Mr Athanasios Reisopoulos talks gave an interesdting interview in NAFS magazine which is the following:
Question: Which are the challenges and prospects for LNG as Marine fuel?
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Shipowners will have to make a decision in the next five years on how they want to comply with the International Maritime Organization (IMO)'s stricter global limit on sulphur emissions from 2020. Three routes forward stand out as realistic options:
1. To continue burning traditional heavy fuel oil but to fit emissions abatement technologies (scrubbers).
2. To burn lower sulfur marine fuels i.e. marine diesel oil or marine gas oil.
3. To shift fuel-type to run on LNG.
The move to LNG fueled vessels has been characterized as a revolution for the shipping industry but lower crude prices have impaired the cost benefits analysis for shipowners considering the adoption of LNG as marine fuel. However the environmental and regulatory drivers remain.
The number of ships using LNG as fuel is increasing fast and is expected to grow more rapidly in the next 5-10 years. According to DNV GL it is expected that a number of approx. 1000 non LNG carrier vessels running on LNG in 2020 or shortly after, will be in the market or taking a bunker market share of approx. 10% with heavy fuel oil to remain the main fuel for deep sea trading. Over the next four decades it is likely that the energy requirements will be marked by a high degree of diversification. LNG has then the potential to become the fuel of choice for all shipping segments.
One reason for using LNG as fuel is its commercial attractiveness and availability world-wide to meet the fuel demand in shipping. However, the prime driver to adopt LNG as fuel remains compliance with the tightening limits for emission of sulphur and nitrogen oxides within the US, Baltic and North Sea Emission Control Areas(ECAs) with max sulphur content of marine fuel of 0,1% from the 1st of January 2015. Using LNG as fuel offers in other words clear environmental benefits: elimination of SOx emissions (100%), significant reduction of NOx (85%) and a small reduction in Green House Gas (GHG) of approx. 20% .
The EU Sulphur Directive mentions LNG as a potential future solution and invites governments to make it attractive in terms of supply. All major Class Societies have updated their Class Rules in order to accommodate for LNG fueled ships. The IMO has published interim guidelines on safety for gas fuelled engines installations on ships.
However, many market players still have the perception that the commercial risk of choosing LNG as ship fuel is still high as the decision to invest in LNG as a bunker fuel is not an easy one considering the approx. extra 30% newbuilding cost. This high newbuilding or retrofitting cost combined with the lack of confirmed long term LNG availability and infrastructure of bunkering facilities explains the hesitation of many shipowners to move forward for LNG fuelled propulsion.
When using LNG as fuel the design of the ship has to be adjusted in such a way as to adapt to the properties of LNG.
LNG has the half the density of Diesel oil which means that larger storage tanks space (volumetric) is needed to generate equivalent energy. The storage tanks are the greatest capital expense in outfitting a vessel burning LNG as fuel.Also,LNG is liquid only at very low temperatures(-163 Degrees Celsius) so it requires special storage tanks,pipe systems and handling to avoid contact with personnel and ship's structure.
Retrofitting with a pure LNG drive is for the above mentioned reasons (i.e. lack of storage capacity and absence of appropriate LNG infrastructure) a measure contemplated by only a small percentage of the shipping companies.Consequently shipping companies tend to prefer a Dual Fuel drive ,which can be operated with either gas or heavy fuel oil.
Beyond supply and infrastructure the main issue remains regulation, which is closely linked with training for LNG bunkering and operations. Without standard processes the handling of LNG can be disastrous.
The challenge in the short term, is the low oil price, which slows uptake of LNG as fuel and therefore slows the development of an LNG bunker chain, making many owners reluctant to commit to LNG. Another challenge is to convince port administrations and investors that bunkering LNG is safe and develop a working model to be implemented in similar way to HFO bunkering.
Considering the current LNG infrastructure,using LNG as fuel is more suitable for ships with a set route and a short range (4000 nautical miles or less) as a storage tank capacity can not be overly large.
The benefits of using LNG as fuel also depends on their usage within ECAs.The higher the ECA exposure the shorter the payback time of an investment on LNG system for all ship sizes.In contrast ,tramp ships with long voyages and uncertain routes are not considered suitable in the near future.
A recent study of DNVGL and MAN on using LNG as fuel concluded that a container vessel in the 2500-4500 TEU range and operating 60% of it's time within an ECA could pay back the investment of the convertion to LNG in less than 3 years.
Another DNVGL feasibility study in 2014 for Kamsarmax and Panamax Bulkcarriers on the use of LNG as fuel for trade routes between USA and Europe and within Europe,investigates several alternatives in design and LNG storage volume with respect to operational flexibility and potential payback times, that the dual fuelled vessel will require compared to a traditional Kamsarmax.
Many owners are already opting to have their newbuildings constructed ''LNG ready'' in effect designing the ships so that they can easily upgraded to LNG in the future. In general the conversion to LNG is anticipated to be more costly than the additional investment for an LNG system during a vessel's construction phase. The extra cost of labor and the loss of earnings during the installation period may add 15 to 20 per cent to the additional investment cost for an original system. The payback time will increase accordingly.
Conclusively, using LNG as ship fuel can result in lower emissions and given the right circumstances, lower fuel costs.
