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Argus Media: LNG discount to methanol renews LNG bunker interest

Premium for LNG compared with grey methanol flipped to a discount in February and maintained it through March, a shift that could restore ship owners’ interest in LNG for bunkering fuel.

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The premium for LNG compared with grey methanol flipped to a discount in February and maintained it through March, a shift that could restore ship owners' interest in LNG for bunkering fuel.

4 April 2023

Some ship owners that had been considering LNG for bunkering shifted their sights to methanol last year after LNG prices soared while grey methanol prices did not have as dramatic an upswing. LNG prices in northwest Europe, Asia-Pacific and the US Gulf coast spiked over $2,100/t very low-sulphur fuel oil equivalent (VLSFOe) in August 2022 as uncertainty around Russian winter natural gas exports to Europe intensified. By comparison, grey methanol last year peaked in March at $1,002/t in Asia-Pacific and below $962/t in northwest Europe and the US Gulf coast.

As the 2022/2023 winter season wound down, European natural gas stockpiles remained high. As a result, LNG prices in northwest Europe, Asia-Pacific and the US Gulf coast fell to under $601/t VLSFOe in March, compared with over $720/t VLSFOe for grey methanol in these regions.

Even though LNG and grey methanol are both sourced from fossil feedstock, their CO2 emissions differ. LNG emissions from combustion and full lifecycle are about 21pc and 28pc lower, respectively, compared with emissions from conventional marine fuels. Grey methanol combustion lowers CO2 emissions by only 7pc compared with conventional marine fuels and grey methanol full lifecycle emissions are higher than conventional bunkers. Despite the higher LNG price volatility, LNG provides ship owners with higher CO2 reduction than grey methanol. Methanol also has lower energy content per volume than LNG, and requires fuel tanks approximately 1.3 times larger than equivalent LNG tanks. A vessel owner interested in methanol could opt out of a smaller tank in exchange for shorter voyages.

But, in addition to lower price volatility, methanol has other advantages. It is a liquid fuel at ambient temperatures, which makes it easier to store and handle on board of a vessel compared with LNG, which has to be maintained at least below -177°F to remain liquid. As a result, methanol's operational costs are lower. Methanol is also biodegradable if spilled into water, while an LNG leak could be flammable and explosive. A newbuild vessel with LNG-burning engine costs about 22pc more to build than conventional marine fuel-burning vessel, while an methanol-burning vessel costs about 10pc more to build. Building a methanol bunkering terminal is cheaper than an LNG terminal.

The typical life of a dry bulk carrier, tanker or container ship is about 25 years. A vessel built this year, would end its service by about 2048. When commissioning a vessel with over 5,000 gross tonnage, ship owners travelling the EU territorial waters should consider a requirement considered by the EU to decrease the greenhouse gas intensity of marine fuels by at least 2pc from 2025, 6pc from 2030, 14.5pc from 2035, 31pc from 2040, 62pc as of 2045, and 80pc by 2050, from a 2020 baseline. The EU also agreed to include maritime shipping in its emissions trading system (ETS). Ships will have to pay for 40pc of their emissions from 2024, 70pc from 2025, and 100pc from 2026.

Bio-LNG is fully interchangeable with LNG derived from fossil feedstock. Similarly, bio-methanol is fully interchangeable with grey methanol. Bio-LNG and bio-methanol could be carbon natural, if produced from sustainable biomass. Ship owners who opt to build LNG-burning vessels could burn a blend of bio-LNG with LNG to meet EU's fuel intensity rule and keep their ETS costs down. Ship owners who opt for methanol-burning vessels could burn a blend of bio-methanol with grey methanol. Global production of both bio-LNG and bio-methanol requires scaling up to meet marine fuel demand. Ship owners who choose methanol would have lower vessel building and operational costs. This is countered by the LNG-grey methanol price discount, when LNG-burning vessels owners would see immediate CO2 emissions reductions at lower price.

To hedge their bio-fuel costs and ensure availabilities, ship owners are inquiring about long-term bio-LNG or bio-methanol offtake agreements, looking into partnering with fuel suppliers, or offering their customers more expensive low-carbon freight rates. For example, Danish ship owner Maersk had entered in eight green methanol production partnerships and by 2025 it plans to source over 730,000t of green methanol.

