LNG-Medditerrenian.pdf

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LNG Bunkering In The Mediterranean

http://www.fc-gi.com/

Introduction

So far Europes liquefied natural gas (LNG) bunkering

activity has been focused around the north of the

continent, Scandinavia and the Baltics. Pilot projects have

developed in northern Europe, boosted by strong

government support, infrastructure already in place and

new environmental regulations, which came into force in

January.

There could also be huge potential to expand the sector in

the Mediterranean for use in tourism and passenger ferries

and to tap industrial and domestic gas demand in places

which are not connected to gas grids.

Whether the region reaches its LNG bunkering potential

will depend on how expensive it is to build LNG-fuelled

ships, whether the fuel is price competitive with traditional

ones and whether the same environmental regulations in

the north are applied to the Mediterranean as well.

Section 1: Northern Europes Success Story

The worlds first LNG-fuelled vessel was the Glutra car and

passenger ferry in Norway, which has been operating

since February 2000.

Fifteen years later the industry is growing rapidly. There are

currently around 50 LNG-fuelled ships (excluding LNG

carriers) in operation worldwide, while another 69 new

building-orders are now confirmed, according to DNV GL

a maritime and energy sector advisory firm. They range

from passenger ferries to tankers and platform supply

vessels.

Environmental Regulations

DNV GL expects LNG to grow even more rapidly over the

next 5-10 years, with the number of non-LNG carrier

vessels using the fuel approaching 1,000 by 2020.

The main driving force behind this sector development is

expected to be environmental regulations set by the

International Maritime Organization (IMO), which came

into force on January 1, 2015.

The IMO introduced new regulations stating that ships

trading in designated emission control areas (ECAs), which

include the North Sea and Baltic Sea, will have to use fuel

oil with a sulphur content of no more than 0.1% from

January 1, 2015. This is down from a previous limit of 1%.

Shipowners operating in ECAs have three ways they can

adhere to these new emissions regulations. They can

choose to switch to using marine gas oil as a fuel, to fix

scrubber technologies onto their ships - which capture

some of the emissions but at a potential cost of 3-4

million each, according to one industry executive - or they

can switch to cleaner-burning LNG.

Viking Grace - the worlds first large-scale passenger ferry

Viking Grace, launched in January 2013, is the worlds first

large-scale passenger ferry to be powered by LNG. It

operates across the Baltic Sea between Sweden and

Finland for Finland-based ferry company Viking Line.

Kari Granberg, Viking Lines Project & Technical

Development manager, said the companys decision to

use LNG as fuel for the ferry was part of its strategy to be

greener but more importantly, because it was cheaper

than using gasoil.

Heavy fuel oil wasnt an option after January 1 this year.

Then you would have needed to install a scrubber. The

ship would have been like a chemical factory, Granberg

said. We had three options: using heavy fuel oil, installing

a scrubber or using gasoil which is around 50% more

expensive than heavy fuel oil or LNG.

The cost of operating in the future

The IMO plans to enforce a 0.5% sulphur limit on ships

globally from January 1, 2020. It will conduct a review in

2018 to decide if this deadline can be extended to 2025.

DNV GL said the speed of which these environmental

regulations are rolled out across the continent will

determine how fast the sector develops. Available gas

supplies and fuel costs will also drive the use of LNG as a

fuel.

LNG uptake is expected to grow fast in the next 5-10 years,

first on relatively small ships operating in areas with

developed gas bunkering infrastructure, where LNG prices

are competitive against heavy fuel oil (HFO) prices.

To build a vessel is a long term investment of at least 30

years. Payback should be between 10-15 years. So if you

select the wrong fuel it could be disastrous, Viking Lines

Granberg said. Expansion (of the sector) depends on the

price dierential between dierent fuels. To make LNG

competitive it needs to be a similar cost to using heavy

fuel oil with scrubbers.

According to DNV GL the cost of building a new

LNG-fuelled vessel can be up to 30% higher than for

vessels running on conventional fuels. This is because the

technology does not exist on a large enough scale and

there isnt a widespread infrastructure network yet,

including import terminals, liquefaction plants and

bunkering facilities.

This high capital cost, a lack of confirmed LNG availability

for bunkering and uncertainty over fuel prices has caused

hesitation from some ship owners to switch.

However DNV GL highlights that sticking with

conventional fuels but introducing emissions reduction

technology, such as scrubbers, can also significantly add

to the cost of a ship. These systems are also both space

demanding and can increase a ships fuel consumption by

2-3%.

Oil Price Fall

Arthur Barret, Program Director, LNG Bunkering at

engineering firm GTT, said the biggest obstacle preventing

development of the sector is uncertainty related to LNG

pricing.

Today many ship owners in Europe are turning to

scrubbers, then gasoil. LNG is the third option, Barret said.

Many ship owners have a very short term view. They want

to protect themselves from high (fuel) prices but without

locking in investments for years.

