[NGW Magazine] Bunkering in the Baltics
This article is featured in NGW Magazine Volume 2, Issue 22
Necessity is the mother of invention: for Lithuania, developing new markets for its LNG surplus has led it to offer trucking services for third parties as well as bunkering for clean shipping in the Baltics.
The shipping industry is likely to look back at this year as a turning-point for LNG as marine fuel. By the end of 2017, five purpose-built LNG bunker-supply ships will have entered service, with some top industry executives comparing the switch from horse-drawn carriages to the widespread appearance of motor vehicles at the turn of 19th and start of the 20th centuries.
However, LNG marine supply efforts in the Baltic region are still in the early days, although for some of the LNG terminals, such as Klaipeda in Lithuania, the effort means more than just diversification of activities.
“The LNG bunker-supply market is just at its inception in the Baltic region,” said a former head of Lithuania’s energy regulatory agency, Vidmantas Jankauskas. “With the Klaipeda LNG terminal executives speaking about the terminal’s LNG bunkering with such enthusiasm, I get the feeling that the segment has taken off – but that is not the case.
“LNG bunkering services do not prevail anywhere yet and they will not play first fiddle for years to come. Small-scale terminals can only in exceptional cases cater to LNG bunkering. In case of the Klaipeda terminal, this is something it has been forced into in order to offload its gas surplus,” he told NGW.
“We simply do not have enough vessels out there for us to hope that they will be able to use up all the surplus. The scope of marine LNG bunkering is tiny and will remain such in the near future. Meanwhile, having LNG-fuelled trucks on the Baltic roads is still a distant prospect,” he underscored. He says it will be some time before Klaipeda can attract “sufficient” LNG fuelled traffic.
Standardisation, not diversification of the future LNG bunker-supply ship fleet is another thing to consider, experts believe.
Noting that the prospects of LNG bunkering in Europe and especially in the Baltic region are “particularly good,” a partner in the independent RusEnergy consulting agency in Moscow, Mikhail Krutikhin, believes that marine transport will be “compelled” to make the switch to LNG as a ship fuel owing to the stringent new EU policies on carbon emissions by vessels. “Those with diesel fuel-fired engines have two options: either install scrubbers, which is a lengthy and costly matter, or switch to liquefied natural gas as the fuel in new ships. Many shipyards see the latter,” he told NGW. However there is a risk that some vessel operators will prefer to do neither, and pay the fine if they are caught in the act.
Krutikhin agrees with Jankauskas that, in the face of the gas glut, the Klaipeda LNG terminal had to do something and that it deserves praise for finding new markets for its surplus.
Foreseeing many opportunities in the LNG bunkering market, Lithuania launched a €28mn ($33mn) LNG reloading station in Klaipeda in late October, exactly three years after the Independence floating storage and regasification unit (FSRU) arrived in the Lithuanian port from a South Korean shipyard, under charter from Hoegh.
The reloading station, owned by the state-controlled LNG terminal operator Klaipedos Nafta (Klaipeda Oil), has five tanks with a capacity of 1,000 m³ each, from which LNG is loaded on to road vehicles.
The facility was built by PPS Pipeline Systems, the German company that in 2014, with Czech cryogenic engineering company Chart Ferox, also built the Klaipeda terminal’s gas pipeline in a €33.3mn contract. Plans call for increasing the capacity of the station to 10,000 m³.
Klaipedos Nafta CEO Mindaugas Jusius expects that the LNG reloading station will start to move into profit in 2020, by which time LNG is expected to be widely used in transport.
“The LNG market, and the LNG bunkering segment, will be growing as gas demand from the world’s two major gas guzzlers, China and India, is big,” says Krutikhin. “Russia intends to become the world’s largest LNG supplier with the facilities in Yamal and Bukhta Gorskaja in proximity to Saint Petersburg fully launched. It means the competition in the Baltic region will intensify, too.” However at the moment Russia’s existing and planned projects do not come anywhere near the total of firm projects in the US or Qatar.
