Zeng Xiaolin looks at how several Asian countries are looking into LNG-based marine fuels to meet environmental standards
More than a decade after LNG bunkering kicked off in Europe, Asia is catching on, ahead of the IMO’s new[ds_preview] regulation to cap sulphur content at 0.5% in marine fuels by 2020. Several Asian countries have launched initiatives to encourage local ship owners to adopt LNG as marine fuel, while exploring the development of LNG bunkering facilities.
Singapore, already an established shipping and bunkering hub, is taking the lead, aiming to roll out LNG bunkering by 2020. The city-state is the world’s largest bunkering port by sales volume, with 48.6mill. t of marine fuel sold in 2016.
In April 2017, Singapore LNG Corporation, which operates the city-state’s LNG terminal, installed a truck loading facility to enable the transportation of small quantities of LNG to any location. This may include industrial plants that could use natural gas for furnaces and burners, but are not connected to the gas pipeline network and locations in the port from where LNG may be delivered to ships for use as fuel.
Singapore has issued LNG bunkering licences to FueLNG, a joint venture between BG Group (now part of Shell) and Keppel Corporation as well as Pavilion Energy, which is controlled by the government’s investment company, Temasek Holdings. M. Segar, assistant chief executive (operations) of the Maritime and Port Authority of Singapore says: »As the leading bunkering hub in the world, we will work closely with the industry to ensure a smooth transition as Singapore readies herself for 2020 and beyond. This includes providing a broad range of solutions such as LNG to be part of the marine fuel mix.«
Countries keen on introducing LNG bunkering have also been keen to learn from each other and to facilitate dialogue through focus groups and industry coalitions like SEA/LNG. Last year, maritime and port authorities of South Korea, Singapore, Japan, Norway, Jacksonville, Rotterdam, Antwerp and Zeebrugge signed a memorandum of understanding to form a focus group to introduce LNG bunkering. In July, this group was joined by Vancouver, Marseille and China’s Ningbo-Zhoushan port. Nam Jae-hun, manager (port policy) at South Korea’s Ministry of Oceans and Fisheries, said: »Worldwide, competition between ports is intensifying. Through the signing of the MOU, there will be more concrete discussions about developing LNG bunkering and new port businesses.«
Where South Korea is concerned, the country’s ambitions of being a maritime nation have been hit by the well-documented financial woes of its maritime industries. This said, LNG bunkering has offered a window of opportunity and the government is determined to bring the maritime sector out of its prolonged downturn.
In July, South Gyeongsang province as well as the Ministry of Oceans and Fisheries and the Ministry of Trade, Industry and Energy, signed a memorandum of understanding with Netherlands Organisation for Applied Scientific Research (TNO) to jointly develop LNG-fuelled vessels and bunkering infrastructure.
South Gyeongsang province has been deemed by the South Korean government as being conducive to foster an LNG bunkering cluster. Firstly, the province is home to the ports of Busan and Ulsan and South Korea’s shipbuilding industry. South Gyeongsang is also where the Tongyeong LNG terminal is located. Operated by the state-run LNG procurement agency, Korea Gas Corporation (KOGAS), the terminal is expected to get a bunkering facility, with similar facilities to follow in the ports of Gwangyang, Boryeong and Incheon. Seoul will take the lead in building LNG-fuelled vessels in domestic shipyards, providing much-needed work for the struggling sector. One of these is a sea cleaning vessel expected to be launched in Ulsan port by end-2018. The South Korean government also plans to offer lower harbour facilities fees, tax benefits for locally flagged LNG-powered vessels and subsidies to build LNG-fuelled vessels.
China, eager to resolve pollution, has created three emission control areas (ECA) at key ports in the Pearl River Delta, Yangtze River Delta and Bohai Sea. From January 2018, the regulations will apply to ships berthing at all ports within the ECAs and by January 2019, the fuel switch will have to be done prior to entering any ECA.
To better meet the emission requirements, China Gas Holdings expects to commission an onshore LNG bunkering station in Chongqing in by the end of 2017. Shanghai-based LNG Power Shipping, which is involved in disposing construction waste, has ordered 200 LNG-powered inland river vessels to transport materials along the city’s rivers. Also pushing for low-sulphur fuel is Hong Kong, which is going one step further than the IMO by targeting a sulphur cap of 0.1% by 2019.
In Japan, the Ministry of Land, Infrastructure, Transport and Tourism has begun a joint feasibility study with the Coast Guard, ClassNK and NYK to explore how LNG bunkering could be launched in Yokohama, one of the country’s busiest ports. Yokohama-Kawasaki International Port Corporation, trading groups Marubeni Corporation, Mitsui & Co and Sumitomo Corporation, and Japanese oil trading firm Toyota Tsusho Petroleum, have also joined SEALNG. Mitsui & Co has invested in eleven LNG export projects worldwide and has signed a memorandum of understanding with Russia’s Gazprom to study LNG bunkering.
Notwithstanding these efforts, full-scale acceptance of LNG bunkering is likely only after 2020. In contrast, Europe was much earlier with embracing LNG bunkering due to the implementation of emission control areas in the North Sea and the Baltic Sea. Andrew Tan, chief executive of Singapore’s MPA, noted that while 48 ports around the world are LNG-ready or plan to be in the short term, Asia is still way behind other regions. He said: »The high costs involved in building or retrofitting LNG-fuelled vessels, and the need for further development of LNG bunkering infrastructure in ports, necessitates governmental intervention to make LNG widely adopted as a marine fuel.« Like South Korea, the Singapore government, through the MPA is incentivising ship owners by launching co-funding to build LNG-propelled vessels and offering discounted port fees for such ships. By 2018, LNG-propelled tugs and bunker tankers would be launched in Singapore.
In addition, higher LNG prices in Asia, relative to Europe and the Americas, would deter the uptake of LNG bunkering, according to a recent report published by shipbroker Banchero Costa. Weak oil prices have also compounded the situation. Banchero Costa explained: »Ship owners would need to decide whether they should use high-sulphur fuel oil with scrubbers, low-sulphur fuel oil, or LNG. The choice would depend on the price spread of LNG in relation to other bunker options, which currently remains uncertain.«
The shipbroker pointed out that Chinese state-owned oil company China National Offshore Oil Corp (CNOOC) built four LNG-fuelled tugs in the cities of Zhuhai and Yangjiang, but these vessels have reportedly been underutilised as low oil prices affected demand for LNG bunkering.
A spokesman for Shell, which is one of two pioneer suppliers of LNG bunkers in Singapore, told HANSA that the oil major is optimistic that by 2030, take-up for LNG bunkering would reach a decent level, though the growth would be gradual.: »Demand for LNG in the transport sector will increase over the next 20 years. In fact, the use of LNG as a fuel in the shipping industry is already increasing due to emissions reduction requirements that came into force in January 2015.«