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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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An Under-The-Radar Opportunity In LNG

Natural gas production and liquefied natural gas (LNG) exports, including in the United States, could get a boost from a relatively new and not-so-self-evident revenue stream—the global shipping industry.   Driven by stricter sulfur emissions standards and the ongoing global drive towards a lower-carbon future, the world’s top shipping operators and manufacturers are raising the share of vessels in the fleet powered by alternative fuels. LNG has so far emerged as the top choice among fuels alternative to marine gasoil and low-sulfur fuel oil to power ships, paving the way for another growth opportunity for the natural gas and LNG industries.

Stricter Sulfur Content Rules In Shipping

According to the new rules by the International Maritime Organization (IMO), only 0.5-percent or lower sulfur fuel oil should be used on ships beginning January 1, 2020, unless said ships have installed the so-called scrubbers—systems that remove sulfur from exhaust gas emitted by bunkers—so they can continue to use high-sulfur fuel oil (HSFO).

Basically, the shipping industry has three choices in light of this regulation—install the scrubbers, use the more expensive low-sulfur fuel oil, or switch to alternative fuels, including LNG.  

Last year, the shipping industry and oil refiners, traders, and buyers were bracing for what was expected to be “the single largest oil market disruptor.”

Little did they know, or anyone else for that matter, that the single-largest oil market disruptor would be a global health emergency in 2020. Related: Goldman Turns Bullish On Oil: Sees $65 Brent In 2021

The pandemic, however, accelerated calls for decarbonization and all industries, including the shipping sector, came under further pressure to reduce emissions.  

LNG Tops Alternative Marine Fuel Choices Maritime transport is essential to the global economy, transporting more than 80 percent of the volume of international trade and more than 70 percent of its value, according to the United Nations Conference on Trade and Development (UNCTAD).

The IMO’s goal is to have the shipping industry’s greenhouse gas emissions reduced by at least 50 percent by 2050 compared to 2008. The shipping industry currently accounts for around 2.7 percent of global carbon dioxide (CO2) emissions, according to an overview by Shell.

As ship owners and operators look to cut emissions, they are turning to alternative fuel sources, and LNG is so far the clear favorite to replace sulfur-emitting fuels in shipping.

As much as 27.2 percent of the current ship order book by tonnage is for ships powered by alternative fuels, according to recent research by Clarksons Research, carried by Hellenic Shipping News. LNG-powered vessels account for the biggest share, 13.1 percent, of the alternative fuel uptake in ordered ships. The next largest share of LNG uptake in the global vessel order book is LNG-powered LNG carriers, with 11.5 percent, Clarksons says.

There are currently 227 confirmed new-building orders for LNG-fueled vessels that are not LNG carriers, on top of the 202 already operational LNG-powered ships. Tankers are taking up LNG as an alternative fuel at the fastest pace, with 72 orders on top of the 34 LNG-powered vessels already operating in the global fleet, according to Clarksons.

“LNG’s case as a legitimate “stepping stone” to meet emissions targets is supported by port facility investment,” Stephen Gordon, Managing Director at Clarksons Research, wrote in the report. As many as 124 ports have LNG bunkering facilities, up from 114 at the beginning of this year, and their number is forecast to rise to 170 by 2022, Clarksons said.

Europe’s largest seaport, the port of Rotterdam, for example, supports the uptake of LNG and offers discounts on seaport dues for LNG-powered seagoing tankers and inland vessels with green award certificates.

Related: Will Biden Seal The Fate Of The U.S. Shale Patch?

“Clean ships are now a prime consideration behind every single order,” an executive at the world’s largest shipbuilder, Hyundai Heavy Industries Co, has recently told Costas Paris of The Wall Street Journal.  

LNG was the preferred solution to the 2050 emissions target for 47 percent of respondents in the ABS Future Fuels LinkedIn Survey, while hydrogen was the answer for 40 percent, according to the survey by ABS, a provider of classification and technical advisory services to the marine and offshore industries. Just eight percent opted for ammonia and five percent for methanol as the future fuel for the industry, the survey showed. 

One of the world’s largest container transportation and shipping companies, CMA CGM Group, expects to have 26 LNG-powered containerships by 2022.

The group says that LNG reduces 99 percent of sulfur dioxide and fine particle emissions and 85 percent of nitrogen oxide emissions, and can cut CO2 emissions by up to 20 percent compared with fuel-powered systems.

But Methane Emissions Could Undermine LNG’s Greener Credentials

While LNG could reduce CO2 emissions, the super-chilled fuel and its entire value chain starting from natural gas production is a methane emitter, which traps 86 times more heat in the atmosphere than the same amount of CO2 over a 20-year time period, the nonprofit International Council on Clean Transportation (ICCT) said in a report in January 2020. 

Methane emissions from shipping surged by 150 percent between 2012 and 2018, mostly due to the rise of LNG-powered vessels, many of which have engines that allow unburned methane to escape into the atmosphere, ICCT said in August, commenting on an IMO report on greenhouse gas emissions in the industry.

“Methane is not yet regulated by the IMO, but it should be because it has a much stronger global warming potential than CO2,” senior marine researcher Dr. Bryan Comer, who led the review of the study, said in a statement. “We urge IMO to include all greenhouse gases, including methane, in the next phase of the EEDI to limit emissions from new LNG-fueled ships.”   

By Tsvetana Paraskova for Oilprice.com

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