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    Operators take on bunkering [NGW Magazine]


Many companies are still nervous about committing their shipping to LNG, and until the tipping point is reached, banks will take a lot of persuading.

[NGW Magazine Volume 4, Issue 3]

by: Tim Gosling

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Top Stories, Europe, Premium, NGW Magazine Articles, Volume 4, Issue 3, Liquefied Natural Gas (LNG)

Operators take on bunkering [NGW Magazine]

Small scale LNG bunkering offers an intriguing addition to the business model of LNG import terminals, but there’s a chicken and egg conundrum, decided a panel at the European Gas Conference in Vienna January 28.

Small scale bunkering is an especially attractive proposition for the likes of Klapeida Nafta. The operator of Lithuania’s Independence - the 4bn m3/yr floating regasification and storage unit (FRSI) that was launched in 2015 - continues to seek avenues to make the terminal economically viable. The project was originally driven by the need to diversify from full dependence on Russia pipeline gas, but has struggled to employ its full capacity serving the small country and neighbouring Estonia and Latvia.

Alongside his peers on the panel, who represent ports and importers across Europe, Klaipeda Nafta CEO Mindaugas Jusius was keen to stress that his company is progressing well in its bunkering efforts in the Baltic Sea. However, the potential customers are yet to be convinced, and that means the money men are also wary.

The company launched bunkering services from a small-scale distribution centre featuring truck loading bays and a marine bunkering jetty near the Independence in 2017.

“We’ve already carried out five ship-to-ship bunkering operations from the FSRU,” Jusius told the audience in Vienna. “It shows it can work in the Baltic.”

Klaipeda Nafta and German partner Nauticor took delivery of Kairos late last year. With capacity of 7,500 m3 it is the world's largest LNG bunker supply vessel. From 2020 the Lithuanian company’s efforts to develop the regional market will be aided by Estonia’s Eesti Gaas, which in October announced it has placed an order for a 6,000 m3 bunker vessel. The demand for the small-scale LNG market of the three Baltic states is forecast to reach 1.908mn mt/yr by 2030, according to Energias Market Research.

Infrastructure operators at larger facilities further west are also looking to crack the conundrum.

LNG is a small part of the total throughput at the Port of Rotterdam, says Roger Backers, business intelligence advisor for the facility. However, small scale bunkering and niche services are a growing segment. “LNG constitutes around 1%,” he says. “We would like to raise this by having the right infrastructure.”

Learning curve

However, such infrastructure operators must be patient, as customers take a learning curve.

“It’s still a push in Finland to convince small scale customers that LNG is safe, says Peter van Buuren, CEO of Harmina LNG, a joint venture between Hamina Energy, Finnish engineering company Wartsila and Estonia’s Alexela to build the country’s first LNG terminal, with delivery due in 2020. “We’re trying to create a new market.”

The questions are myriad for the potential customers, the panel of operators admit. On the one hand, they’re unsure about how the market operates, and how liquid it will prove.

“Is it easy for small scale buyers to purchase and find out what is a relevant price?” asked Fluxys CCO Arno Bux. The Belgian transmission system operator runs a 9mn mt/yr LNG terminal at the port of Zeebrugge. “These are questions are still open. Pricing needs to be clear enough that a ship owner will feel comfortable enough to order a new vessel and that he can be sure he won’t be captive to one or two large players.”

But making things worse, the potential customers are all but entirely mystified about the basics, says van Buuren. “They’re very hesitant and you have to explain the whole process to them,” he says.

Meanwhile, the LNG supply industry must adapt to standard maritime practice. “Ports creating LNG berths for ships is useless - it won’t happen,” adds van Buuren. “Ships want fuel to come to them. LNG ship to ship is coming but it’s very slow.”

Uncertain customers deter bankers, who want to see take off contracts for the full capacity of small scale LNG projects. That has the operators going first to get the ball rolling.

“Typically infrastructure investors have a long term perspective,” says Bux. “They’re conservative and reluctant to go into these fields, and many need an anchor customer that deals with a large chunk of the risk. But companies can be reactive or proactive. We’re going into all levels of LNG, and the large producers and portfolio players like Shell and Novatek are also putting their money down. But I’m not sure they can do it alone.”

Fluxys is now working on a small-scale LNG terminal in Germany in partnership with Novatek. Due to launch in 2022, the platform will serve the Baltic Sea region and central Europe with gas provided by the Russian company. The focus will be on ship bunkering and loading trucks.

In the Baltic Sea, Klaipeda Nafta’s financing of its small scale bunkering terminal was not a large outlay when €128mn had already been invested in the Independence, suggests Jusius. And the company was seeing strong signs in the market to help convince it to take the step.

“There were already bunkering vessels in the region, proving there was some demand,” says the CEO. “But they belonged to energy traders and they were charging huge costs, so we wanted to bring our own offer. We took the practical position to invest in a small scale terminal to solve the chicken and egg conundrum. We’re taking the financial risk.”

In The Netherlands, the Port of Rotterdam has invested in small scale bunkering jetties alongside the Gate terminal - a joint venture of Gasunie and Vopak - points out Backers, although thanks to the size of the players they did manage to attract financing. “We both took a risk in developing this infrastructure, which was financed by bank loans,” he notes.

Technical and social drivers

There are those that suggest that bunkering will not really take off without widescale adoption by the shipping industry and that could take another 15 years, while global container ship fleets are replaced.

However long it takes though, the panel of infrastructure operators was firm in their belief that small scale bunkering will take off.

“Do we see it taking off? Yes,” states Bux bullishly. “Bunkering will be a significant part of the LNG business in the future. Bunkering won’t create a massive new demand for LNG, but it is an important part of the segment. It’s part of the story that gas is a fuel for the future and that technical innovation is continuing in the gas industry.”

Jusius adds a prediction that social trends are set to accelerate the process. “Customers are starting to demand delivery by clean energy,” he points out. “Younger generations are saying they’re ready to pay a premium for this, and so we’re already seeing this in land transport with large retail chains.”