The World Gas Conference has taken place in Kuala Lumpur this week, and I will share with you my key take-aways from the conference, but I need some quiet time on the flight to Europe tonight to sum it all up. In the meantime, I want to share my speech delivered today on a panel about natural gas in transportation:
Ladies and Gentlemen.
I am going to speak about shipping. The shipping industry today is facing a range of massive challenges, and I will not try to solve all of them here today, but I will address two of them in particular: The rising cost of fuel, and new requirements for emissions to air.
A ship burns a lot of fuel, up to 250 tons of heavy fuel oil per day for the largest container vessels. And with an oil price expected to keep increasing in the years ahead, this fuel consumption turns into a pretty stiff fuel bill. Actually, it is so much that by 2015 it is expected the as much as 80% of the daily costs of owning and operating a ship is fuel. There are other panels at this conference if you want speculation on price developments for oil and gas, so I will only say that I myself are among those who believe natural gas will be a cheaper fuel on the long term, and I know a lot of shipowners who agree with me on that.
On top of the economic driver comes environmental requirements. From 2015 the sulphur content in marine fuel shall be lower than 0,1% for selected areas, and from 2020 it shall be lower than 0,5% in international waters. Todays heavy fuel oil has a sulphur content of some 3,5% so this means if you still want to run on this fuel the exhaust gas needs to be scrubbed for SOx. In other words, continuing as before is not an option. And this applies to existing fleets, not only newbuilds.
First, let me just make it clear that we are not aware of any realistic alternatives to fossil fuels for marine applications at the moment. Going electric is an alternative for cars, but not for ships due its low energy density. In order to go electric and maintain any reasonable sailing distance, you would have to fill the entire cargo area with batteries. In order to switch to biofuels, we would need much more biomass than the world can supply. So, for the time being, we must do the best we can. And the best we can do is natural gas.
In addition to running on HFO and scrubbing the exhaust gas, there are only two other compliance options; switch to destillate fuel, i.e. diesel products, or switch to LNG. As you can understand, to a shipowner this means selecting one out of three evils. Scrubbers are an additional piece of equipment onboard, distillate fuels are much more expensive than HFO, and LNG seems scary. As it turns out, though, LNG is sailing up as the most desirable of the three options.
The story of LNG fuelled ships started already back in 1996 in Norway. Cruise ships are frequenting Norwegian Fjords, and their exhaust gases struggle to escape the fjords, resulting in bad air quality in areas more or less untouched by human hands. Consequently, the Norwegian Government wanted to demonstrate natural gas as a viable marine fuel, and required an upcoming ferry route to operate on natural gas. This resulted in the passenger ferry Glutra which was launched in 2000 as the first LNG fuelled ship in the world.
Today, there are 27 LNG fuelled ships in operation globally, and there are 29 more on order. 12 of which will be delivered this year. These ships eliminate emissions of SOx and Particulate Matters. They cut emissions of NOx by 85%, and they cut emissions of CO2 by 25%. From an environmental perspective we can therefore conclude that they represent a huge improvement in terms of local pollution and air quality problems and they are a step in the right direction for global emissions.
You may still ask, when LNG is such a compelling case, why hasn’t it spread further and faster than it has? There is only one real hurdle: LNG is not available to the ships when and where they need it. Up until today, LNG is simply a transportation mode for moving natural gas from its source to a gas distribution grid in a consumption market. This is done with LNG carriers with capacities of 150 000 m3 and more, which is not very handy when you need to bunker a ferry with 50 m3. Luckily, there are reasons to be optimistic that this hurdle will be progressively broken down going forward. For example, we see big bunkering hubs like Singapore and Rotterdam making public statements that LNG will be available to ships in their ports from 2014. And we see actions being taken to realise these ambitions, it is not just talk. For instance, we see that regulatory frameworks, both local and international, are being developed. And we see proper work on the assessment of site specific risks to prepare for safe and viable bunkering operations.
From the speakers before me we have heard promising prospects for a range of road vehicles, various types of off-road vehicles, trains, and even planes. In addition we can mention that industrial generators and small scale power plants are also exploring whether they can switch to natural gas. What all these users have in common, is that they are totally dependent on a distribution network that makes LNG available to them in the right volumes at the right time and at the right place. Combined, all these users will pretty quickly turn into real significant demand for the LNG industry. So I am confident that infrastructure will develop rapidly in the years ahead.
To conclude, when it comes to marine fuels, both economics and environmentals are sending the same message: LNG is the best of the available options!
Thank you for listening.