As the debate over how to meet the International Maritime Organization’s (IMO’s) 2020 0.5% sulphur limit rages on, the Baltic states are proving how such a challenge can be overcome now that they’ve met their own ultra-low target.
As of 1 January 2015, the Baltic Sea became an Emission Control Area (ECA) and ships operating in the region are no longer allowed to burn fuel with a sulphur content of greater than 0.1%.
Shipowners have three options for meeting such a stringent target: running their vessels on liquefied natural gas (LNG), heavy fuel oil (HFO) after installing scrubbers, and MDO/MGO. Many of the companies that predominantly operate in the Baltic ECA – serving Estonia, Finland, Lithuania, Poland, and Sweden – have chosen LNG.
LNG continues to grow as the shipping’s fuel of choice, with sales surging by 12% year on year in 2017. Eero Vanaale, the former LNG market analyst at consultancy Clarksons Platou, pointed out that there were 18 LNG producers in 2017, with Qatar in the top spot supplying 36 nations. Meanwhile, Asia led with the top five importers of China, Taiwan, South Korea, Japan, and India.
However, Australia’s growing dominance in LNG production could threaten Qatar’s lofty position. Australia has more than doubled its export share in the past five years, from 9% in 2013 to 23% in 2017.
“There is a game-changer coming. When the huge Gorgon LNG project comes fully onstream, Australia will immediately become the [top] global LNG supplier, which will affect supply, demand, and price,” Vanaale said.
“The LNG shipping supply-and-demand situation will become oversupplied in 2020, with more ships needed thereafter. And while LNG price has traditionally been linked to oil, that will change too.”
Meanwhile, ships continue to be adapted to run on LNG. According to IHS Markit data, as of February, there were 242 LNG-fuelled vessels on water. Offshore ships take the lion’s share with 80 vessels, followed by ferries (57) and tankers (32).
There are also 111 vessels currently on order that are to be fuelled by LNG, 25 of which are container ships, followed by 23 tankers and 23 offshore vessels.
Shipowners opting for LNG are doing so only by ordering newbuildings, while for those ships in service, scrubbers and HFO appear to be the preferred choice. Baltic shipping lines that have picked scrubbers include ro-ro carrier Finnlines, while ferry operators such as Eckerö Line have opted for MGO.
Several countries operating in the Baltic ECA have adapted to LNG with the construction of several infrastructure projects steered towards the fuel. Five ports – Nynäshamn and Lysekil (Sweden), Pori (Finland), Świnoujście (Poland), and Klaipėda (Lithuania) – currently have LNG terminals, while HaminaKotka, Finland, has started construction on a 30,000 m³ LNG terminal and Tornio, Finland, will complete its 50,000 m³ LNG facility in April. Oxelösund (Sweden), Turku (Finland), and Tallinn (Estonia) have also begun planning similar projects.
Almost the entire Baltic LNG customer base is onshore industrial and energy customers, but flexibility allows deliveries to maritime clients when demand appears.
Swedish importer and distributor Swedegas said, “The EU Sulphur Directive, which came into effect in 2015, combined with greater awareness of the environmental benefits, are the principal driving forces behind the interest in LNG.”
Of the Baltic countries, Finland leads the way in LNG vessel construction. All three of its main yards have built at least one LNG-fuelled ship each for Finnish customers, while the country’s LNG-fuelled fleet will grow after the delivery of six vessels from China later this year for cargo carriers ESL Shipping and Containerships.
Estonian ferry company Tallink’s Megastar is a crown jewel in the Baltic region when it comes to LNG-fuelled vessels. The 49,000 gt ro-pax ferry, which was delivered in January 2017, is powered by a four-stroke, dual-fuel engine, which enables it to meet both the IMO and Baltic ECA limits. The EUR230 million (USD285.2 million) vessel is the first in Tallink’s fleet to use LNG as its primary fuel.
Refuelling in the Baltic region is still immature. The ro-pax ferry Viking Grace is bunkered by AGA LNG bunker ship Seagas in Nynäshamn under a long-term contract. Icebreaker Polaris and OPV Turva are refuelled by truck in Helsinki, with the LNG coming from Finland’s first terminal in Pori.
Megastar is currently refuelled in Tallinn using LNG from Pori or Pskov, Russia, near the Estonian border. Speaking of the latter’s fuel quality, Tarvi-Carlos Tuulik, chief executive officer (CEO) of ship management at Tallink, said, “Using LNG trucked from Gazprom’s production unit in Pskov has worked well with supplier Eesti Gaas. The LNG has good quality for engine combustion, so we prefer it.”
Surprisingly, Helsinki will not get an LNG terminal, although the nearby ports of HaminaKotka and Tallinn will. Tallinn’s 4,000 m³ facility will be built at Muuga Harbour and operated by Dutch specialist Vopak LNG. The terminal is part of Port of Tallinn’s Green Port concept.
Though gradual, the build-up of LNG use in the Baltic region is gathering momentum. “Rollout of LNG in the Baltic is increasing because of the sulphur Emission Control Areas, especially in Finnish and Swedish waters,” Tommy Mattila, SkanGas sales director, told IHS Markit.
“The market is in a growing phase, one ship at a time. We pick up volumes when the opportunity to buy is good and we sell more when we produce [more than 300,000 tonnes at the company’s Norway plant].”
SkanGas, Finland’s state majority-owned LNG producer and distributor, now has three LNG transporters after the arrival of Coral EnergICE in January – the world’s first ice-class Super 1A LNG carrier. All load at non-SkanGas terminals, as well as Klaipėda’s FRSU for Rotterdam’s Gate terminal.
SkanGas is contracted to supply the two LNG 25,600 dwt dry-bulk carriers for Finland’s ESL Shipping. Bunkering of the vessels may take place in Finland or Sweden, as well as ship-to-ship at Port of Skagen, Denmark, or Rotterdam.
Justifying their EUR60 million cost, ESL Shipping’s CEO, Mikki Koskinen, said, “When design of the two dry-bulk carriers began, we had the long-term competitiveness of the company in mind, to provide visibility to our clients and to cut transportation CO2 emissions. LNG price is relatively stable and it cuts our environmental footprint.”
Containerships has contracted four 1,380 teu, LNG-fuelled vessels for a total of USD128 million that will refuel at Rotterdam and Zeebrugge, both on the company’s current route. As with ESL Shipping, customers, environmental rules, and money all play a part.
“Green values are important to our customers. With LNG we meet their requirements and exceed current and expected rules and regulations on NOx, SOx, and CO2,” said Containerships’ CEO, Kari-Pekka Laaksonen.
For Baltic fuel suppliers, a conversion to LNG is paramount to their long-term success. “For Swedish companies, access to LNG could be a matter of survival. Long-term, sustainable, competitive, and open-distribution systems are crucial if Swedish industry, shipping, and heavy transport are to have access to LNG to break away from their dependence on oil,” Swedegas said.