Clean Gas for Greasy Oil
Even before the January 1, 2015 deadline for a stringent cap on fuel-sulphur levels for ships sailing in Emission Control Areas (ECAs) came into being, many observers had realized the radical capacity of this regulation.
LNG is particularly attractive to ships plying in Emission Control Areas (ECAs) for it is cleaner than conventional marine diesel oil (MDO) and cheaper than other ECA-compliant fuels. This has created a demand for LNG bunkering infrastructure at ports around the world.
In a recent report on the state and forecasts for the LNG bunkering market, Transparency Market Research placed the global consumption of LNG bunker fuel at 70kilo-tons in 2013. The report expects this consumption to clock 22,540kilo-tons by 2025 expanding at a stunning 63.6% CAGR in 2014-2025.
According to Global Trends in Oil & Gas Markets to 2025 by Lukoil, global gas consumption will grow faster than oil consumption as gas is more eco-friendly. Technological advances in the 2000s boosted gas drilling and gas supplies. Coupled with falling demand and the global economic slowdown, this enabled customers to set the terms in the international natural gas market.
LNG Bunkering Drivers
Expansion and development of LNG bunker ports is directly related to the availability of funds and support from state and regional authorities. Of the approximately 8,000 seaports in 200 countries, 46 are LNG hopefuls and only fifteen are open for general LNG business.
Ships plying in ECAs cannot use fuel with over 0.1% sulphur from January 1, 2015. This cap is at 3.5% outside ECAs and may contract to 0.5% by 2020 or by 2025. Four current ECAs include:
- North Sea ECA
- Baltic Sea ECA
- North American ECA
- U.S.-Caribbean ECA
Increasingly stringent sulphur emission norms inside and outside ECAs is the primary driver for the development of LNG bunkering ports. Lloyd’s Register LNG Bunkering Infrastructure Survey 2014 identified the following other drivers:
- Price vis-à-vis other fuels
- Competition from other bunkering ports on the route
- LNG Demand from ships
- Public Perception regarding the eco-friendliness of the port
- Retaining Port Importance
- Port Location relative to ECAs
Lloyd’s Register surveyed four North American, fifteen European, and three Asian ports for this study. Other takeaways from the survey include:
- economics is the primary factor that will help achieve LNG targets followed by LNG availability, location, service quality, infrastructure, and regulations
- most ports will offer LNG bunkering through barge and road tankers followed by pipelines at berths
- most ports are willing to offer LNG bunkering
Geographical & Segment-Wise Scenario
Northern Europe around North Sea, Baltic Sea, and the English Channel hosts most of the LNG bunkering infrastructure because:
- proximity to two ECAs – North Sea ECA and Baltic Sea ECA
- eco-sensitive political climate in Europe
- availability of large offshore gas reserves
- geography of Europe inherently promotes sea transport
Norway is the leader in LNG ports and ships and assumed a leading role in the Sulphur ECAs in the Baltic and the North Seas. Norway’s success spurred the European Commission (EC) to launch the €26billion Trans European Transport (TEN-T) Network that encompasses multiple land and sea based initiatives to establish LNG bunker facilities at:
- all major European Union Seaports by 2020
- inland river and canal ports by 2025
Apart from its green agenda, TEN-T is also boosting the maritime sector in Europe. Although the U.S. is close to two ECAs, the North American and the Caribbean, the lack of state assistance and funding holds them back.
Most notable of the developments in the U.S. is the recent construction of the first LNG bunkering terminal in the United States at Port Fourchon by Harvey Gulf. Over 600 oil platforms dot the 64km radius around Port Fourchon, the largest offshore supply base in the U.S. servicing over 90% of deepwater oil production in the Gulf of Mexico.
Asia has not yet completely grasped the importance of LNG bunkering. LNG prices and indecision are major obstacles. Singapore is the world’s largest bunker port but does not offer LNG refueling two years after the opening of its LNG import terminal. South Korea acting through its state-owned companies and China however are notable exceptions.
Ferries and offshore support vessels (OSVs) use most of the LNG bunker fuel. Most ferries operate in ECAs. Expanding container traffic in Asia-Pacific and Europe will make containerships and tankers increasingly adopt LNG as fuel.
LNG bunkering facilities will advance as sulphur emission norms tighten and the price gap between LNG and other ECA-friendly fuels widens. For this reason, Asia-Pacific will expand LNG bunkering infrastructure only after 2020. Slowly, LNG refueling facilities will spread across to strategic waterways viz. the Suez Canal, Malacca Strait, and the Mediterranean.