Will LNG have longevity as a marine fuel as shipping mulls its future energy options? Mark Williams considers the factors that will impact on LNG’s ‘staying power’.
It is now clear that, while LNG offers an immediate cut in CO2 emissions compared to fuel oil and diesel at the point of combustion, it is no magic bullet. There are four questions about LNG that must be answered to assess its role in shipping’s path to zero carbon:
Does it really cut carbon dioxide emissions overall or only at the point of combustion?
Is LNG a practical solution for the entire global fleet?
Is LNG viable in the long-term or is it a transition fuel on the way to zero carbon shipping?
How much of the future market for fuels can LNG be expected to take?
- Does LNG really cut CO2 emissions?
According to French gas supply company elengy.com, ‘compared to traditional heavy fuel oils, LNG represents a 25% reduction in carbon dioxide (CO2) emissions, a 90% reduction in nitrogen oxide (NOx) emissions, a 100% reduction in sulphur (SO2) and fine particle emissions.’
Transport and Environment, a Brussels-based think tank, reported (as we have reported elsewhere) that only the latest generation of high-pressure LNG engines, minimising methane slip, actually reduce CO2 emissions on a wellhead-to-wake basis compared to marine gasoil (MGO). This limits LNG’s benefits to meeting lower SOx and NOx emissions regulations.
The International Council on Clean Transportation (ICCT) has said that natural gas is ‘a potent greenhouse gas (GHG) that traps 86 times more heat in the atmosphere than the same amount of CO2 over a 20-year time period.’ The ICCT’s research shows that ‘the most popular LNG marine engine—low-pressure dual fuel (LPDF), medium-speed, four-stroke—is also the leakiest. Using LNG, this technology emitted 70% to 82% more life-cycle GHGs than MGO.’
The answer to the question then would appear to be yes, but only under certain conditions which are not met by most of the LNG-fuelled ships currently afloat. Does this mean that we should abandon LNG, perhaps skipping straight on to hydrogen? There are technical developments that improve LNG’s lifecycle CO2 emissions performance. More efficient engines can be combined with other efficiency technology like waste heat re-use, carbon capture, hull and superstructure hydro-and aerodynamics, hull air lubrication, wind-assistance (rotor sails and the like). These technologies together could each improve efficiency by a few per cent and help to achieve the IMO’s mid-century CO2 emission reduction goals.
Ship owners though have not taken to retrofitting these technologies to their ships. In many cases the cost-benefit analysis of spending capital on upgrading older ships is questionable. Take scrubbers for example. Only around 5,000 in total have been fitted with them while most owners have taken the decision to buy IMO 2020-compliant fuels. Scrubbers make sense on the thirstiest ships and when the premium for 0.50% sulphur fuel oil is above around $100 per tonne over the price of 3.5% sulphur fuel oil. For most ship owners the relative cost of the available fuel options is the key variable when deciding on retrofits and newbuilding technology.
As we noted in the previous report in this series, several ship owners have demonstrated that they prefer LNG over MGO or heavy fuel oil and scrubbers to meet SOx and NOx emissions targets. In January 2021, the price of LNG has suddenly gone up after a multi-year slump, though gas prices persist below their long-term average. Gas traders report that demand trends are strong as gas replaces coal for municipal heating and electricity generation. That strong demand has driven daily hire rates for LNG carriers to all-time peaks of over $300,000 per day. Still, there has never been a shortage of supply of LNG and global natural gas production continues to grow. But increased demand for LNG as a marine fuel seems certain to increase its price at the point of delivery in the longer term.
In the future, the expectation is that the more complex fuels will cost more. If LNG plus other technologies offers a cheap route to IMO emissions compliance, then more ship owners will line up behind it as their preferred option. But it seems likely to be a solution for newbuildings when the fleet renewal decision has been taken. Retrofits are yet to be popular.
There are exceptions. Hapag Lloyd has been the first owner to convert large container ships to LNG, opting in 2019 to retrofit its 15,000 TEU MV Sajir to dual-fuel LNG propulsion, employing Hudong Shipbuilding (Group) Co Ltd of Shanghai to carry out the work. The work however was not unexpected. The MV Sajir was one of 17 in a series of ships that were built to be LNG ready with limited retrofit requirements. Even so, Hapag reported that the retrofit cost around $35 million, and the ship is only now undergoing test voyages, having been out of operation for many months already. Hapag Lloyd says that its long-term ambition is to run its ships on synthetic natural gas – which as we reported in the second article in this series, has benefits as it recycles CO2, but has a big drawback in that it is likely to be the most expensive of future fuel options.
2. Is LNG a practical solution for the entire global fleet?
Hapag Lloyd was not the first company to retrofit LNG engines to an existing vessel. LNG has been a popular retrofit option for ferries operating in built up areas, such as the Staten Island ferry in New York City, the BC Ferries operating in Vancouver, or a number of Baltic ECA region ferries operated by a variety of companies. A number of cruise ships and passenger ferries already burn LNG.
