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Regulatory drivers - IMO 2020 and
beyond
The use of LNG as a fuel in the marine
transportation sector has been increasing over
the last decade.
Regulatory initiatives to reduce sulphur dioxide
(SOx) emissions from the marine sector are
driving the uptake of LNG as a marine fuel.
In January 2020 the International Maritime
Organisation’s cap on the sulphur content (IMO
2020) of marine fuels will be reduced from the
current 3.5% to 0.5%.
Sulphur Emission Control Areas (SECA) have
been established by some countries to cap
sulphur emissions from ships to 0.1%. The
areas covered include the Baltic Sea, North
Sea, the west and east coasts of North
America and the United States Caribbean Sea.
In 2020 a SECA will commence applying to
inland waterways in China and from 2022 this
will be expanded to China’s coastal territorial
waters.
Heavy fuel oil, known as HFO, is widely used in
the global shipping industry as bunker fuel.
High sulphur HFO has a sulphur content
greater than 0.5%.
The International Maritime Organisation has
also developed a strategy to achieve a
minimum of a 50% reduction (compared to
2008 levels) in GHG emissions from the global
shipping fleet by 2050.
© 2020 Drake Energy Consulting Pty Ltd | ACN 637 689 797 | ALL RIGHTS RESERVED
Responses to IMO 2020
Ships can continue to use high sulphur HFO if
exhaust gas cleaning systems, known as
scrubbers, are installed.
There are two types of scrubbers, closed loop
and open loop systems. The waste water
containing the sulphur recovered by closed loop
systems is discharged ashore. The waste water containing the sulphur
recovered by open loop systems is discharged
into the sea. An alternative to scrubbers is for ship owners to
switch from high sulphur HFO to other fuels.
These include:
• low sulphur HFO;
• marine gas oil; or
• LNG.
The decision to install scrubbers or switch to
another fuel will depend on a range of factors
including the:
• availability of LNG bunkering services;
• age of the ship;
• ship owners view on which solution
provides the most flexibility in responding
to future regulations for GHG emission
reductions;
LNG Bunkering
Discussion Paper 02 / 2019
Impact on other fuels
There remains uncertainty about the global
impact that IMO 2020 could have on the
demand for and price of other fuels.
There is potential for diesel price increases to
rebalance the market and increased demand
from the shipping industry by reducing the
volume of diesel used for road transport.
There are two factors that could have an
impact on the price of distillates, such as
diesel. This includes the extent to which
demand for distillates increases if ship owners
choose not to install scrubbers or are unable to
install scrubbers and are therefore unable to
use high sulphur HFO.
Low sulphur HFO is a type of fuel that can be
produced by refineries through blending high
sulphur HFO with distillates.
Marine gas oil (which consists of distillates)
demand could increase to replace some of the
demand for high sulphur HFO.
LNG fuelled ships
There are about 280 LNG fuelled ships (excluding LNG carriers) either in service now
or on order. About half the current fleet of LNG fuelled ships are located in Northern Europe.
LNG fuelled ships include:
• dredges;
• offshore platform support ships;
• passenger and vehicle ferries;
• container ships; and
• cruise ships.
The first LNG fuelled cruise ship, the AidaNova, entered service with Carnival in late 2018. Carnival have 18 cruise ships on order, 9 of which will be LNG fuelled.
© 2020 Drake Energy Consulting Pty Ltd | ACN 637 689 797 | ALL RIGHTS RESERVED
• cost of scrubbers and the alternatives
(including where LNG is used as a fuel the
cost of conversion or replacement of
engines on existing ships); and
• regulations in countries where there are
ports that the ship services.
A growing list of countries are not allowing the
discharge from open loop systems of the waste
water containing sulphur in their coastal waters.
Importantly for Australia’s seaborne trade with
Europe and North Asia, Singapore and China are
not allowing ships fitted with scrubbers to
discharge waste water containing sulphur in their
territorial waters.
