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In order to talk about LNG, it is important to see what lies ahead. In picture below we can see what will happen in the next 15-20 years. On the one hand, we have sulphur content limitation regulations which will become applicable within and outside ECAs and also three phases of reduction of energy consumption with EEDI implementation. On the other hand, we will have other National, International, Commercial measures increasing pressure on emissions and energy consumption.
According to the European Commission, LNG is the most promising alternative in shipping fuel technology and has the potential to decouple bunker prices from further increase in the cost of oil. But what would the properties of the ideal fuel be like if it was clean, it would be environmentally sound and would receive environmental support. If it was cheap, it would gain commercial acceptance. If it was alternative, it would be a strategic solution and would obtain political support. If it was safe above all, it would then seem like the ideal fuel. So, let’s see how LNG fits into this framework.
Experience so far shows that hundreds of ships have dual fuel engines. Many ships have carried out hundreds of successful LNG ship to ship operations. The safety record from LNG applications on land and offshore is very satisfactory.
In 2011, we carried out a survey which showed that ship owners see LNG- fuelled engines as a viable option in the long term, particularly for ships on liner trades. Low- sulphur distillate fuel is seen as a short term solution within the next five years while exhaust gas scrubbing is seen as a medium term option. We also see that LNG is definitely cheaper than gas oil and in many parts of the world even cheaper than heavy oil. However, the LNG market is not the same all over the world.
World estimated LNG Landed Prices March 2013
The current situation shows that there is a potential to support LNG bunkering operations in the years to come by investing on LNG infrastructure. However, when we talk about LNG infrastructure, it is about the chicken and the egg situation, where ship owners are waiting for the infrastructure to be developed while the gas providers will wait for ship owners to invest on LNG fuel ships. For the time being, we have already LNG bunkering available in Norwegian coastal waters and studies undertaken around the globe. LNG bunkering infrastructure is being developed in Rotterdam, Antwerp and Singapore. Major oil company plans to build LNG fuel plants in US and Canada and major gas company will avail LNG bunkering in the Baltic. Also, energy company will make LNG fuelling available in Yangtze river by August 2013. Recent study unveils that LNG as fuel feasibility in Australian ports is an accelerated approach that could make this real by 2016.
Regarding LNG in EU; we recently saw that the European Commission is proposing that LNG refuelling stations will be installed in all 139 maritime and inland ports on the Trans European Core Network by 2020 and 2025 respectively. On the other hand, EU has shown determination to proceed with the low sulphur content with Directive 2012/33/EC which says that we will move on with a sulhur content limit by 2020 irrespective of the outcome of the IMO’s decision on this matter. Also, Financial instruments are available to support infrastructure development and R&D projects while financing of shipping will be one of the core business of European Investment Bank particularly for projects tackling environmental challenges and the development of clean technology.
LNG regulation includes draft IGF Code by IMO. We are still waiting for the guidelines regarding LNG bunkering carried out by ISO Technical Committee 67, Working Group 10. Also, many class societies have issued rules especially for gas fuelled vessels, such as Lloyd;s Register has already published. We have seen initiatives from EMSA and others such as the World Ports Climate Initiative. Lloyd’s Register has issued rules regarding LNG as Fuel and guidance on risk assessment of relevant arrangements. EMSA Report has identified 16 main regulatory gaps among them crew training requirements, the Common Risk Assessment Criteria which are not common yet, simultaneous activities with LNG bunkering with passengers on board and we have no standard for the LNG equipment. Also, we don’t have a solution yet for EEDI and LNG fuelled engines.
There are drivers and threats at the same time for the LNG, for example LNG pricing and supply, pricing and scarcity of competitive fuels, other alternatives like methanol. There are some regulatory uncertainties and of course the social risk. At the moment, there is significant uncertainty. It is advised to consider solutions holistically within the Regulatory Framework and seek opportunities in the effort to attain optimised planning for the future. Lloyd’s Register develops and implements tools like the relevant Assessment of Risk Based Design process and the LNG Risk Assessment Model to assist stakeholders
Above article is an edited version of Mr Panayiotis Mitrou presentation during 2013 GREEN4SEA Forum
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