The drivers and incentives for using LNG as fuel are still there despite the artificially low oil prices expecting a return to higher oil pricing and consequently a clear economic incentive for gas.
Finally, long term availability of LNG, time period of trading in ECAs, prescriptive rules requirements and an increased number of bunkering facilities will define the future of LNG as fuel in shipping.
Question: The European Commission has recently urged the Greek government to reform its tonnage tax system in line with competition and EU State aid rules.
Do you see the Commission’s demands as a threat to Greek shipping which may lead to de-flagging and a massive exodus from Greece?
Greece is under pressure by the European Union to squeeze more taxes from the shipping industry and remove the special treatment the Greek shipping business is receiving from the country.
More specifically, the European Union has sent to Athens on 21 Dec. 2015 a set of proposals on tax measures and reforms to ensure that State support to the maritime sector in Greece complies with the EU State aid rules.
Furthermore, the EU is pushing Athens to phase out the ''special tax treatment arrangements'' brought into the country under rules incorporated and guaranteed in the Greece's constitution of 1967. According to these rules the Greek shipping industry pays no tax on international earnings from maritime transport services, such as taxes on profits from shipping operations or ships’ sales.
Preferential tax treatment should also be removed for insurance intermediaries, maritime brokers and other maritime intermediaries as well as shareholders of shipping companies, none of which conduct ‘’genuine maritime transport activities’’.
However, the Commission's proposals according to EU State aid rules, do not concern the core of the Greek shipping economy, i.e. the operation of bulk carrier and tanker vessels. These can continue to benefit from a tonnage-based instead of profit-based taxation as long as operators of such vessels maintain the share of the fleet they have under EU or European Economic Area flags.
These measures were introduced in an effort to put a stop to a decline of the EU flagged vessels, rather than relocate their activities outside the EU.
From a total of approximately 4200 Greek owned vessels only about 15% are flying the Greek flag while 15% and 5% are registered in Malta and Cyprus respectively.
The rest of the fleet is distributed to more than 40 Flag States, with the lion's share registered in Liberia, Panama and Marshall Islands.
Greece now has to inform the Commission whether it agrees to the measures proposed, in which case it would need to amend its national rules with effect from 1st of January 2019 at the latest.
Greece was the first country in Europe to start allowing shipping companies to pay a nominal tax, known as a tonnage tax, followed by other countries within Europe, which decided to apply the same tax regime. The tonnage taxes paid by Greek ship owners are higher than those of the European seafaring countries let alone their Asian competitors. It is worth mentioning that the contribution to the Greek economy was further increased by imposing taxes at the same rate on non-Greek flagged vessels.
Greek shipping with more than 4000 ships, which represent approximately 17% of the global shipping capacity, is one of the most productive pillars of the Greek economy. In particular, according to the recent study of the Foundation for Economic and Industrial research (IOBE), Greek shipping contributes over 7% of the country's GDP and offers employment to approximately 200,000 shore based jobs.
The Greek shipowners are increasingly worried that the Commission’s demands could hurt a key driver of the country's economy already affected for more than seven years now by record low freight rates.
The threat of higher taxes encourages Greek shipowners to relocate their activities to more competitive environments including Cyprus, London, Singapore, Monaco, etc. Maritime authorities of many non-EU States are seeking to attract Greek shipping owners and their companies to relocate their activities.
Should the reforms be implemented an exodus is expected and a large number of shipping companies, ship brokers, insurance companies, ship suppliers, seafarers etc. will be affected, rising the unemployment between 20 and 30 percent in the maritime industry from less than 8 percent now.
A number of shipping companies has already got down to business in Cyprus by opening bank accounts and leasing offices and a larger number of stock listed and privately owned companies are at least looking at relocating to Cyprus for obvious reasons, as Cyprus, apart from the language and relationship to Greece is offering a very competitive tax system and is a EU member.
However, this may not prove the best solution as it is likely that the decision on the Greek tonnage tax will be used as ''precedent'' by the Commission’s DG COMP (Directorate-General for Competition) for the assessment of other European maritime shipping regimes including Cyprus.
The Union of Greek shipowners (UGS) has rejected on the 21st of January 2016 the European Commission’s call to reform its shipping tax system stating that “there is no effective distortion of competition in the maritime field in the EU”.
Any fundamental changes to the institutional and fiscal framework in which the Greek shipping community is presently operating would have, according to UGS, unforeseeable consequences, which would be detrimental for Greece and the rest of the EU’’.
While the EU is pressuring Greece for a tougher tax regime for shipping it was giving tax reliefs to other States’ shipping companies:
“With the aim of reducing German Owners’ personnel cost and putting a stop to the decline of German merchant fleet, the Federal Parliament has now extended the subsidy to 100% for the income tax, initially until the year 2020. The changes are said to conform to the European Competition rules’’ (World cargo,13 February 2016).
Although shipping is of great importance for the Greek economy, it is neither deriving any business nor has ever received any subsides from the Greek State.
The ball is now at the side of the Greek government’s court. It remains to be seen how well it will defend the Greek shipping interests which, after all, are the country’s and its own interests.
* Athanasios Reisopoulos, Dipl. Ing./ former Area Manager to Germanischer Lloyd