LNG Market development Croatia

Transcription

1 EUROPEAN COMMISSION DG MOVE SEVENTH FRAMEWORK PROGRAMME GC.SST GA No LNG Market development Croatia LNG Blue Corridors Project is supported by the European Commission under the Seventh Framework Programme (FP7). The sole responsibility for the content of this document lies with the authors. It does not necessarily reflect the opinion of the European Union. Neither the FP7 nor the European Commission is responsible for any use that may be made of the information contained therein. Deliverable WP 7 supplement to D 7.3 Deliverable Title Market development- Croatia Dissemination level Public Written By R. Fabek, T. Čop, B. Židov (EIHP) March 2017 Checked by Flavio Mariani (NGVA) Approved by Javier Lebrato (IDIADA) Issue date May 2018

2 Executive Summary Currently, there aren t any LNG refuelling stations in Croatia. In accordance with the draft of National action plan for LNG use in transport and National policy framework draft for the implementation of the Directive for alternative fuel deployment, two stations are predicted by 2025 in the cities of Rijeka and Zagreb. The realization of the LNG terminal in the northern Adriatic could be the breakthrough for the Croatian LNG market in transport sector. Also, currently, there aren t any LNG vehicles in Croatia. There are some initiatives, but still without success in terms of concrete LNG vehicle registration. The lack of infrastructure is crucial barrier for the market growth. As in road transport, there aren t any LNG bunker facilities for maritime or inland shipping transport. In scope of the LNG terminal project on Krk island the bunkering facility is predicted. This should boost the realization of the facilities for maritime transport, primarily in the ports of the city of Rijeka (until 2025.) and after that in cites of Pula, Zadar, Šibenik, Split, Ploče and Dubrovnik (until 2030.). Also, regarding inland shipping, the bunkering facilities are predicted in the cities of Slavonski Brod and Vukovar (until 2030.) Croatian market potential, in optimistic scenario, in year 2040 amounts to 284 million m 3 of natural gas, which includes road and maritime transport. Due to its multiple advantages in road and maritime transport and benefits for related industries, LNG should find a place in the future energy strategy of the Republic of Croatia and surrounding countries. 2/50

3 Contents Executive Summary Introduction Aim of this deliverable Status Croatian laws and policies Infrastructure Key stakeholders Market forecast - Croatia Road transport Conservative scenario road transport Realistic scenario road transport Optimistic scenario road transport Maritime transport Conservative scenario maritime transport Realistic scenario maritime transport Optimistic scenario maritime transport LNG Market potential South East Europe Road transport Forecast model Bosnia and Herzegovina Serbia Montenegro Macedonia Kosovo Summary of LNG market potential scenarios Infrastructure roadmap Conclusion References List of Tables List of figures /50

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5 1.1 Aim of this deliverable 1 Introduction This document is a supplement to the deliverable 7.3 MedBlue Corridor feasibility analysis. Internal Combustion Engines (ICE) have been on the marketplace for a long time and they will continue to be in place for several decades. The demand to reduce air pollution due to transportation vehicles involves the adoption of alternative fuels able to decrease progressively the dependence on crude oil.lng has huge potential to contribute to meeting the Commission s targets for greenhouse gas reduction and air quality, while simultaneously reducing dependency on crude oil and guaranteeing security of supply. Natural gas-powered heavy duty vehicles already comply with latest Euro emission standards without complex exhaust gas after treatment technologies, thereby avoiding increased procurement and maintenance costs. There are clear environmental benefits from adopting natural gas for large trucks. The lack of sulphur emissions is an additional strong benefit in the marine sector. Upon completion of the floating terminal project on the island Krk in 2019, the Republic of Croatia shall enter on the map as a country that has started future applications of LNG. As usual, such logistic center will be recognized as the center of the further technology spread, highly important milestone for the development of the LNG industry. At this stage, it is essential to identify potential markets for distribution of LNG, to lay the technical groundwork for quality planning and positioning of future infrastructure. It is already clear to everyone that heavy freight transport and sea transport will become one of the biggest upcoming problems in the context of reducing emissions of greenhouse gases and pollutants from the energy sector. Therefore, it is extremely important to identify the market, to enable quality policy planning in the context of creating, above all, ecologically and economically sustainable transport system. This report is a first step, groundwork from which real market potential of Croatia and surrounding countries can be identified, and eventually which can provide insights for policy planning and co-financing framework of market participants. Report is based on a compilation of data collected by all relevant statistical institutions in the Republic of Croatia and the region. 5/50

6 2.1 Croatian laws and policies 2 Status Croatia has a good legislative basis for the introduction of the concept of using liquefied natural gas in transport. Energy Act defines various aspects of the production, supply and consumption of energy and guidelines for including, adoption and implementation of energy policy, energy activity, regulation of energy markets, power control, pricing and terms of network use. In this Act, LNG has been recognized as one point of interest for Croatia. Furthermore, LNG is also recognized in the Croatian Energy Development Strategy. Croatian Gas Act establishes rules and measures for performing energy-related activities in the natural gas sector, including liquefied natural gas, rights and obligations of the gas market participants, unbundling of activities of the system operators, the third-party access to the natural gas system and the natural gas market opening. The same Act defines rules for handling LNG. The law on the establishment of infrastructure for alternative fuels was adopted in December This law establishes a common framework of measures for the establishment of infrastructure for alternative fuels to reduce dependence on oil and mitigate the negative impact of transport on the environment. Law establishes minimum requirements for the construction of infrastructures for LNG, including the locations for filling. A common framework of measures for development of the market in terms of alternative fuels in the transport sector and to set up appropriate infrastructure is determined by the National Policy Framework, which was adopted for the period after 2016, to fulfill the objectives for development of the market in terms of LNG in the transport sector and to set up appropriate infrastructure. In accordance with the assessment of the market, a corresponding number of LNG supply stations will be established in seaports, inland ports and roads. 2.2 Infrastructure The implementation of LNG in the road and maritime transport can be one of the cornerstones of energy development of the Republic of Croatia and the backbone of economic development (currently, there aren t any LNG refuelling stations in Croatia). Great responsibility lies with the state, which should with its proactive energy, industrial and economic policy create preconditions for investments. Timely planning and construction of the LNG infrastructure is a necessary precondition for the realization of the comprehensive LNG project. It is necessary to propose the inclusion of LNG filling stations in the spatial plans of local and regional authorities, with the aim of location and building permits obtaining. LNG terminal on the island Krk will be the foundation for the introduction of LNG as fuel in all modes of transport. With the construction of the terminal, which envisages bunkering for maritime and road transports, Krk will impose itself as a regional LNG market center in the transport sector and provide a unique comparative advantage of the Croatia for the dynamic market development. LNG terminal on the island has become a prominent energy project within the European Union. It is included in the list of projects of common interest of the European Union, and is listed in the ten-year network development plan of the ENTSO-G in accordance with the Plan of development of the gas transport system of the Republic of Croatia. 6/50

