LNG as a ship fuel offers a compelling economic case, signiﬁcantly reduces local air pollution, hits decarbonisation targets and is receiving investment from across the supply chain – so why are some ship owners still so reluctant to buy into the gas revolution?
Off the record discussions on the fringes of the biennial bunker bash reveal widespread misgivings, misunderstandings and a general wait-and-see attitude still prevails among shipowners.
STAKEHOLDERS across the LNG bunker fuel supply chain are gearing up for a resurgent “hearts and minds” campaign to convince shipowners and shippers that LNG is an immediately viable investment strategy, rather than a decision to be taken down the road.
Despite a flurry of high-profile LNG-fuelled orders and significant investment on the part of the gas supply chain in terms of infrastructure, LNG bunkering is still not expected to play a major short-term role in hitting the 2020 low-sulphur fuel deadline.
LNG’s industrial cheerleaders — the fuel suppliers, the oil majors heavily invested in gas, even the minority of first-mover owners — are all convinced that a compelling economic, strategic and environmental case has been made for some time.
But as more than 2,000 bunker sector executives gather in Singapore for this week’s biennial Sibcon gathering, there is a feeling behind closed doors that they are preaching to the choir this week and most shipowners and their customers have not been sufficiently “educated” or convinced yet.
In public, during the pre-conference press briefings, a compelling picture is being painted of rapidly growing shipowner enquiries for LNG-fuelled projects in the run-up to 2020.
But talking in the protected environment of off the record discussions on the fringes of Sibcon 2018, stakeholders from across the gas and LNG value chain report widespread misconceptions within the shipowning community about the safety and economics of LNG. This is accompanied by an industry-wide deferral on the LNG option until pricing becomes clearer and flagship orders hit the water and reveal their business case.
“Some owners studied LNG and decided no. Some are waiting, and a surprising amount were doing so expecting a delay of the 2020 deadline,” said one expert involved in the design of recent LNG-fuelled orders. “But others are just unaware and some still think LNG is dangerous — you would be amazed how frequently I am still asked ‘will my ship blow up?’.
“Outside the LNG community there is a lack of understanding. Many in the industry have to be educated and at ease with LNG before it will spread and for the moment we have a lot of people to convince.”
According research firm Poten & Partners, there are 157 LNG-fuelled vessels in operation, although that figure is dominated by coastal vessels sailing on set routes. Add in the orderbook and that figure extends to 235 vessels and if you consider ‘LNG-ready’ vessels in the equation another 48 can be added.
While the LNG-ready section of the fleet — those technically capable of being retrofitted with minimal disruption — at least suggests there is a growing degree of flexibility being priced into newbuilding decisions, particularly in the deepsea trades, the trend ultimately supports the general wait-and-see attitude being attributed to LNG-fuel as a choice.
Though the financial case for LNG may not be quite the “economic slam dunk” it was during the oil boom pre-2015, and the current margin of around $4m to $5m btu between mdo and Japan LNG would not support retrofits or some scrubber/heavy fuel oil choices, it is sufficient to cover bunkering and newbuild ship costs associated with many LNG-fuelled options, argue analysts.
Availability is another often-cited barrier, but even here a rapid influx of investment has already supported high-profile LNG-fuelled options like CMA CGM’s groundbreaking order for nine 22,000 teu containerships.
“It is genuinely a compelling proposition, and of course it is not available everywhere, but investment is coming in at some scale and utilisation will make the economics more compelling,” said one oil major executive.
Amid the discussion on infrastructure the Maritime and Port Authority of Singapore revealed this week it had spent S$26m to kick start the use of LNG as a cleaner burning marine fuel. This included S$18m or up to S$2m per ship awarded as grants to shipowners for building LNG-powered ships plus another S$6m that went to two licensed suppliers for the construction of LNG bunkering vessels, according to a report in local press.
“There’s no way we get anywhere near the industry’s decarbonisation targets without LNG as a fuel, but most still see this as the long-term solution, not something for today,” said one gas supplier.
“People are making assumptions and looking at the future here and it is a good story — this is a very dominant fuel, widely available with more being discovered each year — the supply-demand picture looks good,” said one shipmanger.
“But where is that delta between conventional fuels and gas? Once you have the answer to that you can run the business case very effectively, but until that works itself out, that piece of the puzzle is still to be defined and minds will not be made up”.