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MARITIME

LNG as Ship Fuel in ChinaUnderstanding the status of regulations, incentives and infrastructure for LNG bunkering.

Dan-Hermann Thue

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Background

China has 7 of the worlds top 10 trafficked container ports. And handles 30% of the world’s containers every year

Needs to improve air quality Yangtze River is transporting more cargo than any other river in the world. China tightens regulations for air emissions for ships.– New Emission control areas ECAs

LNG as ship fuel is one solution to meet and surpass requirements Supply stations of LNG for ships needs to be built– Where and what type

Regulations need to be simplified Government support needed to incentivize change to cleaner solutions including

LNG

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Emission Control Areas

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New Chinese Emission Control Areas

SOx content in fuel maximum 0.5 % In order to meet requirement– Low sulphur marine diesel oil < 0.5% S– LNG as fuel – Scrubber (not feasible for smaller ships)– Shore to ship Electrification

11 key ports to start the effect from Jan 2017 (see map)

Ships need to comply from 1 hour after docking to one hour before departure.

Tianjin, Qinhuangdao, Tangshan and

Huaye Shanghai Ningbo-

Zhoushan, Suzhou and

Nantong

Shenzhen, Guangzhou and Zhuhai

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Timeline of Implementation of ECA regulations

Implementations in beginning of each year

2016 - Voluntary

implementation in key ports.

Shanghai only one so far.

2017 - Implementation in 11 key ports

2018 – All ports within ECA affected

2019 –Sailing within the whole ECA sea area also

affected

End of 2019 - Evaluate ECA policy. status quo? Expand area? 0.1% Sulphur?

Either 2020 or 2025 :

Global Sulfur Cap of 0.5%

Sulphur

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Strategy for cleaner shipping previous 5yr Plan

Phasing out and replacing old inefficient vessels more quickly.

Improve the regulations to encourage more energy efficient newbuilt ships.

Upgrading port infrastructure, and provide green alternatives such as shore to ship electricity at berth (Cold Ironing). Electric cranes etc.

No specific goals for LNG implementation mentioned.

Still The Govt. Ministry of Transportation published a report (2013) with goals to start pilots for LNG implementation for IWW.– Goal of 2% (2,000) of vessels on Yangtze

converted to LNG by 2015– And 10 % (10,000) by 2020

Inland waterways first approachSupport Newbuilds of LNG ships 800 million RMB annually.

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LNG fuel emissions savings

Emission type

Pure LNG reduction potential compared

to MDO 1% SHow

SOX ~100 % No sulfur in LNGParticulate matter ~100 % No black carbon

source from LNGNOx 85-90 % Better combustion

performance

CO2 20 – 25 %Higher energy

content in fuel per weight

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Graphical Comparison LNG and MDO 1% S

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Inland Waterway requirements

Currently 350 ppm Sulphur allowed in fuels for smaller vessels– Tighten to 50 ppm in 07.2017– Tighten to 10 ppm in 01.01.2018

Larger Coasters and Channel ships have requirement of 0.1% Sulphur– Same as is in force in European and American ECAs today– HFO is forbidden, but can be used with scrubbers

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Stage 1 IWW emeission requirements from 2017

Category Cylinder DisplacementPower

COg/kWh

HC + NOX

g/kWhPM

g/kWh

 V 1:1

Vh,z < 0.9 l  5.0

 7.5

 0.4Pn > 37 kW

V 1:2 0.9 l < Vh,z < 1.2 l 5.0 7.2 0.3

V 1:3 1.2 l < Vh,z < 2.5 l 5.0 7.2 0.2

V 1:4 2.5 l < Vh,z < 5.0 l 5.0 7.2 0.2

V 2:1 5.0 l < Vh,z < 15.0 l 5.0 7.8 0.27

 V 2:2

15.0 l < Vh,z < 20.0 l  5.0

 8.7

 0.5Pn < 3300 kW

 V 3:2

15.0 l < Vh,z < 20.0 l  5.0

 9.8

 0.5Pn > 3300 kW

V 2:4 20.0 l < Vh,z < 25.0 l 5.0 9.8 0.5

V 2:5 25.0 l < Vh,z < 30.0 l 5.0 11.0 0.5

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Stage 2 IWW emeission requirements from 2017 Category Cylinder Displacement

PowerCO

g/kWhHC + NOX

g/kWhPM

g/kWh

 Category 1

Vh,z < 0.9 l  5.0

 5.8

 0.3Pn > 37 kW

0.9 l < Vh,z < 1.2 l 5.0 5.8 0.141.2 l < Vh,z < 5.0 l 5.0 5.8 0.12

   

Category 2  

 5 l < Vh,z < 15 l

P < 2000 5.0 6.2 0.142000<P<3700 5.0 7.8 0.14

P>3700 5.0 7.8 0.27 

15 l < Vh,z < 20 l 

P < 2000 5.0 7.0 0.342000<P<3300 5.0 8.7 0.5

P>3300 5.0 9.8 0.5 20 l < Vh,z < 25 l

P<2000 5.0 9.8 0.27P>2000 5.0 9.8 0.5

 25 l < Vh,z < 30 l

P<2000 5.0 11.0 0.27P>2000 5.0 11.0 0.5

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Incentives and cost for ship owners

$?

Diesel

$$

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Trend of weighted avg. import price of LNG, product oil China

Fuel LHV Fuel Density Energy/Volume MDO 42.7 900 38.43

LNG 54.7 442 24.18

Ratio MDO/LNG 0.78 2.04 1.59

Ratio LNG/MDO 1.28 0.49 0.63

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strengths

Government financial support

Meets requirements

for today

Lower Maintenance

cost of operation

Opportunities

Possible shortage of low

S Fuel oil

Meeting stricter future

requirements

IMO implements global 0.5%

sulphur cap in 2020

Natural Gas usage in China is growing

Threats

Recent and continuing

low Crude oil price

Lack of sufficient

incentives from Govt.