7 The floating LNG terminal near the shore of the island of Krk is the main topic of everyday discussions, paper writings and polemics, professional and public interest. Today, the perennial idea has the consensus of the local community and wider because of opportunities which the LNG terminal can bring to Croatia and geographical advantages and the contest of the new European supply route of natural gas. Meanwhile, besides the conventional role of the LNG, the real expansion of projects and technologies of LNG is happening in the chain of consumption in maritime and road traffic. European administration is putting LNG in the energy strategy till 2030 facing 2050 and gives strong support through strategic documents and regulatory framework for decarbonising the transport sector because of its ecological importance and sustainable development. LNG Croatia LLC has applied, on 8th of November 2016, on CEF-Energy programme through which co-financing for studies and works for implementation of a floating LNG terminal solution has been requested. The CEF Coordination Committee gave, on 17 th of February 2017, a positive opinion on future co-financing of the project. 747, EUR has been approved for co-financing of studies (50% of total cost), and 101,380, EUR (27.91% of total cost) for works, which amounts to a total of 102,127, EUR. 2.3 Key stakeholders Implementation of the Directive on the deployment of alternative fuels infrastructure is, in organizational point of view, extremely complex in nature and require a comprehensive, integrated and interdisciplinary approach. The establishment of LNG infrastructure is closely related to the fields of energy, environmental protection, urban planning, tax policy, transport policy and therefore, must include professionals from all mentioned areas. For successful implementation, it is necessary to analyze stakeholders and define their roles in each phase of the project. Most important stakeholders are Ministry of Maritime Affairs, Transport and Infrastructure (lead organization), Ministry of Environment and Energy, Ministry of Economy, Ministry of Construction and Physical Planning, Ministry of Finance, The Environmental Protection and Energy Efficiency Fund, Croatian Institute for Spatial Development and Agency for Coastal Shipping. Ministry of Maritime Affairs, Transport and Infrastructure as leader of the National Policy Framework Action Plan, is in charge and leads activities to create preconditions for the implementation of LNG as fuel on the side of the end users - participants of maritime and road transport. Ministry of Environment and Energy should focus its activities towards legislation drafting related to air pollution and overall environment and status of LNG as transport fuel definition. The Ministry of Economy (with cooperation with the Ministry of Environment and Energy) is in charge and leads activities to create preconditions for the supply of LNG by LNG terminal on the Krk island, to establish of the entire supply chain from the LNG terminal to the place of its destination - the maritime and road filling stations, which includes the construction of the necessary energy infrastructure. Administrative work related to the Croatian urban planning, harmonization of spatial development, planning, use and protection of space and inspection tasks performing are within the scope of the Ministry of Construction and Physical Planning. Ministry of Finance is responsible for tax fuel policy, while project co-financing should be ensured through Environmental Protection and Energy Efficiency Fund. 7/50

8 Although, listed stakeholders are not equally represented in all phases of the project, there is a necessity for their harmonic interaction to enable the scenario where resources are properly used, and results are optimal. The basic task is the compliance of infrastructure construction with the growth and needs of vehicles that will use the infrastructure. Administrative capacity should be able to coordinate and perform all the pre-phases for National Policy Framework implementation, which includes organization and/or production of various strategic analyzes and documents, including legislative framework related to Masterplan for the introduction of LNG in transport as fuel. 8/50

9 3.1 Road transport 3 Market forecast - Croatia The drives towards the adoption of alternative fuels in Croatia come down to six key issues: - environmental benefits: lower gaseous (i.e. CO 2, NO x, particulate matter, ozone promoters, greenhouse gases) and lower acoustical emissions - economics: the fuel should be cheaper than gasoline / diesel oil to recover the additional vehicle cost within a reasonable period - performance: the fuel should comply with customer appeal comparable to conventional fuels in term of availability (adequate number of refilling stations per area), vehicle range and vehicle/engine performance, including reliability and durability as available for diesel units - serviceability of the equipment, a framework for certification of pressure vessels used on board vehicles, and the availability of trained technicians - safety: the fuel should guarantee the same or a better safety standard than gasoline / diesel oil - energy security: the fuel should allow usage of imported crude oil to be reduced and to have alternative and better geopolitically distributed sources than crude oil with a suitable ratio in terms of consumption / reserves One of the strategic options to fulfil the above-mentioned drives is LNG because it is: - an intrinsically clean fuel with the lowest carbon content and tailpipe CO 2 emissions among hydrocarbon fuels, able to heavily reduce transportation greenhouse gas emissions (CO 2 ), and to provide significant contribution to air quality improvement through reduction in particulate matter and NO x - a structurally cheaper solution due to less expensive production, transportation, and distribution and the technology is proven, available, and at low cost compared to other alternatives to diesel - a strategic asset that supports progressive diversification from fossil fuels as bio-methane produced from renewable sources and biomasses - a viable near/medium term option for energy diversification and to lessen the transportation system s dependence on crude oil due to globally wider reserves and a better geopolitical distribution The increased costs of fuel and the increasing attention to pollutant emissions push industrial research to find new strategies regarding the use of alternative fuels for any kind of vehicle. The key factors and drivers that affect the future use of natural gas in the road transport sector of Croatia, and were taken into consideration directly or indirectly in the assessment of the application s prospects, are presented below: The widespread adoption of LNG as a fuel in the Croatian transport sector is highly dependent on the creation of a sufficient network of filling stations. Now, a limited number of stations exist in EU countries and none in Croatia, while plans for expansion are in place. The alternative fuel infrastructure Directive (2014/94) aims at the development of the required network of stations throughout the EU and Croatia. 9/50