Meanwhile, Klaipedos Nafta is courting several major Lithuanian companies as potential LNG buyers. “Our company is already in talks on LNG purchases with officials from Indorama, an international Polyethylene Terephthalate producer operating in the Klaipeda free economic zone, and Girteka, a leading Lithuanian logistics group,” Jusius said.
Importantly, some Lithuanian companies are taking seriously the idea of building their own liquefied natural gas stations in order to buy gas from the new LNG distribution station in Klaipeda.
Gas supply from Lithuania’s LNG terminal in the port of Klaipeda to the gas transmission system rose 220% in 2016, year-on-year. The LNG terminal supplied 14.611 TWh (1.35bn m³) of gas.
With the LNG reloading station in Klaipeda in place, Klaipedos Nafta is set to intensify its LNG export operations and establish a foothold in the domestic market. The company wants to start LNG deliveries from the newly-opened LNG distribution station to Druskininkai, a resort city in southern Lithuania, as well as cities without alternative gas supplies.
“There are two ways of using the LNG distribution station. From the geographic point of view, there is Druskininkai, as well as cities in northern Lithuania that could expect supplies of gas from the distribution station in the future. There are indications of companies giving serious thought to construction of their own stations to be able to receive deliveries from the distribution station,” Jusius said.
The new Klaipeda LNG reloading station has already been tested – Litgas, the trading arm of state-owned energy holding Lietuvos Energija, delivered gas from the station in mid-October to Poland’s gas supplier Duon, which claims to have a four-fifths share of Poland’s LNG market – a proportion that must fluctuate widely, depending on the utilisation of Gaz-System’s LNG terminal at Swinoujscie.
Some good news for the Klaipeda LNG facility has also come from Gaspol, another player on Poland’s LNG market operated by Dutch SHV Energy, which has announced its plan to offer Lithuania liquefied petroleum gas (LPG) and bring Klaipeda’s LNG to Poland.
“The scope of operations of the Polish LNG terminal in Swinoujscie seems limited. Geographically, Klaipeda is in a better position to serve Poland’s northern part, which does not have conventional gas mains,” Reinis Aboltins, a researcher and consultant on Latvian energy issues in parliament, told NGW.
Yet all the LNG terminals in the Baltic neighbourhood look to have their slice of the cake.
“We are doing that (pursuing bunkering services); the Poles are doing that; so are the Finns. It is only a question of time before the Russians do – and in earnest too,” says Jankauskas. “For some time, Klaipeda LNGT led the pack in providing LNG bunkering services, but, judging from a virtual map that was shown in a recent major energy conference in Lithuanian capital Vilnius, it seems Poland’s Swinoujscie LNG terminal has not only caught up with us, but outstripped us in expanding marine and on-land bunkering services,” he said.
In fact, the Poles’ LNG prospects look for now even better, considering they want to lay a subsea gas pipeline from Norway via Denmark to Poland, he says.
“They are pushing for it very energetically,” Jankauskas said. “Indeed, the market is promising, but what sets Lithuania apart is that it is in a more urgent situation to find clients (than the others) to dispose of the gas surplus in the Klaipeda LNG terminal. The urgency does no good.” The Swinoujscie LNG terminal did not respond to a request for information.
Asked about the prospects of the Klaipeda LNG terminal, Krutikhin expressed opinion that it does “pretty well”, but to be more competitive, it needs to build a set of auxiliary LNG infrastructure to increase the visibility in the market.
“With two medium-size LNG terminals catering for marine LNG bunkering, Finland leads the pack, but our Bukhta Gorskaya near St Petersburg is set to catch up with the Finns,” he said.
Meanwhile, Aboltins says that, looking forward, it is the Klaipeda LNG terminal that, regionally, will see the best prospects in the near future. “LNG capacity in neighbouring Latvia and Estonia is zero and the Finns are catering mostly for the domestic market.
The Polish LNG terminal in Swinoujscie has not made so far many inroads, although they were boasting that they would,” he said.