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Alex Kimani

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Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Did The World Bank Just Doom LNG?

The United States has a long-running love affair with natural gas, with fossil fuels acting as the lynchpin in the country's power generation mix. At the same time, nearly half of American homes use the fuel for heating. With the transition from fossil fuels to renewables in full swing in many states, natural gas serves as the bridge that will make the switch smoother and less jarring.

Top American civil rights activists are among those vehemently opposed to an abrupt switch from natural gas, putting them on a collision path with progressive Democrats and environmentalists who have been pushing for an outright fracking ban.

On the opposite side of the spectrum, there's no shortage of environmentalists and climate advocates in dozens of cities--especially in liberal-leaning states such as Washington, California, and Massachusetts--that have been pushing for natural gas to receive a complete ban in homes and businesses. Meanwhile, lawmakers in New York to California have taken a firm stand against greenhouse gas emissions.

And now, the maritime industry is facing a similar conundrum.

The World Bank has just issued a recommendation to avoid LNG bunkering, saying hydrogen and ammonia offer the best long-term solutions as the shipping industry continues to adopt increasingly stringent measures to decarbonize.

But the recommendation by the international financier is facing plenty of backlash from industry representatives who say the industry cannot afford to wait for a perfect solution to address climate change. Instead, the shipping industry favors the adoption of technologies that can boost LNG's carbon credentials.

Marine transport is one of the biggest consumers of oil, accounting for ~7% of oil consumption worldwide.

Cheapest marine fuel

In its report, the World Bank presents an overview for policymakers regarding its perspective for the industry, saying that the industry needs to abandon fossil-based bunker fuels and turn toward zero-carbon bunker fuels in order to lower and ultimately eliminate its climate impact. Related: Why Natural Gas Won’t Be Replaced Anytime Soon

In addition to its overview of the issues, the World Bank presented a report entitled "The Role of LNG in the Transition Toward Low- and Zero-Carbon Shipping." The report says LNG is likely to play only a limited role in the decarbonization of the shipping sector even in the short-term, and recommends that countries should avoid adopting public policies that support LNG as a bunker fuel due to the risk of methane emissions and other highly damaging GCG emissions.

In a twin report, entitled "The Potential of Zero-Carbon Bunker Fuels in Developing Countries", the World Bank identifies ammonia and hydrogen as the most promising zero-carbon bunker fuels for the shipping industry.

However, panelists at the opening of Singapore Maritime Week representing owners, charterers, and shipbuilders are opposed to that line of thinking and see switching to LNG as one plausible, interim solution to a low-carbon transition that can happen sooner rather than later.

BHP CEO Vandita Pant has counter-argued that the maritime industry risks becoming "a laggard" if it fails to use LNG at least as a stop-gap measure and instead waits for "a perfect solution to come".

But truth be told, the biggest reason why shipping magnates are not so keen on ditching LNG is simply because it's the cheapest fuel available.

According to data by international accredited registrar and classification society, DNV, over the past seven years, Henry Hub natural gas has consistently ranked at or near the bottom of marine fuel prices when ranked by heating value.

Henry Hub natural gas sells for $5.60/MMbtu, the lowest among the six fuels ranked. Adding a $4/MMBtu liquefaction cost means it remains considerably cheaper than low-sulfur Marine gasoil (MGO), changing hands at $12.11/MMBtu.

Source: Det Norske Veritas (DNV) Group

Favorable hydrogen economics

That said, wide availability of cheap, green hydrogen could quickly make natural gas/LNG irrelevant.

Green hydrogen is hydrogen produced by the electrolysis of water using 100% renewable energy, thus making it a zero-carbon source. 

Unfortunately, less than one percent of the world's hydrogen production is of the green type, with the vast majority being derived from natural gas reforming. Indeed, 95% of the hydrogen produced in the United States is currently made by natural gas reforming, i.e., gray hydrogen. Related: Energy Sector Sees Blowout Quarter

The big problem here is that producing large amounts of green hydrogen requires massive amounts of renewable energy; For instance, the UK government's independent Climate Change Committee estimates that the country would need 30x its current offshore wind capacity in order to produce enough green hydrogen to replace all gas boilers in the UK.

But that might be about to change.

Last year, the world's green hydrogen leaders joined hands with an ambitious goal to drive a 50-fold scale-up in green hydrogen production over the next six years that could lead to a major fall in green hydrogen prices.

The Green Hydrogen Catapult Initiative is a brainchild of founding partners Saudi clean energy group ACWA Power, Australian project developer CWP Renewables, European energy giants Iberdrola and Ørsted, Chinese wind turbine manufacturer Envision, Italian gas group Snam, and Yara, a Norwegian fertilizer producer.

The companies hope to drive 25GW of green hydrogen production by 2026, a scale that could significantly drive down hydrogen costs to below $2/kg thus making the fuel source competitive with fossil fuels in power generation. The companies hope to drive 25GW of green hydrogen production by 2026, a scale that could significantly drive down hydrogen costs to below $2/kg thus making the fuel source competitive with fossil fuels in power generation.

If successful, natural gas' days as the favored clean energy bridge in the global maritime and U.S. electricity generation mix could be numbered.

By Alex Kimani for Oilprice.com

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  • Mamdouh Salameh on April 23 2021 said:
    Natural gas and LNG are pivotal for global electricity generation and energy transition. The transition won’t succeed without major contributions from both natural gas and nuclear energy.

    Hydrogen whether green or grey will never ever replace natural gas for the simple reason of being uneconomic. It takes more energy to produce either green or grey hydrogen than it eventually gives.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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