Conditions right for LNG to set sail

Greater regulatory certainty and a burgeoning bunkering infrastructure worldwide means the conditions could not be better for LNG-fuelled vessels to set sail, says Cristina Saenz de Santa Maria, regional manager Southeast Asia, Pacific & India, DNV GL – Maritime.

With the global economy continuing to pivot towards Asia, it is unsurprising that increased LNG demand within Asia accounted for 55% of total demand growth seen in 2017[i]. Currently Japan is the world’s largest importer of LNG, while China has edged its way into second place, overtaking South Korea. Last year, total demand for LNG in China surged by 50%, reaching 38m tonnes[ii].

And this trend is likely to continue with the DNV GL Energy Transition Outlook (ETO) model predicting that driven by manufacturing sector growth, China’s rising need for natural gas will see it become the leading gas importer by 2030 and overall that Gas will become the largest single source of energy from 2034.

This rise in interest in natural gas and LNG in particular, coincides with the upcoming Global Sulphur cap for ship fuel introduced by the International Maritime Organisation’s (IMO) which will enter into effect from 1 January 2020. This means that vessels operating in Emission Control Areas (ECA) zones or after the global 0.5% sulphur cap from 2020 will require either a scrubber, or will need to use low sulphur fuel. This new regulatory environment is one of the factors that leads to DNV GL’s model to predict that LNG and LPG will account for 32% of total shipping energy use by 2050. [iii]

Ship segments

When we look at the uptake in different ship segments today, car and passenger ferries are still far in lead. One reason is that the LNG consumption and loading frequency often enables LNG distribution and bunkering by truck. In a time when LNG infrastructure is scarce, this flexible and low capital expenditure (CAPEX) solution will play an important role. Distribution by truck can also be a cost-efficient solution in the long-term, when the amount of required bunker is limited to a certain area.

The uptick in the interest in using of LNG as a ship fuel is perhaps most noticeable in the cruise industry where we have seen a number of vessels ordered with this option. These recent orders could have a tremendous effect on the total volume of LNG sold to ships as large cruise ships may easily have a fuel consumption of 30 – 50,000 tons of LNG per year, depending on their operational profile. Such bunker volumes will give LNG suppliers the confidence to invest in additional LNG bunker vessels, which will likely be the preferred way of supplying these ships. These bunker vessels will increase LNG availability in certain regions, thereby benefitting LNG fuelled vessels in other segments and potentially leading to additional orders.

Container ships are also well suited to be a forerunner for LNG fuel, with fixed routes and a high fuel consumption to earn back the additional investment.  Interest in LNG fuel has been relatively high for container ships for quite some time, and both duel fuel engines and other novel solutions utilizing LNG fuel are currently being explored.

Bunkering and fuel availability

DNV GL’s view is that LNG availability for ships are better than the industry generally perceives, and statistics from our LNG intelligence portal (LNGi) show that LNG bunkering infrastructure is developing rapidly. In total, there are already 60 LNG supply locations in operation for ships worldwide, not counting the LNG bunker vessels and LNG trucks, which can go anywhere (subject to permits). 20 countries currently have operational LNG bunkering facilities. An additional nine countries have decided/started building LNG bunkering facilities with nine more countries currently in discussion to establish LNG bunkering facilities.[iv]

In total, 38 different countries are either operating, building or considering building LNG bunkering facilities, including Singapore, the Middle East, the Caribbean, and Europe. Meanwhile, government-backed initiatives are also getting underway in China, Korea and Japan, as these countries strive to meet ambitious national targets for combating local pollution and reducing greenhouse gases (GHGs). In Singapore, a concerted effort by the Maritime and Port Authority of Singapore (MPA) over the past few years has seen the construction of an import terminal, as well as the development of ship-to-ship bunkering, and LNG fuelled vessels.

In these early days, flexible infrastructure assets make sense. We clearly see that orders for LNG bunker vessels are picking up, and such vessels are foreseen to play an important role for cost efficient distribution and bunkering of LNG. And there are six bunker ship loading facilities globally, where such vessels can load LNG. Another nine have already been decided upon and a further five are currently under discussion.

Final thoughts

All of which means that that LNG as a ship fuel is a proven and available solution, and the conditions needed for an acceleration are in place. And while conventional oil-based fuels will remain as the main fuel option for most existing vessels in the near future, the commercial opportunities of LNG as a fuel shipping are interesting and growing.

 

Cristina Saenz de Santa Maria is a speaker at LNG Forum 2018 held on 24 April, at Marina Bay Sands, as part of the annual Singapore Maritime Week.

 


[i] Shell LNG Outlook 2018, pg 12. Shell, 2018,

[ii] China becomes world's No.2 LNG importer in 2017, behind Japan (2017, Dec 26), Reuters. Retrieved from https://www.reuters.com/article/us-china-lng/china-becomes-worlds-no-2-lng-importer-in-2017-behind-japan-idUSKBN1EK09C

[iii] Maritime Forecast to 2050, pg 55. DNV GL, 2017.

[iv] LNGi status update: Comprehensive insights on worldwide LNG bunkering availability and market data on LNG as fuel for ships, pg 23. DNV GL, April 2018.

Posted 16 April 2018

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 Cristina Saenz de Santa Maria, regional manager Southeast Asia, Pacific & India, DNV GL – Maritime.

Cristina Saenz de Santa Maria, regional manager Southeast Asia, Pacific & India, DNV GL – Maritime.

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