The shipping industry has seen environmental regulations regarding sulphur content in marine fuel becoming gradually more stringent over the years. In October last year, the International Maritime Organisation (IMO) made an historic decision to introduce a 0.5% global sulphur cap on marine fuels from January 2020. To comply with these new global limits, and amidst financially challenging operating conditions, ship owners and operators – as well as the associated supply chains – must fundamentally change the way they conduct business.
Ship owners and operators are under increasing pressure to adhere to existing and incoming environmental regulations which have the clear objective of dramatically reducing emissions produced by vessels using heavy marine fuel oils. With more than 90% of global trade carried by sea, shipping is the lynchpin of the global economy, and it is widely agreed that this form of transportation remains the most efficient mode of moving freight on a tonne per kilometre basis. Maritime transportation, however, particularly ocean-going vessels, has the potential to emit levels of sulphur oxides (SOx), nitrogen oxides (NOx), and particulate matter (PM) that can negatively impact populations living near ports and coastlines, as well as those living further inland.
There are several compliant solutions available for the deep-sea shipping industry, including Liquefied Natural Gas (LNG); the continued use of high sulphur fuel oil (HFO) with exhaust gas cleaning systems (commonly referred to as scrubbers); and new formulations of low sulphur marine fuels such as low sulphur fuel oil (LSFO) and marine gas oil (MGO). Of these, LNG provides an essential solution for the long term, as it is the only currently available solution that addresses the core issue: the fuel itself.
A key concern for ship owners and operators is the associated cost of compliance with various environmental regulations. At present, LNG-fuelled propulsion is already proving to be a cost-effective solution to meeting emissions limits in certain U.S. and European ECAs (Emission Control Areas). It also has the capability to be an economically viable solution for deep-sea shipping trades where vessels spend an estimated 50% or more of their time in ECAs.
While the economics are currently more challenging in the deep-sea container and bulk commodity shipping sector, the implementation of the IMO’s 0.5% global sulphur cap will likely drive up the demand – and consequently prices – for MGO and LSFO, thereby improving the economic case for LNG as a marine fuel. By contrast, scrubbers require significant additional capital expenditure, can be operationally complex, and have waste management issues.
Despite all its advantages as a marine fuel, several commercial barriers still exist which stifle widespread adoption of LNG. These include a lack of understanding of LNG’s ultimate benefits among end users, investors, governments, and civil society; LNG infrastructure and market maturity; higher capex levels for gas equipment such as LNG fuel systems; and fragmented and evolving regulation. However, current and forthcoming environmental regulations are driving the uptake of non-traditional marine fuels such as LNG.
LNG emits zero SOx and virtually zero particulate matter. Moreover, depending on the technology used, it has the ability to emit approximately 90% fewer NOx emissions. Compared to existing heavy marine fuel oils, LNG’s greenhouse gas (GHG) performance represents a major step forward. By utilising best practices and appropriate technologies to minimise methane leakage, realistic reductions of GHG by 10-20% are achievable, with potential for up to 25% compared with conventional maritime fuels.
Safety is of paramount importance. The industry has always worked diligently to ensure that LNG is used and transported safely and reliably. In the bulk LNG transportation industry, where LNG is commonly used as a fuel for the transporting vessel, LNG has an exceptional safety record. Over the past 50 years, more than 77,000 commercial LNG cargoes have been safely delivered and global LNG shipments have covered more than 100 million miles – about 4,000 times around the earth – without any major safety incidents in port or at sea.
The use of LNG as a marine fuel outside the LNG carrier business is a relatively new development, as are gas-only and dual-fuelled engines. However, since its introduction as a marine fuel at the turn of the century, LNG-fuelled vessels and associated bunkering operations have had an exemplary safety record. For example, the Viking Grace cruise ferry has bunkered without incident more than 1,000 times in Stockholm since its entry into service in 2012. This is testament to the LNG industry’s rigorous design guidelines for both ships and shore facilities, as well as high standards of safety training and operational procedures.
The world’s first dual-fuelled container vessels entered service in late 2015 for TOTE Maritime in the trade between the U.S. and Puerto Rico. Since their introduction, they have been running on LNG for the vast majority of their operating hours. These vessels again prove that the technology works safely and effectively.
Furthermore, LNG is widely available. It is a global commodity with 20 countries exporting to 35 importing countries. The market has seen notable structural changes in recent years, spurred on by the expansion of LNG trade and an increase in the number and diversity of LNG players in the upstream sector. In addition, small to mid-scale LNG has taken off, increasing market penetration and servicing demand from power projects in areas not covered by power grids. These areas include surface transportation such as heavy duty trucks, buses and trains, industries such as mining, and the maritime sector. As a consequence of the new entrants and the added competition, a more flexible approach to LNG contracting and pricing is emerging.
Although the current LNG bunkering infrastructure is concentrated in North West Europe, and the US Gulf and East Coast, more LNG bunkering facilities are being developed and built to reflect growing demand. This is most evident in the infrastructure being developed by the world’s busiest bunker port, Singapore, and in the activities in major ports in eastern China, for example Shanghai and Ningbo-Zhoushan.
As of December 2016 there were 97 LNG-fuelled ships in operation – mostly smaller vessels such as ferries – operating extensively in the ECAs of North West Europe and North America. There are currently at least 91 LNG-fuelled ships on order and approximately another 70 LNG-ready ships either in service or on order. LNG-ready vessels are designed for a streamlined conversion from conventional fuels to LNG when the time is deemed appropriate by the ships’ owners. The existing order book – while depressed due to overtonnaging – is showing a growing number of deep-sea vessels including cruise ships, container vessels, and bulk carriers being built to LNG dual-fuel standards.
LNG provides an essential solution for the long term. Barriers to entry need to be better understood and overcome if LNG is to reach its full potential. A collaborative approach is the only way to overcome these challenges. Creating the infrastructure to enable quick, safe and cost effective LNG bunkering in key global ports; diminishing the price premium for LNG-fuelled vessels; and establishing the consistency of international and national regulations globally, will all be essential if LNG is going to fulfil its potential as a future-fit solution for the international maritime industry.
Launched in July 2016, SEA\LNG unites key players from across the marine value chain for a common purpose – to drive the change needed across the entire marine transportation system. The multi-sector industry coalition brings together LNG suppliers, bunkering companies, shipping lines, shipyards, OEMs (original equipment manufacturers), classification societies, and port authorities.
SEA\LNG believes that a collaborative approach to understanding and then tackling the barriers to LNG use is crucial to encouraging investment and continuing to stimulate innovative solutions, thereby accelerating the adoption of this viable alternative to traditional bunker fuels. 2020 has the potential to represent a step change for LNG as a marine fuel. But only by taking a collaborative approach will the various barriers to uptake be overcome, to assure LNG’s vital role as a clean and economically viable alternative to traditional bunker fuels.