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Source: Wärtsilä

Australia's shift to marine fuel LNG stalled in port

Australia has been tipped to overtake Qatar as the world's largest LNG exporter by 2020, but moves to adopt this readily available resource as a domestic marine fuel have so far remained in the doldrums. Industry insiders point to political, logistical and market factors holding up the change.

Even if the IEA's 2013 predictions of Australia topping the global LNG export ranking don't come true - energy markets are notoriously fickle - the fact remains that Australia is awash with domestically-produced LNG. The share that isn't exported has found its way into a wide range of land-based applications, with businesses lining up to tap into this relatively clean, cost-effective resource. It would therefore seem natural that Australia' ship owners and operators, like their counterparts worldwide, would already be turning to the fuel as a replacement for the heavy fuel oil (HFO) and marine diesel they currently use. That hasn't happened yet.

"In very broad terms, the prospect of Australia using LNG as a marine fuel is still a way off," said Banu Kannu, Wärtsilä's Marketing General Manager for the Middle East, Asia and Australia region. The fundamental problem is a lack of infrastructure. "Bunkering possibilities are few and far between, if not non-existent."

Australia's maritime industry faces the same 'chicken-and-egg' quandary seen elsewhere in the world: Investors don't want to pour money into building LNG bunkering facilities unless they know there will be enough LNG-fuelled ships to use them, while ship owners don't want to convert to using LNG while there's no bunkering available.

What's slowing things down in Australia's case, Kannu says, is that two major factors that might otherwise push the industry over the infrastructure hump are missing: environmental regulations and government support.

No help from the top

In regions such as Europe and North America, the LNG pickup has been significantly driven by the introduction of Emission Control Areas that make conversion to a low-sulphur, low-NOx alternative a financially attractive proposition. Such is not the case in Australia, where emissions aren't seen as an issue and have therefore not been on any government agenda in recent memory, Kannu said.

Other nations' governments, Kannu pointed out, have further pushed LNG adoption by providing subsidies and incentives, both for building the infrastructure and for using the fuel. Australia's government has so far expressed no interest in doing the same.

"The players who would stand to benefit from it are all keen, willing and eager. We just need the decision-makers in Canberra, and the state governments, to push the button," Kannu said.

Nobody is holding their breath for that to happen, particularly not those in the maritime business, said Teresa Lloyd, CEO of the Maritime Industry Australia Limited, a national lobbying organisation for the maritime industry. But that certainly doesn't mean the issue is dead in the water.

Despite the lack of public-sector encouragement, Lloyd said, there has been a large amount of interest in LNG among ship owners and operators, and hope that the private sector will overcome the infrastructure challenges on its own. One company that transports cargo between Tasmania and the mainland has even ordered two new LNG-powered ships for the route, though admittedly this was an exceptional case where a tailor-made bunkering solution was possible. So LNG is definitely on ship owners' minds, Lloyd said, and her group has been working to keep it that way.

Mired in cut-price crude

What is currently bogging down the prospects for LNG, she said, is the massive drop in oil prices seen in 2014-2015. The resulting cheap marine diesel and HFO is undercutting much of the economic arguments in favour of either investing into ships that run on LNG or banking on a market for bunkering.

"Simply put, the economics just don't stack up at the moment, and there's a lot of commentary out there saying that the economics aren't going to stack up for quite some time to come," Lloyd commented.

"The industry was a lot closer to serious action 18 months to two years ago than they are now because of that drop in the oil price. But it doesn't mean that they've taken their foot off the pedal completely. There's still a lot of effort going into being capable from an infrastructure point of view both shoreside and for the different vessel types," she said.

Lloyd said there is particular interest among players in the country's oil offshore oil and gas sector, which rely on service fleets for their operations. She speculates that the first serious movement toward LNG adoption might in fact come from one of these large companies, converting its service fleets to run on its own bunkered LNG. Without middlemen involved, the savings could be substantial.

Current conditions suggest that only such a bold step, or a major shift in the surrounding economic landscape, would be enough to trigger the Australian marine industry's switch to LNG.

"There's so much interest, it's hard to believe it won't happen. The question is when," concluded Lloyd.