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Low Oil Price Thwarts Wider LNG Adoption in Shipping—For Now

Low Oil Price Thwarts Wider LNG Adoption in Shipping—For Now

Low oil prices appear poised to claim another energy victim by sidelining the wider adoption of liquefied natural gas (LNG) for shipping fuel by as much as a decade, but it’s certainly not game over in this fuel evolution.

Projections made some six years ago looked brilliant. By 2020, LNG would have been fueling between 10 percent and 30 percent of all newly built vessels, according to engineering expert Christian Poengsen at a recent conference.

But these attractive projections were made when oil traded at over $100 and gas was a cheaper, cleaner alternative. Now, with oil around $40, shipbuilders are staying with diesel engines, Poengsen, the vice-president of engineering for MAN Diesel & Turbo, explained. Related: Eni Hopes To Develop Supergiant Gas Field By 2017

It’s bad news for the LNG industry, which has been expanding in anticipation of a bright future, in which natural gas takes the place of crude oil as the primary fuel in a number of industries, shipping included.

The optimism has always been solidly founded: The reduction of carbon emissions from vehicles and maritime vessels is one of the top priorities for governments in tackling climate change, and gas is a cleaner hydrocarbon than oil; it is just as abundant as oil; it’s cheaper than oil.

And there is oversupply on the gas market as well, which makes the fuel a real bargain right now, were it not for a couple of expensively complicated issues. Related: Sanctions Lifted, Now Iran Wants To Get Paid

LNG needs special infrastructure at ports in order to be loaded, unloaded and stored. If we’re talking about vessels, they need to be equipped with expensive LNG-fueled engines. In 2013, there were just 30 vessels running on LNG worldwide, with 30 more in construction. Last fall, however, there were 70 such vessels, including two massive container ships. If we look at these numbers, things don’t look all that bleak for LNG.

According to DNV.GL—the Norwegian classification and certification company for the maritime, energy, and oil and gas industries—as of 21 March there were 77 LNG-powered vessels in operation across the globe, and 85 confirmed new-builds. Of the 77 vessels in operation, the majority are supply ships for the oil and gas industry as well as gas carriers. Among the 85 new-builds, however, one can see a lot more container ships being ordered, as well as several cruise ships and a few tugs. Related: $91 Billion In Capex Cuts, A Serious Hangover For Oil

The DNV.GL data, fresh as it is, prompts the question: Is Poengsen overly pessimistic? The Norwegian certification company says this year should see the delivery of 44 LNG-fueled new-builds, which will rise to 63 in 2017, and 79 in 2018. That’s quite a healthy increase, even if it doesn’t represent one-third of all maritime vehicles to be built until 2020.

It seems the advent of LNG as a preferred alternative to diesel fuel is unstoppable, even if it is currently slowed down by cheap oil. This is something Poengsen admits too: the only difference cheap oil is making right now is the slowing down of LNG engine adoption. On the whole, there will be good news for LNG companies and their investments—but a bit of unanticipated patience is required.

By Irina Slav for Oilprice.com

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