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The global potential of LNG as a replacement for liquid fuels is very substantial. When we speak about worldwide gas-demand growth potential, we usually mean the Asian, Middle-Eastern, and South-American countries, not Europe.

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Currently, the gas-vehicles market is primarily a CNG market.

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The price spread between natural gas and oil has been widening during the last decade, driving commercial interest in the use of natural gas in various market sectors. In addition, fuel taxes generally create favorable conditions for natural-gas use.

Here are the results counted for a project that will supply LNG to Czech Republic.

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The primary driver for natural-gas fuel volumes will be the heavy-duty vehicles sector. One heavy truck consumes dozens of times more gas per year than does a light passenger car – 1250 mmbtu, which is equivalent to 35 000 cm of gas or 25 tons of LNG. Total demand from heavy trucks in Europe can reach 46.5 bcm. The majority of this amount pertains to LNG.

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A significant change in maritime traffic is going to occur in the next several years as new standards for ship fuels are being set.

The restrictions coming into force under Annex VI of the International Maritime Organization’s Marpol Convention include a cap of 0.1% sulfur on all bunker fuel burnt anywhere in four “emission control areas”: the North and Baltic seas, North America, and the US Caribbean. In most of these areas, the existing cap is 1% sulfur. Most ships in the EU ports and inland waterways currently face a similar 0.1% cap.

Sulfur-oxide-emissions restrictions on fuels imposed on the maritime sector operating within the Sulphur Emission Control Area (SECA) by International Maritime Organization (IMO) are the major drivers for growth of LNG as a bunkering fuel. The current SECA in Europe, which covers the Baltic Sea, the North Sea and the English Channel, leaves most of the European coastline less strictly regulated from 2015, which may have negative implications with regard to the competitiveness of the shipping sector for operations inside or outside of these boundaries.

Moreover, IMO set the limits for sulfur content in marine fuels at 3.5% as of 2012 (For your reference, the previous limit was 4.5%).

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LNG Bunkering will become viable in regions implementing strict ship-emissions standards:

Target markets feature high-density short-sea traffic and strict ship-emissions standards

After the Baltic and North Sea region (ECA Zone 1), North America (ECA Zone 2), the Mediterranean (ECA Zone 3) and Singapore (ECA Zone 4) are considered potential future LNG-bunkering markets.

Longer-term, ocean-going vessels and inland water transports may also be viable targets.

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Ship-owners will have three options: switch to distillates (gasoil with a sulfur content of 0.1%), switch to LNG, or introduce new technology, which could include scrubbers, to allow ships to keep burning bunker fuel oil.

The LNG option is one of the best choices in terms of meeting the stringent new requirements. LNG fuel has the lowest ship-emissions of all the traditional bunker fuels:

NOx emissions are reduced by 85–90%

SOx and particles are reduced by nearly 100%

Net greenhouse-gas emissions may be reduced by 15–20%.

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A 2010 study for the Danish government’s Environmental Protection Agency that was conducted by Norway’s DNV found that LNG must be 45% cheaper than 0.1% gasoil to stimulate switching. We observe the positive dynamics for the bunker fuel prices in the last three years (see the graph below) that yielded results as high as almost 1000 USD per metric ton for 0.1% gasoil in the North West Europe.

The prices for fuel oil with a maximum sulfur content of 3.5% and a maximum viscosity of 380 Centistokes (380 bunker fuel oil) were at the level of 689 USD per ton at the end January 2012. For fuel oil with a maximum viscosity of 180 Centistokes (180 bunker fuel oil) – the price was 708 USD per ton.

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The comparison of price for spot LNG in North-West Europe and price for 0.1% gasoil converted demonstrated a difference of about 60 percent last year (see the graph below). For your reference, the difference in price between LNG and bunker fuel oil is around 45%, which could be large enough to stimulate the switch to LNG. However, switching is not taking place on a large-scale because the small-scale LNG-supply system is not sufficiently developed, and the cost of LNG transportation to the point is actually too high. Infrastructure development without governmental support currently seems impossible. But the 2015 restriction on burning undistilled fuels considerably boosts LNG’s chances, possibly without government support

One should always exercise caution when predicting future prices for fuels, as there are many variables involved. In addition, price trends are not so much based on facts as on all of the various expectations and beliefs that exist concerning the future. It may be that only a few refineries will specialize in the manufacture of lower-sulfur fuels. If future demand should exceed supply, price differentials may be even greater than the estimates provided here.

