New York — LNG has the shipping industry's attention as the next step to meeting climate change goals. It's already being used, investment is being poured in and LNG prices are likely to stay low for some time encouraging its use. However, its credentials as a clean alternative on the sea may not hold up.
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Supporters of liquefied natural gas in the marine sector claim it has fewer greenhouse gas emissions than oil-based fuels, while cleaner alternatives such as biofuels, hydrogen, ammonia and methanol are still in developmental phases and with many challenges to overcome.
There are already more than 150 ships on the water powered by LNG and some oil majors such as Shell are developing delivery infrastructure and backing its cause. Qatar Petroleum recently announced a plan to spend big on LNG carriers, securing about 60% of the world's LNG carriers building capacity up to 202 – potentially over 100 news vessels -- with the ships able run on LNG too. But the fuel faces an unavoidable fact: it is still a hydrocarbon.
Hugo de Stoop, CEO of leading tanker operator Euronav, questioned LNG's long-term viability in an interview with S&P Global Platts. "People believe that it might be LNG but that is still a fossil fuel and if you account for the methane slippage in the supply chain, it is probably not a better fuel than fuel oil."
Platts Analytics Scenario Planning Service shares a similar view. "Using LNG does not deliver the emissions reductions required by the IMO's initial greenhouse gas strategy, and...using it could actually worsen shipping's climate impact," it noted.
The unit sees LNG growing to around 12% of total bunker fuel demand by 2040 from around 3% now, but with risks to the downside. Policy support in favor of LNG investment in shipping could easily flip to regulation against LNG as a fossil fuel.
The International Maritime Organization, which capped the amount of sulfur in fuel oil at 0.5% from January 1, 2020, from 3.5% previously, has a strategy of cutting carbon dioxide emissions per ship by 40% from 2008 levels by 2030. It then wants to cut the shipping industry's total greenhouse gas emissions by 50% by 2050.
As such shipping may muddle through and meet 2030 targets using a combination of fossil fuels, including fuel oil, LNG and some technological improvements, but the 2050 goals are out of reach without a breakthrough in one of the greener alternatives.
Furthermore, continuing to invest in LNG infrastructure on ships and on shore might make it harder to transition to low-carbon and zero-carbon fuels in the future.
With the life-span of a commercial ship around 25 years, there is a risk that LNG bunkering could be an expensive rabbit hole to go down.
"You don't know about the technology long term, you don't know if you are going to get your money back. That means people aren't paying for the technology, the order book is very low and if people have to pay a lot more then I don't think the technology will take off," said de Stoop.
LNG growth options
Wartsila director Sigurd Jenssen was more upbeat. "It's a bit chicken and egg but as more vessels get fitted with LNG, there will be more infrastructure and then more vessels and it will for sure grow rapidly in the coming years," he told Platts. The energy equipment maker that has been supplying LNG engines for a long time doesn't see LNG as an ultimate solution but an important stepping stone given that it is "a fuel that is here today."
LNG will likely help itself. The largest use of LNG bunkering growth over the longer-term is in fueling vessels carrying LNG, such as with QP given Qatar's natural abundance of gas.
Areas where air quality is a bigger concern are also likely to take up more LNG to fuel their ships, in particular ferries and cruise ships, analysts suggest. But while there are still a good number of tankers, container ships and others being ordered capable of running LNG, the shadow of further regulatory penalties to clean up the sea looms large.
The conditions that will encourage LNG adoption as a marine fuel include if the vessels operate in areas subject to the 0.1% IMO limit rather than 0.5%, the vessels are large and fuel costs make up a large proportion of operating costs, and the vessels have predictable routes that can access the right fueling facilities.
Robin Meech, managing director at Marine and Energy Consulting Ltd, sees the business case to commercialize new fuels as weak, noting that without regulation shippers aren't going to meet the climate goals by sentiment alone. How LNG fits into the seafaring solution with regards to costs will ultimately be key.
There is a whole set of players who are buying into LNG as a cleaner option. A study by consultants Thinkstep last year found that LNG is the most environmentally friendly, readily available fuel for shipping, with greenhouse gas benefits of up to 21% compared to oil-based marine fuels over the entire lifecycle. This was seen as especially important in coastal areas and ports.
It's also likely to stay cheap for some time. The North Asian spot LNG benchmark, Platts JKM, plunged to historical lows this year as the market grappled with oversupply with COVID-19 hitting demand. The JKM, which is down more than 60% from the beginning of the year, was at $2.025/MMBtu June 4.
For some in the industry, LNG may work as a credible next step. But for many, sticking with trusty fuel oils until a cleaner solution is workable, may end up the better bet.