Low Bunker Prices Deterring Shipowners from Investing in Alternative Methods of ECA Compliance

Low bunker prices reduce benefits analyses for LNG investments

With bunker prices at their lowest for several years, shipowners are choosing to burn more expensive MGO fuel to meet new Emissions Control Area (ECA) regulations rather than making investments in alternative methods of compliance, Natural Gas Daily reports.

New ECA rules effective January 1, 2015 mean vessels operating within ECA waters must use a fuel with a sulfur content not exceeding 0.10 percent by weight, or use an equivalent method of compliance.

One such route for operators is to invest in liquified natural gas (LNG) conversions or new-builds, with one operator predicting using LNG will cut its fuel bill in half.

LNG bunkers face a number of logistical challenges, such as a lack of bunkering infrastructure, but according to the report there had been an expectation in the gas industry that once the new ECA rules were in place it would prove a catalyst for investments in LNG shipping.

However, while there has been a recent, dramatic fall in the price of oil, LNG prices have remained stable, making investments in LNG less attractive in the short term.

"The average ship owner is not ready to [switch to LNG]," said independent LNG shipping consultant, Keith Bainbridge.

Law firm Holman Fenwick Willan this month also issued a report saying that a slew of capital expenditure by shipowners is unlikely to be forthcoming.

"From data gathered by the Lloyd's List 2014 sulphur survey, it appears that, in the near term at least, operators will opt to burn low-sulphur distillates in lieu of capital expenditure on their fleets," said HFW.

Recent reports have also suggested that the biofuels industry is also struggling to compete with oil at current prices, with one fuels distributor remarking that biofuels producers "have to be getting murdered" at present.

Low oil prices have not stopped investments in all sectors, however, with Marine terminal operator DP World recently saying it was increasing investment this year as it hoped a low oil price would help boost international shipping.