Boom times for marine LNG
Environmental regulation, economics and rapidly evolving technology are encouraging the use of liquefied natural gas as a marine fuel
The uptake of LNG in the maritime sector is encouraging developments through the entire value chain, from infrastructure and new vessel orders to engine design, fuel delivery and finance. LNG's appeal as a maritime fuel is fast spreading beyond its traditional limited use as a fuel for dedicated LNG carriers.
"I think it's fair to say that virtually every major port authority in the world today that does bunkering is looking at the viability of LNG," says Peter Keller, chairman of SEA/LNG, a multi-sector group created to encourage the widespread adoption of LNG as a marine fuel. Leading Spanish power and gas company Gas Natural SDG estimates that 22% of world bunkering consumption will be LNG by 2035. This suggests that the fuel will be a significant competitor to fuel oil and marine diesel in the roughly 5m-barrels-a-day world bunker market.
That may be an underestimate. "There would be more of an upturn for LNG if people knew they would get more of it," says a research analyst with a leading tanker broker. Industry officials say much of the growth is driven by regulatory and reputational concerns. In the US and Europe, Emission Control Areas (ECA) have already encouraged the adoption of low-sulphur fuels; and use of LNG enables vessel operators to stay ahead of the regulations as they tighten further.
Infrastructure availability is increasing rapidly: SEA/LNG says current LNG bunkering facilities are concentrated in ECAs in northwest Europe and the US Atlantic and Gulf coasts, which already boast stringent emissions standards for marine fuels, with a maximum sulphur content of 0.1%.
European Union policy requiring at least one LNG bunkering port per member state means that nearly 140 European ports will likely supply LNG by 2025. In Asia, the world's leading bunkering hub, Singapore, and major Chinese ports such as Ningbo-Zhoushan are boosting their LNG infrastructure. Singapore's Maritime and Port Authority is helping co-fund LNG bunkering infrastructure. China already operates strict limits on marine fuel sulphur content for much river and coastal traffic. In the Middle East, the major bunkering port of Fujairah is developing its own LNG services.
While leading bunkering markets consolidate their infrastructure, new LNG and dual-fuel and "LNG-ready"-vessel orders are accelerating. Gas Natural says there are 119 ships powered by natural gas, with a further 125 new-builds ordered to be delivered by 2025, as the world LNG-powered fleet increases by 15-25% per year. The market is expanding far and fast beyond LNG's traditional use as a fuel for dedicated LNG carriers. According to SEA/LNG, the world's first purpose-built LNG-fuelled, non-LNG carrier, a Norwegian ferry, only came into service in 2000.
The capital cost of installing an LNG-capable engine is above the estimated $3.5-4.7m required for an emissions scrubber to meet International Maritime Organisation MARPOL Annex VI regulations, which mandate emissions reductions to the equivalent of 0.5% sulphur-content fuel from the beginning of 2020. But LNG-engine ships will meet tighter nitrogen oxide (NOx) and carbon dioxide (CO2) emissions standards, also contained in the Annex VI rules.
Most LNG-fuelled or "LNG-ready" ships—which are capable of conversion to LNG-fuelling—fall into two categories. Ferries and other smaller vessels on relatively short voyages can fuel frequently and are now widely ordered and common in ECAs. At the other end of the scale, new-build larger tankers, cruise ships, and ore carriers plying ECA routes or repeated point-to-point voyages on which LNG availability can be guaranteed at both loading and discharge, are also frequently being designed to be LNG-fuelled. Ships between the two extremes are less likely to use LNG as a fuel because they fuel less frequently than ferries, but lack the space to install the necessary on-board LNG infrastructure, mainly the fuel tanks.
Over the past year, several companies have made significant announcements of LNG-fuelled new-builds. Russia's SCF Group has introduced 114,000-deadweight-tonne ice-class LNG-fuelled tankers to its fleet and aims to increase the number of its LNG-fuelled ships. Teekay Offshore Partners has ordered four LNG-powered Suezmax tankers, while Singapore-based AET Tankers has ordered four dual-fuelled Aframax ships capable of running on LNG.
Even larger LNG-fuelled ships have been ordered by France's CMA CGM, whose nine new LNG-fuelled 22,000-twenty-foot-equivalent-unit (approximately 200,000-deadweight-tonne) container vessels on order are scheduled to be delivered beginning in 2020. Among the largest ships, recent orders for ValeMax ore-carrying vessels of around 325,000 tonnes, trading largely between Brazil and China, are being configured as LNG-capable, able to be converted at short notice. Industry officials say the advanced age of the ValeMax fleet means as many as 76 new-builds are likely, all of which will be LNG capable.
LNG supply agreements
At the smaller end of the scale, Spanish ferry operator Baleària in April launched its first LNG-fuelled ferry. LNG bunkering is expanding in the Mediterranean, where Spain's extensive coastal LNG network broadens to include bunkering. In the middle-tonnage range, Tote Inc has completed the conversion of one of its 65,000-tonne roll-on, roll-off ships trading between Tacoma, in Washington State, and Alaska.
Term LNG agreements between leading fleet operators and LNG suppliers are proliferating. CMA CGM has signed a long-term deal with France's Total for LNG delivery to the former's new container vessels worldwide. Shell has concluded a similar arrangement to supply SCF's LNG-fuelled tankers in northwest Europe. In another development, French utility Engie and its partners in the Gas4Sea consortium will supply LNG to Statoil shuttle tankers in northwest Europe. In the US, Shell has announced it will be developing mobile, barge-based LNG bunkering facilities along the US Gulf coast. A significant element in suppliers' ability to supply such agreements has been the growth of dynamic gas-to-gas market pricing in the US and northwest Europe.
Marine engine technology has progressed to keep pace with the development of LNG as a marine fuel. Engine makers Wartsila, Man Group, and Winterhur Gas and Diesel are all providing dedicated products for the expanding market. LNG marine development is also benefitting from increased financial-community interest: SEA/LNG announced in January that Société Générale had become the first financial group to join its coalition.