2012.01.31. LNG as a Transportation Fuel- 93

7/29/2019 2012.01.31. LNG as a Transportation Fuel- 93

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The global potential of LNG as a replacement for liquid fuels is very substantial. When we

speak about worldwide gas-demand growth potential, we usually mean the Asian, Middle-Eastern, and South-American countries, not Europe.


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Currently, the gas-vehicles market is primarily a CNG market.


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The price spread between natural gas and oil has been widening during the last

decade, driving commercial interest in the use of natural gas in various marketsectors. In addition, fuel taxes generally create favorable conditions for natural-gas

use.

Here are the results counted for a project that will supply LNG to Czech Republic.


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The primary driver for natural-gas fuel volumes will be the heavy-duty vehicles sector.

One heavy truck consumes dozens of times more gas per year than does a lightpassenger car 1250 mmbtu, which is equivalent to 35 000 cm of gas or 25 tons of

LNG. Total demand from heavy trucks in Europe can reach 46.5 bcm. The majority of

this amount pertains to LNG.


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A significant change in maritime traffic is going to occur in the next several years as new

standards for ship fuels are being set.The restrictions coming into force under Annex VI of the International Maritime

Organizations Marpol Convention include a cap of 0.1% sulfur on all bunker fuel burnt

anywhere in four emission control areas: the North and Baltic seas, North America, and the

US Caribbean. In most of these areas, the existing cap is 1% sulfur. Most ships in the EU ports

and inland waterways currently face a similar 0.1% cap.

Sulfur-oxide-emissions restrictions on fuels imposed on the maritime sector operating within

the Sulphur Emission Control Area (SECA) by International Maritime Organization (IMO) are

the major drivers for growth of LNG as a bunkering fuel. The current SECA in Europe, which

covers the Baltic Sea, the North Sea and the English Channel, leaves most of the European

coastline less strictly regulated from 2015, which may have negative implications with regardto the competitiveness of the shipping sector for operations inside or outside of these

boundaries.

Moreover, IMO set the limits for sulfur content in marine fuels at 3.5% as of 2012 (For your

reference, the previous limit was 4.5%).


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LNG Bunkering will become viable in regions implementing strict ship-emissions standards:

Target markets feature high-density short-sea traffic and strict ship-emissions standards

After the Baltic and North Sea region (ECA Zone 1), North America (ECA Zone 2), the

Mediterranean (ECA Zone 3) and Singapore (ECA Zone 4) are considered potential future

LNG-bunkering markets.

Longer-term, ocean-going vessels and inland water transports may also be viable targets.


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Ship-owners will have three options: switch to distillates (gasoil with a sulfur content of

0.1%), switch to LNG, or introduce new technology, which could include scrubbers, to allowships to keep burning bunker fuel oil.

The LNG option is one of the best choices in terms of meeting the stringent new

requirements. LNG fuel has the lowest ship-emissions of all the traditional bunker fuels:

NOx emissions are reduced by 8590%

SOx and particles are reduced by nearly 100%

Net greenhouse-gas emissions may be reduced by 1520%.


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A 2010 study for the Danish governments Environmental Protection Agency that was

conducted by Norways DNV found that LNG must be 45% cheaper than 0.1% gasoil tostimulate switching. We observe the positive dynamics for the bunker fuel prices in the last

three years (see the graph below) that yielded results as high as almost 1000 USD per metric

ton for 0.1% gasoil in the North West Europe.

The prices for fuel oil with a maximum sulfur content of 3.5% and a maximum viscosity of 380

Centistokes (380 bunker fuel oil) were at the level of 689 USD per ton at the end January

2012. For fuel oil with a maximum viscosity of 180 Centistokes (180 bunker fuel oil) the

price was 708 USD per ton.

