Japan eager to build LNG refueling hub as global fleets move to natural gas
A UN-led call for action to reduce sulfur oxide pollution may also prompt a move to natural gas as a fuel for the global shipping fleet if Japan does not waste time trying to set up a refuelling platform in Asia.
About 80,000 ships around the world are considering how to meet the new standards of the International Maritime Organization to curb sulfur pollution starting Jan. 1. Although the vast majority of ships are likely to shift to low-sulfur fuel oil, a growing number of vessels are switching to sulfur-free liquefied natural gas (LNG) amid intensified demands for emission control.
Japan is subsidising ventures in a rush to build ships that make ship-to-ship LNG supply feasible to stimulate new demand for LNG bunkering. Although some places, including Yokohama, require LNG to be supplied to ships on shore through trucks and pipelines, LNG-powered ships typically reload while stopping at ports to unload and load merchandise, making it necessary to construct distribution vessels for LNG.
Two consortia of private Japanese companies are planning to launch the first LNG bunkering vessels in the nation by the end of 2020. As the equivalent of a mobile gas station for LNG-fueled ships, they would provide services in Tokyo Bay and Ise and Mikawa bays in central Japan.
According to the Society for Gas as a Marine Fuel, 170 LNG-fuelled ships serve mostly in Europe, with 184 vessels on order. A total of 10 boats worldwide are supplying LNG as fuel, 19 more on request.
According to Koji Takasaki, a professor emeritus at Kyushu University, the LNG bunkering ship scheduled to serve in Ise and Mikawa bays will be used to provide fuel to two car-carriers ordered by Toyota Motor Corp. to carry vehicles to the United States. In 2021, he added, the government-subsidised carriers will begin operations.
In the coming decades, the shipping fleet is likely to undergo a revolution, as the IMO has targeted a 40% reduction in carbon dioxide emissions by 2030 and a 50% reduction by 2050. Experts say the switch to gas-powered ships will be inevitable. Similar to oil-fueled equivalents, LNG-powered vessels cut greenhouse gas emissions by 25 per cent.
But the 2020 sulfur pollution law already affects the fuel change.
“A clear trend is that shippers tend to place orders on shipping lines running low-emission greenhouse ships to bring merchandise,” said Takasaki. “The environment-conscious shipping lines are getting more requests, even without raising a flag to halve carbon dioxide emissions, because competition means that if one firm does it, others will obey. So the number of LNG-powered vessels is set to rise. “A sense of urgency about streamlining LNG bunkering posts is growing in Japan at a time when Singapore, South Korea and China are also beefing up such facilities, Akiko Tanba, general manager of the LNG bunkering unit of JERA Co., said in an interview.
JERA, a joint fuel venture between Tokyo Electric Power Company Holdings Inc. and Chubu Electric Power Co., is a member of a consortium building the first LNG bunkering ship in Japan.
“In LNG-powered boats, Japan is a little late, but that’s about to improve with the start of the new 2020 rule,” Tanba said.
Beginning 1 January, the IMO must curtail the sulfur content of marine fuel oil beginning 3.5 per cent in all general marine areas to 0.5 per cent. If ships add costly exhaust cleaning devices called scrubbers, high-sulfur fuel oil, which accounts for the vast majority of shipping gas, will no longer be allowed. Scrubber-equipped ships will be able to continue to use cheap high-sulfur fuel oil, however, experts say, the space required for scrubbers does not render this a choice for small vessels.
One alternative is to use low-sulfur fuel oil, but there is a downside to its higher price. LNG is the safest option. The first LNG-powered tugboats from Japan were launched by the NYK Line and Mitsui O.S.K. Lines Ltd., which are refuelled by train.
The challenge in choosing LNG vessels is the hefty price since they typically cost 20 to 30% more than traditional ships, Tanba stated.
Around September and December 2020, NYK Line, Kawasaki Kisen Kaisha (“K” Line), JERA and Toyota Tsusho Corp. are set to launch Japan’s first LNG bunkering ship in central Japan, with tanks capable of storing around 1,500 and 1,600 tons of LNG, enough to allow a round trip between North Asia and North America.
Tanba said the only location in Japan that would require three forms of LNG bunkering would be Ise and Mikawa bays: boat to ship, shore to ship and truck to ship.
Already preparing to launch an LNG bunkering ship by the end of 2020 is another venture headed by Sumitomo Corp. The Ministry also requests an LNG-powered operating ship of Shipping, which is expected to start operations in March 2021.
LNG bunkering using a portable LNG tank is proposed elsewhere in Japan at Tomakomai in Hokkaido, and truck-to-ship LNG bunkering trials are ongoing in Kyushu and the Setouchi area in western Japan. JERA is expanding the gas-fired Kawagoe power plant in Mie Prefecture, and shore-to-ship LNG bunkering will be feasible from LNG tanks.
All of these projects fit in with Japan’s strategy of becoming an Asian LNG hub. The Ministry of Economy, Trade and Industry hopes to collaborate in the creation of a centre with Europe and Singapore because Japan is well situated strategically to act as a refuelling station for ships heading to North America.
A sense of crisis at last month’s UN climate summit gave LNG shipping a tailwind. DNV-GL, a classification society based in Norway, estimates that 6-11% of the global shipping fleet is set to shift to LNG by 2025, while the Boston Consulting Group puts the 2025 projection at 5-27%.
The move could have a significant impact on the global LNG sector. Today, ships use around 300 million tons of fuel oil each year. For example, if 10% of that became LNG, it would create new 30 million tons of LNG demand annually, equal to nearly 10% of the 319 million tons global market in 2018, according to Shell LNG Outlook 2019.
Despite increasing pressure to use LNG, this won’t be a long-term solution. By operating LNG ships at slow speeds to achieve better mileage, the IMO’s 40 per cent carbon dioxide reduction target for each vessel by 2030 can be achieved. Nevertheless, the 50% reduction in greenhouse gas emissions by 2050 compared to 2008 imposed on the entire shipping industry will be a significant challenge as additional measures, including the use of significant amounts of biofuels, hydrogen or other alternatives, will be essential, Takasaki said at Kyushu University.
“Although Japan has not played an active role as a major fuel oil bunkering site, it has a potential to become a major hub for global shippers ‘ LNG bunkering,” Takasaki said.