By Stefka Wechsler

LNG less grey methanol $/t VLSFO-equivalent

LNG less grey methanol $/t VLSFO-equivalent

 

Photo credit and source: Argus Media
Published: 10 April, 2023

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LNG Bunkering

Titan completes first STS LNG bunkering operation in Cuxhaven

Port of Cuxhaven in Germany had previously only seen LNG operations conducted via truck and currently only permits LNG bunkering at one berth, says Titan.

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Titan completes first STS LNG bunkering operation in Cuxhaven

LNG bunker fuel supplier Titan on Thursday (11 July) said it completed the first-ever LNG bunkering operation by ship in the port of Cuxhaven.

Titan’s bunker vessel Optimus successfully delivered LNG to dredger Vox Ariane operated by its long-term client Van Oord. 

“Our ship-to-ship bunkering in Cuxhaven represents a pioneering step in the region's LNG infrastructure development, as the port had previously only seen LNG operations conducted via truck and currently only permits LNG bunkering at one berth,” it said in a social media post. 

“LNG infrastructure development is part of a broader trend, with more ports across Germany adopting LNG operations to support shipping’s clean fuels transition.”

Titan added the improved LNG bunkering capabilities in Cuxhaven, a Niedersachsen Ports GmbH & Co. KG port, also opened up the pathway to maritime decarbonisation via liquified biomethane (LBM) and then renewable e-methane going forward.

 

Photo credit: Titan
Published: 12 July, 2024

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LNG Bunkering

UECC “Auto Achieve” receives first LNG bunker fuel delivery by barge in home country

Firm said it received the first ever supply of LNG by barge to their multi-fuel LNG battery hybrid car carrier in the Port of Drammen, Norway.

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UECC “Auto Achieve” receives first LNG bunker fuel delivery by barge in home country

Norwegian roll-on/roll-off shipping line United European Car Carriers (UECC) on Wednesday (10 July) said it received the first ever supply of LNG by barge to their multi-fuel LNG battery hybrid car carrier Auto Achieve in the Port of Drammen on 4 July.

The firm said this was the first time UECC received LNG by barge to any of their vessels in their home country Norway. 

“We also believe that it was the first time LNG was delivered by barge to any vessel in Drammen, and most likely the entire Oslofjord,” UECC said in a social media post.

The LNG was supplied by the Molgas Energy Holding vessel Pioneer Knutsen, owned by Knutsen Group OAS.

“UECC is very pleased to see the expansion of the LNG barge network in Norway,” it said. 

 

Photo credit: UECC
Published: 12 July, 2024

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FuelEU

OceanScore reveals ship segments set to feel EUR 1.3 billion sting of FuelEU penalties

Container segment will bear the brunt of FuelEU costs, accounting for 29% of gross penalties, followed by RoPax on 14% with tankers and bulkers each on 13%, says firm.

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OceanScore Managing Director Albrecht Grell

Hamburg-based technology platform OceanScore on Tuesday (9 July) said the financial impact of FuelEU Maritime is focusing the minds of shipping companies as they face potential penalties for non-compliance with greenhouse gas (GHG) intensity reduction targets - and OceanScore has identified those segments set to be hit hardest.

The following is an article by OceanScore elaborating on the matter:

Vessels in the passenger/cruise, container, RoPax, bulker and tanker segments will have significant cost exposure from the complex regulation due to be implemented from 1 January next year, despite a relatively modest initial target of a 2% cut in GHG intensity, according to OceanScore.

The firm’s data analytics team has calculated that shipping will rack up total FuelEU penalties of €1.345 billion in 2025 through analysis of the 13,000 vessels over 5000gt trading within and into the EU/EEA that are subject to the regulation. This is based on data on trading patterns and fuel mix from 2022 - the last full year currently available.

Containers bear burden

The team has been able to determine FuelEU compliance balances and resulting penalties for each vessel using OceanScore’s proprietary data modelling incorporating AIS data, Thetis emissions data, bunker intelligence and advanced analytics/AI. It has factored in the likely fuel mix for each vessel between EU ports and to/from the EU, as well as in ports.

Vessels will be hit with a penalty of €2400 per tonne of VLSFO-equivalent for failing to meet the initial 2% reduction target relative to a 2020 baseline for average well-to-wake GHG intensity from fleet energy consumption of 91.16 gCO2e per megajoule (MJ) - or emissions per energy unit. The GHG intensity requirement applies to 100% of energy used on voyages and port calls within the EU/EEA and 50% of voyages into and out of the bloc.

