State programme for LNG
Russia’s Ministry of Transport has developed a state programme ‘Expanding the use of natural gas as fuel for transport and special purpose equipment’ to encourage construction of LNG-powered ships and development of required infrastructure with the Baltic Sea and the Rebublic Tatarstan to be pilot regions in the part of sea transport and river transport accordingly.
Plans and Prospects
State programme “Expanding the use of natural gas as fuel for transport and special purpose equipment” (hereafter – state programme) has been developed to facilitate transition of all types of transport to gas fuel and to ensure synchronized development of gas-fueled transport, gas fuel production facilities and required infrastructure.
Marine and river transport are the priority segments of the industry in terms of using natural gas as fuel due to the potential market capacity and the need to reduce hazardous emissions to the environment. Bunkering of seagoing ships with LNG at seaports of the Russian Federation can bring a significant income to the bunker market.
It is reasonable to use LNG as fuel for the following types of vessels: icebreakers, tugboats, floating units for LNG bunkering, ships of mixed sea/river navigation, river-going passenger ships and ferries.
The first projects on transition to LNG-powered vessels and development of LNG infrastructure are under implementation at the seaports of the Baltic Basin, which is among Nox and Sox emission control areas. Introduction of tough environmental requirements has facilitated the transition of sea-going ships to LNG.
In 2013, construction of an underground gas storage facility for 52 mln cbm began in Kaliningrad. In November 2017, Hyundai Heavy Industries Со. LTD will complete the construction of a floating regasification unit ordered by Gazprom to supply the Kaliningrad region with gas via a fixed sea terminal.
By 2022, an LNG-powered ferry is to be built for transportation of vehicles and passengers between Kaliningrad and Saint-Petersburg.
Baltic LNG, a plant with annual capacity of 10 mln t of LNG and with an option for expansion to 15 mln t, is planned for the construction near the port of Ust-Luga.
Investors consider different sites for location of bunkering facilities in Russian orts of the Baltic Sea (Ust-Luga, Big Port St. Petersburg, Vyborg, etc.). The decisions will depend on approval of pre-project and project documentation.
Gazprom has ordered a pre-investment feasibility study for construction of an LNG plant on the coast of the Black Sea to select ports where bunkering facilities are to be located.
United Shipbuilding Corporation (USC) has completed the construction of the world’ first LNG-powered icebreaker. The ship was built in Helsinki by Arctech Helsinki Shipyard (fully owned subsidiary of USC) for Finnish Transport Agency. The shipyard specializes in building multi-functional ice-class ships including vessels for servicing oil and gas projects on the Arctic shelf of Russia.
USC is currently building vessels for LNG bunkering to ensure the development of LNG infrastructure in the Baltic Sea area.
Construction of a plant for production and shipments of LNG and gas condensate has been completed near Sabetta, on the eastern coast of the Yamal peninsula in the Gulf of Ob. Possible servicing of port Sabetta by LNG-powered tankers is under consideration.
To provide sea links with the Republic of Crimea, there is a plan to build ferries carrying vehicles and boats for transportation of passengers at the city of Sevastopol, high-speed passenger ships to link the cities of the Crimean peninsula with those in the Krasnodar Territory.
In the Far East, an LNG terminal is to be built in Vladivostok (Vladivostok LNG project).
With the implementation of the state programme, Russia will have 14 LNG-powered vessels by 2022 (including tugboats, bunkering ships, icebreaker and ferry). Then, three bunkering centers will appear at the seaports of the Russian Federation.
It is reasonable to use natural gas for fuelling different river vessels as it features more environmentally friendly characteristics and lower cost. Besides, LNG powered engines feature reduced wear as compared with conventional engines. Transition to natural gas will let reduce the cost of inland water transportation and take over part of cargo from railways and road transport. As of today, Russia has no river ships running on LNG.
The Republic of Tatarstan is considered as a pilot region for operation of river ships driven by LNG.
There are considerable passenger flows in the region, as well as cargo flows primarily formed by construction and oil cargoes. High-speed passenger ships and tankers of mixed sea/river navigation are to be the first to use LNG as fuel.
LNG can be supplied from road and rail tanks or from coastal and floating production/storage LNG facilities, as well as from floating bunkering units.
River fleet will be a consumer of natural gas in spring-summer-autumn months, when other industries see a slowdown of seasonal demand for gas. That will create an opportunity for efficient use of fuel supply system.
The orders for construction of sea and river vessels running on LNG can be awarded to USC shipyards (Severnaya Verf, Admiralteiskie Verfi, Zelenodolsk Plant named after M. Gorky, Zvezda shipyard, etc.
The sales of LNG as a marine fuel for water transport are forecasted to make 120,100 t in 2022.
Incentives
Among incentive mechanisms applied under the state programme to facilitate the transition of vessels to LNG are the property tax privileges; relief from customs duty for equipment imported by shipyards and ship owners taking part in construction of LNG-powered ships and for components/equipment needed by LNG bunkering facilities; preferences for shipping companies operating LNG-powered ships when holding competitions for awarding state and municipal orders; subsidies for partial covering of costs for conversion of vessels; providing the right of accelerated depreciation of equipment running on LNG as well as equipment and facilities involved in LNG bunkering; relief from tax on land where bunkering centers are located (5 years from the moment they are put into operation); relief from tax on property for organizations owning coastal and port facilities/equipment involved in shipment/storage of LNG as well as port fleet and auxiliary ships running on LNG; federal budget allocations to increase the authorized capital of State Transport Leasing Company under the programme on non-commercial leasing of river ships operating on gas fuel; state and municipal orders for gas-engine equipment; subsidies for covering interest rates on loans for purchasing gas-powered ships; financing of R&D in designing/building of sea/river ships running on LNG, etc.
To implement the above measures in the sphere of sea/river transport the draft state programme foresees RUB 1.3 bln of federal allocations for 2018 - 2022.
International experience and competition
The state programme covers the period of 2018-2022 when LNG ships and bunkering facilities are to appear in Russia.
Of course, several countries of the Northern Europe are ahead of Russia in terms of LNG bunkering infrastructure. In the framework of TEN-T, the European Commission has developed a number of projects focused on wider use of LNG as a bunker fuel in European countries. The main aim of the project known as ‘LNG in Baltic Sea Ports’ is to foster a harmonized approach towards LNG bunker filling infrastructure at the ports of Aarhus, Copenhagen-Malmö, Helsingborg, Helsinki, Stockholm, Tallinn, Turku and Riga.
77% of 31 bunker filling stations operating in Europe are located in the North and Baltic Sea areas with Norway holding the leading position. Bunker filling stations at the terminals for LNG imports feature higher capacity being intended for fuelling large ships.
Apart from using LNG as a fuel for seaborne transport, the EC is implementing the project ‘LNG Masterplan for Rhine – Main – Danube’ focused on introduction of LNG as fuel for inland water transport and construction of LNG filling stations along the Rhine – Main – Danube route. One of the targets under this project is to enhance competitiveness of river transport and to increase its share in cargo traffic within the Trans-European Transport Networks (TEN-T).
Russia’s state programme ‘Expanding the use of natural gas as fuel for transport and special purpose equipment’ is actually targeted at coming from behind in the field of LNG-powered ships and LNG bunker filling infrastructure.
Taking into account the cost of LNG projects and the number of stakeholders, bunkering companies should better develop their business plans and pre-project documentation for LNG infrastructure development and sign agreements with ship owners and LNG suppliers on joint implementation of projects (covering expected volumes of LNG production and sales) before they embark on implementation of such projects.
Svetlana Vorontsova, Transport Integration Group
