Fuelling Marine Supply Routes

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FUELING MARINE SUPPLY ROUTES 49 > QATAR TODAY > MAY 2017

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WHEN THE INTERNATIONAL MARITIME ORGANISATION (IMO) ANNOUNCED THAT ALL COMMERCIAL SHIPS SHOULD REDUCE THE SULPHUR CONTENT IN THEIR FUEL FROM JANUARY 1, 2020, SHIPPING LINES ACROSS THE WORLD STARTED DISCUSSIONS ON USING LNG AS A MARINE FUEL IN THE COMING YEARS.

BY V L SRINIVASAN

T

he decision to set a sulphur fuel cap limit of 0.5% m/m (mass/ mass) from 2020 onwards from the existing 3.5% was taken by the IMO during its Marine Environment Protection Committee (MEPC) meeting held in London in October last year. Though ships can use sulphurcompliant fuel oil, an increasing number of ships are also using gas as a fuel as, when ignited, it leads to negligible sulphur oxide emissions.

IMO Secretary General Kitack Lim said the decision reflected the IMO’s determination to ensure that international shipping remains the most environmentally sound mode of transport. “This decision

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is expected to have a significant beneficial impact on the environment and on human health, particularly that of people living in port cities and coastal communities, beyond the existing emission control areas,” Lim said. According to the London-based Society for Gas as a Marine Fuel (SGMF), the current gas-fueled fleet comprises 0.14% of the total global fleet of 5,500 ships above 500 gross registered tonnage. There are a little over 100 LNG-fueled ships in operation today but this is expected to rise to around 1,500 ships, accounting for 2.75% of the world fleet over the next 7-10 years.

Advantages of LNG Industry watchers also feel that using

LNG as a marine fuel not only offers a commercially viable solution but has various advantages. While there are many options for shipping companies to comply with IMO regulations, LNG is said to be the best among them that can meet the existing and future requirements for these emissions and can be competitive price-wise with distillate fuels.

The advantages in using LNG are that it’s a clean fuel, considered to be a cheaper source of fuel than distillates and heavy fuel oil, and it is flexible and can be used as part of a dualfuel solution.

This should certainly help Qatar, which has been the world’s leading LNG exporter for several years, in finding new markets and maintaining its numero uno position as

state-owned Qatar Petroleum has decided to re-start drilling in the North Field after 12 years after the government slapped an embargo on tapping the gas reserves in the North Field in 2005.

In fact, Qatargas, the Maersk Group and Shell signed a Memorandum of Understanding (MoU) to explore the development of LNG as a marine fuel in the Middle East region more than a year ago.

Through the joint ventures, the three companies are planning to explore the development of new markets for LNG to be used as propulsion fuel for merchant vessels.

The LNG supplies for this project will be made available from Qatargas 4, a joint venture between Qatar Petroleum and Shell Gas B.V., with Maersk Line using the fuel for its merchant vessels.

Qatargas Chairman Saad Sherida Al Kaabi says they continue to pioneer new opportunities to utilise the LNG produced by the country. “We have partnered with Maersk and Shell to create potential new market opportunities for Qatar’s LNG to provide international ship operators with a cleaner fuel alternative to the heavy fuel oils currently in use,” he adds.

Head of Maersk Oil Trading Niels Henrik Lindegaard says that his company has been constantly looking for commercially viable ways of improving its environmental footprint. “As LNG emits significantly less SOx pollution and is estimated to carry a potential reduction in CO2 emissions of 25% compared with the use of conventional shipping fuels, it is an obvious fuel alternative to explore for our vessels,” he says.

Since LNG holds clear benefits over traditional bunker fuel, the industry must

develop and introduce an economically feasible propulsion technology as well as establish solid fuel distribution systems.

“As our agreements with Qatar Gas and Shell seek to address both issues, we see them as important steps in overcoming the obstacles of making LNG a commercially viable fuel for maritime transportation,” Lindegaard adds.

Growing interest in EU Several major seaports in Europe have been evincing interest in LNG as a bunker fuel and even the European Union (EU) has come out with policies and funding which are aimed at increasing the use of this clean, low-emission profile fuel in transport.