This issue has been brought to the forefront of the debate

on LNG bunkering since European oil prices have almost

halved since July last year, causing heavy fuel oil prices to

fall.

This has made LNG less price-competitive compared to

dirtier oil-derived fuels, removing the incentive for ship

owners to switch.

The role of infrastructure in the LNG sectors development

A lack of widespread bunkering infrastructure and a

developed supply chain are also obstacles to the sectors

development.

Owners will not start using new fuels if infrastructure is

not available, and energy providers will not finance

expensive infrastructure without first securing customers,

DNV said in a 2014 report named LNG As Ship Fuel: The

Future Today. Breaking this deadlock will require a

coordinated, industry-wide eort and the political will to

invest in the development of new infrastructure.

LNG infrastructure needs to withstand very low

temperatures. As a result investments in LNG infrastructure

are hefty financial commitments.

Ed de Jong, CEO of LNG Bunkering Service, a commercial

shipping company which has one barge fuelled on LNG

and operates in the Amsterdam-Rotterdam-Antwerp (ARA)

trading hub, expects most northern European

development to happen there.

In the Baltics there are already around 150 ships operating

on natural gas and going lower into northern Europe we

see a lot of potential, he said. Weve been contacted by

several companies with ships already running on natural

gas or with plans to do so.

De Jong said that in Rotterdam there is already strong

support for LNG bunkering, available infrastructure and

regulations in place for ship-to-ship transfer. These factors

would all support development in northern Europe.

De Jong said that a bigger obstacle to the sector

developing was the ability to attract financing for projects.

The marine market is under pressure right now. People

arent willing to finance new projects and arent willing to

loan money, de Jong said. Infrastructure costs for LNG

bunkering projects dont have projects figures (costs) as its

a new industry and for the marine market people arent

willing to lend money right now. Youll invest in LNG

bunkering barges when theres demand.

LNG Bunkering Potential In The Mediterranean

If the IMO does enforce the 0.5% sulphur limit on ships

globally from January 1, 2020, this will provide a significant

incentive for ship owners in the Mediterranean to start

using LNG as a bunker fuel.

There are already some LNG bunkering projects in

development in the Mediterranean.

Poseidon Med is the first LNG bunkering project in the

Mediterranean and Adriatic Sea, which aims to introduce

LNG as the main fuel for the global shipping industry and

develop a sucient infrastructure network of bunkering

value chain.

Greek passenger ferry company Anek Lines, based in the

Port of Piraeus, is developing LNG bunkering in the Greek

Archipelago through its participation in the EC-funded

Archipelago-LNG project. The project aims to provide

sustainable maritime transport between the Greek

mainland and its islands. Qatar Petroleum plans to build

LNG bunkering facilities at the port.

Spain's Port of Huelva announced in February 2015 that it

is considering the development of LNG bunkering

facilities, as well as other infrastructure improvements at

the port. The bunkering facilities would be part of a

proposed gas export terminal.

The port said it plans to carry out the project in

conjunction with other ports as well as Spanish company

Enagas.

The port hopes to receive some of the project finance

from the 50 billion (55.9 billion) Connecting Europe

Facility (CEF) set up by the EC to invest in transport, energy

and digital projects within the European Union.

The Oshore LNG Toscana, Italys regasification terminal

Oshore LNG Toscana is a floating oshore regasification

terminal near Italy.

Francesco Campanale, Financial Planning and Control

Manager at Oshore LNG Toscana, said there is huge

potential to adopt LNG bunkering in the Mediterranean,

but whether this happens will depend on the scope of

environmental regulations, costs and cross-regional

support to jointly develop projects.

Campanale said theres huge potential in Barcelona,

Valencia and the Canary Islands for local ferries to run on

LNG and for other LNG bunkering infrastructure to be

developed.

A lot of countries [in the Med] are not connected by

pipeline to the grid, which would benefit from these

facilities. [Supplying] industry would also be a good place

in start, Campanale said.

But there needs to be more support from Europe. The

European Commission is much more focused on

developing the north now and most of the finance will be

diverted there, he added.

So far there are just small pilot projects in the Baltic

which arent sucient. Its something that will remain just

in those countries if the euro community wont aggregate

the projects and join together to support. If we learn from

the experience of northern countries we can do a good

job, Campanale said.

Campanale added that by 2020 Valencia, Sardinia and

possibly France could be potential hotspots for

Mediterranean bunkering.

There are a lot of ferries to the islands. Italy could also

have an important advantage with this. In Sardinia some

places are totally without gas grid connection. They have

industry and production there but dont have gas. So thats

something that makes LNG potentially competitive.

But he said that cross-regional cooperation was needed

between dierent countries and between northern and

southern Europe.

A lack of infrastructure, particularly in Italy, to provide LNG

bunkering services, was also a large obstacle, he said.

Barret from GTT said he is bearish about the potential for

the sector to expand in the Mediterranean because of the

lack of environmental regulations. However he added that

some ferry companies in Greece and Algeria are looking at

it.