IMO doesn’t implement global 0.5% Sulphur cap until 2025

Weaknesses

Higher investment

cost

Loss of cargo space

Ship route and bunkering

flexibility

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Chinese conversion to dual fuel pilot projects

Vessel name Vessel type Gross Tonnage(ton)

Conversion costs USD

Changxun NO. 3 Bulk cargo ship 2590 193,000

Hongri NO. 166 Dry cargo ship 1808 85,000

Changneng NO. 12 Bulk cargo ship 3718 89,000

Jiangsu cargo NO. 3001 Bulk cargo ship 2000 66,000

Fuchou NO. 0608 Dry cargo ship 831 61,000

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Stakeholders in Chinese LNG bunker market

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Overview of stakeholders LNG China

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National Oil Companies

•LNG import market Pioneer

•Leading construction of LNG newbuilds

•Primary offshore NOC•Strongest offshore influence.

CNOOC

•Major Petroleum energy, refining and end user company.

•Strong influence in south and east China.

Sinopec

•Biggest Oil/Gas company

•Holds the most of the domestic land gas resources and pipelines

•Sphere of influence strongest in north and west

Petrochina

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LNG Infrastructure China

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Import terminals for LNG

Blue: Operational Red: Construction Mostly by NOCs – Mostly CNOOC, then CNPC then Sinopec

Notably Zhoushan LNG by private company ENN with PTS bunkering capability

Yellow: Possible major bunkering sites along Yangtze River (Chongching, Wuhan, Nanjing, Nantong)

LNG transport or fuelled ships may not pass Three Gorges Dam for safety reasons.

Needs smaller scale LNG transport ships for upriver and regional transportation (currently building 30,000m^3 carriers)

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Bunkering pathways

Truck to ship (TTS)Flexible but low volume and slow transfer rate.Proven tech, but higher civilian risk and interaction.

Ship to ship (STS)Suitable for simultaneous operations (unload)Flexible, no need to dock in port, high transfer rateMore expensive and more vulnerable to weather.

Port to ship (PTS)High transfer rate and volumeWell regulated in China, but long approval processing time. Needs designated jetty.

Portable LNG Containers• Lacks in regulation and standards.• Makes bunkering quicker by switching

tanks.

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Bunkering stations in China coast and IWW

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CNPC Plans for bunkering on IWW

LNG value chain assets and plans, Existing receiving terminals (Red) Storage facility (Blue) and number of possible planned river bunker sites (yellow)

Beijing-Hangzhou Grand canal

Yangtze River system

Pearl River system

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 Known LNG bunkering facilities in China, including inland water ways

River Area Province Company Bunkering type LNG Capacity Status / In service from

 

Yangtze River

Yidu City   

Hubei 

Xilan NG Group Land based(PTS)

Storage facility with large

volume

2014

Wuhan Fortune oil 

Land based (PTS) Storage facility with large

volume

Under construction ¬

4.2016

Chongqing 

Chongqing Fortune Oil Land based (PTS) 2000 m3 10.2015

Shanghai Shanghai Gangqiang Gas Bunkering pontoon (STS)

2 x 250 m3 Construction

Nanjing Jiangsu Haiqi Ganghua Bunkering pontoon (STS)

  2013

Wuhu Anhui Sinopec Bunkering Pontoon (STS)

500 m3 2015

Grand Canal     Jiangsu Hongyun Green Energy

    Planned

Pearl River Xi River Guangxi ENN Gas Holdings Bunkering barge (STS)

200 m3 2015

Coastal Dafeng Port, Yancheng,

Jiangsu Jiangsu Hongyun Green Energy

Land based(PTS)

2 x 60 m3 Construction¬ 4.2016

Zhoushan Zhejiang ENN Gas Holdings Regasification, Storage (PTS)

3 mtpa 2018

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ENN. Bunkering possibility for ocean faring vessels

Zhoushan LNG import and LNG bunkering facility

Close to Ningbo. And not far from

Shanghai Land to ship bunkering Estimated completion

2018

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First ENN bunker barge

Xijiang ENN 01 completed for Guangxi province

Bunkering Barge with small LNG (200 cubic meters) and diesel bunker capacity.

First LNG fuel barge classified by Chinese Classification Society (CCS)

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Summary Chinese LNG bunkering infrastructure

LNG storage tank sizes are usually less than 300 m3 to avoid requirement for individual locational safety studies which would raise costs.

The government is still subsidizing usage of marine diesel by tax incentives– Removing these incentives could lead to stronger case for LNG, but may lead to difficulties

for small size ship owners and family businesses. Much of the planned LNG bunker stations on IWW by CNPC and Fortune oil is on hold due to

lack of profitability in recent times. – Smaller budgets because of reduced profits from selling of Oil products.– Pilot projects by NOCs will be completed even at a net loss as development projects.– Regulations from previous pilots are then possible to follow for other companies, this was

seen with small scale LNG carriers orders rising after completion of CNOOC 30,000 m3 demonstration project and approval of the first fuel barges and pontoons.

Bunkering activities and stations are attractive to combine with LNG satellite facilities upriver to be used for power production. An approval to build a bunkering station can be exploited to distribute to other end users as well, such as residential gas. In fact this may be the main reason to invest.

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Dan-Hermann Thue ( 涂鹤丹）dhthue@gmail.com For more Information and a more detailed report send an email request+86 18521400949