LNG-fuelled ship order book bulges
More vessels are under construction than the entire existing fleet as IMO 2020 looms
There are 184 LNG-fuelled ships currently on order, more than the 170 vessels in operation, according to standards agency DNV GL, as the impending IMO 2020 regulations encourage shipowners to take on the upfront costs of investing in cleaner-burning vessels.
From January 2020, the marine sector will have to abide by the steepest one-time cut to sulphur emissions ever imposed, slashing them by more than 80pc to help fight harmful air pollution. As part of their response, ship owners are including a gradual shift towards LNG propulsion, on the basis that it is virtually free of sulphur emissions, as well as—in anticipation of extensions in regional or global CO2 cap-and-trade schemes to include shipping—releasing around 20pc less carbon than heavy fuel oil.
“The upside for LNG is that the growth in LNG propulsion is concentrated in larger vessels, with larger bunker fuel demands,” says Jack Sharples, natural gas research fellow at the Oxford Institute for Energy Studies thinktank, in a recent report. “The expansion of the fleet of larger LNG-fuelled vessels will thus accelerate the demand for LNG as a bunker fuel.” Consultancy Wood Mackenzie expects the use of LNG for bunkering to rise roughly seven-fold by 2025 to 9mn t/yr.
One of the LNG bunkering industry’s newest customers is US cruise ship operator Carnival, which services more than half of the world’s cruise business. “What we are doing is we are saying, for the next-generation ships, we are going for LNG. The new-build programme will all run on LNG,” says Remco Buis, Carnival’s senior vice president of port operations and development.
Titan LNG Director Ronald van Selm in front of FlexFueler001 in Rotterdam - Source: Karolin Schaps
The owner of P&O Cruises and Aida Cruises has ten LNG-fuelled cruise ships on order for delivery between this year and 2025. Eight of these are in the company’s largest XL class, which can hold around 3,600m³ of LNG. In April, Carnival’s latest addition, the 20-deck Aidanova, became the world’s first cruise ship to bunker LNG in the port of Barcelona. It is propelled by four dual-fuel engines and, while it continues to carry marine gasoil (MGO) for safety reasons, it has been running on LNG for 98pc of the time, Buis says.
The container shipping sector has also made moves, with France’s CMA CGM expecting delivery next year of nine of the world’s largest container ships powered by LNG—as well as five slightly smaller LNG-propelled container vessels to be taken into service from 2021 onwards. “The choice of LNG must be considered as part of the long-term strategy of the CMA CGM group to comply with future regulations, and to demonstrate the importance the group gives to environmental protection,” the firm says.
Biggest global user
Shell—a producer of LNG as well as a provider and user of LNG bunkering services—says it is likely the biggest user of LNG as a marine fuel. “We have a few barges running on LNG, we have got platform supply vessels working for Shell and running on LNG, we have got Aframaxes running on LNG and we have just committed to 14 more. I think we may be the biggest user of LNG ourselves,” says Arjan Stavast, business development manager, LNG for transport at Shell.
The impact of new LNG bunkering demand will be felt gradually rather than a one-off demand explosion as these large new-build vessels have long construction lead times. According to Wood Mackenzie, global LNG bunkering demand will rise 70pc between this and next year but, because the market is still small, this equates only to a displacement of just under 100,000bl/d of liquid marine fuels in 2020.
As one of the world’s largest bunkering ports, with marine fuel sales of around 10mn t/yr, Rotterdam is keen to take a substantial slice of the nascent LNG bunkering market. It expects sales of around 1mn t LNG for bunkering by 2025-30 in port, up from just 9,500t last year.
Rotterdam LNG bunker sales (t) - Source: Port of Rotterdam
A sizeable jump of 300pc is already expected for this year, with projections of around 30,000t. “What we expect in 2020 is we will have around 7-8 LNG bunker vessels in our port area. That is a really strong signal that there is a lot of demand,” says Maud Eijgendaal, business manager for LNG, bunkering and cruise at the Port of Rotterdam. Currently, there are three LNG bunkering vessels active in the port. “You see the demand coming from vessels from all segments, especially the cruise segment but also containers, tankers, dredgers, all types of vessels choosing for LNG as propulsion. That looks promising for the future,” she says.
A neophyte industry comes with teething problems. The infrastructure to bunker LNG-fuelled vessels is growing but still minimal. For example, Carnival’s Aidanova, which currently sails through the western Mediterranean and the Canary Islands, is not able to refuel at all of the ports along its route. “Of course, it is our expectation that with more and more LNG ships coming into the market, the number of ports where we can bunker will grow,” says Carnival’s Buis.
The owner of P&O Cruises and Aida Cruises has ten LNG-fuelled cruise ships on order
At the moment, the cruise liner is fully dependent on receiving its LNG from bunkering vessels and has hired Shell to carry out this service. So far it has been refuelled in Barcelona and at Santa Cruz on the Canary Island of Tenerife, where Carnival has a concession agreement to operate the cruise terminal. “We still see a lot of transitions. The supply chain should be more effective,” says Bjorn van de Weerdhof, manager of fleet development at Dutch shipping company Anthony Veder. The company owns the Shell-chartered Coral Methane LNG bunkering vessel that has refuelled the Aidanova.
Beyond infrastructure problems, commercial issues can also be an obstacle. Titan LNG is a Dutch provider of LNG bunkering services via trucks and its recently launched bunkering vessel FlexFueler001. But the barge is currently not procuring LNG supplies from Rotterdam’s Gate LNG terminal despite it carrying out most of its services in the port.
The infrastructure is available on both sides to allow fuelling of the vessel at the terminal, but economic issues stand in the way, says Titan LNG business developer Jippe van Eijnatten. “Technically we are absolutely able to refuel there but the FlexFueler is of a smaller scale than the small scale defined by Gate,” he says. Titan LNG would thus have to purchase more LNG than its barge can take, making it too expensive for the company to buy LNG from Gate.
“We are always in talks and will continue to do that,” says van Eijnatten. “Flexueler is of course very welcome with us,” Gate LNG confirms.
In other places, lack of familiarity has impeded uptake. Some ports show reluctance towards LNG bunkering services in their waters because the technology is relatively new, says Buis. “This is the first reaction you get anywhere…It is a common reaction that we have to overcome by giving facts and making them understand what is happening.”
Investments in new bunkering infrastructure are also expensive, on both demand and supply sides. A dual-fuel LNG vessel costs around $30mn, according to Sea\LNG, an LNG as marine fuel lobby group. Shell admits that its recent foray into LNG bunkering services is not yet profit making. The major owns or has chartered six LNG bunkering vessels, including the recently launched 3,000m³ LNG London, which is permanently based in Rotterdam.
“This is a long-term investment by Shell, this is not something we will make money on in the short run. As we grow, we’ll see more utilisation. We are willing to swallow a lot of that underutilisation [for now] because, otherwise, the market will never take off,” says Shell’s Stavast.