Energy Transition

The dawn of alternative marine fuels in Latin America

LNG is finally taking off, but greener technologies are following closely

After more than 15 years of slow development, the market for alternative marine fuels is finally materializing in Latin America. Projects are coming online in 2021, with new announcements emerging almost every week.

Most are LNG projects, but zero-emission projects are rapidly gaining momentum. Both are part of the major energy transition that will take decades to be completed.

With this week’s World Bank study pointing towards the various opportunities for green marine fuels in developing countries, this is a good time to take a closer look into the developments in Latin America.

Natural Gas as fuel: LNG and CNG

In mid-March, Avenir LNG (NOTC:AVENIR) has taken delivery of the region’s first LNG bunker vessel Avenir Accolade. The vessel was built by Keppel Offshore and Marine (SGX: BN4), and will be chartered for three years to New Fortress Energy (NASDAQ: NFE). Originally, the vessel was ordered by Golar Power, later Hygo Energy Transition, which was taken over by NFE last January.

LNG transport and bunkering vessel Avenir Accolade. Image credits: Avenir LNG

The Avenir Accolade will serve a multipurpose role along the Brazilian coast. The 7,500 cbm vessel will transport LNG from one of NFE’s FSRUs to small scale clients. But it will also be capable of LNG bunkering operations, making it the first in South America and the second in Latin America.

Similar ships are being built in a fast pace globally. According to DNV Alternative Fuels Insight (AFI) data, there are 30 LNG bunker vessels in operation worldwide, with additional 20 on order. Most are targeting Asia, Europe and the USA.

Besides the Avenir Accolade, NFE also charters another small LNG carrier with bunkering capabilities. The Coral Anthelia, owned by Anthony Veder, operates out of Jamaica in short LNG trips, but the vessel is planned to become a key asset for marine bunkering in the area. This would include the new LNG-fueled cruise vessels entering the Caribbean market.

Back to Brazil, on the coast of São João da Barra, state of Rio de Janeiro, is located Prumo Logística. Its subsidiaries Porto do Açu and Gás Natural Açu (GNA) are developing an ambitious gas hub with up to 6,000 MW of natural gas power generation, 3,000 MW of which already contracted. The gas is to be sourced as LNG by the BW Magna FSRU unit.

According to a company representative, GNA I (1.3 GW), the first plant to come online, will start operating in the first half of 2021. The first LNG cargo, supplied by BP, was successfully transferred to FSRU on December 27th, 2020.

BW Magna FSRU, part of the Gás Natural Açu hub in Brazil. Image credits: Port of Açu

Porto do Açu has not committed to LNG bunkering yet, but plans are ongoing for the service to be available “in five years”. The port’s main client Anglo American last November entered into a ten-year charter with U-Ming Marine Transport for 4 capesize+ LNG fueled vessels to be delivered in 2023. The fleet will export iron ore from Brazil (Açu) and South Africa (Saldanha Bay) to international markets. The vessels frequent calls and the abundant liquefied gas availability strengthen the business case for an LNG bunkering offering in Açu.

Natural gas as a transport fuel in Latin America started in the 70s. The region invested heavily in road infrastructure and, according to NGV Global data, had in 2019 the second largest regional fleet of natural gas vehicles (NGVs) in the world (5,8 million), behind Asia-Pacific (20.3 million).

The large NGV fleet and local expertise prompted Brazil to pioneer the development of CNG vessels. The first was the ferry Ivete Sangalo, built in 2008 in Itajaí for the Salvador – Itaparica crossing in Northeast Brazil. She was the first dual-fuel vessel in the continent. However, commercial and regulatory restrictions prevented her from burning CNG, as the local gas distributor (Bahiagás) held the regional monopoly. With a regulated high price for natural gas and no competition, the ferry could not use CNG and burns MGO until today.

A similar roadblock was hit by a second initiative in Brazil, in 2014. Transportes Bertolini trialed a dual-fuel tug-and-barge set between Manaus and Belém along the Amazonas River. Again, a mandatory regional gas monopoly (held by local distributor Cigás), together with high capital expenses for the bunkering infrastructure, hindered the project uneconomic.

In practice, after the trials of Ivete Sangalo and the Bertolini pusher between 2008 and 2014, CNG became less and less attractive. Currently, the projects under development in the region are all employing LNG as fuel, mainly due to its higher energy density.

A new Brazilian Gas Law was passed in Congress and finally sanctioned last week (April 8) after years of discussions. The modernized legislation will enable greater competition in gas distribution and more predictability towards the deployment of small scale projects.

This is expected to be one of the crucial steps in the materialization of LNG bunkering infrastructure in the Amazon region. A wide variety of companies and public institutions have been performing studies for natural gas inland infrastructure along the Amazonas river and its tributaries.

