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Introduction

The main driving force behind this sector development is

expected to be environmental regulations set by the

So far Europes liquefied natural gas (LNG) bunkering

International Maritime Organization (IMO), which came

activity has been focused around the north of the

into force on January 1, 2015.

continent, Scandinavia and the Baltics. Pilot projects have

developed in northern Europe, boosted by strong

The IMO introduced new regulations stating that ships

government support, infrastructure already in place and

trading in designated emission control areas (ECAs), which

new environmental regulations, which came into force in

include the North Sea and Baltic Sea, will have to use fuel

January.

oil with a sulphur content of no more than 0.1% from

January 1, 2015. This is down from a previous limit of 1%.

There could also be huge potential to expand the sector in

the Mediterranean for use in tourism and passenger ferries

Shipowners operating in ECAs have three ways they can

and to tap industrial and domestic gas demand in places

adhere to these new emissions regulations. They can

which are not connected to gas grids.

choose to switch to using marine gas oil as a fuel, to fix

scrubber technologies onto their ships - which capture

Whether the region reaches its LNG bunkering potential

some of the emissions but at a potential cost of 3-4

will depend on how expensive it is to build LNG-fuelled

million each, according to one industry executive - or they

ships, whether the fuel is price competitive with traditional

can switch to cleaner-burning LNG.

ones and whether the same environmental regulations in

the north are applied to the Mediterranean as well.

Viking Grace - the worlds first large-scale passenger ferry

Section 1: Northern Europes Success Story

Viking Grace, launched in January 2013, is the worlds first

The worlds first LNG-fuelled vessel was the Glutra car and

large-scale passenger ferry to be powered by LNG. It

passenger ferry in Norway, which has been operating

operates across the Baltic Sea between Sweden and

since February 2000.

Finland for Finland-based ferry company Viking Line.

Fifteen years later the industry is growing rapidly. There are

Kari Granberg, Viking Lines Project & Technical

currently around 50 LNG-fuelled ships (excluding LNG

Development manager, said the companys decision to

carriers) in operation worldwide, while another 69 new

use LNG as fuel for the ferry was part of its strategy to be

building-orders are now confirmed, according to DNV GL

greener but more importantly, because it was cheaper

a maritime and energy sector advisory firm. They range

than using gasoil.

from passenger ferries to tankers and platform supply

vessels.

Heavy fuel oil wasnt an option after January 1 this year.

Then you would have needed to install a scrubber. The

Environmental Regulations

ship would have been like a chemical factory, Granberg

said. We had three options: using heavy fuel oil, installing

DNV GL expects LNG to grow even more rapidly over the

a scrubber or using gasoil which is around 50% more

next 5-10 years, with the number of non-LNG carrier

expensive than heavy fuel oil or LNG.

vessels using the fuel approaching 1,000 by 2020.

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The cost of operating in the future

Oil Price Fall

The IMO plans to enforce a 0.5% sulphur limit on ships

Arthur Barret, Program Director, LNG Bunkering at

globally from January 1, 2020. It will conduct a review in

engineering firm GTT, said the biggest obstacle preventing

2018 to decide if this deadline can be extended to 2025.

development of the sector is uncertainty related to LNG

DNV GL said the speed of which these environmental

pricing.

regulations are rolled out across the continent will

determine how fast the sector develops. Available gas

Today many ship owners in Europe are turning to

supplies and fuel costs will also drive the use of LNG as a

scrubbers, then gasoil. LNG is the third option, Barret said.

fuel.

Many ship owners have a very short term view. They want
to protect themselves from high (fuel) prices but without

LNG uptake is expected to grow fast in the next 5-10 years,

locking in investments for years.

first on relatively small ships operating in areas with

developed gas bunkering infrastructure, where LNG prices

This issue has been brought to the forefront of the debate

are competitive against heavy fuel oil (HFO) prices.

on LNG bunkering since European oil prices have almost

halved since July last year, causing heavy fuel oil prices to

To build a vessel is a long term investment of at least 30

fall.

years. Payback should be between 10-15 years. So if you

select the wrong fuel it could be disastrous, Viking Lines

This has made LNG less price-competitive compared to

Granberg said. Expansion (of the sector) depends on the

dirtier oil-derived fuels, removing the incentive for ship

price differential between different fuels. To make LNG

owners to switch.

competitive it needs to be a similar cost to using heavy

fuel oil with scrubbers.

