Fuel of the Future or a Flash in the Pan?

Malcolm Latarche
Malcolm Latarche

15 May 2018

Ever since the IMO settled on a 2020 date for the global sulphur cap reduction, LNG’s lack of sulphur emissions has seen it be accepted as possibly the best solution for shipowners in the long term. As well as meeting the SOX emissions regulation with no difficulty, LNG as promises a solution to NOx regulation and has the added advantage of lower CO2 emissions in comparison with HFO.

Those are the points in its favour but it does have some downsides as well. The capital outlay for an LNG newbuild is higher than for an oil burning vessel even if a scrubber is included into the price of the latter, the energy density of the fuel means it requires more space than oil for equivalent distances, the impracticality of converting most existing engines and the perennial problem of bunker infrastructure being undeveloped.

Nevertheless, more and more owners are committing to using LNG. Almost certainly the prestige newbuilding project to date is the CMA CGM series of nine 22,000teu containerships being built in Chinese yards. For such large ships to be running on LNG was a surprise in itself and the fact that they will have a fuel capacity sufficient to complete a round trip between Asia and Europe on a single bunkering operation even more so. The 18,000m3 of LNG fuel storage is located directly under the wheelhouse. Obviously that space cannot be used for cargo in any case, but the additional space needed over oil fuel is equivalent to around 200teu which will mean that space must be lost to house containers elsewhere in the ships.

In a report issued in late April, shipping consultants Drewry offered some insight into their view of LNG take-up. In the report, Drewry says ‘Major owners are now talking about the possibility of a carbon-neutral maritime industry, and that makes LNG even more attractive – aside from the fact that it will be cheaper than LSMGO. The question is whether it will be practical’.

Assessing the potential for newbuildings, the report makes the point that not many ships trading today can burn LNG – mostly cruise ships, passenger carriers and LNG tankers using boil-off gas for their auxiliary engines. Without referring to CMA CGM directly Drewry does mention that large container ships are next in line and that inroads into the bulk-carrier and tanker markets are being made. According to Drewry, of the 93 LNG-capable vessels on order, eight are dry bulk carriers. Recently, Forward Maritime Group, an affiliate of Alexander Panagopulos-controlled Arista Group, signed a letter of intent with the Chinese yard, Jiangsu Yangzijiang to build 20 LNG powered Ultramax vessels between 2020 and 2023.

Growing the bunkering network

Like most analysts, Drewry does not expect that retrofitting gas engines will be an attractive proposition and poses the question of whether shipowners will order enough vessels, and whether there will be enough LNG to cope with demand if they do. In order to answer this question, Drewry has made a quantitative model to estimate total demand generated by LNG as bunker fuel in 2022. LNG fuel demand is estimated from total fuel consumption by major segments such as dry bulk, tankers and containers. It has assumed that some large vessels in these segments with age below 15 years will retrofit LNG engine. There are three scenarios described, low case assuming 5% of the identified fleet retrofits LNG engines, base case assumes 10%, and high case presumes 15% of the total fleet.

Adding the confirmed new LNG projects to the current capacity in the market, Drewry estimates that annual supply will be about 72 million tonnes by 2022. Demand is lagging behind that figure, but the high case (15% of vessels retrofitting) will add an extra 10 million tonnes demand in 2022, and even the 10% base case will push demand beyond expected supply. In conclusion it says more LNG projects will need to come on-line and more bunkering facilities will need to be completed in a short period of time if the industry is to cope with demand for LNG bunkering.

There are several bunkering projects on course and the network is being spread wider beyond the core areas of Northern Europe and the US. The most recent example is in Jaigarh Port in Maharashtra on the west coast of India although the bunkering aspect is an added value development that was not initially foreseen. The development is India’s first floating LNG terminal which was inaugurated on 1 May this year by the country’s gas company H-Energy.

The 145,000m3 GDF SUEZ Cape Ann FSRU will provide capacity for around four million tonnes annually and in order to add bunkering capability a modification is planned for the FSRU. H Energy has an option to extend the charter agreement beyond the initial term.

Cruise ships are likely to be a vector for increasing LNG bunkering as there is strong support for the fuel and few facilities in major cruising areas. The Caribbean would seem to be one area where facilities are needed and according to a recent reports Arawak Port Development Company, the owner of Nassau Container Port in the Bahamas would like to see its project completed before rival developments in the Caribbean boosting Nassau’s attraction as a cruise port. The planned bunkering facility would primarily serve vessels docked at Prince George Wharf and provide numerous other spin-off benefits for the Bahamas. It has been reported that most of the LNG will be stored in a “small vessel” berthed at the Nassau Container Port, with the partners planning to use a specially-constructed barge to transport LNG to refuelling cruise ships at Prince George Wharf.

In the US, Florida is the centre of the Cruise sector but it is also the home to the first four US containerships operating on LNG. The ships; two each from Crowley and Tote currently bunker from trucks at Jacksonville or Jaxport as it is known locally. The port is in the process of building a new LNG terminal which when complete will feature a facility for loading bunker barges that can carry out ship to ship transfers in the port and further afield along the US east coast.

Singapore ‘s position as a major bunkering centre would be jeopardised if LNG bunkering facilities are slow to get into operation. New bunker tankers have already been ordered for ship to ship transfers and one to be operated by Sinanju is scheduled for delivery in the second half of next year.

Recognising the need for Singapore to be a leader in LNG bunkering the Maritime and Port Authority of Singapore (MPA) is contributing 15% of the $10M cost of the vessel. MPA is also providing funding for other projects under its LNG bunkering pilot programme. To be eligible for grant funding which can amount to as much as $2.25M, the vessels must be operated by local companies and the vessel must be under the Singapore flag and be committed to operations in Singapore for at least five years.

Many of the early LNG bunkering operations that exist including in Europe and the US rely on truck to ship transfers but as the size of LNG-fuelled ships grows so the focus must shift to barge transfers. Antwerp will be one of the beneficiaries after independent Belgium-based Fluxys assuming the concession to supply LNG fuel. The new facility for barge transfers is scheduled to come on stream at the end of 2019.

The EU has been a strong voice in promoting LNG and under the Directive on the deployment of alternative fuels infrastructure (2014/94/EU), member states are obliged to develop a supply infrastructure for several fuels used across different industries and user groups. The directive requires an appropriate number of refuelling points for LNG to be put in place at maritime ports TEN-T Core Network by 31 December 2025 and in the inland waterways TEN-T Core Network ports by 31 December 2030. The last summary of progress published last year shows that some countries are more advanced than others in meeting the requirement but some slippage in the plans is expected.