Australia all at sea
Australia is positioning itself to dominate liquefied natural gas-fuelled cargo shipping routes into Asia
Initially considered marginal compared to alternative fuels, the use of LNG for shipping is rapidly gaining traction. This is partly because of ground-breaking new vessel designs and competitively-priced LNG. But shippers also have an eye on International Maritime Organisation restrictions on sulphur content in marine fuels which will be capped at 5% from 1 January 2020.
The game-changing moment came late last year when leading global shipper CMA CGM announced it would build nine large container ships with a membrane tank design by GTT powered by 300,000 tonnes a year of LNG, which would be supplied by Total. This signalled that the shipping industry was comfortable with the concept of burning gas rather than distillate fuels to meet the 2020 target.
In Western Australia, where offshore LNG sources are plentiful and processing and supply infrastructure is already in place, resources companies are looking to dominate this potentially significant new growth market. Woodside Energy is a lead partner in the Green Corridor project to establish a bulk carrier fleet fuelled by LNG—supplied by the North West Shelf, Pluto and Wheatstone LNG projects. Resource companies will be able to charter ships for exports to China and northern Asia.
Green Corridor was established in late-2016 as a joint industry project (JIP) to prove the commercial potential and technical feasibility of LNG for shipping. It comprises Norwegian shipping register and project manager DNV GL, Japanese shipping group Mitsui OSK Lines, LNG producer Woodside, resource exporters and potential charterers BHP Billiton, Rio Tinto and Fortescue Metals Group, Chinese ship designer SDARI and Chinese marine transport group U-Ming.
The newcastlemax vessel can carry iron ore from Western Australia to China twice on one tank of LNG
The initiative envisages building a fleet of LNG-fuelled ships, run out of Australia which are capable of travelling to and from north Asia on a single tank of fuel. This would do away with the need to establish LNG refuelling infrastructure in Asia, giving Australian firms a sustainable, flexible and bespoke shipping fleet to charter for dry bulk goods.
The project is looking to leverage the physical proximity of Australia's energy and mineral resources, the bulk of which are located in or offshore Western Australia. In the competitive international commodity trading market this is of dual benefit to the Australian resources industry. It gives LNG producers a potentially sizeable new market for their product right on their doorstep, while offering iron ore and coal exporters a flexible and cost-effective supply chain to Asia. This opportunity for diversification could be hugely advantageous for both industries in the face of cheaper, competing production elsewhere in the world.
"The challenge with the LNG refuel supply chain is where and how you bunker," says Walter Purio, chief executive of Perth-based LNG Marine Fuel Institute and closely involved with the Green Corridor initiative. "In northwest Australia, the port for iron ore is right next to the gas, meaning LNG as a fuel will be competitive. That's where we think Australia has an advantage, compared to what it will require for a bulk carrier to go to China and then, say, to bunker in Singapore which means a 52-hour diversion."
To test market appetite and the concept's economics, the Green Corridor Project has designed a Newcastlemax-class bulk carrier, which has received approval in principle from DNV. The vessel can carry iron ore from Western Australia to China twice on one tank of LNG. Alternatively, it can travel from Australia's northwest carrying iron ore to China, before transiting in ballast to Australia's east coast to pick up coal. It then returns to China to deliver the coal, and sails back down to Australia's northwest in ballast. All this is completed in a single trip, without needing to refuel on the way.
Green Corridor's second phase is looking to develop LNG-fuelled very large ore carriers to work on a defined trade route from northwestern Australia to China for a set number of years. Three new organisations will be invited to join this phase, at least one of which is expected to be a major Chinese player. An announcement is expected shortly.
At the same time, Green Corridor is looking to provide infrastructure and an LNG bunkering solution to support its JIP members in Australia and the Asia-Pacific region in getting the business case over the line. JIP members would then be able to go to the miners and tell them the cost of chartering the ships.
The potential for this new growth market is huge. Wood Mackenzie has estimated that if the entire global shipping fleet converted to LNG, the market could account for more than 200m tonnes a year of demand, compared with total global LNG trade of some 250m tonnes in 2016.