10 The introduction of stricter regulations by the EU concerning pollution and tailpipe emissions and the plans to minimise dependency on oil, boosts the development of a market for alternative fuels like LNG. Natural gas vehicles compete with other technologies, such as electric, hydrogen fuelled and LPG fuelled cars. The penetration of each technology is dependent on the fuel price, convenience to the drivers (e.g. availability of wide network of filling stations), incentives, and promotion from OEMs. The development of a market of LNG in the transport sector is highly driven by EU and country policy. For example, financial incentives (subsidies) and favourable taxation for natural gas could provide a competitive advantage to gas against alternative fuels. Harmonisation of the technical standards for filling stations and for natural gas vehicles is required to facilitate the pan European use of LNG. The alternative fuel infrastructure Directive seeks to establish harmonised standards in all EU Member States including Croatia. The availability of natural gas vehicle models and promotion of natural gas as fuel by the OEMs would boost the interest of the public. Applied forecast model evaluates future energy (LNG) demand based on medium to long-term scenarios of socio-economic, technological and demographic developments. The model relates systematically the specific energy demand for producing various goods and services identified in the model, to the corresponding social, economic and technological factors that affect this demand, i.e. the realistic forecast scenario includes medium economic growth, reasonable availability of financing, not growing/medium fuel prices, unclear EU-wide taxation regime, medium/low ratio of gas/oil prices and limited incentives (fiscal tax cuts, financial low cost financing of buying natural gas vehicle, financial support to manufacturers R&D and projects promoting gas vehicles, including information campaigns, etc., administrative such as privileges for drivers (driving of fast lines, entering city centre, etc.). The scenarios for development of the market assumed different penetration rates based on the factors presented in the table below. Table 3-1. Factors assessed to define penetration rates of LNG vehicles Factors Conservative scenario Realistic scenario Optimistic scenario Economic growth Low growth / Recession Medium economic growth High growth Availability of financing Restricted Reasonable Financing readily available at low cost Fuel prices Low Medium High Taxation of natural gas as a motor fuel Ratio of gas / oil prices Increased taxation on gas agreed EUwide or significant increases by key Member States including Croatia Medium EU wide taxation regime unclear. Some states increase taxes Medium/Low (gas price decoupled from oil) Long term commitment by EC including Croatia to low taxes Low (gas price decoupled from oil) 10/50

11 Policy measures and No incentives Limited incentives Strong incentives incentives applied* *Incentives may include indicatively: Fiscal incentives (tax cuts for NGVs); financial incentives (low cost financing of buying NGVs, financial support to manufacturers R&D, financial support for projects promoting NGVs, including information campaigns, etc.); administrative incentives, such as privileges for drivers of NGVs (driving of fast lanes, entering city centre, etc. ). The potential market size in Croatia for LNG vehicles was examined, separately for vehicles registered in Croatia, and for vehicles with foreign license plates. Market forecast included the following steps: 1. vehicles registered in Croatia: the exact number of registered vehicles in Croatia (N2 and N3 categories) at the end of 2016 was obtained from Ministry of the Interior the exact number of annual mileage of each vehicle was obtained from Centre for vehicles in Croatia vehicles were divided into five categories, regarding the amount of permitted load capacity (less than 3 t, 3-6 t, 6-9 t, 9-12 t and more than 12 t) for each category, the average consumption per 100 km was determined an annual increase of number of registered vehicles by 1% was assumed an efficiency factor was applied for expected developments in internal combustion engine technology the outputs were used to calculate the potential consumption of the N2 and N3 vehicle fleet for the year 2040 (target market) the estimated penetration of NGVs in the target market was applied to calculate the market size for 2040, expressed in terms of fuel consumption three scenarios of LNG penetration were defined using MAED (Model for Analysis of Energy Demand) 2. vehicles with foreign license plates: the total number of vehicles (N2 and N3 categories) entry and exit through border crossings was defined vehicles were divided into four main categories (loaded vehicles in transit, empty vehicles in transit, loaded vehicles that perform import and export, empty vehicles that perform import and export) each main category was divided into five additional categories, regarding the amount of permitted load capacity (less than 3 t, 3-6 t, 6-9 t, 9-12 t and more than 12 t) for each category, the average consumption per 100 km was determined estimations of the number of kilometres that vehicles are expected to travel in Croatia for each main category were defined an annual increase of number of vehicles by 1% was assumed an efficiency factor was applied for expected developments in internal combustion engine technology 11/50

12 the outputs were used to calculate the potential consumption of the N2 and N3 vehicle fleet for the year 2040 (target market) the estimated penetration of NGVs in the target market was applied to calculate the market size for 2040, expressed in terms of fuel consumption three scenarios of LNG penetration were defined using MAED (Model for Analysis of Energy Demand) Conservative scenario road transport In the conservative scenario, LNG vehicles, registered in the Croatia, will cover approximately 4% of the total energy consumption in the target market of the observed categories of vehicles in year Thus, the expected annual consumption in year 2040 will amount to 26.3 million m 3 of gas. Figure 3-1. Consumption, conservative scenario domestic vehicles, road transport In the conservative scenario, LNG vehicles with foreign license plates will cover approximately 12% of the total energy consumption in the target market of the observed categories of vehicles in year Thus, the expected annual consumption in year 2040 will amount to 8.8 million m 3 of gas. 12/50

13 Figure 3-2. Consumption, conservative scenario foreign vehicles, road transport Total consumption in the Republic of Croatia is defined as the sum of consumption of LNG vehicles registered in the Croatia and consumption of LNG vehicles with foreign license plates. Thus, in the conservative scenario, the expected annual consumption in the Republic of Croatia in year 2040 will amount to 35.1 million m 3 of gas Realistic scenario road transport Figure 3-3. Total consumption conservative scenario, road transport In the realistic scenario, LNG vehicles, registered in the Croatia, will cover approximately 8% of the total energy consumption in the target market of the observed categories of vehicles in year Thus, the expected annual consumption in year 2040 will amount to 47.1 million m 3 of gas. 13/50