LNG has received general approval from the classification societies. DNV GL say that ‘LNG as a fuel is both a proven and available commercial solution. LNG offers huge advantages, especially for ships in the light of ever-tightening emission regulations. While different technologies can be used to comply with air emission limits, LNG technology is a smart way to meet existing and upcoming requirements for the main types of emissions (SOx, NOx, PM, CO2). LNG can be competitive pricewise with distillate fuels and, unlike other solutions, in many cases does not require the installation of additional process technology.’
Bureau Veritas, the French classification society that advised on the LNG-powered CMA CGM containership designs as well as the associated LNG bunker vessel, Gas Agility, points to the co-operation between engine designers, shipyards, gas containment system suppliers, the gas supplier, classification society and the ship owner. Such large vessels as the CMA CGM 23,000 TEU ships require the world’s largest LNG bunker vessel offering 18,600 cubic metres of LNG capacity itself, matching the capacity of the customer’s boxship LNG bunker tanks. The bunkering arm of Total, Total Marine Fuels Global Solutions, has built two LNG bunker vessels to meet CMA CGM and other buyers’ LNG fuel needs.
In fact, the LNG bunker fleet continues to expand with 30 LNG bunker ships likely to be in service by the end of 2021 with around another 15 on order. The Singaporean government has recently awarded two new LNG bunker licences and LNG is now available as a marine fuel in all the major bunkering ports in the six countries where two thirds of global marine fuels are delivered: China, South Korea, Singapore, the UAE, the Netherlands and the USA.
For Bureau Veritas, now classing the largest gas-fuelled ships in operation and many of the new bunker vessels entering service, LNG is the best clean fuel option available at any scale today. LNG addresses the problem of harmful local air emissions while the new generation dual-fuelled ships are now featuring on the deep sea trades where the real global greenhouse gas emission challenge lies.
‘We have been focused on addressing many of the risks related to bunker tank technology, port operations and bunkering at scale. The large containerships entering service have an installed power that is dwarfing the previous generations of LNG fuelled ships and the latest breed of engines, two-strokes in particular have considerably reduced methane slip,’ says the class society.
‘We can see that, combined with operational measures, LNG can provide the energy for new generations of carbon efficient ships while zero carbon fuels are developed. A combination of continual refinements in design, performance and energy efficiency measures as well as using blends of carbon neutral, bio or synthetic methane and hydrogen could further improve the GHG emissions profile of gas fuelled ships creating a realistic bridge to a hydrogen economy.’
The container shipping market leads the switch to LNG power. Its particular characteristics, including scheduled services, regular bunker calls, and more frequent port calls and ECA operations than other ship types, encourage owners to move towards LNG. Rodolphe Saadé’s 2017 decision to equip nine 23,000 TEU containerships with two-stroke LNG engines has driven a trend for LNG power for very large container ships. Four of CMA CGM’s dual fuel LNG ships have now entered service, allowing CMA CGM to assert that it will reduce its CO2 emissions per container transported by 30% by 2025 as by the end of 2022 it will have 20 LNG powered ships as well as ships operating on recycled vegetable oils and forest residues.
Ship owners ordering tankers and bulk carriers are increasingly turning to LNG for newbuildings – though ‘increasingly’ is a relative term when the global shipbuilding forward book is thinner than at any time since the double-dip recession of the 1980s. The decision to go for LNG can be sponsored by charterers, who like BHP can drive ship owners to lower emission fuels by issuing tenders for LNG powered ships against long term charters. In such a case the ship owner can find the increased ship finance requirement easier to obtain due to the relatively low risk to cashflow of having a first-rate charter attached to the vessel order. Whether the order meets the Poseidon Principles may be of less relevance to the owner.
In November last year, Mitsubishi Shipbuilding Co Ltd and Shin Kurushima Toyohashi Shipbuilding Co delivered the Pure Car Carrier, MV Sakura Leader. This was the first dual-fuel LNG powered PCC. When the ship received its first delivery of LNG fuel, it took part in the first ever ship to ship LNG refuelling in Japan.
Another recent example is the January 2021 charter to Total Lubmarine of four Aframax oil tankers fitted with LNG propulsion. Two of the ships will be delivered in 2023 to Hafnia and two to Viken Shipping. The LNG supplied to these ships will come from Total’s in-house bunker unit, Total Marine Fuels Global Solutions, in a neat circularity for Total which recently left the American Petroleum Institute as it seeks to become Net-Zero by 2050. Shell and Chinese leasing companies are said to be interested in LNG fuelled VLCCs, though a significant price differential might put many owners without charters off.
Our recent ship.energy podcast guest Alexander Panagopoulos, CEO of Forward Ships, has detailed a series of LNG powered dry bulk carriers. Panagopouls says that the gas engines he has patented are able to blend up to 20% hydrogen with LNG and cut CO2 emissions by up to 35%. The design is also claimed to save considerable cost over fuel oil power: ‘At a price level for LNG at $11 / MMBTU (and corresponding market pricing for oil) our patented design provides astounding savings of $1,299,070 per vessel per year over compliant LSFO fuel and USD 255,733 over HFO & scrubbers,’ he says.
