A river becomes an ocean…Australia’s LNG marine fuel opportunity
Identifying new outlets for gas is becoming mission critical for LNG producers.
With the prospect of an oversupplied global liquefied natural gas (LNG) market, more gas supply anticipated and weak LNG pricing in the coming years, identifying new outlets for gas is becoming mission critical for LNG producers. And one of the biggest opportunities over the next decade is in transportation.
LNG as a heavy-duty truck fuel is still in its infancy, but on a parallel (and accelerating path), it is also being mooted as an alternative to marine bunker fuel oil for a wide range of vessels including bulk and general cargo, tankers, container ships, offshore port and supply vessels, as well as ferries.
What will drive it?
The key driver for LNG as a marine fuel is the need for shipping companies to meet the International Maritime Organization’s (IMO) new, stringent international emissions standards for bunker fuels. The new ruling reduces maximum allowed sulphur content in marine fuels from 3.5% currently to 0.5% by January 2020.
LNG demand from transportation (heavy-duty road transport as well as ships) could amount to 35-60 million tonnes (Mt) by 2025, and in excess of 100Mt by 2030. According to one global bunker supplier and trader, the global demand for LNG as a marine fuel will reach between 1Mt-1.5Mt by 2020 and about 20Mt-30Mt by 2030. The current demand is less than 0.5Mt.
LNG is considered a cleaner fuel alternative to marine diesel, emitting 25% less carbon dioxide, less nitrogen oxides and almost zero sulphur oxides and particulates. And there is ample supply of LNG thanks to the increasing production from the US and Australia. It has been estimated that in the next three to five years, there will be about 40Mt-50Mt of LNG, which does not have fixed customers.
What could put the brakes on?
LNG is not the only fuel currently being considered as a potential bunker fuel. Bunker suppliers are also providing options including 0.5% sulphur compliant fuels and high sulphur fuel oil with scrubbers. Adoption of LNG as a marine fuel will depend on its price economics. New LNG logistics capabilities and infrastructure will need to be built along major trade routes to support LNG bunkering. And retro-fitting of existing non-LNG vessels with LNG propulsion is costly, with new builds as the best and most economic option.
What is Australia’s role?
At present, Europe appears to be leading the market with around 80 LNG-powered vessels in operation out of a total of about 110 vessels globally, excluding LNG carriers. Norway is the lead player in LNG bunkering to date with more than half of LNG-powered vessels operating in the world today.
However, with around 21Mt of LNG expected to come online in the next year, Australian producers will be entering the market with large volumes of additional uncontracted LNG. LNG for marine fuel presents itself as a potential demand centre.
Australian producers will play a major role in demonstrating the capability and efficiency of LNG as a transport fuel. Collaboration among LNG producers and commodity exporters will be critical to the wider adoption of LNG as a fuel in heavy carriers. The “Green Corridor” project, led by Perth-based LNG Marine Fuel Institute, is a collaborative joint investment project comprised of a group of companies including BHP, Rio Tinto, Woodside, ports, shipping companies such as Mitsui OSK Lines and classification societies to assess the commercial viability of LNG as a marine fuel in the Australia to China bulk iron ore trade. This important trade route has been fittingly named the “Green Corridor”.
Western Australia is already leading Australia in providing access to a cleaner shipping fuel for marine vessels, with the first commercial bunkering operation undertaken by Wesfarmers’ EVOL LNG in February 2017. The state is a particularly attractive area for bunkering both as a demand centre as well as from the perceptive of LNG production infrastructure availability. The Pilbara region itself consumes five billion litres per year of marine fuels making it an attractive domestic market opportunity.
A win-win for all?
In short, the LNG marine fuel play has the potential to represent a win-win for all parties. For Australian LNG producers, it’s a terrific opportunity for uncontracted cargoes looking for a home to tap into a growth market. By expanding the customer base, it’s a play that will help underwrite and de-risk future supply developments.
For the shipping companies, LNG is a welcome alternative and affordable option to bunker fuel that will help them meet the new, stricter international emissions standards.
For Western Australia, the nascent LNG marine fuel industry is a potential economic growth catalyst that will generate revenues, investment and jobs as well as another opportunity to reinforce WA’s reputation as a centre of excellence. For the world, the creation of the Green Corridor is a very positive step in the transition to a low carbon energy system.
Information provided by Bernadette Cullinane and Nye Hill of Deloitte. Bernadette is Deloitte’s Australian Oil & Gas Leader and Nye is Senior Research Lead in Deloitte Australia’s Market Intelligence team.
Bernadette Cullinane will be discussing this topic in the “New markets and new energies” session at the AOG 2018 Collaboration Forum on Friday March 16 at the Perth Exhibition and Convention Centre (PCEC).
Other presenters in the session include Captain Walter Purio, CEO of the LNG Marine Fuel Institute; Saul Kavonic, Head of oil, gas, renewables and energy, Australasia for Wood Mackenzie; and Sanjay Verma, Director of Business Development for LNG Projects for Wärtsilä.
For more information please go to: https://aogexpo.com.au/conference/collaboration-forum/