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LNG as fuel garners interest but still a long way to go

The use of LNG as a marine fuel for ships still has a long way to go before it can be commercially applied on a considerable scale globally, amid the shipping industry’s heightening interest in developing this clean fuel market.

LNG as a fuel for ships is one of the options for operators to comply with the upcoming IMO 2020 global fuel sulphur cap regulation, but it is also the least widely considered option as LNG bunkering is hardly a mature sector to handle the demands of seaborne trade.

“The Asian region is simply not LNG ready. The ease of LNG bunkering is just not there yet,” Hendrie Lee, market and business development at Singapore-based LNG Easy, told delegates at the Shipping 2030 Asia conference in Singapore, organised by KNect365 Maritime.

Singapore, the world’s largest bunkering market, is expected to take the lead in the region to be ready for LNG bunkering by mid-2020. In the meantime, countries like Australia, China, Japan and South Korea have all started and will continue to develop LNG bunkering, according to Saunak Rai, general manager of FueLNG, a joint venture between Shell and Keppel.

“The global use and scalability of LNG as fuel remains a question mark. In the end, different ship sizes, different ship types, and the vessel’s trading routes will determine what fuels they need. In coastal routes, for example, vessels can go for battery power, and bulk tramping will need a totally different and workable solution,” Rai explained.

Rai noted that there is indeed a business case for LNG-fuelled ships due partly to the price market of LNG.

Read more: LNG not the answer to climate crisis

In today’s context, LNG bunkers are indicated at $200-230 per metric tonne (pmt), significantly lower compared to the widely-used Singapore 380 cst at more than $500 pmt. In fact, Singapore 380 cst prices spiked to $593 pmt on Tuesday due to the recent hike in oil prices, attesting to the volatility of bunker fuel prices and their sensitivity to geopolitical uncertainties.

“LNG fuel prices are more and less based on market supply and demand, and they are much more stabilised compared to bunker fuel prices which will always be volatile due to geopolitical issues apart from supply and demand,” Rai said.

But if owners opt to build a new LNG-powered vessel, the price tag could easily be 25% higher than the conventional fuel oil-based vessel. Rai estimated that the payback period of a LNG newbuild is around five to six years while a converted vessel will see a longer payback of six to eight years.

Jan Otto de Kat, director containerships at ABS, said that if tank technology can become more efficient in construction, perhaps cost will come down. “Owners are not fully investing in LNG-fuelled vessels now due partly to the unknown cost factor,” de Kat said.

From a pure economic perspective, the best bet to tackle the upcoming IMO 2020 regulation is to stay with the use of compliant fuels, be it 0.5% low sulphur fuels or the installation of scrubbers, according to de Kat.

“LNG as fuel, however, is a good interim solution for now. The question for owners is: what should they decide for their newbuilds to burn by 2030?” he asked.

Read more: LNG – The marine fuel of the near future?