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SEABORNE LNG IS SET TO MOVE CENTRE STAGE IN THE EU
The EU’s determination to phase out Russian gas imports by 2027 and deeper Sino-Russian links will transform the seaborne LNG market
One of the most profound changes to occur as a result of the ongoing Russia-Ukraine confl ict will be the reorientation of natural gas fl ows globally.
The announcement by EU Commission president Ursula von der Leyen that the EU would phase out Russian natural gas imports by 2027 is expected to lead to dramatic reorientation of the continent’s energy import landscape.
The European Commission is expected to present a proposal by May 2022, which will provide further details about how the bloc plans to achieve reductions of Russian natural gas imports of around 66% by the end of 2022.
The EU is expected to respond to the need to rapidly increase natural gas imports by expanding FSRU capacity over the near term, while accelerating the construction of larger capacity LNG import terminals.
However, the sheer scale of Russia’s exports to the European customers suggests that expanding European natural gas import capacity to offset the reduction in Russian gas imports will be hard to achieve within the next year or two.
While the majority of Russia’s natural gas exports to EU customers are supplied via gas pipelines (ranging between 170 billion m³ and 200 billion m³), Russia has also supplied around 20% (close to 24 billion m³) of Europe’s LNG imports in recent years from the Yamal project.
While the majority of attention has naturally focused on how Europe will meet the shortfall in supply once it reduces Russian imports, it is useful to consider the situation from a Russian perspective. Russia is also likely to have an interest in maintaining cross-border gas flows over the near term, as the country’s gas pipeline networks do not conveniently connect with proposed new gas pipelines being built to serve customers in Asia. There is likely to be a delay while the gas pipeline connections towards the proposed Power of Siberia 2 pipeline are built.
The European sanctions are also likely to affect Turkey, which currently hosts a 31.5 billion m³ pipeline, TurkStream. Russia had allocated close to half of that to customers in the Balkans and Hungary.
Yamal LNG
With the EU able to draw upon supplies of seaborne LNG from alternative sources, such as the US and the Middle East, it is likely that Russia’s seaborne exports of LNG from Yamal will be diverted towards East Asian markets. The project has tended to supply its output to customers in the EU.
While the Northern Sea Route (NSR) is currently used for occasional shipments, following the first successful transit of an LNG cargo aboard the Vladimir Rusanov in June 2018, there is little realistic prospect that year-round transits along the north coast of Russia will become achievable within the near term. The current summer season for specialist iceclass LNG carriers to traverse the NSR in an eastwards direction runs from the end of May to early November. Seasonal restrictions will restrict the ability to increase export volumes significantly along the NSR.
Sakhalin LNG
The Sakhalin LNG project currently supplies the majority of its output to customers in East Asia. At the time of writing, Japan had not yet applied restrictions to Russian imports of LNG, which accounted for almost 10% of Japan’s national gas supply.
8 Idling capacity:
construction materials for the Nord Stream 2 natural gas pipeline near the landfall at Lubmin, Germany
China plans to increase gas imports
Russia inaugurated the Power of Siberia gas pipeline to China in 2019. The pipeline has a capacity of 38 million m³, compared with annual Chinese import demand of around 220 million m³ of natural gas.
The Russian and Chinese governments reached an agreement on 2 February to expand gas shipments. In early March, Gazprom announced that it was undertaking preliminary work before construction of a 50 million m³ gas pipelines via Mongolia and China’s Xinjiang, Power of Siberia 2, while the capacity of the original Power of Siberia connection is expected to rise to almost 50 million m³.
If several other pipelines that are under consideration proceed, China’s gas imports from Russia could rise to close to half its annual demand. It is unclear whether China will use the additional import volumes to reduce its reliance upon imported seaborne LNG, much of which is currently supplied by Australia and the US, or to accelerate the closure of its existing coal-fired generation.
LNG TRANSITION CREATES A PATHWAY FOR CII COMPLIANCE
LNG can take shipping from today all the way to 2050 without having to reinvent the wheel, says Peter Keller, Chairman of SEA-LNG, a multi-sector coalition advocating the benefi ts of the LNG pathway as a marine fuel
The International Maritime Organization’s (IMO) Carbon Intensity Indicator (CII) is set to shake up the vessel effi ciency and emissions clauses in charter party agreements. It is a measure of how effi ciently ships transport cargo, measured in grams of CO2 emitted per deadweight ton capacity and nautical mile, and in 2023, vessel operators will be required to provide baseline performance ready to receive initial ratings in 2024. CII thresholds will then tighten annually, requiring operators to document vessel performance and demonstrate compliance.
Analysis from SEA-LNG has found that LNG-fuelled vessels will be able to continue operating as normal under the system until after 2030, while fossil LNG blended with bioLNG or renewable synthetic LNG will further extend compliance to 2050 and beyond.
The analysis compared emissions for two identical 180,000 dwt Capesize vessels, one using conventional, oil-based marine fuels, the other using fossil LNG. The LNG-fuelled vessel immediately rated two grades higher than the conventionally fuelled vessel demonstrating that LNG can be the difference between achieving a ‘moderate’ C-rating and a ‘major superior’ A-rating.