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The comparison of price for spot LNG in North-West Europe and price for 0.1% gasoil

converted demonstrated a difference of about 60 percent last year (see the graph below).For your reference, the difference in price between LNG and bunker fuel oil is around 45%,

which could be large enough to stimulate the switch to LNG. However, switching is not taking

place on a large-scale because the small-scale LNG-supply system is not sufficiently

developed, and the cost of LNG transportation to the point is actually too high. Infrastructure

development without governmental support currently seems impossible. But the 2015

restriction on burning undistilled fuels considerably boosts LNGs chances, possibly without

government support

One should always exercise caution when predicting future prices for fuels, as there are

many variables involved. In addition, price trends are not so much based on facts as on all of

the various expectations and beliefs that exist concerning the future. It may be that only afew refineries will specialize in the manufacture of lower-sulfur fuels. If future demand

should exceed supply, price differentials may be even greater than the estimates provided

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LNG can either be supplied to the import terminal from abroad by a large-scale tanker or

derived from pipeline gas right on the local market. In this case, LNG feeder ships supplythe satellite terminals that refuel the consuming vessels with LNG. Refueling at terminal is

also possible via truck. The development of new containment systems for on-board storage

has made it possible to handle boil-off gas by pressure increase, reliquefaction or dual-fuel

gas consumption.

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Additional space for LNG-fuel storage is required to retrofit existing ship-propulsion systems,

which makes retrofitting a less-attractive option. LPG could be more favorable from this pointof view, depending upon fuel availability and cost.

Low-sulfur fuel oil is the best alternative for ship owners who are reluctant to make capital

investments in their ships because ships can be retrofit with an exhaust-gas cleaning system

(for example scrubbers or SCRs) to meet SECA emissions requirements, which would require

a smaller investment than would converting to LNG (either as a retrofit or as a new-build).

However, it should be noted that low-sulfur fuel oil is pricey.

The actual price for the end user (ship owner) will be a consequence of the international LNG

price and the regional filling station infrastructure investments.

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Norway and Sweden are the countries that have been successful in developing LNG

bunkering infrastructure. Ice-breakers cruise ships, ferries, and military, coast guard andplatform-supply vessels are all currently running on LNG in Norway. Three main suppliers

have developed LNG bunker facilities along the entire coast: Gasnor in mid-Norway, Skangass

in the south and Barents Naturgass in the far north.

Skangass, which is owned by Norwegian utility Lyse Energi, sources from its own 300,000 ton-

per-year liquefaction unit near Stavanger.

Gasnor owned by Statoil, E.On, Royal Dutch Shell and Total has LNG production facilities

at Karmoy (20,000 tons/yr) and Bergen (120,000 tons/yr).

Barents Naturgass bunker terminal sources LNG from Statoils 4.2-million-ton/yr Snohvit

plant.In Sweden, Linde subsidiary AGA Gas opened the countrys first import terminal at

Nynashamn in March 2011, extending LNG bunkering into the Baltic. AGA can get LNG from

Skangass or from its co-owned 15,000-ton/yr LNG unit at Tjeldbergodden in mid-Norway.

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The LNG Bunkering market represents only 0.5 bcm of the demand in the North and BalticSeas in 2011, but is expected to grow significantly by 2030 and ultimately expand globally.

Except for Norway and Sweden there is a lot of interest in LNG as a bunkering fuel in Europe.Port authorities in Rotterdam in the Netherlands and Antwerp in Belgium are studying thefeasibility of break-bulk terminals that could bunker small ships or Rhine barges usingsupplies from adjacent large import terminals. U.K. LNG terminals are also interested,provided the break-bulk facilities are independently managed, and shipping traffic is keptaway from large LNG tankers. Rotterdam has commissioned Germanys Linde to carry out astudy this year on the best place to site a bunker terminal. The first LNG-fuelled inland bargeentered into service in November 2011 in the Netherlands, where it operated along theMaas and Rhine rivers. The current problem that hinders LNG development is the lack ofsmall-scale LNG supplies; all the logistics still should be developed.

Outside Europe, we also observe initial interest in LNG bunkering options. In October 2011,

the Canadian state-run Societe des Traversiers du Quebec (Quebec Ferries) placed orders forone large and two small new-built LNG-fuelled ferries for delivery in 2013-14 to operate onthe St Lawrence River. Argentina is awaiting the delivery of passenger catamaran that runson LNG, which is expected to start up this year on the River Plate crossing to Uruguay.

Market consultants forecast significant increases in LNG consumption for bunkeringpurposes. We believe that consumption may reach up to 200 bcm per year in 2030.However, the market potential of LNG as a ship fuel can only be realized in certain regions ofnorthern Europe and North America if ports, ship-owners and engine-makers are prepared topony up sufficient investment in advance. It needs the governmental subsidies and incentivesthat have already inspired LNG use as a marine fuel in Norway.

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2012.01.31. LNG as a Transportation Fuel- 93

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