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LNG can either be supplied to the import terminal from abroad by a large-scale tanker or derived from pipeline gas right on the local market. In this case, LNG “feeder” ships supply the satellite terminals that refuel the consuming vessels with LNG. Refueling at terminal is also possible via truck. The development of new containment systems for on-board storage has made it possible to handle boil-off gas by pressure increase, reliquefaction or dual-fuel gas consumption.

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Additional space for LNG-fuel storage is required to retrofit existing ship-propulsion systems, which makes retrofitting a less-attractive option. LPG could be more favorable from this point of view, depending upon fuel availability and cost.

Low-sulfur fuel oil is the best alternative for ship owners who are reluctant to make capital investments in their ships because ships can be retrofit with an exhaust-gas cleaning system (for example scrubbers or SCRs) to meet SECA emissions requirements, which would require a smaller investment than would converting to LNG (either as a retrofit or as a new-build). However, it should be noted that low-sulfur fuel oil is pricey.

The actual price for the end user (ship owner) will be a consequence of the international LNG price and the regional filling station infrastructure investments.

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Norway and Sweden are the countries that have been successful in developing LNG bunkering infrastructure. Ice-breakers cruise ships, ferries, and military, coast guard and platform-supply vessels are all currently running on LNG in Norway. Three main suppliers have developed LNG bunker facilities along the entire coast: Gasnor in mid-Norway, Skangass in the south and Barents Naturgass in the far north.

Skangass, which is owned by Norwegian utility Lyse Energi, sources from its own 300,000 ton-per-year liquefaction unit near Stavanger.

Gasnor – owned by Statoil, E.On, Royal Dutch Shell and Total – has LNG production facilities at Karmoy (20,000 tons/yr) and Bergen (120,000 tons/yr).

Barents Naturgass’ bunker terminal sources LNG from Statoil’s 4.2-million-ton/yr Snohvit plant.

In Sweden, Linde subsidiary AGA Gas opened the country’s first import terminal at Nynashamn in March 2011, extending LNG bunkering into the Baltic. AGA can get LNG from Skangass or from its co-owned 15,000-ton/yr LNG unit at Tjeldbergodden in mid-Norway.

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The LNG Bunkering market represents only 0.5 bcm of the demand in the North and Baltic Seas in 2011, but is expected to grow significantly by 2030 and ultimately expand globally.

Except for Norway and Sweden there is a lot of interest in LNG as a bunkering fuel in Europe. Port authorities in Rotterdam in the Netherlands and Antwerp in Belgium are studying the feasibility of break-bulk terminals that could bunker small ships or Rhine barges using supplies from adjacent large import terminals. U.K. LNG terminals are also interested, provided the break-bulk facilities are independently managed, and shipping traffic is kept away from large LNG tankers. Rotterdam has commissioned Germany’s Linde to carry out a study this year on the best place to site a bunker terminal. The first LNG-fuelled inland barge entered into service in November 2011 in the Netherlands, where it operated along the Maas and Rhine rivers. The current problem that hinders LNG development is the lack of small-scale LNG supplies; all the logistics still should be developed.

Outside Europe, we also observe initial interest in LNG bunkering options. In October 2011, the Canadian state-run Societe des Traversiers du Quebec (Quebec Ferries) placed orders for one large and two small new-built LNG-fuelled ferries for delivery in 2013-14 to operate on the St Lawrence River. Argentina is awaiting the delivery of passenger catamaran that runs on LNG, which is expected to start up this year on the River Plate crossing to Uruguay.

Market consultants forecast significant increases in LNG consumption for bunkering purposes. We believe that consumption may reach up to 200 bcm per year in 2030. However, the market potential of LNG as a ship fuel can only be realized in certain regions of northern Europe and North America if ports, ship-owners and engine-makers are prepared to pony up sufficient investment in advance. It needs the governmental subsidies and incentives that have already inspired LNG use as a marine fuel in Norway.

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