CASA optimistic about use of LNG in shipping industry

By Ceylon Association of Shipping Agents (CASA)

Ocean shipping is essential for global trade. Trade is expected to increase significantly consequent to global population and income level increases. Concurrently, the shipping industry will need to expand and continue to strive for greater efficiencies to cater to this growing demand and to create cleaner maritime shipping by 2020.

To address these issues, in October 2016 the International Maritime Organisation (IMO) affirmed its decision to implement a much tighter global cap on sulphur at 0.5% on marine fuels from January 2020. This action is designed to dramatically reduce the emissions produced by vessels using heavy marine fuel oils. Ship owners and operators, and the associated supply chains will need to make major investments to comply with these new global limits. 

The regulations to reduce sulphur oxide emissions brought about a global limit for sulphur content of ships’ fuel oil, with even tighter restrictions in designated emission control areas. The current global limit for sulphur content of ships’ fuel oil is 3.50% m/m (mass by mass). Ships can meet the requirement by using low-sulphur compliant fuel oil. An increasing number of ships are also using gas as a fuel since it leads to negligible sulphur oxide emissions when ignited. Liquefied Natural Gas, therefore, is fast becoming a favourable alternative to reducing sulphur oxide emissions and for compliance with strict regulations enforced by IMO.

Liquefied Natural Gas

Liquefied Natural Gas (LNG) is a natural gas that has been converted to liquid form for ease and safety of storage or transport. Natural gas is a potential winner in terms of being environment friendly, safe, reliable and cost effective. When compared to refined oils, natural gas has become an important commodity with a key global energy impact. Due to the influential properties possessed by natural gas, it is the only alternative energy source which is believed to be able to drive the future.

Many global shipping lines have announced their intent to work towards developing future ships powered by LNG. Many lines have already ordered mega vessels with LNG powered engines which will start getting into operations in 2020. Wartsila, a major ship engine maker, has developed and completed conversions of engines from refined-oil power to LNG power. Some companies are also looking at hybrid vessels which have the option of changing from LNG to oil when necessary.

LNG is also considered to be safer than most other energy commodities. The bulk LNG transportation industry, where LNG is commonly used as a fuel for the transporting vessel, has a proven safety record. Over the past 50 years, more than 77,000 commercial LNG cargo shipments have been safely delivered and they have covered more than 100 million miles – about 4,000 times around the earth – without any major safety incident in port or at sea. This is a testament to the LNG industry’s rigorous design guidelines for both ship and shore facilities, as well as high standards of training and operational procedures.

However, gas weighs more and requires more space, when compared with bunker oil, which can be a disadvantage. A journey that is great in distance requires storage space that is equally large. Apart from this, main ports/hubs should have facilities and capacity to store LNG and supply these large LNG ships. Port infrastructure around the world would have to be looked at and redesigned in a relatively short time to make LNG vessels a viable option as the future of the shipping industry.

Green supply chains

Increasingly, major shippers are looking for environmentally friendly international supply chains in response to consumer, regulatory and societal pressures. Many companies, such as Unilever, IKEA and Volkswagen, have publically stated that they are aiming to turn their entire marine and land transportation logistics ‘green’. For example, in January 2016, Unilever announced that, wherever possible, it intends to move its transport contracts to companies that operate LNG-powered trucks and ships. Similarly, in October 2016, the Volkswagen Group stated that from 2019, the Volkswagen Group Logistics will use two LNG-powered charter vessels from Siem Car Carriers for the transport of vehicles on sea. 

Response from shipping lines

Notably, 2017 culminated in a major announcement from CMA CGM, stating that it will power its nine ultra-large container ship new-builds – due to be delivered from 2020 – with LNG. “LNG is the fuel of the future for shipping,” Rodolphe Saade, Chairman and Chief Executive of CMA CGM was quoted as saying.

Like a game of chess, this decision by CMA CGM is significant, as it tips the balance for so many that may have – until now – been contemplating their next move…waiting to see how the larger industry players will influence 2020 game plans. 

Other container lines are now likely to follow suit, as volume brings investment, which expands infrastructure and stimulates supply chains.

Opportunities for Sri Lanka

CASA, the voice of the shipping industry, is committed to achieving the ambitious goal of IMO to reduce carbon emission in the industry. At the same time, we see an immense opportunity for Sri Lanka which needs to be capitalised. LNG is the future of marine fuel; and therefore, in order to be perceived as a maritime hub, it is crucial to invest in LNG storage and supply infrastructure in Sri Lanka. Highlighted below are a few short-term steps which need to be taken:

1.Fast track investments on a LNG Terminal which will facilitate sufficient LNG supplies into Sri Lanka.

2.Develop an LNG Eco System through Public Private Partnerships to bring in expertise in storage, delivery, safety and operational standards for LNG bunkering.

3.Embark on a LNG bunkering pilot program which will allow testing of operational protocols, gaining operational experience and strengthening capabilities to ensure Sri Lanka remains as a bunker service provider.

4.Introduce concessionary port tariffs for harbour-craft and ‘green vessels’ as means of encouraging LNG vessels to call Sri Lanka to obtain LNG bunkers.

Singapore is getting ready to bunker LNG to ships in the next three years, and has commenced a pilot program to achieve operational excellence by 2020. They have also announced a 5-Year waiver of ‘Craft Port Dues’ for LNG-fuelled harbour craft and 10% concession on port dues for ‘Green Port Programme Vessels’ that engage LNG-fuelled harbour craft for port operations. These initiatives are taken by Singapore with a three-year time horizon and show their commitment to become the largest LNG bunkering port in the near future.

With the majority of LNG bunkering stations currently located in Europe, the region currently dominates the LNG bunkering market with a share of 85%. But, with increasing marine trade, the Asia-Pacific region is expected to catch up quickly. Ports play a crucial role in facilitating this uptick in confidence, not only in relation to infrastructure, but also through incentives. 

Sri Lanka Ports Authority (SLPA) is already planning a LNG facility in Colombo and initial plans have already been drawn to setup the terminal in the breakwater of the proposed West Container Terminal. It is important to put this on fast track and policy decisions to be taken at the earliest and be ready to supply LNG ships in 2020. LNG fuel surely holds a promising future in the shipping industry. However, only time can tell as to how well it becomes an integral part of the shipping industry.