German LNG in transport [NGW Magazine]
Having spent decades building up its security of supply with long-distance gas pipelines and long-term contracts with the Netherlands, Norway and Russia, Germany has not been beset by the same concerns over energy supply that have driven France and Belgium to find alternatives including LNG import infrastructure.
The latest such line to Germany is the Nord Stream 1 pipeline, which brings Russian gas directly to the northeastern coast. It can transport 55bn m3/yr and the completion of Nord Stream 2 pipeline would double that.
The controversial pipeline is inching its way towards completion. Russian authorities have said they expect Nord Stream 2 to start operating early in 2021. There is also the network of pipelines bringing Russian gas across Ukraine and Austria or the Czech Republic and the Yamal pipeline crossing Belarus and Poland into Germany.
All this availability of competitive pipeline gas has unexpectedly created a different problem: Germany is missing out on LNG in the transport sector.
According to shipping consultants Clarksons, the gross tonnage of shipping using alternative fuels reached 0.5% of the global fleet in 2020, but represents 15.9% of the new order book, excluding LNG carriers.
Within this, LNG dominates the alternative fuels space, accounting for 0.4% of the current fleet and 13.1% of the order book. As a result, demand for LNG in bunkering is expected to boom over the next few years.
This reflects new ship construction orders for much larger LNG-powered ships than in the past, in particular crude oil tankers, led by Russia’s Sovcomflot and Anglo-Dutch major Shell, and ultra-large container ships, led by France’s CMA-CGM, supported by French oil major Total.
Other shipping segments, such as cruise ships, general cargo ships and oil product and chemical tankers, also expect significant growth in LNG use, according to the order book.
The number of new LNG bunker vessels is rising to meet this demand, alongside investment in other refuelling options such as tank-to-ship and truck-to-ship bunkering. However, Germany’s lack of large-scale LNG import terminals means it has no domestic breakbulk capacity. This is likely to hold back the development of smaller-scale LNG chains on which LNG use in transport depends.
Germany extends support
Germany ended 2020 with a decision to extend funding for LNG ship conversions for an additional year to December 31, 2021.
The grants cover between 40-60% of the cost of investing in LNG propulsion. According to the federal ministry for transport and digital infrastructure, two funding calls have been made so far, resulting in 12 equipping and retrofitting projects receiving €30 ($37)mn in subsidies.
Retrofitting ships for LNG is a relatively costly investment compared with the alternatives, such as installing scrubbers or using low-sulphur marine fuels, all of which are intended to meet the International Maritime Organisation’s (IMO) 0.5% mass by mass (m/m) cap on sulphur in marine fuels, which was introduced at the beginning of 2020.
However, German shipping faces much tougher emissions regulations as its Baltic Coast is governed by the Baltic Sea Emissions Control Area (ECA) and its North Sea coast by the North Sea ECA. These impose a 0.1% limit on sulphur in fuels m/m. In addition, as from January 1, 2021, IMO Tier III controls will apply to both the Baltic Sea and North Sea ECAs for nitrogen oxide (NOx) emissions.
LNG used as a shipping fuel virtually eliminates SOx emissions and reduces NOx emissions by about 85%, compared with fuel oil use, ensuring LNG-powered vessels’ compliance with both NOx and SOx regulations in ECAs.
The largest LNG-fuelled fleet by number operates in Norway and a majority of the vessels benefited from subsidies from the country’s NOx fund, which was set up in 2008 as a way to channel industry funds into a common scheme for LNG-powered shipping.
Providing grants for newbuild and retrofitted LNG vessels has been an important factor in encouraging uptake of the technology, helping to create demand which, in turn, has stimulated investment in LNG bunkering facilities.
Subsidies also play an important role in the supply side. The EU has provided support through its Connecting Europe Facility (CEF) splitting funding between LNG bunkering and shore-to-ship (StS) power in its attempts to lower emissions from the maritime sector.
The German government has also been supportive of LNG use in road transport, exempting LNG fuelled trucks from road tolls from January 1, 2019. Mineral oil tax on LNG is less than half that for diesel and new purchases of LNG-fuelled trucks benefit from a subsidy of €12,000.
