LNG Bunkering - demc.net.au

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.

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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.


• 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.


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


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.

LNG Bunkering - demc.net.au

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