Developing  

LNG Bunkering 

in India 
by

Ananya Atluri Rao

 TABLE OF CONTENTS
​TOPICS ----------------- PAGE NO.

1. OBJECTIVE OF THE REPORT ---------------------------- 02

2. THE ASIA-PACIFIC GAS MARKET ---------------------------- 02

3. GLOBAL REGULATIONS EFFECT ON INDUSTRY ---------- 03-05

4. LNG AS A MARITIME FUEL ----------------------------------- 05-08

5. PORTS & CARGO PROFILE ------------------------------------ 08-10

6. ADVANTAGES - INDIA ----------------------------------------- 10-11

7. CHALLENGES & DRIVERS FOR LNG BUNKERING -------- 12-15

8. CONCLUSION---------------------------------------------------- 15

9. LIMITATION OF THE REPORT--------------------------------- 15

10. REFERENCES---------------------------------------------- 16

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1.0 OBJECTIVE OF THE REPORT:

Heavy fuel oils have dominated the shipping industry in the past but increasing
environmental regulations require a change. The International Maritime
Organization (IMO) has introduced stricter standards for SOx emissions which would
come in to effect from January, 2020. The objective of this report is to study the
development of LNG as a viable shipping fuel in the Asia Pacific region with
emphasis on India.

2.0 ASIA PACIFIC GAS MARKET:

Asia and Australia are taking steps to develop LNG bunkering which has already
been done in North European context. Ports are showing their willingness to run
parallel operations to support the coming demand. However, those who make their
entry early will be providing bunkering facilities & thus will have to step up with the
initial investment costs and accept the risk premium of uncertainty on the timing of
demand. It’s the governments who can help resolve the barrier b/w both operators
and ports. Commitments in policies would be helpful in sorting for the operators, as
was done in the European Union, which will give assurance that infrastructure will
be available to meet the need. Similarly, ports can be helped by sharing the risk of
initial investments thus speeding up the move to a cleaner marine environment.
Japan is uniquely positioned in Asia-Pacific region for LNG bunkering, since it already
has extensive infrastructure for importing the fuel. The government has recognized
its potential for becoming a leader in this particular field and it is positioning the
Port of Yokohama as a model for developing LNG bunkering capabilities. On the
other hand, Singapore is one of the main global bunkering hubs, and the second
largest container port in the world. The diagram below demonstrates the potential
international LNG bunkering network. Singapore will become the bunkering hub for
Southeast Asia or Europe-bound traffic and Japan for the East Asia hub to take care
of North America-bound vessels.

Thus LNG bunkering is developing in Asia, led by Singapore, the world’s largest
bunkering port. Asian countries, together with Australia and the UAE have about 10
coastal ports offering LNG bunkering, with another 15 projects under development.

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Singapore also has signed MOU with 10 other partners including a Japanese Ministry
and the Port of Ningbo-Zhoushan at China to create a focus group aimed at
promoting the adoption of LNG bunkering at ports around the world.

3.0 GLOBAL REGULATIONS EFFECT ON INDUSTRY:

Asia’s economic boom has largely been driven by coal and oil derivatives. Though
Asia dominates the world liquefied natural gas market as a buyer, natural gas has
been underutilized in the region relative to its tremendous potential. Even gas trade
in Asia by pipelines has been relatively limited and some of the mega pipe-lines like
Turkeminstran- Afganistan-Pakistan-India Pipe line etc have not progressed. As the
economic growth continues, in an environment sensitive world, natural gas has a
key role in Asia’s future. Expanding gas use will reduce over dependency on oil. In
years to come, the long-term relationships in political & economic situations that are
required for maintaining gas trade could help stabilize the region and would be a
right step towards energy diplomacy. The main hurdle in encouraging the usage of
natural gas today is ​the lack of sufficient terminals, long-distance pipelines, and local
network systems for its transport.​ The development of the transport and distribution
infrastructure necessary for substantial gas expansion will require support from both
the public sector & the private sector and most importantly, policy support by
various Asian governments.

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3.1 The International Maritime Organization (IMO) fuel sulphur regulation: global
cap

The IMO adopted the International Convention in 1973 for the Prevention of
Pollution from Ships (MARPOL). MARPOL Annex VI, when came into force in the year
2005, dealt with air pollution from ships. The annex established limits on nitrogen
oxide (NOx) emissions and set a 4.5% limit in the then moment on the allowable
sulphur content in vessel fuels. Further in 2008, the IMO announced a timeline to
reduce the maximum sulphur content in vessel fuels to ​0.5 % by January 1, 2020.
This made it necessary for the vessels to either use fuels containing less than 0.5 %
sulphur or install an exhaust cleaning system to control the vessel’s airborne
emissions of SOx to an optimum level. Another option for the vessel operators to
meet the IMO 2020 standards is to install engines compatible for LNG, which would
emit only trace amounts of sulphur. Adopting LNG engines will require more
investment than installing scrubbers, but LNG fuelled engines may offset their
capital costs with operating cost advantages in time to come.

