LNG and transport

Martedì, 24 Novembre, 2015

by Federico Franchina 

There is a relevant link between international efforts to reduce greenhouse gas emissions, LNG and the future of transport.
So far LNG was considered as one of the energy sources mostly fitted for domestic purposes like heating.
Due to its characteristic of being a “good” mainly for home end-users, LNG has known a “single way” development. Oil and gas companies and countries have concentrated their efforts to build LNG terminals where store this resource shipped by sea or to support the construction of gas pipelines form producing countries.
This was the basic scheme that has led industrial investments, States’ policy and stakeholders positions.
Today, aiming to reduce greenhouse gas emissions, international community has pointed out the necessity to increase the use of LNG by attempting to change the general paradigm of its limited use.
This target derives from the realization that CO2 emissions from the transport sector represent 23% (globally) and 30% (OECD) of overall CO2 emissions from fossil fuel combustion. Moreover global CO2 emissions from transport have grown by 45% from 1990 to 2007, led by emissions from road transport in terms of absolute volume and by shipping and aviation in terms of the highest growth rates [1].
Having acknowledged that, international regulators are improving the existing regulation in a direction that would boost the recourse of LNG as a transport fuel in maritime and road transport.
To this end the International Maritime Organization (IMO) in accordance with the MARPOL Convention Annex VI [2], has established four Emission Control Areas [3] (ECA) in which vessels have limits (0.10% m/m on and after 1 January 2015 and 0.5% on a global basis effective from 2020) on the maximum sulphur content of the fuel oils as loaded, bunkered, and subsequently used onboard.
LNG is a potential solution for meeting these requirements because it has virtually no sulfur content, its combustion produces low NOx compared to fuel oil and marine diesel oil and, last but not least, its price is lower than the traditional residual oil based bunker fuels.
Forecasts show therefore how these regulations could impact up on shipping industry in the near future and in the medium term.


Figure 1 - Forecast of LNG-fuelled ships per ship segment. Source: http://www.lngbunkering.org.

The European Union has been moving in this direction as well. European Directive 2014/94 [4] requires Member States to develop national policy frameworks in order to foster the use of alternative fuels and the construction of necessary infrastructure.
It also foresees the use of common technical specifications for recharging and refuelling stations and setting up appropriate consumer information on alternative fuels, including a clear and sound price comparison methodology.
According to the European legislation, Member States shall ensure, by the end of 2025, that an appropriate number of re-fuelling points for LNG are put in place at maritime ports and also assure LNG supplying points for heavy-duty vehicles.
This approach has clear implications on LNG demand, as it will be used more and more for transport.


Figure 2 - LNG as a fuel sub-market, forecast 2015-25 ($US m). Source: www.visiongain.com.  

However, if on one hand it is clear the political choice that has been taken, on the other hand we must consider that natural gas must be purchased, cannot be liquefied, stored and delivered to a site for fuelling ships and trucks as easily as oil products can be.
The use of LNG requires significant infrastructure investments, and the recovery of the costs to supply LNG in competition with bunker fuels must be ensured.
So, while we are assisting to the implementation of international legislation that is pushing for a move towards a broader use of LNG in the transport sector, many uncertainties affect the decisions of industrial players, on which the success or failure of this fuel shift will eventually depend.
Indeed, port and inland infrastructure to produce, store and transport LNG and fuelling vessels and trucks will required to rely on LNG fuelled ships and lorries. On the other side, shipowners and truck-makers will not build LNG fuelled vehicles without confidence that LNG supplies will be available throughout their route at low prices. Furthermore developers will be reluctant to invest in LNG fuelling infrastructure until they are confident that there will be a market for LNG to fuel a wide range of vehicles.
Finally another question rise. LNG demand is projected to grow in the next year and more than 75% of LNG total sales are made under long-term agreements whereas the remaining part is sold on spot contracts. In this situation, considering that LNG as transport fuel will represent more than the half of the LNG market, it is clear that short-term supply cannot provide a sufficient security for the players involved, from infrastructure manufacturers to transport end-users.
Therefore, although the regulatory efforts undertaken, the picture remains pretty unclear.
Several variables are indeed at stake and a wide range of entities (States, Transport Industry, Manufactures, etc.) should play in as many different roles under a common flag of coordination and cooperation among them.
History shows it is not so easy to reach this goal in international trade.

[1] Full data are available at www.internationaltransportforum.org.
[2] MARPOL Annex VI, “Regulations for the Prevention of Air Pollution from Ships”, was adopted by the 1997 Conference of the Parties to the MARPOL Convention. It regulates the emission to the atmosphere of specified pollutants from ships, including nitrogen oxides (NOx), sulphur oxides (SOx), volatile organic compounds (VOCs), polychlorinated biphenyls (PCBs) and heavy metals, and chlorofluorocarbons (CFCs). According to this regulation shipowners must ensure that all ships of 400 GT or above, and all platforms and drilling rigs engaged in voyages to ports and waters where the MARPOL convention applies, have a valid International Air Pollution Prevention Certificate (IAPPC) confirming compliance with both the equipment and operational requirements of Annex VI.
[3] Baltic Sea area – as defined in Annex I of MARPOL (SOx only); North Sea area – as defined in Annex V of MARPOL (SOx only); North American area – as defined in Appendix VII of Annex VI of MARPOL (SOx, NOx and PM); and United States Caribbean Sea area as defined in Appendix VII of Annex VI of MARPOL (SOx, NOx and PM).
[4] Full text of European Directive 94/2014/UE of 22.10.2014 L 307/1, is available at www.eurlex.eu.

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