14 Figure 3-4. Consumption, realistic scenario domestic vehicles, road transport In the realistic scenario, LNG vehicles with foreign license plates will cover approximately 22% of the total energy consumption in the target market of the observed categories of vehicles in year Thus, the expected annual consumption in year 2040 will amount to 15.6 million m 3 of gas. Figure 3-5. Consumption, realistic scenario foreign vehicles, road transport Total consumption in the Republic of Croatia is defined as the sum of consumption of LNG vehicles registered in the Croatia and consumption of LNG vehicles with foreign license plates. Thus, in the realistic scenario, the expected annual consumption in the Republic of Croatia in year 2040 will amount to 62.7 million m 3 of gas. 14/50

15 3.1.3 Optimistic scenario road transport Figure 3-6. Total consumption realistic scenario, road transport In the optimistic scenario, LNG vehicles, registered in the Croatia, will cover approximately 12% of the total energy consumption in the target market of the observed categories of vehicles in year Thus, the expected annual consumption in year 2040 will amount to 75.5 million m 3 of gas. Figure 3-7. Consumption, optimistic scenario domestic vehicles, road transport In the optimistic scenario, LNG vehicles with foreign license plates will cover approximately 32% of the total energy consumption in the target market of the observed categories of vehicles in year Thus, the expected annual consumption in year 2040 will amount to 23.5 million m 3 of gas. 15/50

16 Figure 3-8. Consumption, optimistic scenario foreign vehicles, road transport Total consumption in the Republic of Croatia is defined as the sum of consumption of LNG vehicles registered in the Croatia and consumption of LNG vehicles with foreign license plates. Thus, in the optimistic scenario, the expected annual consumption in the Republic of Croatia in year 2040 will amount to 99.1 million m 3 of gas. Figure 3-9. Total consumption optimistic scenario, road transport The following figure summarizes the defined scenarios of gas consumption in road transport in Croatia. 16/50

17 Figure Total consumption in Croatia scenarios in road transport 3.2 Maritime transport In Croatian maritime transport sector, the key factor taken into consideration directly or indirectly in the assessment of the development prospects are presented below: The introduction of worldwide regulations by the IMO and their adoption by the EU for reducing the pollution of maritime transport, by setting limits to SOx levels of exhaust gases, leads to the application of low or zero sulphur applications in ships. LNG is considered as an alternative fuel by the ship industry, as it complies with these regulations, but it must compete with other alternatives, such as the use of MGO and the installation of scrubbers. The price differentials HFO vs. LNG and MGO vs. LNG play an important role in the decision of the shipping industry whether to switch to gas. Refuelling infrastructure will be required, including both LNG bunkering facilities in ports and LNG bunkering barges, to achieve widespread adoption of LNG. The size and location of stations will be determined by the bunkering requirements of vessels. The alternative fuel infrastructure Directive addresses the development of the required infrastructure to facilitate bunkering in EU waters. However, particularly in the case of deep sea vessels, infrastructure is required at a worldwide level. Adoption of LNG as fuel will require the further development of dual fuel vessel engines and common technical specifications for refuelling. Considering the obsolescence of the fleet of the Croatian national shipping company it is necessary to create conditions and encourage large investments in its reconstruction to catch up with the developed countries and ensure the competitiveness of the liberalized market. The potential market size in Croatia for LNG ships was examined, separately for ships engaged in coastal transport, ships engaged in fisheries activities and ships engaged in the carriage of goods (cargo ships). Market forecast included the following steps: 1. Ships engaged in coastal transport: 17/50

18 exact number of ships that carry out services of coastal transport was determined certain technical specifications of ships were determined the exact annual consumption at the end of 2016 was defined the exact seasonal consumption during 2016 was defined an annual increase of total consumption of 1.5% was assumed the estimated penetration of LNG ships in the target market was applied to calculate the market size for 2040, expressed in terms of fuel consumption three scenarios were defined 2. Ships engaged in fisheries activities: the exact annual consumption for the fishing fleet at the end of 2016 was defined an annual increase of total consumption of was assumed the estimated penetration of LNG fishing fleet in the target market was applied to calculate the market size for 2040, expressed in terms of fuel consumption, taking into consideration the technical specification of fishing vessels 3. Ships engaged in the carriage of goods (cargo ships): exact number of anchored ships in Croatian ports during 2016 was defined technical specifications of ships were defined number of domestic ships carrying cargo were defined the average fuel consumption of ships due to the technical specifications was determined the ships were divided by capacity and size percentage of vessels capable of retrofitting per technical specification was assumed potential routes suitable for navigation on LNG with respect to the EU and world market were assumed the estimated penetration of LNG cargo fleet in the target market was applied to calculate the market size for 2040, expressed in terms of fuel consumption three scenarios were defined The scenarios (conservative, realistic and optimistic) for development of the market assumed different penetration rates based on Table 3-1. Factors Conservative scenario maritime transport In the conservative scenario, LNG ships engaged in coastal transport, will cover approximately 30% of the total energy consumption in the target market of coastal transport in year Thus, the expected annual consumption of LNG ships engaged in coastal transport in year 2040 will amount to 25 million m 3 of gas. LNG ships engaged in fisheries activities will cover approximately 2.5% of the total energy consumption in the target market of fishing industry in year Thus, the expected annual consumption of LNG ships engaged in fisheries activities in year 2040 will amount to 0.6 million m 3 of gas. LNG ships engaged in the carriage of goods (cargo ships), will cover approximately 2.5% of the total energy consumption in the target market of transport of goods (where the retrofit is possible) in year Thus, the expected annual consumption of LNG ships engaged in the carriage of goods (cargo ships) in year 2040 will amount to 30.1 million m 3 of gas. Total expected annual consumption in the conservative scenario will amount to 55.6 million m 3 of gas. 18/50

19 Figure Consumption in Croatia, conservative scenario maritime transport Realistic scenario maritime transport In the realistic scenario, LNG ships engaged in coastal transport, will cover approximately 50% of the total energy consumption in the target market of coastal transport in year Thus, the expected annual consumption of LNG ships engaged in coastal transport in year 2040 will amount to 41.7 million m 3 of gas. LNG ships engaged in fisheries activities will cover approximately 5% of the total energy consumption in the target market of fishing industry in year Thus, the expected annual consumption of LNG ships engaged in fisheries activities in year 2040 will amount to 1.2 million m 3 of gas. LNG ships engaged in the carriage of goods (cargo ships), will cover approximately 5% of the total energy consumption in the target market of transport of goods (where the retrofit is possible) in year Thus, the expected annual consumption of LNG ships engaged in the carriage of goods (cargo ships) in year 2040 will amount to 61.7 million m 3 of gas. Total expected annual consumption in realistic scenario will amount to million m 3 of gas. 19/50