The challenge with the 0.5% Sulphur cap regulation has turned into a concern for
refiners -the fuel suppliers as well as ship owners - the fuel buyers. They are in a
catch 22 situation, where suppliers are unable to commit on how much to produce,
as buyers are uncertain about how much is needed & vice versa. Even though the
refiners are not regulated by IMO, they cannot ignore the reality as they have a
commercial interest to fulfill the market needs through changes to production
configuration in order to maximize margins. The 0.5% Sulphur rule will have huge
implications for the global refining sector in terms of refinery configuration and
operations. A large number of refineries have already made significant investments
to achieve this standard.

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3.2 IMO Regulations for SOx​:

4.0 LNG AS A MARITIME FUEL:

In order for ships to viably burn LNG as a fuel, they depend on the availability of a
worldwide network of LNG bunkering infrastructure,​ which till date is highly
underdeveloped. Global LNG bunkering infrastructure is considered to be at the
infant stage, as most LNG-powered ships are mainly coastal vessels and major
bunkering ports in the world are yet to be developed as full-scale LNG bunkering
facilities. Another factor for viability is the mechanism of retrofitting of ships to
burn LNG. This is a sophisticated and complex process that requires further changes
in existing engines or addition of gas tanks, as well as a huge cost of fitting LNG
storage tanks and gas piping systems. ​In the LNG context, it makes more sense to
build a new ship rather than conversion of existing ships​.

One of the key requirements for ocean carriers to adopt LNG as an engine fuel is the
availability of LNG bunkering facilities.​ Since LNG is extremely cold (-162°C) &
volatile, specialized infrastructure for storage, supply & fuel delivery to vessels is
required for LNG bunkering.

Truck-to-vessel LNG bunkering provides some fuelling capabilities without any large
upfront capital investments. LNG tanker trucks could also bring LNG to storage tanks
which are built on site at the port itself, which would then bunker the LNG to
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arriving ships via pipeline. Supplying LNG using tanker trucks in this way may face
capacity limitations due to truck size, road limitations, or other logistical constraints,
but it has been demonstrated as a viable approach to LNG bunkering at smaller
scales.

The most popular method of bunkering today is vessel to vessel, either with the help
of a tank barge or using smaller tankers.

LNG Bunkering options

In order to temporarily store & deliver LNG within a given port would depend on the
size & location of the port as well as the kinds of vessels which are expected to
bunker LNG. ​Truck to ship b ​ unkering is the best suitable option for supporting
smaller and mid-sized vessels, like ferries or offshore supply vessels that support
offshore oil platforms. Facilities of liquefaction built on site can provide the greatest
capacity of any LNG bunkering option, providing fuel for large vessels in
trans-oceanic trade. LNG as bunker fuel faces some issues such as ​the need for
increased and dedicated storage space, a gap in supply chain logistics, and
requirements for costly modifications to the existing port infrastructure. The delivery
of clean gas to the import terminals, charges for the break bulk & the need for
shuttle vessels delivering to LNG bunker tankers are the additional costs incurred to
carry out LNG bunkering.

Some of the LNG bunkering operations in Asia & Europe are associated with existing
LNG marine terminals, which already have LNG storage and port infrastructure in
place. But many smaller operations including a majority of the projects in
development do employ trucking, the bunkering vessels, liquefaction on-site & other
means to extend LNG availability beyond the ports with major LNG terminals. The
use of LNG in marine transport delivers significant reductions in pollution from ship
exhaust and GHG emissions. When compared with respect to cleaner diesel fuels,
shift to LNG fuel provides the following reductions:

• SOx of over 90%

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• NOx up to 85% for Otto-cycle engines & 35% for diesel-cycle

• CO2 up to 29%

• GHGs up to 19%

• PM up to 85%

4.1 Global Development of LNG Supply

Production of LNG across the whole world has been rising rapidly for the past few
years which is driven by growth in the natural gas sector in regions, especially
Australia and the United States.​ According to the graph below, global LNG supply is
expected to increase from 300 to 400 million metric tons per annum (MMtpa) from
2017 to 2021 based on new LNG liquefaction projects which are already in function
or under development.

Asia is going to be the major factor in the growth of LNG in the coming decade. The
region will add a total of 143MMtpa in 2017-30, accounting for 86% of the world’s
total LNG demand growth in the period.