This includes oil companies HRT (now Petrorio) and Petrobras in the early 2010s, but both eventually sold their local operations. Hidrovias do Brasil (B3:HBSA3), Amazonica Energy, Golar Power (now NFE), and Eneva (B3:ENEV3) considered their potential LNG debut carefully.

Hidrovias do Brasil has been planning to deploy LNG-fueled convoys and to use its spacious area in Barcarena for a gas hub, but no formal form investment decision has been announced yet.

Amazonica Energy has announced plans to import LNG through Manaus in iso-containers and to use the Novo Remanso terminal under development in Itacoatiara as the location for an FSRU.

Pedro Ventura, managing partner of Æolus Consulting, who supports Amazonica Energy’s business development efforts in the region, says the company’s main priority is to supply LNG to smaller isolated power plants. “The first step is to install a fixed (commercial) natural gas base in the region. After that, the gas becomes a locally available commodity. Then you can install gas-fuelled vessels”.

The FSRU investment would be contingent on pooling together the demand from many small-scale plants. Alternatively, on winning a larger gas plant public tender. To Ventura, it is clear that winning regulated power plant auctions was what enabled Eneva and Golar Power to gain scale in their investments in the region.

Golar Power has been moving fast after winning the A-6 tender for a 605-MW Barcarena power plant in 2019. The gas-to-power project is expected to provide LNG bunkering in the region as well. The LNG terminal in Barcarena should come online in 2022 and now is part of NFE’s portfolio. An additional relevant client is Hydro, which re-signed with NFE a previously terminated agreement with Golar Power to supply natural gas to its alumina refinery in Barcarena.

Another local player is Eneva, which operates the Azulão Field near Manaus and will deliver LNG by trucks to neighbor state Roraima for 117-MW power plant Jaguatirica II. The facility is expected to come online in 4Q21. The company’s liquefaction facilities offer a major potential for the local development of truck-to-ship bunkering in the medium course of the Amazon River. However, the availability of sufficient volumes from Azulão Field to fuel ships is uncertain.

LNG Bunkering operations in the Amazon basin have been the object of studies performed in a partnership between researchers of the Federal University of Amazonas (UFAM) and the University of São Paulo (USP). After a LNG barge distribution optimization study was published in 2017, the group has won a public tender for updating and extending the analysis, with the expected involvement of most public and private stakeholders in the local shipping and power generation markets. The project is to begin in 2Q21 and last for 24 months, and will include the evaluation of terminal-to-ship, ship-to-ship and truck-to-ship alternatives.

The overall practicability of LNG truck-to-ship bunkering in South America, however, has been on display since 2014.

The 2013-built, 99-meter fast ferry Francisco operates in the La Plata estuary between Montevideo and Buenos Aires and was the first highspeed ferry propelled by LNG in the world. Buquebus, the catamaran’s owner and operator, handles truck-to-ship bunkering in-house since then.

In 2019, Buquebus ordered at Tasmania’s Incat an even larger, 130-meter, LNG-fueled fast ferry with more than twice the passenger capacity of Francisco. The vessel has not yet been named.

130-meter Buquebus newbuilding. Image credit: Incat

Aluminium cutting was expected for late 2020. However, as Judy Benson, Incat’s assistant to the Chairman and Public Relations representative commented, “Covid-19 has interrupted many plans. We have not commenced cutting metal on the Buquebus ship but of course the design team is still working on it.”  

The ferry will operate mainly between Buenos Aires and Colonia del Sacramento, at lower speeds comparing to Francisco, and be equipped with internal combustion engines instead of turbines. When completed, the catamaran will be the world’s largest aluminium ship and will use the same bunkering infrastructure already in place for its predecessor.

On the West Coast of South America (WCSA), the marine LNG project that is most mature is the wellboat shipping start-up Naviera Patagonia GNL. According to general manager Víctor Espinoza, the plan is to deploy LNG-fueled wellboats to salmon farming clients in southern Chile. Bunkering could be performed in Puerto Montt or Puerto Natales using a truck-to-ship system.

LNG-fueled concept wellboat. Image credits: Patagonia GNL

Patagonia GNL has been developing the concept for 2 years with discussions well underway with natural gas suppliers, ship designers and equipment manufacturers. “We won’t have commercial green hydrogen in Chile for at least 10 years, this is being said by the hydrogen developers themselves. What we are doing with LNG is energy transition now”, adds Mr. Espinoza.

Potential clients are still dragging their feet, but Chile’s Energy Efficiency Law (passed last January) is expected to be a game changer. The bill mandates companies (including the salmon producers) to report and reduce emissions.

In practice, depending on prospective demand and some infrastructure modifications, any port with LNG availability could become an LNG bunkering hub. The list of Latin American operational liquefaction export facilities (including FLNG units) and regasification import facilities (including FSRUs) is increasing rapidly. There is LNG availability in Mexico, Jamaica, Panama, the Dominican Republic, Puerto Rico, Trinidad and Tobago, Colombia, Peru, Chile, Argentina and Brazil.

