INTERVIEW: SEA-LNG COO sees LNG's luster as marine fuel lasting beyond 2030

LNG as a marine fuel, excluding the LNG carrier fleet, will likely hold about a 5% share in the overall bunker fuel mix in 2030, with the fuel remaining relevant for bunkering beyond that timeline on a strong order book, ability to offer a transition to net-zero greenhouse gas emissions, availability of adequate storage and bunkering infrastructure, and efforts to advance engine technologies, SEA-LNG Chief Operating Officer Steve Esau said.

"Frequently, when people talk about decarbonization, they talk of LNG as a fossil fuel whereas they think methanol is immediately green," Esau told S&P Global Commodity Insights in an interview Nov. 6.

"Looking at methanol, it's almost entirely a fossil fuel and if you are using grey methanol as a marine fuel today, emissions are worse than those from fuel oil," he said.

Using LNG presently offers immediate greenhouse gas reductions of up to about 23%, depending on engine technologies, and the fuel can be incrementally decarbonized through bio-methane or bio-LNG in the near term and e-LNG in the longer term, Esau noted.

"Presence of adequate LNG infrastructure with the last mile LNG bunkering architecture being continuously enhanced means that after investing in the asset and infrastructure, you just have to decarbonize the fuel," he said.

When it came to biomethane, the global bio-methane market currently amounts to about 30 million mt/year, which is about 10% of global shipping demand, Esau said.

Rather than build a separate bio-LNG supply chain, which is incredibly inefficient and costly, it makes sense to leverage the whole bio-methane market through regulation which allows for mass balancing and virtual liquefaction, he added.

"If you look at the sustainable biomass resource that can be converted into bio-methane, you are looking at a market of about 600 million mt/year," Esau said.

"A lot of the current use of bio-methane is in sectors that could easily be electrified...So, it should go to the hardest-to-abate sectors and consequently shipping, and we do see that general direction in future."

Tackling volatility

Historically, LNG prices have not been that volatile compared to conventional fuel, Esau said. However, increasing commoditization of LNG, coupled with the Russia-Ukraine war, brought about an unprecedented spike in LNG prices last year, he added.

In such a situation, shipowners have done well by opting for dual-fuel engines to mitigate price-risks enabling them to switch between fuels, he noted.

Platts, part of S&P Global, assessed the LNG bunker price in Singapore, the world's largest bunkering port, at $887.224/mt on Nov. 7. Singapore LNG bunker prices have plunged by over 25% since the start of the year and by over 70% since March 7, 2022, when prices hit as high as $3,627.624/mt reflecting the impact of Russia's invasion of Ukraine.

Optionality for ship operators is key, Esau said. "Not only do you see LNG dual-fuel engines but also methanol orders that are dual fuel. Ammonia engines are also being developed in that direction to offer optionality while some dual-fuel engines are also being built to retrofit to other fuels later."

"While optionality is becoming increasingly vital, LNG assets will not become stranded because you can decarbonize the fuel with the same pathways that proponents of other alternative fuels are talking about," Esau said.

Increasing LNG supply from the US and Qatar from 2025-26 onward is set to ensure availability of the fuel in the shipping sector too, and should keep a lid on prices, keeping consumption firm, Esau added.

The container shipping segment has been among the first movers to embrace LNG as a bunker fuel, but this use is also finding favor among other segments such as pure car and truck carriers and cruise ships, he said.

Garnering more support

Singapore announced plans recently to develop a second LNG import facility, with a floating storage regasification unit being evaluated as part of the scheme. This is positive for the use of LNG and will likely provide more capacity for LNG bunkering, Esau said.

In addition, Asian countries such as China, Japan and South Korea are also increasingly embracing LNG as a marine fuel, he said.

Third-party access rules continued to be key to facilitating access to bulk infrastructure in Asia, Esau noted.

Meanwhile, the issue of methane slip from LNG-fueled vessels was a problem recognized by the industry, he said. "It is in the interest of shipowners to have more efficient engines and for engine manufacturers to produce more efficient engines."

It was also important to differentiate between low-pressure four-stroke engines and two-stroke engines, which effectively have no slip, he added, noting that high-pressure two-stroke engines currently made up most of the LNG-fueled order book.

In those engines where slip has been an issue, an around four-fold reduction in the past 15 years had already been achieved, he said. "We are firmly of the opinion that the issue of methane slip will be solved in the next five years or so for those engine technologies where slip is an issue," Esau added.