20 Figure Consumption in Croatia, realistic scenario maritime transport Optimistic scenario maritime transport In the optimistic scenario, LNG ships engaged in coastal transport, will cover approximately 70% of the total energy consumption in the target market of coastal transport in year Thus, the expected annual consumption of LNG ships engaged in coastal transport in year 2040 will amount to 58.3 million m 3 of gas. LNG ships engaged in fisheries activities will cover approximately 10% of the total energy consumption in the target market of fishing industry in year Thus, the expected annual consumption of LNG ships engaged in fisheries activities in year 2040 will amount to 2.5 million m 3 of gas. LNG ships engaged in the carriage of goods (cargo ships), will cover approximately 10% of the total energy consumption in the target market of transport of goods (where the retrofit is possible) in year Thus, the expected annual consumption of LNG ships engaged in the carriage of goods (cargo ships) in year 2040 will amount to million m 3 of gas. Total expected annual consumption in the optimistic scenario will amount to million m 3 of gas. 20/50

21 Figure Consumption in Croatia, optimistic scenario maritime transport The following figure summarizes the defined scenarios of gas consumption in maritime transport in Croatia. Figure Total consumption in Croatia scenarios in maritime transport During the year, there are certain variations in maritime traffic density in each of considered ports. Generally, the peak occurs in August and the minimal traffic is in February. The ratio between months with maximal and minimal traffic is different for each port. It mostly depends on prevailing type of traffic in each port. Since Croatia is a tourist destination with remarkable seasonal variations in visits, consequently the passenger traffic varies significantly. Therefore, in ports with greater share of passenger in overall traffic this ratio will be greater. There are also other reasons for these differences (cargo capacities, seasonal fishing activities etc.). Considering predictive nature of LNG consumption assessment introduced in this report, for each consumption scenario different ratios have been defined in final year of time horizon. Biggest difference is in port of Zadar (ratio 2.13) and the smallest in port of Pula (1.11). 21/50

22 Based on inputs on fuel consumption, certain projections of seasonal consumption for each scenario were determined. The highest consumption is expected in August (24 million m 3 of gas in the optimistic scenario, 14 million m 3 of gas in the realistic scenario and 7.5 million m 3 of gas in the conservative scenario). Figure Total seasonal consumption in Croatia expected in 2040 scenarios in maritime transport Below is a graphical representation of the traffic of passengers and goods in the Adriatic Sea. It is obvious that potential LNG in maritime transport, in addition to the Croatian coast, includes also Slovenia and north Italy. Figure Traffic of passengers by port 22/50

23 Figure Traffic of goods by port Figure Ferry routes 23/50

24 4 LNG Market potential South East Europe 4.1 Road transport Considering geographical location, existing road infrastructure, volume of activities related to the road freight transport, number of registered freight vehicles, as well as process of EU integration, the South- East Europe region represents the significant potential for LNG market development. In particular, it refers to the following countries (Figure 4-1): 1. Bosnia and Herzegovina; 2. Serbia; 3. Montenegro; 4. Macedonia; 5. Kosovo. Figure 4-1. South-East Europe potential market for LNG LNG market potential should be also observed in the context of indicative extensions of The Trans- European Transport Network (TEN-T) in the Western Balkans. Namely, tentatively there are three core network corridors identified to be extended for the Western Balkans as well as priority projects along sections of these corridors for possible EU funding. Extending the core network corridors to the Western Balkans ensures closer integration with the EU as well as the basis for leveraging investment in infrastructure, such as EU support through the Western Balkans Investment Framework and the Connecting Europe Facility. Once completed, the core network corridors will provide quality transport services for citizens and businesses, so therefore as well a potential for development of LNG market. The priority projects will help remove bottlenecks, promote interoperability, and build missing crossborder connections. The foreseen projects are mentioned within analysis of each country LNG market 24/50

25 potential, while here below the cut from the existing TEN-T core network and corridors is given, where the potential SEE market is indicated. Figure 4-2. Potential SEE LNG market in context of extension of the core TEN-T corridors 25/50

26 4.2 Forecast model In order to project LNG consumption of road transport in South-East Europe (SEE), a model has been designed based on official statistic data and assumptions of key drivers for market development. The model is separately applied for each of the following countries: Bosnia and Herzegovina, Serbia, Montenegro, Macedonia and Kosovo. After collection of relevant statistic data from publications of official state statistic agencies and online databases, the model for each country was tailored in way to use the most plausible available data on road transport (vehicle-kilometers covered, tons of goods transported, tonne-kilometers, average distance of goods journey, share of domestic and international freight road transport, number of registered road freight vehicles, etc.). With analogy to the market forecast of Croatia, three different scenarios were developed in the model: 1. Conservative scenario; 2. Realistic scenario; 3. Optimistic scenario. For the each of scenario, the calculations of future LNG consumption potential were conducted in two steps. The first step calculates potential LNG consumption until year 2020 and it represents a more complex part of the model with several operations since it considers more inputs and assumptions for the market development. In the second step, the model calculates the potential of LNG consumption from year 2020 until year 2040 which is based on assumed annual growth rate of LNG consumption in road transport according to each scenario. Certain assumptions of market development drivers are determined for each country, such as share of domestic and international road transport of goods. On the other hand, there are several commons key assumptions for the market development and they are presented here below in table. Factors Conservative scenario Realistic scenario Optimistic scenario Annual growth rate of international freight road transport (%) 5% Share of LNG Mono fuel trucks in ,20% 0,25% 0,30% Share of LNG Dual fuel trucks in ,20% 0,25% 0,30% LNG consumption - annual growth rate (%) 8% 10% 12% Bosnia and Herzegovina 26/50