The role of infrastructure in the LNG sectors development

According to DNV GL the cost of building a new

A lack of widespread bunkering infrastructure and a

LNG-fuelled vessel can be up to 30% higher than for

developed supply chain are also obstacles to the sectors

vessels running on conventional fuels. This is because the

development.

technology does not exist on a large enough scale and

there isnt a widespread infrastructure network yet,

Owners will not start using new fuels if infrastructure is

including import terminals, liquefaction plants and

not available, and energy providers will not finance

bunkering facilities.

expensive infrastructure without first securing customers,

DNV said in a 2014 report named LNG As Ship Fuel: The

This high capital cost, a lack of confirmed LNG availability

Future Today. Breaking this deadlock will require a

for bunkering and uncertainty over fuel prices has caused

coordinated, industry-wide effort and the political will to

hesitation from some ship owners to switch.

invest in the development of new infrastructure.

However DNV GL highlights that sticking with

LNG infrastructure needs to withstand very low

conventional fuels but introducing emissions reduction

temperatures. As a result investments in LNG infrastructure

technology, such as scrubbers, can also significantly add

are hefty financial commitments.

to the cost of a ship. These systems are also both space

demanding and can increase a ships fuel consumption by

Ed de Jong, CEO of LNG Bunkering Service, a commercial

2-3%.

shipping company which has one barge fuelled on LNG

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and operates in the Amsterdam-Rotterdam-Antwerp (ARA)

Greek passenger ferry company Anek Lines, based in the

trading hub, expects most northern European

Port of Piraeus, is developing LNG bunkering in the Greek

development to happen there.

Archipelago through its participation in the EC-funded

Archipelago-LNG project. The project aims to provide

In the Baltics there are already around 150 ships operating

sustainable maritime transport between the Greek

on natural gas and going lower into northern Europe we

mainland and its islands. Qatar Petroleum plans to build

see a lot of potential, he said. Weve been contacted by

LNG bunkering facilities at the port.

several companies with ships already running on natural

gas or with plans to do so.

Spain's Port of Huelva announced in February 2015 that it

is considering the development of LNG bunkering

De Jong said that in Rotterdam there is already strong

facilities, as well as other infrastructure improvements at

support for LNG bunkering, available infrastructure and

the port. The bunkering facilities would be part of a

regulations in place for ship-to-ship transfer. These factors

proposed gas export terminal.

would all support development in northern Europe.

The port said it plans to carry out the project in
De Jong said that a bigger obstacle to the sector

conjunction with other ports as well as Spanish company

developing was the ability to attract financing for projects.

Enagas.

The marine market is under pressure right now. People

The port hopes to receive some of the project finance

arent willing to finance new projects and arent willing to

from the 50 billion (55.9 billion) Connecting Europe

loan money, de Jong said. Infrastructure costs for LNG

Facility (CEF) set up by the EC to invest in transport, energy

bunkering projects dont have projects figures (costs) as its

and digital projects within the European Union.

a new industry and for the marine market people arent

willing to lend money right now. Youll invest in LNG

The Offshore LNG Toscana, Italys regasification terminal

bunkering barges when theres demand.

Offshore LNG Toscana is a floating offshore regasification
LNG Bunkering Potential In The Mediterranean

terminal near Italy.

If the IMO does enforce the 0.5% sulphur limit on ships

Francesco Campanale, Financial Planning and Control

globally from January 1, 2020, this will provide a significant

Manager at Offshore LNG Toscana, said there is huge

incentive for ship owners in the Mediterranean to start

potential to adopt LNG bunkering in the Mediterranean,

using LNG as a bunker fuel.

but whether this happens will depend on the scope of

environmental regulations, costs and cross-regional

There are already some LNG bunkering projects in

support to jointly develop projects.

development in the Mediterranean.

Campanale said theres huge potential in Barcelona,
Poseidon Med is the first LNG bunkering project in the

Valencia and the Canary Islands for local ferries to run on

Mediterranean and Adriatic Sea, which aims to introduce

LNG and for other LNG bunkering infrastructure to be

LNG as the main fuel for the global shipping industry and

developed.

develop a sufficient infrastructure network of bunkering

value chain.

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A lot of countries [in the Med] are not connected by

In the Med theres no real incentive right now from an

pipeline to the grid, which would benefit from these

environmental point of view (to adopt LNG). Even if the EU

facilities. [Supplying] industry would also be a good place

decide to add 200 nautical miles to borders, ship will just

in start, Campanale said.

move along the North African coast instead to avoid the

regulations, he said.

