Extended LNG dual-fuel payback time limiting newbuilding orders

Today’s longer payback cycle increases the level of residual value risk of LNG dual-fuel tankers, says Braemar ACM. But it adds that the fall in newbuilding prices goes a long way in reducing exposure from that risk

Fuel price spreads equate to between a 10- and 12-year payback for shipowners investing in liquefied natural gas dual-fuel technology for a large newbuilding tanker, says shipbroker

MARINE fuel price spreads equate to between a 10- and 12-year payback for shipowners investing in liquefied natural gas dual-fuel technology for a large newbuilding tanker, according to shipbroker Braemar ACM.

Based on current prices, very low sulphur fuel oil equates to about $170 per tonne more than LNG marine fuel. A very large crude carrier newbuilding using dual-fuel technology costs about $17m more than a similar, non-scrubber VLCC, the shipbroker said in its weekly report.

“Today’s longer payback cycle increases the level of residual value risk of LNG dual-fuel tankers,” the report said. “The simultaneous fall in newbuilding prices goes a long way in reducing the exposure from that risk. Despite all the reasons why LNG is today not expected to offer the savings we thought it might six months ago we still believe LNG dual-fuel represents an attractive investment for large tankers,” the report added.

LNG has emerged as the main marine fuel alternative for international ships to meet environmental targets to decarbonise shipping over the next decade but uptake of dual-fuel technology has been slower than expected.

Environmental criticism of LNG as a fossil fuel amid the lack of any scalable green alternative has hindered newbuilding orders as owners await for technology in marine propulsion to evolve.

One sixth of tanker deadweight contracted last year was LNG dual-fuelled, according to the report. This year just over 20% of newbuilding tankers ordered were dual-fuelled.

There are 13 LNG-fuelled vessels over 5,000 dwt, according to Lloyd’s List Intelligence data. A further 27 are operating with gas turbine/diesel electric technology, data show.

Braemar ACM also noted that the delivered price of LNG as a marine fuel will fall as bunkering infrastructure and availability evolves, especially in Asia.

Shipyard designs are also improving, with lower-cost, more pragmatic designs offering savings, especially in the containership sector, which leads in uptake of this technology.

“This rise in Asia’s spot LNG supply and the capacity to deliver it for use as marine bunkers will drive a reduction on the cost of the LNG dual-fuel kits onboard,” the report said. “LNG dual-fuelled VLCC tenders in recent years have specified bunker tanks large enough to provide a range of 18,000 nm to 20,000 nm on gas mode.

“The need for such a large range, and tanks large enough for required LNG volume, will surely reduce if LNG bunkers can be sourced more frequently and reliably on the vessel’s route, like we soon expect them to be. This is crucial because fuel tanks make up for nearly a third of total LNG dual-fuel capital expenditure.”