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Changes afoot on the Chinese fuel scene

China’s moves to improve air quality and lower emissions across all sectors are starting to see major developments in shipping and ports

The Chinese government instituted a blanket 0.5% sulphur cap on marine fuels across the Yangtze River delta last September, matching rules already in place across some ports. This was followed by a ban on domestic sales of diesel with sulphur content higher than 10ppm in November, with Chinese refineries reportedly increasing their imports of low sulphur crude to match.

These reduced sulphur limits and a government push to clean up Chinese air has seen a run of interest in alternative fuels and their supporting infrastructure from Chinese operators.

This spring, Cosco, US-based IGP Methanol and Jinguotou (Dalian) Development Co signed an MOU to build up to two methanol plants in the US to supply Jinguotou’s methanol-to-olefins plant in Jin Zhou. While Cosco aren’t involved in the plant construction, the shipping giant is eyeing the possibility of building and operating methanol-powered tankers to link the two.

“It is a key step for Cosco to move toward new clean transportation fuels, promoting the transformation and upgrading of traditional businesses for Cosco Energy Transportation, while providing strong support for IGP Methanol and JGT methanol distribution,” the company said.

Other Chinese ship operators working on the country’s inland waterway network have been exploring all-electric propulsion. In December last year, Huangzhou Modern Ship Design & Research Co launched what it claims to be the world’s first all-electric cargo vessel. The ship’s 2,400 kWh lithium battery pack allows it to carry 2,000 tonnes of cargo just 80 km at around 7 kts on a full charge, with a charging time of two hours at either end.


HMSDR chairman Huang Jialin said: “As the ship is fully electric powered, it poses no threats to the environment. The technology will soon be likely … used in passenger or engineering ships.”


“The cost of electric power is less than traditional fuel. The main cost of the new energy cargo ship depends on how much lithium battery it is equipped with,” Guangzho Shipyard general manager Chen Ji said.


“Theoretically, the fully electric-powered ship could have more capacity in cargo loading. If it is equipped with larger energy batteries, it will carry goods of more than 2,000 tonnes.” While the provision of sufficient battery storage remains an obvious chokepoint for the technology, heavily restricting range and speed, the launch is still a step forward. Ironically, the ship is to be used to ferry coal for power generation to plants along the Pearl River.


This summer, the Yangtze joined the all-electric club with its first battery-driven passenger vessel and accompanying charging infrastructure. China Shipbuilding Industry Corporation built the 1,000 gt, 300-passenger cruise tour ship, which has a better range at 120 km at the cost of a 6-hour charge time, as well as building charging facilities along the river. According to CISC’s Zhou Linghui, the ship carries 25 tonnes of lithium batteries. It will operate on the Wuhan section of the river, in the province of Hubei.


While all-electric vessel deployment seems likely to be restricted to short-range, inland and niche situations for the time being, most industry analysts expect China to become one of the biggest, if not the biggest, individual markets for LNG and LNG bunkering in the near future.

This spring, Ji Yongbo, a researcher at the China Waterborne Transport Institute was quoted by news agency Interfax as saying at a Nanjing conference that the Chinese LNG-fueled merchant fleet numbered 275 vessels, 160 of them newbuilds and 115 retrofits. More importantly, Ji also said the country now had 19 LNG bunkering facilities, albeit only three of them fully operational. Infrastructural support across most of China’s major ports is likely to be in place before long.


Again, inland usage on the country’s vast waterway network is helping drive interest. At the turn of the year, Shanghai SMI Environmental Industry Co launched the first of a series of 36 LNG-powered waste container ships. The vessel is deployed on the Huangpu River.


Demand for LNG for both industrial and domestic use in China is expected to soar in coming years as the manufacturing and power sectors come to comply with emissions controls. Along with this increased and more widespread interest in gas will inevitably come the type of storage, transfer and delivery infrastructure that bunkering requires with a consequently reduced investment overhead for the maritime sector. Last year the country became the world’s second largest importer of LNG, primarily as a result of winter heating demand, and with several producers actively looking to expand supply coverage across the Asia Pacific region, a boosted gas supply chain should see Chinese investment in gas continue through the foreseeable future.


China National Offshore Oil Corporation put the overwinter demand in context at the start of the year: “From 9 December 2017 to 8 January 2018, CNOOC delivered 5,226 tons of LNG from Dapeng LNG, Yuedong LNG and Zhuhai LNG to North China. On 4 December 2017, the daily gas supply of Tianjin LNG exceeded 20 million [cubic metres] for the first time. By March 2018, it is expected to unload 21 cargos from LNG tankers.”


“In November 2017, Fujian LNG unloaded a record high 350,000 tons of LNG and delivered 27.4 million cubic meters of gas to Jiangxi, Hunan through LNG trucks. As of 25 November 2017, Zhejiang LNG supplied 3 million tons of volume, increasing by over 80% compared to the same period last year. The facilities achieved the design capacity for the first time.”


CNOOC is not the only national Chinese gas supplier, of course, and this year saw Sinopec open a new US$2bn LNG terminal in Tianjin capable of handling 3m tonnes per annum. Not to be outdone, according to a report in the Xinhua Daily this summer, CNOOC itself is planning a US$2.17bn LNG terminal in Yancheng capable of handling 100,000 gt vessels, with associated storage and transfer infrastructure. The terminal is planned to come online in 2020.


All this comes against a backdrop of the ongoing trade war between the Trump administration and China. While LNG has not yet been included in tariff measures, China has already taken markedly fewer LNG imports from the US, switching instead to Russian and Australian supplies. 

Across the two years prior to this spring, China took around a seventh of all US gas exports, and while some of the decline seen so far in 2018 is likely to be due to seasonal variations, Chinese imports were up 57% on a tonnage-per-mile basis last year and uncertainty over the future shape of trading relations between the two superpowers has many industry watchers expecting to see greater cargo swaps and traffic shifts. Infrastructure and material investments in LNG bunkering – which naturally tends to follow supply availability – may yet see knock-on uncertainty.


Such political concerns haven’t yet affected efforts to expand and consolidate developments in the China (Zhejiang) Pilot Free Trade Zone in Zhoushan, one of several ventures aimed at smoothing international trade. Several Singapore-based bunker suppliers have been lined up to offer bunkering services in the new port, with Consort Bunkers joining Brightoil Petroleum in the sector in recent months, alongside Glencore Singapore which has launched a joint oil trading venture in the FTZ with Zhejiang Petroleum. President Xi Jinping, who has described the Zhoushan FTZ as a project of national strategic significance, has also announced plans to develop a similar free trade port in Hainan over the course of the next 20 years. Hainan is principally a tourist destination and there are doubts about its current port capacity, but foreign bunker suppliers have already voiced tentative interest in the potential for the project.


According to Xinhua, an initial free trade zone could be established by 2020, the initial stages of a full free trade port by 2025, with “mature” free port operations by 2035.


As the prospective free trade port plans were being developed, Hainan’s Maritime Safety Authority launched a year-long bunker inspection campaign across the island province, including the ports of Basuo, Haikou, Sanya and Yangpu as well as the Qiongzhou strait.


Huatai Insurance, describing the campaign, said: “The inspection on fuel oil quality of calling ships will be reinforced, with focus on inspecting whether the oil record book is recorded normatively, whether the fuel oil supply record and fuel oil sample is kept integrally and whether the index on the fuel oil supply record meets the relevant requirement.”


As well as checking fuel regulations are being met, the MSA is reported to be cracking down on MARPOL Annex VI and BWM Convention compliance on ships in the monitoring area.

A clean air drive has seen a sulphur ECA imposed across the Yangtze delta

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