Ports Eye LNG as Marine Fuel but Shift Will Be Slow

27.10.2012 -

Ports around the world are considering liquefied natural gas (LNG) as a ship fuel in a drive to reduce carbon emissions, but the shift will be slow due to the high capital costs of fitting ports and vessels and a lack of investors, industry players say.

The Rotterdam and Singapore ports, both major international sea transportation hubs, recently announced plans to invest in facilities that would allow ships to take LNG as fuel instead of oil-based fuel products, known as bunker fuels.

Leading ship classification societies such as Britain's Lloyd's Register, Germany's Germanischer Lloyd (GL) and Norway's Det Norske Veritas (DNV) say LNG is a viable alternative to conventional marine fuels.

Despite these developments, analysts say LNG has yet to kick off as a shipping transport fuel, even though its cost is competitive with oil-based fuels, and is likely to remain a niche business.

"Despite the excitement, there has yet to be an order for deep-sea, large-engined, LNG-fuelled ships," said Hector Sewell, head of marine business development for Lloyd's Register.

"LNG is unlikely to simply replace heavy fuel oil. We will see specific niches embrace LNG in small-scale applications."

All ports planning to introduce LNG as a transport fuel are in regions that already have, or planning to put in place, Emission Control Areas (ECAs) where ships would reduce their emissions of climate-changing chemicals into the atmosphere.

In Australia, the maritime and port industry has teamed up with DNV to introduce LNG-fuelled support boats and port tugs.

"Emissions controls, introduced by the IMO (U.N. shipping agency the International Maritime Organization) ... combined with the introduction of emission control areas in European, U.S. and Canadian territorial waters will have a profound impact on international shipping over the next 10 years," GL said.

LNG, currently used almost exclusively for electricity generation, is a cleaner fuel than oil-based products. Initial studies show that the use of LNG instead of diesel engines can reduce a ship's CO2 emissions by 25% and cut its sulphur emissions by as much as 80%.

The five ports that are developing LNG bunkering infrastructure are Gothenburg and Nynashamn in Sweden, Zeebrugge in Belgium, Rotterdam in the Netherlands and Singapore, a study by Lloyd's Register study published this month showed.

"It had to happen in an Emission Control Area and will begin with European and Scandinavian countries," said Navin Kumar, a senior research manager with consultants Drewry.

Energy majors needed

Lloyd's Register said the use of LNG as fuel will pick up only from 2019 and by 2025 will make up 3 to 8% of global bunker fuel demand and only 1.5 to 4% of total global LNG demand.

Shippers say that the high capital investment requirements to build an LNG fuelling infrastructure and the limited interest by major oil and gas companies to take on these costs are slowing development.

Additionally, the shipping industry would have to be willing to invest in a fleet of LNG-powered ships at a time it is struggling with a glut of vessels and economic uncertainty.

"This idea could get a boost if the energy operators decide to pursue that idea, (but) the market right now is at a nascent stage and not big enough to interest these players," Drewry's Kumar said.

Although the Dutch government and a group of energy companies including Royal Dutch Shell, BP, Chevron and ExxonMobil have pledged to accelerate the use of LNG as transport fuel, efforts so far have largely concentrated on harbour vessels rather than large deep-sea ships.

Without major players, analysts say it will be difficult to find the cash to build a global LNG fuelling infrastructure for deep-sea ships.

"The infrastructure to actually deal with LNG bunker is very capital intensive," said Latifat Ajala, Lloyd's Register's senior market analyst.