But there needs to be more support from Europe. The

European Commission is much more focused on

Weve had discussions with some companies but never

developing the north now and most of the finance will be

seen a real salient project going ahead in the Med. There

diverted there, he added.

are a lot of politics involved and it takes a lot of time and

money to motivate and obtain public funds, Barret added.

So far there are just small pilot projects in the Baltic

which arent sufficient. Its something that will remain just

Barret went on to say that infrastructure and public funds

in those countries if the euro community wont aggregate

would be needed to get projects off the ground in the

the projects and join together to support. If we learn from

Mediterranean. From 2020-2025 some infrastructure will

the experience of northern countries we can do a good

be in place, he said, enabling large container ships to use

job, Campanale said.

LNG as fuel. Development will also depend on crude

prices rendering traditional fuels more expensive than

Campanale added that by 2020 Valencia, Sardinia and

LNG, he said.

possibly France could be potential hotspots for

Mediterranean bunkering.

Forecasts

There are a lot of ferries to the islands. Italy could also

DNV GL said the number of LNG-fuelled ships operating in

have an important advantage with this. In Sardinia some

2020 will depend heavily on fuel prices. With the LNG

places are totally without gas grid connection. They have

price around 10% above HFO, around 7-8% of new build

industry and production there but dont have gas. So thats

ships between 2012- 2020 will be able to run on LNG, it

something that makes LNG potentially competitive.

said. If LNG prices fall to around 30% below HFO, the

uptake of LNG on vessels could rise to 13% - the

But he said that cross-regional cooperation was needed

equivalent of around 1,000 ships.

between different countries and between northern and

southern Europe.

If LNG were to tumble 70% below HFO, the share of

LNG-fuelled ships being newly built would be around 30%

A lack of infrastructure, particularly in Italy, to provide LNG

of the global total, DNV said.

bunkering services, was also a large obstacle, he said.

James Ashworth, lead consultant with TRI-ZEN
Barret from GTT said he is bearish about the potential for

International a consultancy said the LNG bunkering

the sector to expand in the Mediterranean because of the

sector in the Mediterranean will be boosted by oil prices,

lack of environmental regulations. However he added that

which he expects to rise above $100/bbl again next year,

some ferry companies in Greece and Algeria are looking at

and a bounty of available gas nearby.

it.

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Half the worlds oil production at the moment is

He added that Panama, the Mediterranean, the Suez Canal

uneconomical. For the big producers around the world,

and Straits of Malacca would make ECA transit virtually

like Saudi Arabia, the amount of money needed to pump

unavoidable for most global shipping traffic.

into the sector to support their economies is increasing.

Perhaps with the expectation that the tide of emissions

Its unaffordable, he said.

legislation can, somehow, be pushed back or that ultra

low sulphur diesel will not cost that much more to burn,

He added: There is a lot of gas in the Med. Algeria is a

Ashworth said in the report. They will be disappointed.

massive producer and as competition hots up from places

The storm of change is coming. This is the wake up call.

like Australia [to supply LNG globally], some of that extra

gas supply will go into the transport sector.

Conclusion

Ashworth said that when the IMO tightens environmental

The timeline and strength of environmental regulations

regulations in shipping, and if LNG were to wholly replace

imposed by the IMO will determine whether the LNG

fuel oil in shipping, it would double todays 250 million

bunkering sector in the Mediterranean will progress as fast

metric tons global LNG demand.

as in northern Europe.

By 2020 all major ship ports along the coast of the EU

In the short term the use of LNG as a bunker fuel in the

should offer LNG bunkering, he said. Any of the major

Mediterranean is likely to be limited until environmental

ports with gas nearby will be hotspots. Barcelona is already

regulations are imposed on ship owners who will only

looking at it and there is potential for using floating LNG

adopt the fuel if there is sufficient infrastructure,

terminals too. The ones who go in first will win out.

government support and if LNG prices are low enough to

justify the capital investment needed in new ships.

In a 2013 study by Ashworth: LNG Bunkers Coming Out

Cross-regional cooperation, large-scale projects and an

Of The Cold, he said the global market for LNG bunkers

efficient supply chain with functioning infrastructure will

will be considerable in 10 years time and in the range of

also be needed to expand the sector.

15-20 million tons per year.

With cross border cooperation, EU support and
Ashworth said the maritime industry has been asleep at

pan-European strategy being a necessity, it would seem

the helm in terms of its lack of preparation for the

that the first step for LNG bunkering in the Mediterranean

expansion of LNG bunkering, especially in the wake of

is to come together.

IMO emissions regulations.

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