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 ---------- 11-14

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

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

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

1.0 OBJECTIVE OF THE REPORT:

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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 into 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.

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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. 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 Turkmenistan-
Afghanistan-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

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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.

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%
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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.

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.
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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 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:
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• SOx of over 90%

• 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.

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,
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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 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
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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. The 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

6.1 Size of Market & Recent Developments:

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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 the 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 to a threefold 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.

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

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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 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

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

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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 major Indian ports is already on

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 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-jap

an.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

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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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