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The LNG bunkering market was valued at around US$ 397.70 million in 2017 when
seen on global demand and is expected to generate revenue of around US$
11899.60 million by the end of 2024, growing at a CAGR of around 59.4% between
2018 and 2024.

5.0 PORTS & CARGO PROFILE:

Around 95 % of India's trading by volume and 70 % by value is done through

maritime transport as per the Ministry of Shipping. India has 12 major and 205
minor and intermediate ports. Under the National Perspective Plan for Sagarmala, 6
new mega ports are under developmental plans to be developed in the country.
India is the 16​th largest maritime country in the world, with a coastline of about
7,517 km. The Indian Government has been supporting the ports sector. It has
allowed Foreign Direct Investment of up to 100 % under the automatic route for
port and harbour construction and maintenance projects. It has also provided a
10-year tax holiday to enterprises that develop, maintain and operate ports, inland
waterways and inland ports. Increasing investments and cargo traffic point towards
a healthy outlook for the Indian ports sector.

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The government has envisioned a total of 189 projects for modernisation of ports
involving an investment worth Rs 1.42 trillion (US$ 22 billion) by the year 2035
under the Sagarmala Programme. Ministry of Shipping has set a target capacity of
over 3,130 MMT by 2020, which would be driven by participation from the private
sector. Non-major ports are expected to generate over 50 % of this capacity.

India’s cargo traffic handled by ports is expected to reach 1,695 million metric
tonnes by 2021-22, as per the report of the National Transport Development Policy
Committee.
Since ports handle almost 95 % of trade volumes in India, the rising trade has
contributed significantly to the country’s cargo traffic. Capacity at major Indian ports
reached 1,477 million tonnes by FY19. Capacity at non-major ports is expected to
reach 968 MMT in 2019 from 750 MMT in 2016.

In FY19, traffic increased by 2.90 % year-on-year to reach 699.05 million tonnes​.

India’s total external trade rose to US$ 838.46 billion in FY19, implying a CAGR of
5.53 % since FY09. In Nov’16, Ministry of Shipping has sanctioned sum of US$ 1.49
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million to Gujarat Maritime Board for capacity building and safety training of
workers involved in ship recycling activities under Sagarmala. The Government of
India has finalised master plans for 142 capacity expansion projects worth Rs.91,434
crore (US$ 14.19 billion) under the Sagarmala programme. As of March 2018,
projects worth Rs 1.85 lakh crore (US$ 28.70 billion) had been awarded under
Sagarmala programme.

As per the statistics from MOPNG, 1.3 MTPA of HFO,HSD & LDO deliveries were
made, 0.42 MTPA to international bunkers and 0.96 MTPA to coastal bunkers. Indian
Bunker segment is majorly distributed between defence, trading, direct sales and
Exploration and dredging. ​IOCL is the largest Bunker provider with 41.6 share with
Adani, HPCL and BPCL contributing to 18% 15% and 10% share respectively. Petronet
LNG terminal at Kochi with a capacity of 5 MTPA, first of its kind in south Asia is
operational and provides LNG bunkering facilities. The Kolkata Port Trust meanwhile
had set aside about 10 acres of land within the Haldia dock complex as part of wider
push to introduce LNG as fuel for barges. IOCL and BPCL are in discussions with the
Maharashtra Maritime board to build LNG bunkering facilities in the state. Bunker
fuels demand is about 1% of the Global demand. Majority of the demand comes
from defence ships, domestic vessels, coastal vessels and a small portion of
international ships calling at Indian ports.

6.0 ADVANTAGES: INDIA

Robust demand Attractive Policy support Competitive
opportunity advantage

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6.1 Size of Market & Recent Developments:

Cargo traffic during financial year 2018 at major ports in the country was reported at
679.36 million tonnes (MT). In FY19, traffic has increased by 2.79 % Y-O-Y to reach
633.87 million tonnes. At non-major ports, Cargo traffic was estimated at 491.95
million tonnes FY18 and grew at 9.2 % CAGR between FY07-18. The major ports had
a capacity of 1,452 million tonnes ​by FY 18 end. The Maritime Agenda 2010-20 has
set a target of 3,130 MT of port capacity.

Essar Ports will be investing US$ 70 million in Hazira port by 2020.