As with the EU Emissions Trading System (EU ETS), it is the container segment that will bear the brunt of FuelEU costs, accounting for 29% of gross penalties, followed by RoPax on 14% with tankers and bulkers each on 13%.

“It is critical for shipping companies to determine a baseline for expected FuelEU costs to secure proper planning and budgeting processes to compare different mitigation options, as well as to decide what to do with outstanding compliance balances,” says OceanScore Managing Director Albrecht Grell.

“This will require, to a higher degree than the EU ETS, a corporate strategy to determine how to reduce the compliance balance/deficit, how to commercialise a surplus and deal with deficits that remain.”

Wide spread of vessel liabilities

OceanScore has found that liabilities per vessel will differ widely across the various segments due to increasingly diversified fuel choices, including greater uptake of biofuels and LNG. Passenger vessels will be penalised the most with an average of €520,000 per vessel annually, followed by RoPax at €480,000 and RoRo at €314,000, with an average penalty for container ships of only €214,000, according to OceanScore.

Grell points out there are also massive discrepancies between vessels within these segments, with a number of ships in the passenger and RoPax segments exposed to penalties of between €1.8m and €2.5m, and payment obligations for some container ships approaching €1m. This is driven by higher energy consumption simply due to vessel size and trading profile.

While penalties will arise from so-called compliance deficits for vessels using conventional fuels, surpluses totalling an estimated €669m will be generated mainly by vessels fuelled by LNG and LPG with significantly lower carbon intensity.

LNG carriers will account for 78% of the total market surplus and gas carriers 8%, while a further 8% will be generated by container ships that have seen a modest uptake in alternative fuels in recent years.

Pooling can halve costs for the industry

Taking into account this estimated compliance surplus, the net cost of FuelEU penalties for shipping from 2025 would be €680m, which indicates that pooling of vessels can roughly halve the gross burden for the industry.

Penalties will, in segments typically using conventional fuels with comparable carbon intensities such as HFO, LFO or MDO, be roughly proportional to the overall fuel consumption, thus correlating with the EU ETS cost.

Initial costs of FuelEU for most conventionally fuelled vessels, prior to pooling, will be around one-third of those associated with the EU ETS next year when the latter regulation will have 70% phase-in. But ultimately FuelEU is likely to prove a much more costly affair as the requirement for GHG intensity cuts rises to 6% by 2030 and then accelerates to reach 80% by 2050.

“It is therefore incumbent on shipowners to define their strategies not only towards fuel choices and the use of onshore power but also towards handling of residual compliance balances such as pooling, banking and borrowing of balances, to mitigate the financial impact of FuelEU. However, pooling will also come at a cost, while banking and borrowing will incur interest costs and only push liabilities into the future,” Grell explains.

‘Sound administrative processes’

He further points out that pooling compensations paid between different shipping companies will effectively divert cash flow away from the EU that it would otherwise have earned from FuelEU penalties – but that this effect is intended by the regulator to “reward” early adopters of clean fuels.

Another factor that will curb potential income for the EU from this regulation is that the compliance gap has been reduced to only 1.6% by 2022, as average GHG intensity from shipping has come down by 0.4% to 90.82 gCO2e per MJ, mainly due to increased LNG carrier calls to Europe after gas supplies via pipelines from Russia were halted when the latter invaded Ukraine. Given this trend and increasing adoption of biofuels, the 2% compliance gap will probably be closed before the first tightening of reduction targets in 2030.

Grell says the priority for shipping companies, especially at this early stage while cost exposure is relatively low, is to get to grips with the complexity of the regulation and tackle the risks arising from the fact the party liable for penalties - the DoC holder, or possibly shipowner - is not the one responsible for emissions, which is typically the charterer.

“As well as having costs oversight, companies require reliable monitoring and reporting mechanisms with high-quality emissions data. They must also have in place complex contractual arrangements and sound administrative processes to manage compliance and mitigate the financial consequences of the new regulation,” Grell concludes.

Related: FuelEU: New regulation leaves DoC holder with fuel liabilities risk, says OceanScore
Related: ‘Big opportunity’ for bunker traders, suppliers on upcoming FuelEU regulation, forecasts OceanScore

 

Photo credit: OceanScore
Published: 12 July, 2024

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