Even oil majors are increasingly looking at adding this service to their portfolio.

In fact, many seaports in Europe, including the Gibraltar Port Authority (GPA), have started setting up LNG bunkering facilities. Along with GPA, ports such as Algeciras and Ceuta in Spain and Tanger Med in Tangier together handle the vast majority of bunkering in the Mediterranean and are viewed as home to several bunker suppliers as over 70,000 vessels pass through the Strait of Gibraltar each year.

According to the LNG Intelligence (LNGi) portal, LNG availability for ships is better than what the industry generally perceives and statistics show that LNG bunkering infrastructure is developing rapidly.

In total, there are 58 LNG supply locations in operation for ships worldwide, not counting the LNG bunker vessels and LNG trucks, which can go anywhere subject to permits. As many as 20 countries

“WE HAVE PARTNERED WITH MAERSK AND SHELL TO CREATE POTENTIAL NEW MARKET OPPORTUNITIES FOR QATAR’S LNG TO PROVIDE INTERNATIONAL SHIP OPERATORS WITH A CLEANER FUEL ALTERNATIVE TO THE HEAVY FUEL OILS CURRENTLY IN USE.” SAAD SHERIDA AL KAABI Chairman Qatargas

“WHILE THE EXPONENTIAL GROWTH WE EXPECTED DID NOT MATERIALISE, A STEADY STREAM OF LNG-FUELED NEW-BUILDS, ESPECIALLY IN A TIME OF LOW OIL PRICES AND LOW NEWBUILDING ACTIVITY, GAVE SOME HOPE FOR SEEING HIGHER GROWTH RATES IN THE FUTURE. THE CURRENT INCREASED INTEREST IN LNG AS A SHIP FUEL THAT WE NOW SEE SUPPORTS THIS CLAIM.” GERD-MICHAEL WUERSIG Business Director for LNG-fueled ships DNV GL-Maritime

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“THIS DECISION IS EXPECTED TO HAVE A SIGNIFICANT BENEFICIAL IMPACT ON THE ENVIRONMENT AND ON HUMAN HEALTH, PARTICULARLY THAT OF PEOPLE LIVING IN PORT CITIES AND COASTAL COMMUNITIES, BEYOND THE EXISTING EMISSION CONTROL AREAS.” KITACK LIM Secretary General International Maritime Organisation

currently have operational LNG bunkering facilities and an additional nine countries have started developing them.

Nine more countries are currently discussing establishing LNG bunkering facilities and, in all, 38 different countries are either operating and building or considering building LNG bunkering facilities.

CEO and Captain of the Gibraltar Port Authority Commodore Bob Sanguinetti opines that the shipping industry’s main challenge is to reduce emissions due to usage of fossil fuels and GPA has joined hands with like-minded ports and entities in the region to assist the industry in its aspirations to deliver LNG as a fuel in future.

GPA, which has joined the SGMF, an NGO which promotes using gas as a fuel for ships, has signed a bunker market development agreement with Shell in August 2016. The pact is considered a significant milestone to deliver LNG as a bunker fuel to ships at anchor in Gibraltar and is also part of the port’s strategy to provide the widest range of marine services as it looks to the future.

Commodore Sanguinetti says, “The industry will be witnessing usage of selective fuels in the marine environment and LNG is likely among them. I don’t know to what extent it is yet and it is difficult to gauge on time but it is on its way and we need to develop and stay ahead of others in the industry,” he adds.

Global oil major Shell too has plans to set up LNG bunkering facilities in locations where they are already active in LNG supply to domestic users and they include Norway, Rotterdam, Gibraltar,

the Middle East, Singapore and Houston.

Though building LNG-fueled ships and starting LNG bunkering facilities need vast investments, they are expected to gain a foothold in the future because of their inherent advantages.

Good prospects DNV GL-Maritime’s Business Director for LNG-fueled ships Gerd-Michael Wuersig says LNG as a marine fuel has great prospects as it is a proven and available solution. While conventional oil-based fuels will remain the main fuel option for most existing vessels in the near future, the commercial opportunities of LNG are interesting for many new-build and conversion projects.

He says the LNG industry had high expectations for the introduction of the ECA sulphur requirement in 2015 when LNG fuel for ships really took off.

