LNG – the key to unlocking cleaner marine transport?

By Mel Ydreos

x  One large container

ship at sea (using 3% bunker fuel) emits the same amount of sulphur oxide gases as 50 million diesel-burning cars.

Urban air pollution has become a top priority for local, national and international governments in both developed and developing countries. The World Bank estimates that one in every ten deaths worldwide is attributable to air pollution exposure, with the cost of these premature deaths to the global economy – through foregone labour income – estimated at a staggering $225 billion annually. (Source: The Cost of Air Pollution: Strengthening the Economic Case for Action – www.openknowledge.worldbank.org/ handle/10986/25013). With these kind of findings, it’s clear that reduction of harmful emissions must be a priority for governments across the globe.

One large container ship

Source: China Daily Asia, Ship Emissions Choking the Region, May 20, 2016

50 million diesel cars

While many factors contribute towards the issue, marine transportation is an often overlooked contributor to negative air quality levels – with one large container ship, powered by 3% sulphur bunker fuel, emitting the same amount of sulphur oxide gases as 50 million dieselburning cars.

Ship emissions have a detrimental impact on both human health and environmental costs. While many may think these pollutants are distributed way out at sea, the vast majority (70%) of these emissions are actually produced within 400 km of coastal population centres. This means that in the world’s top 100 ports, roughly 230 million people are directly exposed to harmful emissions. In Hong Kong, for example, ship traffic is responsible for half of the city’s total toxic pollutants – even more so than those produced by the power generation and transportation sectors.

In addition to the issues surrounding health, there is also a significant economic cost involved. The OECD estimates that the external costs of nitrous oxide, sulphur oxide and particulate matter for the world’s 50 largest ports total an incredible €12 billion per year. Table 1, pulled from IGU’s recent report Enabling Clean Marine Transport into the role of LNG in enabling cleaner marine transport, highlights some of the more heavy-hitting costs to specific areas.

Highlighted by the examples and case studies in Table 1, the global shipping sector faces a massive challenge – how to significantly reduce these dangerous levels of harmful emissions in accordance with recent legislation. Annex VI of the International Maritime

Organisation’s (IMO) International Convention for the Prevention of Pollution from Ships (MARPOL) came into effect in 2005, limiting the sulphur content in marine fuels on a global scale. Since then, the limit has been lowered multiple times – but the largest change is due to come into effect in 2020, when the convention will require ships to reduce the sulphur content to just 0.5% around the globe (dependent on the outcome of a comprehensive study into alternative fuel sources in 2018).

LNG as a cleaner alternative

So how can shipping operators meet new legislation, and why should they? The key is finding an alternative fuel which is more environmentally friendly, but equally (or more) economical. This is where LNG comes to the fore. LNG, as a marine fuel, offers obvious and substantial advantages over current traditional petroleum fuels, and the case for switching is clear. There are three key policy drivers for the promotion and enablement of LNG as an alternative:

Environmental drivers

The use of LNG in marine transport delivers significant reductions in pollutions from shipping exhausts and greenhouse gas emissions. A full transition from traditional petroleum

Examples of emissions cost estimates from literature

Port Bergen (Norway) 13 Spanish ports Pireaus (Greece) Kaohsiung (Taipei)

Source: OECD, 2014 Indicator Emissions of ships at berth PM2.5, SO 2 , NO X External cost per cruise passenger Emissions of ships at berth Estimated cost €10-22 million €206 million €2.9-10.4 €119.2 million

fuels to LNG can generate reductions in sulphur oxide of over 90%; carbon dioxide of up to 29%; greenhouse gases by up to 19%; and a huge 85% reduction in particulate matter.

Economic drivers

A switch to LNG can generate significant savings in the cost of fuel to shipping operators – dependent on the vessel type and operational specifics of a fleet. Bunkering of LNG can also prove to be a lucrative business for port jurisdictions, unlocking an additional stable market and potential revenue stream. It may also benefit the local economy through creation of jobs and local infrastructure investment, with further indirect benefits including new product development and innovation spillovers, as well as creating further energy security in jurisdictions with limited domestic energy resources.

z  Table 1.

x  The wider adoption of

LNG as a marine fuel will deliver environmental, economic and social benefits.

Social drivers

The societal benefits from switching to cleaner LNG-fuelled shipping can, in some way, be seen as an extension of the economic benefits; however, due to a lack of price mechanisms for pollution and its negative impacts on health and mortality, they are characterised differently. It is hard to put a price on human health and wellbeing.

Air pollution from shipping contributes heavily towards respiratory, pulmonary, and oncological diseases, as well as premature deaths. Although not explicitly priced, these phenomena have real economic costs and adverse GDP impacts (as outlined earlier).

Barriers to adoption

While the many benefits of LNG are apparent to those who understand them, and many across the industry more generally, there are a number of barriers to the wider deployment of LNG as a marine transportation fuel.

Regulatory barriers stand at the forefront. Existing currently is a patchwork of regulatory bodies and regimes, all enforced regionally by different governments on international, national and sub-national levels. With LNG marine fuel as a fairly new application, some may have restrictions for LNG-fuelled ships and bunkering, effectively banning LNG shipping activities (by marking LNG as a hazardous substance, for example), while others may lack a regulatory approach to the sector entirely. The same goes in terms of emissions controls, with standards in port areas often falling behind the common international standard depending on local factors.

Commercial barriers also stand in the way. Many shipping operators struggle to gain access to the capital required for investment in LNG shipping, as financiers are often hesitant to commit capital due to the limited experience and knowledge around the sector. This is proving an issue, as the initial investment needed for LNG conversion and new-builds is higher than for conventionally-fuelled ships. This in turn impacts the certainty around resale value, which is regularly cited as a risk. Uncertainty surrounding future fuel prices can also be a factor, as operators and charterers are unsure as to the future price of LNG (although this uncertainty is no different to the uncertainty surrounding petroleum fuels).

Technical barriers also play a key role. Current bunkering capabilities for LNG are in their early stages, and not as widely available globally as conventional bunkering – as such, many operators fear the imposition of additional costs. In addition to the existing substantial bunkering capacity developing globally, ports must invest more heavily in infrastructure in order to bypass this barrier and stimulate further demand. This will also help bypass the additional barrier that always surrounds newer technologies, as operators see the process first-hand – also addressing any concerns around safety.

We at IGU are confident that the majority of the above will be addressed by the market as the industry continues to gain experience with the technology and its application.

It is essential that governments assist this process by accelerating technology demonstrations and R&D funding, to improve marine LNG technologies and enhance operational learning.

The benefits of LNG as a marine fuel are clear – policy action is urgently required, and would be most valuable in addressing the regulatory and commercial barriers, which are slowing the development and deployment of cleaner LNG marine technologies, even when the business case is strong.

Mel Ydreos is IGU’s Executive Director of Public Affairs. The IGU report Enabling Clean Marine Transport can be downloaded from the IGU website at www.igu.org/sites/default/files/IGU_ A4_CleanMarineTransport_Final%20Online%20 version.pdf.