New Shipping Regulation Could Be A Boon For LNG

LNG is hot and it’s likely to become a lot hotter in the coming years, for which LNG producers have the International Maritime Organization (IMO) to thank. Earlier this year, the IMO announced its first ever long-term plan to reduce harmful emissions from maritime transport by introducing much stricter maximum sulfur emission limits. Now, a race is in the making between LNG fueling terminals and gas-powered vessels, and this race will only intensify in the coming months.

From 2020, only vessels using fuels with sulfur content of 0.5 percent or less will be allowed to roam the oceans, as per the IMO’s strategy aimed at cutting total carbon emissions from maritime transport by half by 2050. Those that use fuel with a higher sulfur content—the current limit is 3.5 percent—will only be allowed to remain in operation if they are equipped with emission-clearing equipment, which naturally costs money.

Most ships, Reuters authors Jonathan Saul and Nina Chestney write in a recent story on the topic, currently use fuel oil or marine gasoil, a lighter fuel, but both of these are much higher in sulfur content than LNG. In fact, industry estimates suggest LNG emits up to 90-95 percent less sulfur oxide as well as nitrogen oxide, both toxic and both targeted in the IMO’s strategy.

This sounds like a done deal in favor of LNG, but things are not that simple. For starters, there are just 125 LNG-powered ships in the global fleet, according to DNV GL data. That’s 125 out of 60,000 ships in commercial maritime transport. The total global fleet is some 90,000 vessels. Another 400 to 600 are expected to launch by 2020, but this will still be a tiny portion of the total fleet.

So, what about the emissions-cleaning equipment, the so-called scrubbers that capture sulfur emissions? They can cost anywhere from US$1 million to US$5.7 million, which for many shipowners is unaffordable. Even so, Wartsila, which makes scrubbers, says that by 2020 around 2,000 ships will have them, however expensive they are. Still, 2,000 out of 90,000 is not that much. Related: LNG: China’s Biggest Weapon In The Trade War

It looks like shipowners face an uphill struggle to comply with the new IMO regulations. The European Union, for one, is trying to help and benefit in the process. The EU has already spent US$250 million on developing an LNG bunkering infrastructure and promoting the fuel as an alternative to heavier fossil fuels, and it seems prepared to splash billions more to make LNG the mainstream ship fuel. To make matters even more complicated, some are questioning its value as a replacement of fuel oil and gasoil.

The University Maritime Advisory Services, a consultancy with the University College London, recently argued that the EU’s efforts of promoting LNG for ships will not really make a climate change difference. In fact, the consultancy said, the shift to LNG, which includes building infrastructure and processing facilities, could even increase total emissions instead of reduce them, “depending on the fuel’s supply chain and use.”

These conclusions have been challenged on the grounds that we are in the beginning of the LNG era, which means there is significant space for efficiency improvements in the supply chain and utilization of the fuel. This only makes the whole issue of maritime emission regulation all the more fascinating to follow but it does not solve the biggest problem for shipowners: they have two years to shift to LNG or buy a scrubber. For now, there does not seem to be a viable third option. Electric ships sound lovely, but they have a way to go before they can compete on long-haul routes. So it looks like an LNG boom is in the making, despite skeptics’ opinions, and this boom could create a US$250-billion market over the next five years.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:

• The Real Reason Behind The Next Oil Squeeze
• All-Time Low Spare Capacity Could Send Oil To $150
• The Productivity Problem In The Permian