LNG as a marine fuel appears to be coming back in favour.
Having lost ground to methanol, ammonia and conventional fuels in recent years, several owners have placed or announced plans to place large orders for LNG dual fuelled ships, most notably Maersk Line who have previously been advocating for methanol as their primary de-carbonisation pathway, according to a report from Gibson Shipbrokers.
LNG now has the potential to expand its prominence as the dominant alternative marine fuel, with the fleet having expanded significantly in recent years along with the associated bunkering infrastructure.
According to data released by Singapore’s MPA, the LNG bunker sales totalled 212,000 tonnes in the first half of this year, more than four times higher than in the same period 2023, as more dual fuelled ships came into operation, coupled with improved stability in LNG prices.
While the price of LNG, and consequently LNG bunkers, surged significantly following the onset of the Russia/Ukraine war, prices have largely stabilised to close to parity with marine gasoil (MGO).
Unlike other alternative bunker fuels, LNG has far greater certainty of supply and whilst the price of any commodity is likely to remain volatile, owners and operators have far greater price visibility, compared to that of green/blue ammonia or methanol.
Furthermore, LNG not only benefits from growing availability but also offers various emissions advantages, Gibson said.
Compared to fuel oil, LNG emits 20-30% less CO2, 15-25% fewer total GHGs, 90% less NOx, and 99% less SOx, with virtually no particulate matter.
However, LNG still has problems when it comes to lifecycle GHGs, notably when methane slip is taken into account. Depending on the engine technology and methods used to extract the natural gas, some studies suggested that LNG offers no climate benefit compared to MGO.
However, those opting for LNG also have the option to increase their use of bio-methane and e-LNG over time, subject to price and availability, whilst better control of methane slip can help move the dial in LNG’s favour, Gibson added..
Whilst the current regulatory framework supports the uptake of LNG, methane will be counted under the EU emissions trading scheme (ETS) from 2026 and as such, despite having lower CO2 emissions, LNG fuelled ships will see their ETS savings eroded somewhat.
Yet, from a FuelEU perspective, a LNG fuelled ship will be compliant until the late 2030s, depending on engine technology, potentially giving a newbuilding ordered today compliance with FuelEU for more than half of its trading life, whilst also generating a compliance surplus, which can be used to offset other non-compliant vessels within an owner or operator’s fleet.
Nonetheless, despite improvements in the fuelling economics and potential regulatory compliance, LNG still requires significantly higher CAPEX. The difference between a conventional and dual-fuel LNG VLCC is around $19 mill, requiring higher TCE earnings to justify the additional expenditure.
Whether this makes sense or not will depend on the relationship between LNG and conventional fuel prices and any additional savings LNG can offer when it comes to emission regulations, such as the ETS and FuelEU initiatives, Gibson concluded.