The Indian government has planned to develop 10 coastal economic regions
as part of plans to revive the country’s Sagarmala (string of ports) project.
The zones would be converted into manufacturing hubs which will be
supported by the port modernisation projects, and could span 300–500 km of
the coastline.
The government is also looking to develop the inland waterway sector as an
alternative to road and rail routes to transport goods to the nation’s ports and
hopes to attract private investment in the sector.
Ports sector in India has received a cumulative FDI of US$ 1.64 billion between
April 2000 and December 2018.
Indian ports and shipping sector witnessed 3 Mergers & Acquisition deals
worth US$ 29 million in 2017.

6.2 What we have achieved so far:

● 5 times more growth in major ports’ traffic b/w 2014-18, compared to

2010-14.
● Increased efficiency has led 3 times increase in net profits of major ports
between FY14-18.
● Turnaround time at major ports reduced to 64 hours in FY18 from 94 hours in
FY14.
● Project UNNATI has been started by Government of India to identify the
opportunity areas for improvement in the operations of major ports.

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7.0 CHALLENGES & DRIVERS FOR LNG BUNKERING -ASIA PACIFIC
REGIONS​:

The governments and companies of Singapore, Brunei, South Korea and Japan have
taken a stand on furthering their interests in LNG bunkering. Recently, 2
Singapore-based turnkey service providers and engineering, procurement and
construction companies have agreed for a $50m agreement to develop small-scale
LNG bunkering in Southeast Asia. Aim is to promote transportation, distribution and
storage of LNG in small-scale aspect, to locations with limited access of energy
sources due to inadequate distribution infrastructure and poor interconnectivity of
gas pipelines. In terms of scale, South Korea is perhaps the forerunner in Asia as the
government has announced an initiative to order 140 LNG ships worth KRW1trn
($900m) from the country’s small and mid-sized shipbuilders by 2025. Here the aim
is to boost its ailing shipbuilding industry as well as to promote the production of
environmentally-friendly ships and LNG bunkering. The Korean government is
getting prepared to pump in KRW2.8trn in order to develop LNG bunkering
infrastructure in conjunction with the construction of those LNG-powered ships.
Separately, Korea’s Posco Daewoo and Brunei National Petroleum Company
(Petroleum BRUNEI) signed a MOU in to develop the LNG value chain business
including LNG bunkering. The LNG value chain business will include the entire
process from gas exploration and production to liquefaction, transportation and
sales. In Japan, companies like K Line, Chubu Electric Power, Toyota Tsusho
Corporation and Nippon Yusen Kabushiki Kaisha (NYK Line) set up two joint ventures
to kick start the LNG bunkering business in central Chubu region. Japan is also
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starting up ship-to-ship LNG bunkering at the ports of Yokohama and Nagoya, as it
works with Singapore for both countries to become hubs for LNG re-fuelling. Last
year Japan and Singapore set up a working group to study the feasibility of using
LNG-powered car carriers plying the trade between the countries.

7.1 Drivers – reasons for growth of LNG bunkering in Asia

Prior to 2010, the shipping industry was perhaps one of the few emission sources in
the world that remained unregulated. Later, the IMO, a UN specialised agency
involved in setting the standards for safety and security of international shipping
and prevention of marine pollution, brought stringent standards and regulations for
the prevention of pollution caused by ships. The IMO first mandated that all ships
had to reduce their fuel sulphur content from 4.5 % to 3.5 % in year 2012, with a
further reduction to 0.5 % by 2020.

LNG has advantages over crude oil in terms of its price, energy content &
environmental footprint. Due to mandatory environmental regulations within the
IMO-designated ECAs, LNG bunkering ports are presently saturated in Europe and
the USA. Hong Kong recently started requiring ships at berth to use low-sulphur
fuels. There are also proposals to extend the ECAs to include Japan and Southeast
Asia. In fact, the Singapore Green Port Programme (GPP) is already rewarding 15-25
% reductions in port dues for vessels that can demonstrate emissions at less than 1
% mass/mass of sulphur while at the port or usage of scrubber is encouraged. In
China, the Ministry of Transportation has recently issued a special action plan
concerning “Ship and Port Pollution Prevention (2015-2020)”, which includes
promoting the establishment of ship air pollutant ECAs, and calls for active
promotion of LNG as marine fuel.

It is highly likely that the Asian LNG bunkering market will continue to grow in the
coming years with stricter regulations on sulphur emissions to be implemented in
Asia. From a ship owner’s perspective, the lower price of LNG when compared to
traditional oil-based bunker fuel, complemented with policy and regulatory
measures that penalise the use of more pollutive bunker oil, has definitely made the
switch to gas an increasingly compelling concern.

7.2 ​Hurdles to overcome:

Many believe that the lack of or absence of LNG bunkering infrastructure in Asia
poses the biggest challenge for the adoption of LNG as marine fuel. Ship owners
have been reluctant to invest in LNG-fuelled ships until they are assured that LNG
infrastructures are in place. At the same time terminal owners or operators are

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unlikely to make significant investments unless there is already a credible demand
for LNG bunkers.

