OREANDA-NEWS.  September 22, 2014. 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. 0384.HK -1.38% 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 Wartsila Corp. and Rolls-Royce RR.LN -0.12% 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.