27 The potential of the LNG market development in Bosnia and Herzegovina may be linked to the fact that it has a wide border with the Croatia and thus EU, and also has determined plans for road infrastructure development. The development of Corridor Vc is a strategic priority for Bosnia and Herzegovina and has been established as an indicative extension of the Trans-European Transport Networks (TEN-T). Corridor Vc is included as the main priority in the country s Framework Transport Strategy Two pre-identified projects of the extending of the road core network corridors are taking place on the territory of Bosnia and Herzegovina: Croatia/Bosnia and Herzegovina border Sarajevo Ploce; Croatia/Bosnia and Herzegovina border Figure 4-3. Bosnia and Herzegovina - map Gradiška Banja Luka Travnik. According to the model calculations, the potential of the LNG consumption is presented down below. Table 4-1. Total LNG consumption (m 3 ) Bosnia and Herzegovina Total LNG consumption (m 3 ) Conservative scenario 1,383,000 2,033,000 2,987,000 4,388,000 6,448,000 Realistic scenario 1,729,000 2,785,000 4,485,000 7,223,000 11,633,000 Optimistic Scenario 2,075,000 3,657,000 6,445,000 11,358,000 20,017,000 The realistic scenario forecasts the 1.8 million of m 3 LNG consumption in 2020, respectively 11.6 million in /50

28 Figure 4-4. Total LNG consumption (m 3 ) Bosnia and Herzegovina 28/50

29 4.2.2 Serbia Serbia represents the highest potential for the LNG market of all analyzed countries in SEE. This is based on the fact that Serbia has a high share of international road freight transport and it is surrounded by four EU countries, Croatia and Hungary on the North-West and Romania and Bulgaria on the East. Therefore, also it should be considered the indicative extension of the Core Network Corridors in the Western Balkans. The following preidentified road projects in the Orient / East- Med Corridor are foreseen: Belgrade node (Works for completion of Belgrade by-pass section Strazevica Bubanj Potok.); Niš Figure 4-5. Serbia - map Pristina (Studies and works for reconstruction of the road Niš Pristina), and Belgrade Bar (Studies and works for the section Mateševo-Andrijevica, studies for by-pass Podgorica (Capital Smokovac Farmaci). The LNG market potential based on the model calculations is presented down below. Table 4-2. Total LNG consumption (m 3 ) Serbia Total LNG consumption (m 3 ) Conservative scenario 3,920,000 5,759,000 8,463,000 12,434,000 18,270,000 Realistic scenario 4,900,000 7,891,000 12,709,000 20,467,000 32,963,000 Optimistic Scenario 5,880,000 10,362,000 18,261,000 32,183,000 56,717,000 The realistic scenario forecasts the 4.9 million of m 3 LNG consumption in 2020, respectively almost 33 million in /50

30 Figure 4-6. Total LNG consumption (m 3 ) Serbia 30/50

31 4.2.3 Montenegro Among all observed countries, Montenegro has the lowest LNG market potential. In the context of indicative extension of the Core Network Corridors in the Western Balkans, Montenegro is mentioned in the following pre-identified projects: Croatia/Montenegro border Bar Montenegro/Albania border Lezhe Albania/Greece border (Studies (feasibility study, detail design, EIA) and works, Belgrade Bar (studies (preliminary design, detail design and EIA) for by-pass Podgorica (Capital Smokovac Farmaci). The LNG market potential arising from the model is presented down below. Figure 4-7. Montenegro - map Table 4-3. Total LNG consumption (m 3 ) Montenegro Total LNG consumption (m 3 ) Conservative scenario 222, , , ,000 1,034,000 Realistic scenario 277, , ,000 1,159,000 1,866,000 Optimistic Scenario 333, ,000 1,034,000 1,822,000 3,210,000 The realistic scenario forecasts the 0.27 million of m 3 LNG consumption in 2020, respectively a little bit less than 2 million in /50

32 Figure 4-8. Total LNG consumption (m 3 ) Montenegro 32/50

33 4.2.4 Macedonia Macedonian is SEE country surrounded by the Serbia and Kosovo on the North, Albania on the West, Bulgaria on the East and Greece on the south. Similar as for other countries, the pre-identified project of the TEN-T corridors extensions are strengthening the bases on which the LNG market potential calculation is based on. Specifically, the following project are of importance for Macedonian road transport: Kičevo Gostivar (Works for construction of motorway), Rankovce Kriva Palanka Macedonia/Bulgaria border (Studies ongoing, works for sections Rankovce Kriva Palanka. Studies and works for section Kriva Palanka Deve Bair (border with Bulgaria). Figure 4-9. Macedonia - map The LNG market potential calculated in the model is presented down below. Table 4-4. Total LNG consumption (m 3 ) Macedonia Total LNG consumption (m 3 ) Conservative scenario 589, ,000 1,272,000 1,869,000 2,746,000 Realistic scenario 736,000 1,186,000 1,910,000 3,076,000 4,954,000 Optimistic Scenario 884,000 1,557,000 2,745,000 4,837,000 8,525,000 The realistic scenario forecasts the 0.74 million of m 3 LNG consumption in 2020, respectively nearly 5 million in /50

34 Figure Total LNG consumption (m 3 ) Macedonia 34/50

35 4.2.5 Kosovo Kosovo has a border with the Serbia on the North, Montenegro and Albania on the West and Macedonia on the South. Tentatively it will also be included in the LNG market and will follow the development of surrounding countries. From the pre-identified TEN-T extension projects, the following are of interest of Kosovo: Niš Pristina (Studies and works for reconstruction of the road Niš Pristina) and Pristina Kosovo/ Macedonia border (Works for motorway construction). The LNG market potential calculated in the model is presented down below. Figure Kosovo - map Table 4-5. Total LNG consumption (m 3 ) Kosovo Total LNG consumption (m 3 ) Conservative scenario 325, , ,000 1,031,000 1,514,000 Realistic scenario 406, ,000 1,053,000 1,697,000 2,732,000 Optimistic Scenario 487, ,000 1,514,000 2,668,000 4,701,000 The realistic scenario forecasts the 0,4 million of m 3 LNG consumption in 2020, respectively nearly 2.7 million in /50

