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ST. PETERBURG. - Consumption of liquefied natural gas (LNG) as a bunkering fuel in the Baltic and North seas could amount to 8 billion-10 billion cubic meters per year by 2030, the head of foreign economic activities at Russian gas giant Gazprom, Pavel Oderov said at a Baltic Sea summit on Saturday, citing expert estimates.
He said Gazprom (RTS: GAZP) plans to develop the use of gas as bunkering fuel. There is growth potential for such activities given rising prices for oil products and tougher emission standards in Europe.
"For Gazprom it makes sense to maintain control over the main elements of the value chain, particularly production of compressed natural gas and LNP and sales to the end consumer, which presupposes possible investment in production and distribution infrastructure," Oderov said.
He said that atmospheric emissions standards for ship engines will soon go into effect, namely an addendum to the fourth International Convention for the Prevention of Pollution from Ships (Marpol 73), which will impose tough limits on emissions for ships in the Baltic and North seas (Emission Control Area (ECA) 1, starting in 2015) and in North America and the Caribbean Sea (ECA 2, starting in 2014).
The Mediterranean Sea (ECA 3) and Southeast Asia (ECA 4), where similar standards are expected to be introduced in the near future, are also seen as potential markets for LNG bunkering. The use of LNG in marine transport would fully meet the environmental standards without expensive scrubbing filters, and could offer a price advantage compared to low-sulfur oil products, Gazprom believes. Furthermore, ship and ship engine technologies and storage for ships operating on LNG are accessible and developed.
The use of LNG reduces emissions of nitrous oxides by 85-90%, emissions of sulfur oxides and solid particles to zero, and emissions of CO2 by 15-20%.
"Our calculations show that, with equal final costs of construction and operation for ships running on LNG and fuel oil, with approximately equal capital costs the operating costs for ships running on running on fuel oil turn out to be far higher than for ships running on LNG. And the price of LNG, which is calculated based on this assumption, approaches $17 per MmBtu, which is in the range between prices for fuel oil and marine gasoil," Oderov said.
"If one compares the costs of a ship running on LNG and a ship running on diesel fuel, the costs of diesel fuel are so substantial that, despite the lower capital and operating costs for this type of fuel, overall costs for it turn out to be far higher than for LNG," he said. The calculations are based on current diesel prices, which could rise due to tougher environmental regulation.
One of the obstacles to the development of the LNG bunkering market is the lack of convenient and far-reaching infrastructure for transferring LNG to smaller gas carriers and pumping LNG into storage facilities, Oderov said.
"Guaranteed contracts for transshipment of LNG through these terminals will be the main condition for receiving project financing," he said.
"Gazprom is prepared to discuss both the delivery of LNG and its possible financial involvement in infrastructure projects," Oderov said.
Gazprom believes pricing on the LNG bunkering market should differ from pricing for pipeline gas and for large-capacity LNG.
"We anticipate that the price of LNG for ship owners will be in the range between prices for heavy fuel oil (HFO) and marine gasoil (MGO). Consequently, have a link to oil in small scale LNG is a more comprehensible pricing mechanism for ship owners and other participants of the new market," Oderov said, adding that the pricing mechanism is less important than the absolute level of prices for various types of fuel.
In the next few years Gazprom intends to implement major projects to build LNG facilities, first of all on the Gulf of Finland and then in the Black Sea region. The company plans to prepare the investment rationalization by the end of 2013 for the construction of an LNG facility on the Gulf of Finland to produce gas for use as bunkering fuel in the Baltic, and is prepared to begin work on marketing this gas.
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