International Shipping Turning to LNG

Fuel for ferries and large cargo ships may increasingly come from liquefied natural gas (LNG), as companies move to both lower fuel costs and comply with new environmental regulations. Oil has traditionally been the fuel of choice for powering container ships, oil tankers, and other large cargo ships. Marine shipping uses heavy fuel oil or bunker fuel, a particularly dirty petroleum product. Shipping is a large contributor to local air pollution in the surrounding areas of large ports.

According to Reuters, due to increasing stringent regulations on sulfur emissions from shipping containers that are set to come online in 2015 in the U.S., Canada, and much of Northern Europe, shipping companies are beginning to switch over their fleets to LNG. Germany is building LNG bunker terminals in Hamburg and Bramerhaven, with construction slated for completion by 2015. Major European ports like Antwerp and Rotterdam are seeing – and encouraging – the increasing use of LNG as a maritime fuel in smaller ships. And perhaps the world’s busiest port, Singapore, is investing in LNG bunkering capacity to serve the growing Asian market.

Related article: Is There Still Opportunity in the Natural Gas Space?

Natural gas is much cleaner than fuel oil, but the technology has long been complicated and much more expensive as a fuel for transportation. For this reason, LNG as a maritime fuel is very new. One estimate puts the global fleet of LNG ships at 42. However, that number may jump to 1,800 by 2020 as companies begin to rapidly switch over.

While LNG is still quite expensive, particularly in Asia where it fetches upwards of $20 per million Btu (MMBtu), large liquefaction plants are expected to come online over the next several years, especially from Australia. The capacity additions should lower the price of LNG and make it more competitive as a maritime fuel. And as environmental regulations begin to bite in a few years, LNG may actually be cheaper as a shipping fuel than using low-sulfur fuel or installing expensive scrubbers.

By. Joao Peixe of Oilprice.com