36 Figure Total LNG consumption (m 3 ) Kosovo 36/50

37 4.2.6 Summary of LNG market potential scenarios According to model results, Serbia shows the highest potential for the LNG market development with the total share of 61% of LNG consumption. It is followed by Bosnia and Herzegovina where the share of LNG consumption is 22%. Macedonia has a share of 9%, Kosovo 5% and Montenegro 3% (Figure 4-13). Figure Share of LNG consumption in SEE countries The summary of potential LNG market development per each scenario are presented in the following sub-chapters Conservative scenario Conservative scenario is mainly characterized by the lowest annual growth rate of LNG consumption from the year 2020 to According to the scenario, total LNG consumption will grow from 6.5 million up to 30 million of m 3. The results of model calculations are presented in table and graphically down below. Table 4-6. Total LNG consumption (m 3 ) Conservative scenario Conservative scenario - LNG consumption (m 3 ) Bosnia and Herzegovina 1,383,000 2,033,000 2,987,000 4,388,000 6,448,000 Serbia 3,920,000 5,759,000 8,463,000 12,434,000 18,270,000 Montenegro 222, , , ,000 1,034,000 Macedonia 589, ,000 1,272,000 1,869,000 2,746,000 Kosovo 325, , ,000 1,031,000 1,514,000 TOTAL 6,439,000 9,461,000 13,902,000 20,426,000 30,012,000 37/50

38 Figure LNG market development Conservative scenario Figure Total LNG consumption Conservative scenario 38/50

39 Realistic scenario Realistic scenario is characterized by the moderate annual growth rate of LNG consumption from the year 2020 to 2040 by the average rate of 10%. According to the scenario, total LNG consumption will grow from 8 million up to 54 million of m 3. The results of model calculations are presented in table and graphically down below. Table 4-7. Total LNG consumption (m 3 ) Realistic scenario Realistic scenario - LNG consumption (m 3 ) Bosnia and Herzegovina 1,729,000 2,785,000 4,485,000 7,223,000 11,633,000 Serbia 4,900,000 7,891,000 12,709,000 20,467,000 32,963,000 Montenegro 277, , ,000 1,159,000 1,866,000 Macedonia 736,000 1,186,000 1,910,000 3,076,000 4,954,000 Kosovo 406, ,000 1,053,000 1,697,000 2,732,000 TOTAL 8,048,000 12,963,000 20,876,000 33,622,000 54,148,000 Figure LNG market development Realistic scenario 39/50

40 Optimistic scenario Figure Total LNG consumption Realistic scenario In the optimistic scenario, a higher annual growth rate of LNG consumption from the year 2020 to According to the scenario, total LNG consumption will grow from 9.5 million up to 90 million of m 3. The results of model calculations are presented in table and graphically down below. Table 4-8. Total LNG consumption (m 3 ) Optimistic scenario Optimistic scenario - LNG consumption (m 3 ) Bosnia and Herzegovina 2,075,000 3,657,000 6,445,000 11,358,000 20,017,000 Serbia 5,880,000 10,362,000 18,261,000 32,183,000 56,717,000 Montenegro 333, ,000 1,034,000 1,822,000 3,210,000 Macedonia 736,000 1,186,000 1,910,000 3,076,000 4,954,000 Kosovo 487, ,000 1,514,000 2,668,000 4,701,000 TOTAL 9,511,000 16,651,000 29,164,000 51,107,000 89,599,000 40/50

41 Figure LNG market development Optimistic scenario Figure Total LNG consumption Optimistic scenario 41/50

42 5 Infrastructure roadmap In order to make optimal selection of future LNG station locations, the basic criteria for selection were defined, taking into consideration optimal construction elements (compliance with sufficient spatial distribution of filling stations in the given time frames and ensuring the maximization of profits for investors in filling infrastructure). Considering the defined TEN-T corridors and freight traffic intensity on Croatian roads, preliminary selection of infrastructure locations was defined. Below is a cartographic presentation of traffic intensity on selected road routes in 2015, expressed through average annual daily number of vehicle mileage per individual share. Figure 5-1. The intensity of traffic on selected road routes in 2015 The objective of determining the minimum LNG supply infrastructure for vessels / vehicles in the territory of the Republic of Croatia is the creation of sustainable maritime transport, inland navigation and road freight traffic, and enabling transport of LNG vessels and heavy goods vehicles on main water and road Croatian transport routes. 42/50

43 With the aim of enabling transport of LNG vessels on inland waterways or sea vessels throughout the core network of the TEN-T and on the major waterways of Croatia, by December 31, 2025, the infrastructure for LNG bunkering in seaports should be available in City of Rijeka. With the aim of enabling transport of LNG vessels on inland waterways or sea vessels on the major waterways of Croatia, by December 31, 2030 the infrastructure for LNG bunkering should be available in cities of Pula, Zadar, Šibenik, Split, Ploče and Dubrovnik. To enable HDV LNG transport on the main road transport routes, by December 2025, LNG filling stations must be available on the outskirts of the cities of Zagreb and Rijeka, and by 31 December 2030 at outskirts of the cities of Zadar, Split, Ploče and Osijek. In the case of sufficient demand, it is possible to anticipate LNG mobile units at highway resort locations. To ensure appropriate distribution of LNG, distribution center must be available in Rijeka, and bunkering infrastructure in the ports of Rijeka, Vukovar and Slavonski Brod. The construction of the first LNG filling station in Croatia has been announced in March The filling station will be placed in Rijeka or Zagreb depending on the interest of the carrier in the first half of 2018 and should be financed by the European Union funds. Figure 5-2. Locations proposal of LNG filling stations The analysis of possible implementation of LNG in maritime, inland waterway and land transport in the Republic of Croatia is a complex process which implies interdisciplinary approach. The LNG implementation program can be divided in various scopes, which mutually require an integrated and comprehensive approach. A scope of energy which combines modules and supply chains of LNG for future requirements in the traffic sector, which emphasize on services of coastal and continental 43/50

44 transport. Interpolation of LNG infrastructure in the area and the mitigation of GHG emissions represents the important scope in future energy strategy. The financial instruments and analyses of projects are an important part included in this project, this field should be covered in the upcoming economic and financial studies. The development of the LNG routes in SEE countries is expected to follow the existing road infrastructure and future development of TEN-T corridors extension. Enabling of the LNG penetration in the road transport is prerequired with the installation of LNG refueling stations in major nodes of road routes. Therefore, it is foreseen that new LNG refueling stations will be built in all capitals of the SEE countries: Belgrade, Sarajevo, Skopje, Priština and Podgorica. The distances between those locations would enable smooth transport of LNG trucks. The longest distance is between Belgrade and Skopje and it amounts 430 km. Furthermore, such development of LNG infrastructure would intensify the EU integration since those SEE countries are surrounded by EU countries and spreading of LNG road network routes will continue undoubtedly. Figure 5-3. Map of potential LNG routes 44/50