Payback time is the period it takes to generate the cumulative revenues needed to
pay back the initial cost of an investment. It is often used as a measurement of a
project’s profitability. The longer the payback time, the more undesirable a project
becomes. As most Asian LNG supply contracts are linked to crude oil prices, there
has been a dramatic reduction in the price of LNG in 2015 because of low oil prices.
Thus, the payback period for LNG bunkering investment projects get further
extended, thereby slowing down the adoption of LNG bunkering in Asia. This is
evident in several Asia-Pacific nations such as South Korea and China.

7.3 Current level of adoption:

Application of LNG in shipping depends on the availability of a worldwide network of

bunkering infrastructure which is still at a developing stage, As of June’19 there are
around 137 LNG ready ships, (does not include LNG carriers) under operations
worldwide with another 86 new builds confirmed ranging from tankers, cruise ships,
container ships, car carriers to very large ore carriers. India’s LNG focus is to create
bunkering facilities and to become an LNG bunkering hub in the Indian Ocean region
for international shipping, to align with global initiatives of IMO committed to the
use of cleaner fuels for the marine industry. In March 2015, Petronet’s Kochi
terminal successfully bunkered “​Kvitbjørn​” with 127 tonnes of LNG and made history
by making her the world’s first vessel to operate between Asia and Europe solely on
LNG.

India has a huge unfulfilled demand for LNG and it is extremely essential to develop
the necessary infrastructure to meet this demand. India is set to transform the
country by developing LNG based power generation, city transportation, Highways
trucks, Railways, Inland waterway transportation, International bunkering hubs. LNG
import terminals will be set all across the nation and FSRU deployment at all the
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major Indian ports is already on agenda to speed the process of making LNG supply
readily available to every corner of India. India is historically a price sensitive market
and any competitive changes on the supply side will result in the immediate ramping
up of LNG imports in the country. As per IEA, India’s LNG demand will be increasing
at the rate of 4.9% as compared to China’s 4.7%.

In conclusion, to fulfil India’s goals and to achieve the vision of becoming a

gas-based economy, India has taken small but major steps by successfully running
pilot program in Gujarat state as a model for energy diversity and cleaner air. From
RLNG terminals to Gas distribution network (via pipeline, road trucks) to CNG
stations to NGVs to Govt, Private and International partnerships in the LNG value
chain, these prototypes have proved to be successful for all the concerned
stakeholders. The replication of this model across India will result in fulfilling the
national agenda of cleaner & pollution free cities.

8.0 CONCLUSION:
✔ Promoting the necessary frameworks for expansion of gas use in the Asia
Pacific community is a win-win situation.
✔ The potential is yet untapped particularly in India as around 95 % of India's
trading by volume and 70 % by value is done through maritime transport.
✔ Countries like Japan (Port of Yokohama) can be used as a template for LNG
bunkering.
✔ The government could seek to encourage LNG bunker fuel, through incentives
to the ship owners as well as helping out the suppliers.
✔ Neighbouring coastal countries can become partners for creation of a vibrant,
small scale LNG market in India with bunkering, trucking and fuelling as the
core areas of collaboration.

9.0 ​LIMITATIONS OF THE REPORT​:

✔ The data for how many cargoes, ferries, ships, cruise vessels etc. visiting every
Indian Port could not be collected which could have given valuable insight.

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REFERENCES:
Courtesy of Bloomberg NEF, “Asia to Dominate Long-Term LNG Demand

Growth,” September 12, 2018,

https://about.bnef.com/blog/asia-dominate-long-term-lng-demand-growth/

Danielle Holden, Liquefied Natural Gas (LNG) Bunkering Study, DNV GL, No.

PP087423-4, Rev. 3

F. Fesharaki, kang wu, Analysis from the East-West Center No. 44, June 2000,

Natural Gas: The Fuel of the Future in Asia

Fuelling Maritime Shipping with Liquefied Natural Gas, OECD, International

transport

forum,​https://www.itf-oecd.org/sites/default/files/docs/maritime-bunkering-

lng-japan.pdf

LNG as a Maritime Fuel: Prospects and Policy ,February 5, 2019 Congressional

Research Service ​https://crsreports.congress.gov​, R45488

Ports-apr-2019 presentation, India brand equity foundation report

Zion Market Research, LNG Bunkering Market by Vessel, Comprehensive

Analysis and Forecast,2017–2024,August1,2018,

https://www.zionmarketresearch.com/report/lng-bunkering-market​.

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