But the crash in oil price was naturally a disappointment to the supplier industry.

He says many have felt like the interest for LNG-fueled ships had reduced but their records showed that the number of new-build orders has actually kept steady throughout this time. “While the exponential growth we expected did not materialise, a steady stream of LNG-fueled new-builds, especially in a time of low oil prices and low new-building activity, gave some hope for seeing higher growth rates in the future. The current increased interest in LNG as a ship fuel that we now see supports this claim.”

By 2020, he expects between 400 and 600 vessels to be in operation worldwide

“THE INDUSTRY WILL BE WITNESSING USAGE OF SELECTIVE FUELS IN THE MARINE ENVIRONMENT AND LNG IS LIKELY AMONG THEM. I DON’T KNOW TO WHAT EXTENT IT IS YET AND IT IS DIFFICULT TO GAUGE ON TIME BUT IT IS ON ITS WAY AND WE NEED TO DEVELOP AND STAY AHEAD OF OTHERS IN THE INDUSTRY.” COMMODORE BOB SANGUINETTI CEO and Captain Gibraltar Port Authority

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and it would be interesting to see how the IMO regulations impact the LNG industry.

“We expect the price of the 0.5% fuel to be somewhere in between heavy fuel oil (HFO) and marine gas oil (MGO). This will offer an additional incentive to ship owners thinking about switching to LNG to achieve compliance with the upcoming sulphur cap.

Generally, we expect to see more interest in LNG as a ship fuel and a greater number of new-builds using LNG propulsion,” Wuersig says.

Meeting the demand “Without question,” he says when asked whether LNG-producing countries such as Qatar will be able to meet the demand in the coming years as 70% of the global commercial trade is done by shipping.

According to him, projections for LNG demand as a ship fuel by 2020 range from 10-30 million MTs and the top end of this is an optimistic projection which the industry in unlikely to meet.

By comparison, in terms of LNG in just the first half of 2016, Qatar alone exported 37,624,564 million MT. “With LNG being only a small fraction of the total natural gas market and more liquefaction capacity coming online every year, even if the entire global fleet converted to run on LNG – which is not technically possible – there would be no question that LNG exporters could meet shipping’s relatively small demand. But we expect that the growing market for LNG as a ship fuel will help to drive demand,” he says.

Wuersig also says LNG tanks are required to be larger for the same operational range,

relative to a conventional fuel tank in conventional ships. However, this must be balanced against the higher efficiency of LNG engines.

Additionally, in the future different tank types may offer some improvements in space efficiency for LNG-fueled vessels through, for example, the use of membrane tanks which use a little more than half the hold space occupied by spherical or cylindrical tanks.

“In terms of deciding whether LNG is the right fit for an existing ship or a new one, there are many factors to be considered.

Owners need to make pragmatic decisions based on whether they will operate in ECA zones exclusively or globally, endurance, suitable LNG tank size, tank construction type and costs, the location of the tank in the ship and economy of retrofitting, the selection of fuel gas supply system (F.G.S.S.), as well as the position of bunker stations and the vent mast for the least loss of precious container stowage space,” he points out.

He says that orders for LNG bunker vessels are picking up and such vessels are expected to play an important role for cost-efficient distribution and bunkering of LNG. “The five LNG bunker vessel orders from Shell, Engie/NYK/Mitsubishi, Skangas, Bomin Linde/Klaipedos Nafta and TOTE/ JAX LNG at present and at the end of September 2016, were new developments in terms of bunker vessel design when DNV GL awarded Vard Engineering Brevik AS with an Approval in Principle (AiP) for their new bunker vessel design,” Wuersig adds

“AS LNG EMITS SIGNIFICANTLY LESS SOx POLLUTION AND IS ESTIMATED TO CARRY A POTENTIAL REDUCTION IN CO2 EMISSIONS OF 25% COMPARED WITH THE USE OF CONVENTIONAL SHIPPING FUELS, IT IS AN OBVIOUS FUEL ALTERNATIVE TO EXPLORE FOR OUR VESSELS.” NIELS-HENRIK LINDEGAARD Managing Director Maersk Oil Trading

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