By Eric Yep
The first natural gas-fueling station for cargo ships is set to
open on the mighty Yangtze River next month, as part of China's
efforts to use cleaner energy sources and cut down on
pollution.
The ships that travel on China's longest river currently burn
diesel and bunker fuel, and that helps to shroud cities along the
waterway with smog.
China Gas Holdings Ltd. is building the fuel terminal as a pilot
project in the mega city of Chongqing. While a few ships have
converted their engines to use natural gas, most that travel the
Yangtze haven't, so it could take years before the switch to gas
from oil takes off and makes an impact on global energy
markets.
Still, global companies are already lining up to invest.
Finland's Wärtsilä Corp. and Rolls-Royce PLC will provide the
engine for Asia's first gas-powered tugboat, which will be built
for state-run China National Offshore Oil Corp. by the end of this
year. The tugboat will pull oil rigs and other large items from
shipyards on the Yangtze's banks out to sea.
China wants to be the first country in Asia to adopt natural gas
as a shipping fuel on a commercial scale, starting with river ships
and then moving to international seafaring vessels. China's
transport ministry aims to have 2,000 vessels, equivalent to just
2% of its inland fleet, running on natural gas by 2015. It wants
that number to rise to 10,000 vessels by 2020.
The country is already the world's fastest-growing market for
natural gas and much of the future demand is expected to come from
road and water transportation.
The river deltas in the south and the east where the gas project
will get its start are the country's industrial powerhouses.
Factories along the Yangtze and the smoke-spewing vessels on the
river itself make adjacent cities some of the worst-polluted in the
country.
Vessels on the river will burn 3.36 million metric tons of
bunker fuel a year by 2015, but using gas instead would cut some of
the worst pollutants, including sulfur-oxide emissions by 90% to
95% and carbon-dioxide emissions by 20% to 25%, China Gas Holdings
says.
The "initiative needs to be taken, like targeting the biggest
and most polluting vessels," said analyst Abhishek Rohatgi of
consulting firm Enerdata said.
And there are other challenges as well. Natural gas prices are
much higher than diesel in Asia, and the Chinese government raised
prices on the fuel last month. China is providing more
infrastructure and subsidies for gas-powered shipping, though, and
that is likely to lead to falling prices in the future.
"Current economic conditions within [China's] inland waterway
transport have however been challenging, and are forcing some key
industry participants to face continuous loss," said Mikael
Simelius, vice president of marketing at Wartsila, which makes
dual-fuel engines and LNG fuel supply systems. The company has
already built and supplied two LNG-powered ships to Norway.
"As a result, it might take some time for the industry to match
the government's targets," he said.
In the U.S., gas prices are low. LNG fuel for shipping costs
about $10 a unit there, less than half the cost of diesel at $23 a
unit, according to energy consulting firm Galway Group. In China,
gas costs three times as much, while bunker fuel costs about $17 a
unit.
"But these are mainly teething problems as China's gas shipping
sector grows," said Irfan Choudhry, senior director at Galway
Group. He said for the business to become viable, costs will have
to come down, infrastructure will have to be developed and the
right regulation will have to be in place.
For instance, the southwestern province of Jiangxi is providing
subsidies to as many as 700 ships to be converted over to being
gas-powered, said Zou De Liang, general manager at the Jiangxi unit
of China Oil Gangran Energy Technology Co. Ltd.
China Oil Gangran is an electronics company that recently formed
a joint venture around a patent to convert diesel-powered vessels
to gas in Jiangxi province. The company claims its technology can
save up to 30% in fuel costs.
Write to Eric Yep at eric.yep@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires