New fuel rules push owners of ships to go green with LNG24.08.2018
TOUGH new rules on marine fuel are forcing shipowners to explore liquefied natural gas (LNG) as a cleaner alternative, and ports such as Gibraltar are preparing to offer upgraded refuelling facilities in the shipping industry’s biggest shake-up in decades.
From 2020, International Maritime Organization (IMO) rules will ban ships from using fuels with a sulphur content above 0.5 per cent, compared with 3.5 per cent now, unless they are equipped to clean up sulphur emissions. This will be enforced by fines levied by the IMO’s member states.
Using LNG to power ships instead of heavy fuel oil or the lighter marine gas oil can reduce polluting emissions of nitrogen oxides and sulphur oxides by 90 to 95 per cent, according to industry estimates.
The stakes are high. Analysts at Swiss bank UBS estimate that the green shipping market could be worth at least US$250 billion over the next five years.
To scoop up some that market, the British territory of Gibraltar is in the process of launching an LNG-fuelled power station, the accompanying storage tanks of which can be used to refuel cargo ships via barges.
Gibraltar already supplies the most marine fuel of any port in the Mediterranean and aims to do the same with LNG, said Manuel Tirado, chief executive of the Gibraltar Port Authority (GPA). “The GPA’s aim is to be the No. 1 LNG bunker port in the Med. However, this is something that will not happen overnight,” he said.
The shipping industry is under pressure to cut its emissions of the main greenhouse gas which causes global warming – carbon dioxide (CO2) – by at least half by mid-century from 2008 levels, after the IMO agreed on a target in April following years of debate.
Although still a fossil fuel, LNG emits 10 to 20 per cent less CO2 than even low-sulphur fuel oil. A period of low oil prices slowed the take-up of LNG as a marine fuel. But over the past year, as oil prices have risen, appetite has grown in the cruise-ship industry as well as in the container, cargo and tanker sectors.
There are now 125 ships around the world using LNG, according to ship certification experts DNV GL, with between 400 to 600 expected to be delivered by 2020. That is a still small fraction of a world fleet of more than 60,000 commercial ships.
Valuation company VesselsValue said 78 ships with dual-fuel engines capable of using LNG would be delivered this year, the largest annual number to date.
Martin Wold, a senior consultant at DNV GL, said: “Over the last year or so, there is a growing consensus among ship-owners that LNG is a reasonable next step. It is gaining traction.”
But the transition to LNG will take time, with low-sulphur oil-based fuels also used to replace heavy oil. By 2050, DNV GL forecasts that only 47 per cent of energy for shipping will come from oil-based fuels. Gas fuels will account for 32 per cent, and the rest will be provided by carbon-neutral energy sources, such as biofuels and electricity. The global shipping fleet now consumes about four million barrels a day of high-sulphur fuel oil. Thomson Reuters Research estimates show fuel accounts for about half of a ship’s daily operating cost.
One of the challenges in using LNG to power ships has been the investment needed to build the required refuelling facilities. In addition, commercial vessels powered by LNG cost around US$5 million more than regular ships. Retrofitting is also costly as existing ships require space to install much bigger fuel tanks to keep the super-cooled gas from evaporating.
For Gibraltar, the construction of the LNG power plant by Royal Dutch Shell will help to create some of the required ship-refuelling infrastructure. The GPA chief, Mr Tirado, said: “The LNG for the power plant will be used solely for the power plant. However, the same marine infrastructure that provides the LNG for the power plant will also be able to be utilised to supply LNG to vessels. The current focus is to deliver LNG by barge.”
He said the authorities in Gibraltar were working on a legal framework that would allow ships to be refuelled with LNG in the near future.
A Shell spokesman said the supply of LNG to Gibraltar “opens up the possibility for other future LNG applications in Gibraltar, such as the use of LNG as a cleaner-burning maritime fuel”. Malta is studying the provision of LNG refuelling facilities at its ports and other places such as Barcelona are working on providing LNG bunkering. Zeebrugge and Rotterdam are already supplying LNG via barges.
Elsewhere, several LNG bunkering vessels, from which merchant ships can refuel, have been delivered to operate in locations such as the Amsterdam, Rotterdam, Antwerp region, the North Sea, the Baltic Sea and the coast of Florida.
Maarten Wetselaar, head of integrated gas and new energies at Shell, said: “We are reaching a tipping point where ship-owners are starting to commit to LNG-fired ships at scale.”
To meet the sulphur rules in 2020, shipping companies can use low-sulphur fuel, or install a scrubber and continue to use heavy fuel oil, or switch to LNG. Sulphur scrubbers can cost up to US$10 million per ship and will not help lower CO2 emissions in the longer term, said analysts at UBS.
In the future, ships could be fuelled by methanol, biofuels, fuel-cell systems or hydrogen, but these are not technologically advanced enough and very costly.
Since demand will inevitably shift to compliant fuels – low-sulphur in the short-term, as well as LNG – the main losers will be refiners, unless they adjust their production mix. Refuellers slow to switch away from offering heavy oil may also get caught out.