Besides the already mentioned LNG terminals operated by NFE in Jamaica and Brazil, other operators have announced plans for LNG bunkering offerings, but none of them has materialized yet. These include facilities in Colombia (Cartagena, operated by SPEC LNG), Mexico (Coatzacoalcos, Énestas), Panama (Colón, AES) and the Dominican Republic (AES, Andrés).

Hydrogen, Ammonia and Methanol

Commercial green ammonia, hydrogen and methanol bunkering facilities do not yet exist anywhere on the planet, but various pilot projects are being developed, mainly in Europe and Asia. They represent the holy grail of shipping decarbonization. If green ammonia and methanol are delivered to vessels safely and under reasonable prices, then zero emission shipping becomes a reality.

We have recently covered how low carbon marine fuels represent huge opportunities por developing countries in general, and Latin in America in particular. Shipping companies are eager to see “a move forward in the fuel supply side”, as Maersk’s Head of Americas Operations Lars Nielsen recently told us in an exclusive interview.

Hydrogen, besides being a standalone contender as a marine fuel, is also a key input for future net zero emission fuels. Green ammonia can be obtained from hydrogen through the Haber-Bosch process and e-methanol can also be obtained from hydrogen, using CO2 from carbon capture or atmospheric filtering.

For this reason, future zero emission marine fuels are directly linked to the hydrogen economy.

Over the last few months, key announcements place two countries at the forefront of shipping decarbonization in Latin America: Chile and Brazil.

Firstly, the Chilean Ministry of Energy has signed MoUs with Singapore’s Trade and Industry counterpart (in February) and with the Port of Rotterdam (in March), both relating to the development of the green hydrogen infrastructure and trade. The scopes are broad and any concrete results are far into the future, but the agreements provide a clear indication. They are the first governmental materializations of Chile’s Green Hydrogen Strategy, published in November 2020 with objective goals and action plans, the first country to do so in Latin America.

In the private sector, a landmark project is under development in the Magallanes Region, headed by HIF (an affiliate of AME), in partnership with Enel, Enap, Siemens, Porsche and Siemens Energy. The wind-to-hydrogen pilot plant will later produce e-methanol using CO2 filtered from the atmosphere. The project is budgeted at USD 38 million. However, the developers are aiming at the export market and no plans have been put forward regarding local bunkering infrastructure yet.

Secondly, the already mentioned Porto do Açu in Brazil, despite heavy investments in oil and gas, is also showing a growing appetite for the green energy transition. The port signed two back-to-back MoUs with Equinor (in February) and Fortescue Future Industries (in March). The first agreement covers renewable power generation, while the second, the development of a green hydrogen plant. They are part of a comprehensive plan called Açu Greenport.

Maritime South covers the plan in an exclusive interview with Tessa Major, Director International Business & Innovation at Porto do Açu. The executive points out that the concept is about “the combination of renewable energy with standardized port business and industrialization” and “ensuring we are aligned with the vision of the world going forward”.

Despite clearer indications in Chile and Brazil for greenfield projects, current methanol and ammonia port facilities could also be modified to become future marine bunkering hubs. DNV AFI data maps 32 ammonia or methanol existing terminals in Latin America. The leaders are Mexico and Trinidad & Tobago, with 7 each. However, most facilities produce ammonia and methanol from natural gas and therefore are brown projects with a heavy carbon footprint.

Biofuels

There is plenty of availability of biomass in most Latin American countries. Until today, however, the local biofuel industry is primarily focused on the automotive market and, increasingly, on the potential of the aircraft fuel market. The maritime market is likely to follow suit, especially after the promising results from biofuel shipping trials that have been popping up all over the world. In Latin America, this is yet to materialize.

Some companies still remain skeptical. A Porto do Açu representative, for example, comments: “Regarding the energy produced by biomass, there’s a discussion about its classification as clean energy”.

Electric Propulsion, Shore Power

Although shore power port availability and electric vessels are virtually nonexistent in Latin America, this is about to change as early as 2022. Hidrovias do Brasil just yesterday placed an order for a pair of diesel battery hybrid pushers. They will be the first such vessels in the world.

Hidrovias do Brasil plug-in diesel hybrid pusher. Image credits: Robert Allan Ltd.

However, the company will install shore power only in its own terminals in northern Brazil and the vessels are, after all, diesel hybrids. A broader deployment of shore power in ports throughout Latin America and of pure battery electric ships (inland vessels and ferries) is yet to be seen.

It is too soon to predict if the Hidrovias do Brasil pushboats will start a larger trend or just be a lone wolf like the ferry Francisco has been for 7 years now. Yet, the number and scale of the projects has become too vast to be ignored. The low carbon marine fuel transition took a while to take off in Latin America, but it is now well under way.

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