LR: Global Acceptance of LNG Bunkering Down To Price

A gravity-based offshore LNG terminal near Venice, Italy.

Lloyd's Register (LR) said today that a global acceptance of liquefied natural gas (LNG) as a marine fuel will depend on pricing and that some owners would be wise to consider fuel flexibility.

The conclusion comes after the company's one year study into 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," LR said.

Hector Sewell, the Head of Marine Business Development for Lloyd's Register said the the obstacles for LNG being adopted as a marine fuel were not technical, but practical, commercial factors.

"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," he said.

Dynamic Demand Model

Latifat Ajala, Lloyd's Register's Senior Market Analyst who built a dynamic demand model for the study said, "What we found was that the likelihood of global LNG bunkering facilities being established will depend on high demand for LNG-fuel on deep-sea trades, which will be driven by the price of LNG relative to current and future alternatives."

The study's base-case scenario predicted that by 2025 there could be 653 deep-sea LNG-fuelled ships in service, consuming 24 million tonnes of LNG per year.

When LNG was 25% lower than current market prices this number rose to 1,960 vessels in 2025.

If the cost of LNG increased 25% against current prices, LR said the model found that hardly any new LNG-powered tonnage would hit the water. 

Ajala said that excluding smaller ferries and local trades, it was the container-ship 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 (ECAs).

"Forecasting energy prices has always been a dangerous business," Ajala noted.

"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."

The comments come ahead of the full release of the company's one year study "LNG fuelled deep-sea shipping – Outlook for LNG bunker and fuelled newbuilding demand up to 2025" which is due for release on October 8, 2012.