New emissions regulations indicate rise of LNG as marine fuel in Asia

Lian Yok Tan's picture
Lian Yok Tan, Partner, K&L Gates LLP
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Given the restrictions implemented by International Marine Organization (IMO) requiring lower exhaust emission of sulfur oxides (SOx), nitrous oxide (NOx), particulate matter (PM), and carbon dioxide (CO2), there will necessarily be a movement towards lower-emission fuels, especially in Emissions Control Areas (ECAs). 

The coasts of the US, Canada and Northern Europe are all highly regulated ECAs, and it is speculated that ports in the Mediterranean will follow suit in the coming years. 

With emissions regulations becoming more prevalent, LNG offers a viable alternative to higher-emission fossil fuels given its zero sulphur content and low NOx output. 

While there are no emission restrictions currently in place in Asia, signs indicate that such regulations could be affected in the future as Hong Kong has begun to require ships use low-sulphur fuels, China launched its Ship and Port Pollution Prevention Special Action Plan to cut sulphur dioxide emissions in the Yangtze River Delta and Bohai Rim by 65% by 2020, and there are proposals for implementation of an ECA in Japan’s coastal waters. 

Furthermore, Singapore’s Maritime Port Authority has plans to launch the LNG Bunking Pilot Programme in 2017 to complement its efforts to promote itself as the new LNG hub of Asia and has issued its first LNG bunkering licences to Pavilion Gas and a joint venture between Keppel Offshore & Marine and BG. While the signs are promising, an industry-wide conversion to an LNG-based fuel system will face challenges. 

Among others, such concerns include (i) financial commitment by port authorities and shipyards for an expansive system of LNG bunkering facilities and building/retrofitting LNG-fuelled vessels, especially throughout Asia given its larger share of the LNG market, (ii) consistency with respect to emissions requirements and regulatory framework, (iii) potential safety concerns regarding leakage of vapour and cryogenic damage to ships and infrastructure, (iv) additional space on vessels required to support a gas-driven system (resulting in a loss of cargo space), and (v) absence of a developed supply LNG chain in Asia required for flexibility in shipping routes. 

Moreover, the cost associated with these risks is likely to be enormous and will require a larger upfront financial commitment (though switching to LNG-based bunkering will likely be more cost-effective in the long run). 

Ship owners active in ECA have used marine gas oil (MGO) while holding back on capital investments required in building or converting vessels to run on LNG or install effective scrubbers on vessels. The most crucial of these challenges, however, will be regulatory regime change and consistency. 

Once in place, a supportive legal framework will compel industry players and regional governments to cooperate and coordinate with respect to other concerns of an LNG-based fuel system in order for Asia’s energy and shipping sectors to thrive.

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Photo Courtesy of K&L Gates LLP.