In the Med theres no real incentive right now from an

environmental point of view (to adopt LNG). Even if the EU

decide to add 200 nautical miles to borders, ship will just

move along the North African coast instead to avoid the

regulations, he said.

Weve had discussions with some companies but never

seen a real salient project going ahead in the Med. There

are a lot of politics involved and it takes a lot of time and

money to motivate and obtain public funds, Barret added.

Barret went on to say that infrastructure and public funds

would be needed to get projects o the ground in the

Mediterranean. From 2020-2025 some infrastructure will

be in place, he said, enabling large container ships to use

LNG as fuel. Development will also depend on crude

prices rendering traditional fuels more expensive than

LNG, he said.

Forecasts

DNV GL said the number of LNG-fuelled ships operating in

2020 will depend heavily on fuel prices. With the LNG

price around 10% above HFO, around 7-8% of new build

ships between 2012- 2020 will be able to run on LNG, it

said. If LNG prices fall to around 30% below HFO, the

uptake of LNG on vessels could rise to 13% - the

equivalent of around 1,000 ships.

If LNG were to tumble 70% below HFO, the share of

LNG-fuelled ships being newly built would be around 30%

of the global total, DNV said.

James Ashworth, lead consultant with TRI-ZEN

International a consultancy said the LNG bunkering

sector in the Mediterranean will be boosted by oil prices,

which he expects to rise above $100/bbl again next year,

and a bounty of available gas nearby.

Half the worlds oil production at the moment is

uneconomical. For the big producers around the world,

like Saudi Arabia, the amount of money needed to pump

into the sector to support their economies is increasing.

Its unaordable, he said.

He added: There is a lot of gas in the Med. Algeria is a

massive producer and as competition hots up from places

like Australia [to supply LNG globally], some of that extra

gas supply will go into the transport sector.

Ashworth said that when the IMO tightens environmental

regulations in shipping, and if LNG were to wholly replace

fuel oil in shipping, it would double todays 250 million

metric tons global LNG demand.

By 2020 all major ship ports along the coast of the EU

should oer LNG bunkering, he said. Any of the major

ports with gas nearby will be hotspots. Barcelona is already

looking at it and there is potential for using floating LNG

terminals too. The ones who go in first will win out.

In a 2013 study by Ashworth: LNG Bunkers Coming Out

Of The Cold, he said the global market for LNG bunkers

will be considerable in 10 years time and in the range of

15-20 million tons per year.

Ashworth said the maritime industry has been asleep at

the helm in terms of its lack of preparation for the

expansion of LNG bunkering, especially in the wake of

IMO emissions regulations.

He added that Panama, the Mediterranean, the Suez Canal

and Straits of Malacca would make ECA transit virtually

unavoidable for most global shipping trac.

Perhaps with the expectation that the tide of emissions

legislation can, somehow, be pushed back or that ultra

low sulphur diesel will not cost that much more to burn,

Ashworth said in the report. They will be disappointed.

The storm of change is coming. This is the wake up call.

Conclusion

The timeline and strength of environmental regulations

imposed by the IMO will determine whether the LNG

bunkering sector in the Mediterranean will progress as fast

as in northern Europe.

In the short term the use of LNG as a bunker fuel in the

Mediterranean is likely to be limited until environmental

regulations are imposed on ship owners who will only

adopt the fuel if there is sucient infrastructure,

government support and if LNG prices are low enough to

justify the capital investment needed in new ships.

Cross-regional cooperation, large-scale projects and an

ecient supply chain with functioning infrastructure will

also be needed to expand the sector.

With cross border cooperation, EU support and

pan-European strategy being a necessity, it would seem

that the first step for LNG bunkering in the Mediterranean

is to come together.


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Introduction







January.




















vessels.






























than using gasoil.















fuel.



























2-3%.

Oil Price Fall




pricing.









fall.



owners to switch.




development.













































value chain.















Enagas.

















developed.

























southern Europe.







it.
















LNG, he said.

Forecasts


















































Conclusion


















2


2


LNG Bunkering In The Mediterranean http://www.fc-gi.com/


Introduction







January.




















vessels.






























than using gasoil.















fuel.



























2-3%.

Oil Price Fall




pricing.









fall.



owners to switch.




development.













































value chain.















Enagas.

















developed.

























southern Europe.







it.
















LNG, he said.

Forecasts


















































Conclusion


















3


3




Introduction







January.




















vessels.






























than using gasoil.















fuel.



























2-3%.

Oil Price Fall




pricing.









fall.



owners to switch.




development.













































value chain.















Enagas.

















developed.

























southern Europe.







it.
















LNG, he said.

Forecasts


















































Conclusion


















4


4




Introduction







January.




















vessels.






























than using gasoil.















fuel.



























2-3%.

Oil Price Fall




pricing.









fall.



owners to switch.




development.













































value chain.















Enagas.

















developed.

























southern Europe.







it.
















LNG, he said.

Forecasts


















































Conclusion


















5


5




LNG-Medditerrenian.pdf

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