The potential of LNG as a marine fuel will hinge on pricing

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Cutting-edge technologies have revolutionised the marine environment and continue to promise evermore fuel-efficient ship designs for the benefit of the global gas industry.

Innovation and technological advances have redrawn the boundaries in many respects – but they have also increased the level of expectation from operators, demanding greater cost savings and maximum efficiencies.

The potential for liquefied natural gas (LNG) to become a viable marine fuel on a mass scale is now a very real and foreseeable prospect.

The International Maritime Organisation’s (IMO) imminent regulations to reduce sulphur and nitrogen oxide emissions are also compelling the maritime industry to turn towards LNG fuel to such an extent that experts predict that LNG will be the dominant shipping fuel by 2050.

Now a new study by Lloyd’s Register (LR) – the world-renowned provider of independent assurance to companies operating high-risk, capital-intensive assets in the energy and transportation sectors – finds the cost of LNG, compared to alternative fuels, will be among the biggest factors in determining its viability as a major marine fuel of the future.

After a year of extensive research and analysis, LR concluded its study on LNG bunkering and newbuilding demand for deep-sea shipping.

Outside of the niche markets, the study finds that the establishment of LNG bunkering infrastructure capable of supporting most of the world’s consumers will be highly sensitive to the price of LNG relative to alternative fuels. The full report will be made available in time for Gastech Conference & Exhibition, taking place 8-11 October in London.

Hector Sewell, Head of Marine Business Development for LR, said: “The obstacles to the adoption of LNG as a marine fuel are practical factors, but they are not technical. They are commercial.

“Establishing safe, reliable global LNG bunkering capability is feasible. But it will require considerable investment and risk management, and it will have to cover significant operational costs to challenge existing fuel-oil delivery systems.”

Using a specially-created dynamic demand model, LR researchers investigated LNG supply, trade routes, ship-type fuel consumption, port locations and bunkering demand, as well as shipowner and port surveys. Three demand and price-driven scenarios were applied and the results appeared to suggest the likelihood of global LNG bunkering facilities being established would depend on high demand for LNG-fuel on deep-sea trades, very much driven by the price of LNG relative to current and future alternative fuels.

The study’s base-case scenario predicted that by 2025 there could be 653 deep-sea, LNG-fuelled ships in service –most likely containerships, cruise vessels or oil tankers – consuming 24 million tonnes of LNG annually.

When the study modelled relatively cheap LNG – for example, 25% lower than current market prices – the projected number of LNG-fuelled ships rose to approximately 1,960 units by 2025. If the cost of LNG increased 25% against current prices, the model found that hardly any new LNG-powered tonnage would hit the water.

Latifat Ajala, LR’s Senior Market Analyst, said: “Excluding smaller ferries and local trades where there are local market, fiscal and regulatory drivers – such as in parts of the Baltic and Norwegian shelf – it was the containership and cruise ship markets that were the most likely to adopt LNG, because of their relatively high energy requirements, the demands of customers in these two sectors, their regular trading patterns and the time those ships spend in emission-control areas.

“The difficulty for those looking to make decisions is that forecasting energy prices has always been a dangerous business. For ship owners looking to make these decisions, flexibility may be the key. Choosing engines that can burn both gas and fuel oil, or that can be converted, may be one way to manage the regulatory and commercial issues involved with fuel choices.”

On Tuesday, 9 October at Gastech, many of the world’s foremost authorities on LNG and marine transportation will come together to discuss these and other major issues affecting the sector at the LNG As A Shipping Fuel stream, part of the Centres of Technical Excellence (CoTEs) seminar programme on the exhibition floor.

The free-to-attend sessions promise unrivalled opportunities to hear from the gas industry’s most influential figures, as they debate and examine the technological advances, challenges and opportunities which are redefining the energy sector.

Chaired by Luis Benito, Global Strategic Marketing Manager, Marine for Lloyd’s Register Asia, the CoTE stream will feature presentations from senior representatives from LR, as well as Geir Bjorkeli, of Rolls Royce, Stephen Davidson, of SPT, and Odin Kwon, of Daewoo Shipbuilding & Marine Engineering Co Ltd.

To learn more and register for Gastech 2012 Exhibition’s Centre of Technical Excellence, visit www.gastech.co.uk/cotes.