China outlines plans to boost LNG as ship fuel

China's Ministry of Transport outlined plans for LNG as a ship fuel. Credit: Malte Schwarz
China's Ministry of Transport outlined plans for LNG as a ship fuel. Credit: Malte Schwarz

China’s Ministry of Transport announced plans on 10 August to promote liquefied natural gas (LNG) as a clean marine bunker fuel.

It is currently gathering feedback from various stakeholders, including state-owned energy and shipping companies PetroChina, Sinopec, CNOOC, and COSCO; trade groups such as China Port Association and China Shipowners’ Association; as well as China Merchants Group. It will collect feedback up until 20 August.

The plan aims to prevent pollution at ports, promote green shipping, and incorporate the use of clean fuel into China’s energy mix. Broadly, China aims to create an efficient LNG transportation service system, improve on supply capacity and infrastructure, promote the use of LNG vessels, and LNG use in ports.

The ministry did not provide specific details, but offered various milestones, including developing standards and a basic network for LNG transport by water by 2020.

By 2025, it aims to develop a comprehensive and technologically advanced water transportation system for LNG. At that time, it hopes to increase LNG use as bunker fuels significantly, including a targeted 15% for government newbuildings and 10% for river ships along major channels, with plans to expand into coastal ships and ocean-going vessels.

The ministry noted that it would facilitate construction and operation of LNG refuelling stations along inland waterways. It would also promote the construction of LNG terminals along inland waterways and coastal regions, especially in the Bohai Bay area. These would ensure a long-term, steady supply of LNG.

Bohai Bay is a fast-growing economic region in northern China. Port assets in the region were consolidated in a single entity, Shangdong Bohai Bay Port Group, established in March.

Within a shorter time frame, the ministry outlined plans to develop safety and management guidelines by June 2019 and regulatory standards by the end of 2019 for the refuelling and transportation of LNG.

Last year, the National Development and Reform Commission (NDRC) pledged to build more LNG import terminals and infrastructure across the country, as it aims to use cleaner energy to combat pollution. It aimed to raise imports from 43.8 million tonnes in 2015 to 100 million tonnes by 2025.

Last May, Guangzhou Gas Group announced plans to build an LNG import terminal with annual capacity of 2 million tonnes by 2020.

In July 2017, the port of Ningbo-Zhoushan was the first Chinese port to join an international focus group to collaborate in offering LNG bunkering.

China currently has LNG bunkering capabilities at ENN’s 3 million tonnes per annum (tpa) Zhoushan terminal, which started up this year. A second and third phase could increase terminal capacity by 15 million tpa.

China’s ENN is a private city gas distributor and the first private terminal to receive government approval.

China is not the first to push for LNG bunkering, as other Asian nations have championed its use ahead of the International Maritime Organization’s global sulphur cap on marine fuels from 2020.

Japan’s Ministry of Land, Infrastructure, Transport, and Tourism (MLIT) is subsiding the construction of its first LNG bunkering tankers. South Korea is also providing financial assistance for the construction of LNG-fuelled vessels as part of its five-year plan.

While Singapore is not a major LNG consumer, it aims to establish itself as a key LNG bunkering and trading hub, with various initiatives such as truck-to-ship (TTS) LNG bunkering trials and grants for the construction of LNG bunkering vessels.

China’s advantage, however, lies in the size of its natural gas consumption, which has grown rapidly in recent years. Having imported a record 39.5 million tonnes in 2017, it surpassed South Korea as the second largest LNG market, after Japan. This marks a 46% year-on-year increase, and the volumes accounted for 22% of domestic supply.

If China is successful in promoting the use of LNG as a marine bunker fuel, this could mean a significant increase in its gas demand and therefore LNG imports.

According to IHS Markit’s analysis, China’s domestic gas consumption is greatly influenced by government policy. The market is highly regulated and dominated by the three Chinese national oil companies – CNOOC, Sinopec, and China National Petroleum Corporation (CNPC). CNPC is the parent company of PetroChina.

While the growth in LNG imports has been supported by rising Australian and Qatari production, which account for 45% and 21% of 2017’s LNG imports respectively, sourcing has been very diverse while Chinese NOCs generally bring almost all of their LNG to the domestic market.

As such, China exerts great influence on global gas and LNG demand. Given the sheer size of its domestic market, China may give LNG bunkering more than just a nudge in the right direction.