DNV GL: shipping industry ripe for faster uptake of LNG as fuel

The establishment of natural gas as the shipping industry’s fuel of the future has been ‘remarkably difficult’, according to the classification society DNV GL. 

In 2012, the society predicted that by 2020, the LNG-fuelled fleet would comprise around 1,000 vessels. Three years later, this figure was revised downwards to between 400 and 600 vessels, with low oil price and slower than expected development of bunkering infrastructure cited as key reasons.

Today, there are 117 vessels burning LNG, of which more than two-thirds are operating in Europe. A confirmed order book of 111 vessels will see that figure double.

In addition, there are 114 vessels that are classified as LNG-ready. A quicker uptake of LNG as a fuel for shipping is thus clearly visible, DNV GL said.

The conditions needed for an acceleration are in place. In particular, bunkering options are expanding on a global scale. There are 60 supply locations worldwide, including Singapore, the Middle East, the Caribbean as well as Europe, according to the latest DNV GL data. A further 28 facilities have been decided and at least 36 are under discussion.

By the beginning of 2018, six LNG bunker vessels will be in operation globally, and four more projects are confirmed. Major players including Total, Shell, Gas Natural Fenosa, ENN and Statoil have announced plans for new LNG bunker vessels, which, according to DNV GL’s senior consultant for environmental advisory, Martin Christian Wold, are likely to materialize in the near future at key locations in northern Europe, the Middle East, the Gulf of Mexico, Singapore, and the Mediterranean.

Meanwhile, government-backed initiatives are getting underway in China, Korea and Japan, as these countries strive to meet ambitious national targets for combating local pollution and reducing greenhouse gases (GHGs), DNV GL said.

“For suppliers, it’s very much a question of timing. They won’t bring these facilities online until they see sufficient confirmed orders for LNG-fuelled tonnage to justify the investment. Yet, they are also jostling to secure an anchor customer and gain first-mover advantage to deter their rivals from setting up nearby,” according to Wold.

Shell, for example, has just signed a long-term charter agreement for a 4,000 cubic meter bunker barge to supply LNG bunkers along the U.S. east coast. Meeting growing demand for LNG from cruise lines was cited as the major impetus behind the decision.

The regulatory outlook too is now much more certain, thanks to IMO setting 2020 as a fixed date for the introduction of its global cap on fuel sulphur content. Because of the political currency attached to the decision, any softening of the regulation or significant slippage is regarded as unlikely.

“Evaluating whether LNG as a fuel will provide a competitive edge is difficult enough for ship owners. Having to anticipate various regulatory scenarios on top of that complicated matters further. IMO’s decision brings much-needed clarity to owners considering switching to LNG and other alternative fuels,” says Wold.

Organizations such as SEALNG and SGMF promoting the uptake of LNG as marine fuel believe the inflection point is closer than ever, as investment in the ‘last-mile’ to bring LNG from the bulk infrastructure to ships could set the foundations in place for a wider switch to LNG from 2020.

Wold noted that CMA CGM’s recent decision to equip nine 22,000 TEU vessels with engines running on LNG could serve as a catalyst that could trigger a stampede.