German utility Uniper’s wholly-owned subsidiary Liqvis, the first company to open an LNG-fuelling station in Germany, had plans for eight by the end of 2020. Some of them have received subsidies from the EU’s CEF for Transport, which aims to develop an LNG refuelling network along Europe’s main traffic routes.
Liquind 24/7 and Shell have also been building LNG refuelling stations in Germany. According to the Natural Gas Vehicle Association Europe, Germany now has 39 LNG stations, putting it in fourth place in Europe behind Italy, Spain and France.
However, transport demand for LNG is small-scale and insufficient alone to warrant development of an LNG import terminal, which would need offtake agreements for much larger volumes from power generators or industry.
North Sea LNG bunkering
The North and Baltic Seas have by far the highest concentration of LNG-fuelled ships, largely as a result of ECAs and the subsidy support provided by littoral governments.
However, Germany’s bunkering infrastructure is limited. Four German ports are recorded by the European Observatory for Alternative Fuels as having LNG bunkering facilities; three coastal, Rostock on the Baltic Sea, Hamburg and Brunsbuttel on the North Sea, with one inland bunkering facility at Mannheim.
Brunsbuttel offers truck-to-ship loading services which limits the size of ship which can be refuelled, but was also the site of Germany’s first ship-to-ship bunkering operation in October 2019, which was carried out by the bunkering vessel Kairos. Both Rostock and Hamburg have truck-to-ship loading facilities, but can also be served by bunkering vessels in the area.
In November, Finnish Gasum completed its first LNG bunkering operation in Germany at the port of Emden, using the bunkering vessel Coralius.
The delivery of new LNG bunkering vessels over the last year in northern Europe, most notably in Rotterdam, the world’s second largest bunkering port, has substantially increased the availability of the fuel, and the supply chain will soon extend north into Russian Baltic Sea waters.
The Dmitry Mendeleev bunkering vessel, owned by Russia’s Gazprom Neft, and boasting an Arc 4 ice-class hull, should complete sea trials in the spring and will service LNG-fuelled vessels at ports in the Gulf of Finland and Baltic Sea, including St Petersburg, Ust-Luga and Primorsk which are all in Russia.
A number of LNG import terminals in the North Sea area – Montoir-de-Bretagne and Dunkerque LNG in France, Isle of Grain in the UK, Gate Terminal Rotterdam, Zeebrugge in Belgium, Swinoujscie in Poland and Klaipeda in Lithuania – offer LNG bunkering services.
Norway has the added benefit of three small-scale LNG production facilities in addition to the large Melkoya LNG plant, while Russia’s Novatek has a small-scale LNG production plant at Vysotsk and has been mulling building a small-scale terminal with Fluxys on Germany’s northeast coast.
Plans for three full-sized LNG terminals are underway in Germany, but it remains unclear whether there is sufficient demand. German utility Uniper solicited expressions of interest for its LNG Terminal Wilhelmshaven project in November last year, but did not receive sufficient offers of binding intent. This has prompted a re-evaluation of the project with Uniper saying it is looking at new options for developing the site to import environmentally-friendly gas or hydrogen.
The two other projects, Hanseatic LNG, planned for Stade on the River Elbe, and German LNG Terminal, a project at Brunsbuttel, have also been gauging interest, but have yet to take final investment decisions. German LNG Terminal and utility RWE also announced last year that they were looking at the possibility of hydrogen imports.
Uncertain demand outlook
The lack of firm interest may reflect the myriad of uncertainties which governed energy markets last year from the impact of the Covid-19 pandemic to Brexit negotiations between the EU and UK and the tightening of European climate change targets.
LNG use in transport depends on small-scale LNG chains, with the demand (LNG-fuelled vessels or trucks) and delivery (LNG bunkering facilities or refuelling stations) sides often being developed in tandem through partnerships, but all need a supply of LNG.
Germany’s lack of a large-scale breakbulk point will mean leaving the provision of LNG in transport to other European countries, potentially slowing its own attempts to lower emissions from shipping and long-distance heavy-duty trucking through the use of LNG as a transport fuel.