Preference for marine fuel oil at half the cost of LNG bunkers shows shipowners can and will use dual-fuelled engines as a pricing hedge
When it comes to choosing between saving money or the environment, shipowners are opting for the fuel that provides the lowest operating cost
HIGH natural gas prices are deterring the greater uptake of LNG bunkers as owners of dual-fuelled vessels opt for conventional marine fuel at nearly half the cost.
LNG fuel was assessed $424 per tonne above very low sulphur fuel oil and $631 per tonne higher than high-sulphur fuel oil during April, according to price reporting agency Argus Media.
Elevated costs over the past nine months have deterred shipowners with the option of using either fuel from choosing LNG as rising natural gas prices across Asia and Europe outpace gains in conventional bunkers.
“The spread has been in the favour of conventional fuel throughout the winter, but now we are seeing that the spread is closing somewhat, and we do expect that within a reasonable time it will equal out,” said Finland-based energy company Gasum’s vice-president of marine Jacob Granqvist.
“It seems that this is also what the shipping community is thinking as we are seeing every month now that orders of LNG-fuelled vessels are being booked at the shipyards.”
Fewer vessels opting for LNG marine fuels saw Gasum operate its LNG bunkering tanker outside the Amsterdam-Rotterdam-Antwerp hub to utilise it better.
“We had to get the utilisation up. We could not afford to have one vessel just hanging around,” he said.
Like most in the LNG market, Mr Granqvist sees delivery of hundreds of larger, dual-fuelled LNG vessels over the next five years as a game-changer, providing the traction needed for commercial scale alongside regulatory decarbonisation goals.
The fleet of ships with the option to use LNG is at 370 but is expected to swell to 530 by the end of 2023 and 760 two years after that, according to DNV.
There are also some 220 newbuildings on order classified as “LNG-ready” for retrofitting to use LNG later if required, data from the Danish classification society shows.
Nevertheless, current turmoil in the energy industry shows that shipowners can and will use dual-fuelled engines as a pricing hedge, and that operating profits can trump decarbonisation targets.
Still, rising LNG prices will not deter newbuilding orders.
Some of the biggest shipping names dominate the orderbook for LNG-fuelled ships, which now comprise some 30% of all tonnage on order at shipyards worldwide by deadweight.
This shift to larger vessels, such as very large crude carriers — as opposed to early-adopters, such as smaller passenger and ferry ships — in northwest Europe helped LNG become a transition decarbonisation fuel for the global fleet in the absence of any zero-carbon alternatives.
Even though LNG is a fossil fuel, studies show that it can lower ships’ carbon dioxide emissions by as much as 20% compared with conventional marine fuel oil.
Detractors highlight that decarbonisation and environmental benefits can be much smaller, depending on engine type, and levels of methane emissions are also damaging.
However, most newbuildings are using two-stroke engines that show minimal methane slip, according to a TotalEnergies paper on marine fuels published in January.
The French energy giant also forecast the global LNG bunker market will reach 10m tonnes by 2025 and 10% of total consumption by 2030.
That represents a huge leap in the current fuel mix. LNG uptake is estimated at some 0.19% of the current marine fuel mix, in a market that consumes some 185m tonnes of bunkers annually.
Mr Granqvist said the LNG bunkering market is rapidly evolving to replicate the conventional marine fuels market as shipowners seek a balance of longer-term supply contracts as well as spot market purchases.
“The vessels that are being ordered now are heavy-consuming [fuel] vessels. Heavy consumers switching to LNG means that LNG demand in northwest Europe is going to jump dramatically in the next five years.”
The largest containerships now on order to use LNG would consume 24,000 tonnes annually, according to Mr Granqvist, adding the vessels would bunker the full capacity of a 15,000 cu m bunkering tanker.
While LNG remains high-cost, some of the sector’s pioneers, such as Sweden’s Furetank, are now being supplied with bio-LNG.
Bio-LNG and liquefied biogas produced from biodegradable materials is interchangeable with LNG and a key selling point for LNG’s environmental credentials post-2030.
“The beauty of bio-LNG is that it is blendable to any amount and ratio with LNG, which means that when you are making an investment in LNG assets, then you are already on a path towards decarbonisation,” said Mr Granqvist.
“You already gained 20% over conventional fuels with LNG, but then you can start to blend in bio-LNG, and you have other options as well, and 20% by making ships more efficient.
“Furetank are able to reduce about 50% of CO2 emissions compared with the older generation of tankers that they have of the same size.”
However, shipowners need to commit to buying bio-LNG volumes, he said.
“To just sit on the fence and wait might not be a good idea if your strategy is to decarbonise. But the question within the shipping community has always been about price.
“Even though we could decarbonise some vessels fully — even today — by using biogas, the willingness to pay for such a service has not been there.”