The analysis also showed that for every 10% increase in the content of bioLNG or renewable synthetic LNG used in a blend with fossil LNG, the vessel gains two-years of additional compliance. Thus, a vessel commissioned yesterday, today and in the future can retain a favourable CII rating as major superior A or superior B throughout its lifetime.
The IMO is encouraging port authorities, governments, and other stakeholders to offer incentives for ships with A or B ratings. Meanwhile, leading cargo owners and charterers have recently strongly advocated the use of A or B rated vessels in their supply chains.
Clearly, LNG will offer a competitive advantage to shipowners and operators as charterers prefer engaging the higher-performing A and B rated vessels necessary to meet their own GHG emission reduction commitments. Adding bioLNG and, in due course, renewable synthetic LNG, both fully interchangeable with fossil LNG in LNG-fuelled vessels and bunkering infrastructure, will enable maintenance of this advantageous rating level over the life of the vessel and ensure that owners are not left with stranded assets.
Reduced carbon footprint
In our calculations, we used a figure of 20% to represent likely emissions reductions across the broad range of vessel performance. This reduction is a conservative figure, based on analysis undertaken in the 2nd Lifecycle GHG Emissions study, produced by Sphera and commissioned by SEA-LNG and SGMF. It indicated that LNG-fuelled vessels powered by 2-stroke engines can achieve a reduction in their GHG footprint between 20% and 30% on a tank-to-wake basis, when compared with an otherwise identical conventionally fuelled ship. On a well-to-wake basis, LNG can reduce CO2 emissions by up to 23% compared to liquid fossil fuels and blending bioLNG and LNG can further improve this figure.
The 2nd Lifecycle GHG Emissions Study also confirmed that, by 2030, methane slip from marine engines will have been virtually eliminated as technological improvements, such as introduction of oxidation catalysts and high-pressure gas injection, continue. The report revisited its 2018/2019 research using the latest available engine and supply chain data including data provided by original equipment manufacturers including Caterpillar MaK, Caterpillar Solar Turbines, GE, MAN Energy Solutions, Rolls Royce (MTU), Wärtsilä, and Winterthur Gas & Diesel, as well as fuel suppliers ExxonMobil, Shell, and Total. Methane emissions from the supply chains as well as methane released during the onboard combustion process were included in the analysis.
Full compatibility
BioLNG as a marine fuel is fully compatible with existing LNG infrastructure and can be transported, bunkered, and stored using technologies currently in use today. It is suitable for immediate use in existing LNG-fuelled vessels. Perhaps more importantly, bioLNG can use existing LNG supply chains without the huge additional infrastructure investment needed by new fuels such as ammonia, methanol, and hydrogen.
Another key yet often less discussed factor when
8 Peter Keller,
Chairman of SEA-LNG
considering new fuels is how they are manufactured. BioLNG is a prime pathway to carbon neutrality as it can be made sustainably from feedstocks such as agricultural and forestry residues and human waste streams. This process can capture methane that would otherwise be vented into the atmosphere, resulting in a fuel that is not just potentially netzero in GHG emissions but net-negative. By reprocessing waste materials, bioLNG can support the circular economy and help with yet another global concern: waste management.
With its many benefits, it is easy to see why biomethane and bioLNG production is on the rise. In July 2021 the European Commission announced investments of some €118million in 32 bioLNG projects, including FirstBio2Shipping which aims to set up the first bioLNG plant working in a standardised and scalable fashion in the Netherlands. In France, container shipper CMA CGM, and energy firm TotalEnergies, have joined forces to embark on a bioLNG production project near Marseilles, expanding the potential availability of the fuel. The European Biogas Association predicts production of the fuel in Europe could increase tenfold by 2030.
The mainstream introduction of bioLNG has already begun, with forward-thinking owners and operators using bioLNG in full or blending it with fossil LNG. In late 2020, TotalEnergies bunkered the CMA CGM Jacques Saadé at Rotterdam, and some 13% of the 17,300m3 of LNG supplied was bioLNG. A month later, UECC bunkered the Auto Energy with drop-in bioLNG, while Gasum has bunkered ESL Shipping’s dry bulk carrier Viikki with 100% renewable bioLNG in Finland.
No time to wait
At SEA-LNG, we see there is no time to wait in reducing shipping’s impact on greenhouse gas emissions. We are not alone. The number of LNG-fuelled newbuildings on order has accelerated dramatically to over 30% of gross tonnage. This is a clear demonstration that many in the industry agree that LNG offers the simplest and lowest risk transition to zero-emissions for the maritime sector, offering clear compliance and commercial benefits, starting now.
References
https://www.mynewsdesk.com/furetank/pressreleases/ furetank-secures-biogas-supply-as-step-towards-fossil-freeshipping-3161279 https://www.argusmedia.com/en/news/2293773-ship-orderbooksuggests-more-lng-bunker-usage https://gtt.fr/news/gtt-alwena-shipping-and-chi-zhoushan-receiveapproval-principle-bureau-veritas-new-retrofit