The financial implications of these regulations are
starting to be reflected in the cost of marine
freight services.
Singapore based shipping company ONE has
announced that due to the China SECA a levy
will apply for all containers shipped to or from
China, Hong Kong and Macau.
Environmental benefits of LNG
LNG offers significant environmental benefits as
CO2, NOx, SOx and particulate emissions are
lower when compared to the use of other marine
fuels.
The benefits from LNG including positioning ship
owners on a pathway to achieve lower GHG
emissions in line with the IMO GHG reduction
strategy.
© 2020 Drake Energy Consulting Pty Ltd | ACN 637 689 797 | ALL RIGHTS RESERVED
LNG bunkering methods
The methods for LNG bunkering include:
• ship to ship transfers;
• truck to ship transfers; and
• pipe to ship transfers (from an LNG
terminal).
The method adopted at a port will depend on a
range of factors including the bunker quantity of
the ships receiving LNG and the design of the
wharf. Where bunker quantities are smaller there
may be potential to use road tankers to both
bunker ships and to distribute to land based
customers to improve the economics of providing
services.
Availability of LNG bunkering
services
LNG bunkering services were initially
developed in Northern Europe, where some
bunker ships are also used to provide feeder
services to locations not serviced by large
scale import terminals.
The locations where LNG bunkering is available has been expanding to include ports
in North America and in the Asia Pacific.
LNG bunkering services are available at
approximately 20 locations across the world.
LNG bunker providers have committed to offer
services at 11 additional locations and
bunkering projects are being assessed at
approximately a further 20 locations.
The Port of Singapore is the largest bunker fuel
port in the world.
In 2018 a joint venture between oil and gas
major Shell and ship builder Keppel Marine
commenced truck to ship bunkering in
Singapore. In 2020 the joint venture will start
offering ship to ship bunkering services.
Total is partnering with Pavilion Energy to offer
a bunkering service in Singapore.
About the author
Rod Johannessen has over 20 years experience in the energy sector including
working for mid-stream, upstream and downstream companies. During his career
he has held roles in business development, commercial management, strategy,
and risk management with pipeline, upstream oil and gas, power generation and
electricity retail companies.
Rod’s early career was in the seaborne grain and oilseed trade where he held roles
in logistics and marketing to customers in Japan, Mexico and India.
[email protected] Phone +61 400 950 587
© 2020 Drake Energy Consulting Pty Ltd | ACN 637 689 797 | ALL RIGHTS RESERVED
In Canada, Vancouver gas utility Fortis BC
distributes LNG by truck and provides truck to
ship LNG bunkering services to ferry operators in
the Port of Vancouver.
In Europe several gas utilities that own or have
access to the capacity of LNG import terminals
have commenced offering bunkering services.
Woodside an Australian gas producer and
operator of LNG plants is assessing the
introduction of an LNG bunkering service for
ships calling at ports on the North West
Australian coast.
Demand for LNG bunkering services
As noted above there are a range of factors that
will influence which alternative to high sulphur
HFO combined with scrubbers owners will select
for existing and new build ships.
The age of a ship is one consideration as it drives
the requirement to replace existing ships with
new builds and the potential for LNG to be used
as the fuel.
The global trading fleet in 2017 consisted of
approximately 57,000 ships (ships greater than
500 mt gross tonnage).
There are approximately 18,000 ships with gross
tonnage greater than 25,000 mt, of these 20
percent are older than 15 years
(www.equasis.org).
Twenty percent of ships greater than 25,000 mt
gross tonnage are less than five years old.
It is at these two ends of the ship life cycle that
the potential for LNG as a fuel is strongest.
KOGAS expects that “By 2030, the demand for
LNG bunkering in the global market is estimated
to reach 20 to 30 million tons per year”.
To put that estimate in context the combined
capacity of the six trains at the LNG export plants
at Gladstone in Australia is 25 million tons.