ship size, similar to those in service, VLGC (over 80,000 m3) accounted formore than half. All vessels were LPG fueled ships, with one being an ammonia fueled
ready ship.

89

Understanding trends
As of the end of December 2023

Trends in alternative fuel ships (by ship type)

Vehicle 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

Number of vessels

13 vessels (1.8%)

20 vessels (2.7%)

Total GT771,559 GT (2.0%)

1,275,216 GT (3.3%)

During the past six months, there was an increase of 7 vessels and 0.5 million GT. All
vessels had a size of around 7,000 cars, and they were all LNG fueled ships.

On order ―In service ―On order ―As of Jun. 30, 2023

As of Dec. 31, 2023

Number of vessels

126 vessels (84.0%)

157 vessels (84.9%)

Total GT7,491,129 GT (80.0%)

9,978,269 GT (82.5%)

During the past six months, there was an increase of 31 vessels totaling 2.5 million GT.
The most common size was around 10,000 cars, although orders were seen across awide range of sizes from 4,000 cars to 10,000 cars. By fuel type, LNG fueled ships
predominated, but there were also a few orders for methanol fueled ships.

90Understanding trends
As of the end of December 2023

Trends in alternative fuel ships (by ship type)

LNG carriers (for reference)
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

655 vessels (92.3%)

681 vessels (92.5%)

Total GT67,524,947 GT (90.6%)

70,096,187 GT (90.9%)

During the past six months, there was an increase of 26 vessels totaling 2.6 million GT.
All of these vessels were LNG fueled ships, and there were no confirmations of deliveriesof other alternative fuel ships.

On order ―In service ―On order ―As of Jun. 30, 2023

As of Dec. 31, 2023

Number of vessels

328 vessels (99.7%)339 vessels (99.7%)

Total GT35,434,449 GT (100.0%)

36,855,375 GT (99.9%)

During the past six months, there was an increase of 11 vessels totaling 1.4 million GT.
All of these vessels were LNG fueled ships. Similar to those in service, there were no
confirmations of adoption for other alternative fuel ships.

91