The fact that from January 2015 onwards in many shipping areas marine fuel must not contain more than 0.1 % sulphur causes shipowners to contemplate LNG as bunker alternative. Jan Tellkamp
discusses the current state of this development
The 1st of January 2015 is an important date for all shipping north of the English Channel and all the[ds_preview] way into the bottom corners of the Baltic Sea. Starting from this date, all marine fuel burnt by ships operating in this area will either contain only 0.1 % SOx or the emissions will have to be equivalent to burning such fuels. The practical implication is a dramatic increase in the demand for low sulphur compliant fuels from that day onwards. As in all supply and demand driven markets, the natural consequence of a spike in demand is a spike in prices. And this will come on top of already record high marine fuel prices and probably also a tax on CO2 emissions. In a scramble for alternative compliance options, shipowners are left with only two options if they wish to avoid being exposed to price spikes in distillate fuels: They can install an exhaust gas scrubber to clean the exhaust to within acceptable limits or they can switch to LNG to avoid the SOx emissions entirely.
Initially, the LNG option didn’t get all that much traction, it was perceived as complex, expensive, and above all, unfamiliar. But now, after various players have had some time to consider technologies and recent developments, the LNG option is sailing up as the most promising, both for the environment and for the economics. The main concerns that decision makers need to overcome in order to go for an LNG fuelled ship are a higher price for the ship, access to LNG, and regulations related to bunkering. All of these things now seem to come together.
Amortisation of higher ship price
Firstly, the price of the ship is expected to be some 10–20 % more expensive compared with a conventional ship. Although this sounds like a lot of money, it is important to remember that out of the total costs of owning and operating a ship, some 50–80 % is fuel. This means that if you can get the cost or amount of fuel down, this very quickly overshadows the initial price difference for the ship. Though the shipping industry in general is not experiencing the best of times these days, there should be a growing willingness to invest in future competitiveness.
Secondly, access to LNG is developing faster than most other things we have seen happening in the energy industry over the past decades. As the discussions about getting LNG to fuel ships started just a few years ago, there didn’t seem to be much willingness in the market to accommodate this – it was viewed as a hassle to a global LNG industry that is used to dealing with batches of 150,000 m3 to supply domestic natural gas grids and large scale power plants.
Since then, however, most players in the LNG industry seem to have brought out their calculators and have found that the shipping industry actually uses an enormous amount of fuel – per energy content one and a half times the total global LNG production. Consequently, we now see most of the big international oil and gas companies trying to figure out their angle in this new market. We also see a host of smaller and quicker companies trying to get some mileage out of this new development. And there are centrally located facilities that very quickly may make LNG available in most of the big ports around northern Europe, and also elsewhere in the world. There are grounds now to be confident that LNG will be available in a fashion that suits shipowners and their normal dealings with fuel supplies. Thirdly, another aspect related to bunkering of LNG is legislation and requirements. The legislative framework for the LNG industry does not cover small scale operations, and normal port regulation only covers more generic issues such as »dangerous« goods, and includes no specifics about how to deal with LNG bunkering. The normal way for the industry to respond in the face of unclear legislation is to increase the focus on project-specific risks analysis, which is also what has been done for all the LNG projects that have been implemented over the past decade. Up until now, these projects have been for dedicated ships, dedicated crews, and limited areas only, so the scope of the studies have been smaller.
Risk analyses for LNG bunkering
What is now changing is the fact that the bunkering facilities and associated operations will be more generic in nature – they will allow bunkering to any ship passing by. This requires revisiting many of the discussions made in earlier risk analyses, and this is now underway: Various ports in northern Europe have initiated their own risk analysis projects, with the ambitions to develop operational procedures and safety requirements to their specific ports. In addition, an ISO committee was established in the summer of 2011 to bring the experiences from these projects together and publish an international standard for LNG bunkering. When finished, this standard will make it more efficient for other ports around the world to adopt the practices developed by others.
The lack of LNG bunkering infrastructure and associated practices and legislation have led commentators to refer to a chicken and egg situation – a situation where LNG infrastructure will not develop because there are not enough ships demanding it, and the ships are not being ordered because the LNG infrastructure is not there. It is time to change this view and state that both LNG infrastructure and legislation as well as ship designs are developing nicely in parallel. It takes about two years to design and build a ship, so if an order is placed today, it can be expected that several locations will be able to supply the ship with LNG in northern Europe when it is delivered from the yard. The shipping industry and the port operators in northern Europe deserve applause for their serious attention to make LNG bunkering a reality, to a benefit for both the environment and the economics of shipping.
Jan Tellkamp