A joint study published by Channoil Consulting and Gibson Shipbrokers in December 2020 suggested that VLCCs using LNG fuel could save nearly $8,000 per day in fuel costs, at prevailing prices of around $11,500 per day for LNG or $19,250 every day for VLSFO. Fuel savings of nearly $3.0 million a year could recoup the higher cost of building a VLCC, estimated by the authors at around $14 million, by the time of the ship’s first special survey, a common age for vessels to enter the sale and purchase market.
3. Is LNG viable in the long-term or is it a transition fuel on the way to zero carbon shipping?
Currently operational LNG technology cannot be zero carbon, so it does not provide more than a pathway to zero carbon. However, accelerating technological advantages in marine propulsion offer the prospect of further reducing LNG’s CO2 emissions and carving out a longer-term role for LNG.
CMA CGM and partners have also been working on combined gas and steam turbine power generation for container ships. By using LNG in a turbine generating electrical power to drive a ship, engine efficiency can be increased, fuel consumption decreased and therefore GHG emissions reduced. The engine and propulsion components are not connected by a drive shaft, increasing cargo carrying capacity, whereas conventional LNG and dual fuel engines have increased bunker tank capacity (as LNG by volume is less energy dense than fuel oil). A study suggested a 20,000 TEU ship with a single screw layout could be powered by a 65 megaWatt COGAS engine producing operating speeds of 22 knots. Further research into COGAS systems suggests that greater engine efficiencies are possible by combining LNG and electrification of vessels’ power plants.
LNG can be blended with up to 20% hydrogen which has no carbon emissions, thus cutting CO2 to air emissions by 20% on top of LNG’s 25% to 35% reduction from fuel oil levels of CO2. With hydrogen-LNG blended fuels and other efficiency technology, by mid-century new ships could comfortably achieve the IMO’s CO2 emission reduction ambitions. Of course, the global fleet would still be dominated by older ships emitting more CO2.
There is already a role for bio-LNG made from reprocessed waste. EU production of bio-LNG is set to increase tenfold by 2030. A paper jointly published in November 2020 by the European Biogas Association, Gas Infrastructure Europe, NGVA Europe and SEA-LNG asserted that ‘20% of bio-LNG mix in maritime transport would reduce CO2 emissions by up to 34%.’ Harmen Dekker, director of the European Biogas Association, told reporters that, ‘It is a sustainable and cost-competitive carbon-neutral fuel if we take into account all positive externalities of the bio-LNG value chain.’ Biogas plants are springing up around Europe, aimed at all modes of transport including shipping.
As Hapag Lloyd’s ambition makes clear, there could be a role for synthetic LNG in the future, which would probably cost more to produce than fuel cells or hydrogen carrier fuels but would prevent the world’s LNG infrastructure from ending up as a stranded asset. And LNG remains the easiest replacement for fuel oil of all the alternative fuels for large, deep-sea ships. Perhaps the oil tankers and coal carriers will go the way of the dinosaurs by the end of this century, but the world will still need ocean transport at scale. The rate of technological advance in LNG allied to efficiency boosting tech suggests that it does have a future beyond 2050.
4. How much of the future market for fuels can LNG be expected to take?
Forecasting shipping markets is a mug’s game. However, regulatory ambitions can provide some guidance to how marine fuel markets might develop and there are some brave individuals who have had a go at estimating market share for the alternatives to heavy fuel oil. For instance, Chrystos Chyssakis of DNV GL told delegates at a recent alternative fuels conference that natural gas will grow from a small percentage to around 20% of the market for marine fuels by the mid-2030s. Low carbon fuels will make up the majority of the market, with electricity and oil making up less than 10% combined. He expects the number of LNG fuelled ships (excluding LNG carriers) to grow from around 360 to around 550 by 2027, while LNG fuel consumption could grow from around 1.5 million tonnes in 2020 to around 3.2 million tonnes as soon as 2023, as more large LNG-capable vessels are delivered, particularly oil tankers and container ships.
Much depends on price and price depends on policy. As shipping falls under the EU’s emission trading scheme in coming years, LNG costs could become more competitive compared to fuel oil and diesel. A carbon levy such as that proposed by Trafigura last year would equally favour LNG as well as other lower carbon alternatives.
Until a global policy coalesces around a particular solution or set of solutions, ship owners will remain wary of ordering any kind of newbuilding. Few see first mover advantage in an industry which has rarely favoured bold changes to vessel design (containerisation being the stand-out exception). No ship owner wants to invest in Betamax if the regulators are going to come out in favour of VHS. Investment interest in LNG – and its market share – will become clearer when ship owners have a clear regulatory case for investing in a limited range of low-carbon technologies. For now, we can only conclude that LNG is finally an established marine fuel with a small but rising share of the marine engines market, offering staged reductions to CO2 emissions at the point of combustion.