45 6 Conclusion Implementation and LNG use promotion as a fuel in the maritime and land transport would help Croatia to ensure international recognition as a country that adopts new technologies, introduces new trends and readily transfers knowledge to other countries. Such an approach can bring many longterm benefits for Croatian maritime and shipbuilding sector, road transport sector and ultimately the economy and prosperity of the country. Overall the environmental dilemma facing natural gas in the transport sector is not dissimilar to the one it faces in power generation. It is a lower carbon alternative to other fossil fuels but not completely carbon free. This means policy makers in Croatia seem still unwilling to commit to a natural gas route in the expectation that zero carbon renewables will eventually become economic. The price discount of natural gas to gasoil or diesel outweighs the costs of a natural gas powered vehicle or vessel. For marine applications, this is a simple matter of commodity prices and the present relativities suggest a positive case for natural gas in Croatian largest shipping company (Jadrolinija). However, for road transport the differential taxation levels play a crucial role. Whilst the payback time on LNG investments is in general such that for most truck applications there is a positive incentive to switch, the reliance on fiscal terms to make the business case is a real concern amongst operators. The main worry is that given the importance that fuel taxes play in raising revenue it is unrealistic to expect the present favorable discount to be maintained if there is large scale switching. This is clearly less of an issue in marine as fuel prices are generally not subject to tax, as is the case in Croatia. In terms of practicality the key issue is one often referred to as the chicken and egg problem. Insufficient refuelling infrastructure (LNG refueling stations) inhibits growth in new vehicle purchase, which in turn inhibits investment in infrastructure. This circularity applies equally to new vehicles, with manufacturers showing reluctance to develop a comprehensive range of offerings in the absence of clear interest from the market. A combination of economic, reputational and regulatory signals from Croatian government would push natural gas (LNG) as a promising option for larger trucks and marine vessels and this is stimulating some risk based investment in infrastructure and greater interest from manufacturers. This would certainly prevail in lucrative market establishment, and in optimistic scenario potential achievement, as analyzed before for Croatia and surrounding countries. National Policy Framework as reaction to Directive on the deployment of alternative fuels infrastructure was a great first step, but specific measures are still lacking. Fourth National Action Plan for Energy Efficiency should tackle issues regarding responsible bodies and sources of funding. As analyzed, the market potential of Republic of Croatia and surrounding countries does exist, and it certainly requires prompt reactions in the infrastructure planning and in lobbying for good political climate. The analysis of the SEE countries as a potential market for LNG consumption in road transport should not be based only on facts of their geographical location, existing road infrastructure, volume of activities related to the road freight transport, number of registered fright vehicles etc., but should be also observed in the context of process of EU integration. In that sense, indicative extensions of the Trans-European Transport Network (TEN-T) in the Western Balkans must be considered. The realistic scenario arising from the model for potential LNG market development designed for the purposes of this study showed that LNG consumption in road transport of SEE countries (without Croatia) will reach 8 million m 3 in 2020 and will grow up to 54 m 3 in /50

46 List of Tables 7 References Table 3-1. Factors assessed to define penetration rates of LNG vehicles Table 4-1. Total LNG consumption (m 3 ) Bosnia and Herzegovina Table 4-2. Total LNG consumption (m 3 ) Serbia Table 4-3. Total LNG consumption (m 3 ) Montenegro Table 4-4. Total LNG consumption (m 3 ) Macedonia Table 4-5. Total LNG consumption (m 3 ) Kosovo Table 4-6. Total LNG consumption (m 3 ) Conservative scenario Table 4-7. Total LNG consumption (m 3 ) Realistic scenario Table 4-8. Total LNG consumption (m 3 ) Optimistic scenario List of figures Figure 3-1. Consumption, conservative scenario domestic vehicles, road transport Figure 3-2. Consumption, conservative scenario foreign vehicles, road transport Figure 3-3. Total consumption conservative scenario, road transport Figure 3-4. Consumption, realistic scenario domestic vehicles, road transport Figure 3-5. Consumption, realistic scenario foreign vehicles, road transport Figure 3-6. Total consumption realistic scenario, road transport Figure 3-7. Consumption, optimistic scenario domestic vehicles, road transport Figure 3-8. Consumption, optimistic scenario foreign vehicles, road transport Figure 3-9. Total consumption optimistic scenario, road transport Figure Total consumption in Croatia scenarios in road transport Figure Consumption in Croatia, conservative scenario maritime transport Figure Consumption in Croatia, realistic scenario maritime transport Figure Consumption in Croatia, optimistic scenario maritime transport Figure Total consumption in Croatia scenarios in maritime transport Figure Total seasonal consumption in Croatia expected in 2040 scenarios in maritime transport Figure Traffic of passengers by port Figure Traffic of goods by port Figure Ferry routes Figure 4-1. South-East Europe potential market for LNG Figure 4-2. Potential SEE LNG market in context of extension of the core TEN-T corridors Figure 4-3. Bosnia and Herzegovina - map Figure 4-4. Total LNG consumption (m 3 ) Bosnia and Herzegovina Figure 4-5. Serbia - map Figure 4-6. Total LNG consumption (m 3 ) Serbia Figure 4-7. Montenegro - map Figure 4-8. Total LNG consumption (m 3 ) Montenegro Figure 4-9. Macedonia - map Figure Total LNG consumption (m 3 ) Macedonia Figure Kosovo - map Figure Total LNG consumption (m 3 ) Kosovo /50

47 Figure Share of LNG consumption in SEE countries Figure LNG market development Conservative scenario Figure Total LNG consumption Conservative scenario Figure LNG market development Realistic scenario Figure Total LNG consumption Realistic scenario Figure LNG market development Optimistic scenario Figure Total LNG consumption Optimistic scenario Figure 5-1. The intensity of traffic on selected road routes in Figure 5-2. Locations proposal of LNG filling stations Figure 5-3. Map of potential LNG routes /50

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