ANALYSIS: Understanding the Global Orderbook in Terms of Conventional & Alternative Bunker Fuel Demand

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FIGURE 1

• The current orderbook represents 33.8 million mt of bunker demand
• 15.6 million mt (46%) of that demand is alternative bunker fuels
• 10.5 million mt (31%) of current orderbook demand is for LNG, making it by far the dominant choice of alternative fuel
• Methanol accounts for 10% of current orderbook bunker demand at 3.2 million mt
• A significant proportion of orderbook alternative fuel demand (9.6 million mt / 62%) is from containerships and gas carriers

Anyone following the valuable data updates on DNV's Alternative Fuels Insight (AFI) platform will be in no doubt that industry adoption of alternative bunker fuels is now well under way.

Following the surge of interest in orders for methanol-fuelled tonnage last year, there is also no question it has joined LNG as being considered by shipowners a viable choice for bunker fuel; in 2023, methanol only bested LNG by a small margin as the most popular choice for alternative fuel new contracts.

Last year overall 15% of the orderbook in terms of contract numbers was for alternative fuelled ships.

While it is easy to get caught up in the hype of future fuels, cooler heads will highlight that this 15% still only amounted to 284 alternatively fuelled vessels, and that over 99% of the 30,000+ strong world fleet of 5,000+ GT vessels still operate on conventional oil-based bunker fuel.

What really matters is not no much the number of orders but rather what kind of bunker demand these alternative fuel ship orders represent. Is the bunker demand from 284 ships enough to get bunker suppliers excited about alternative bunker fuels?

Size Matters

To answer that question, it is important to appreciate that a relatively small number of ships can make a big difference in terms of bunker demand for the simple reason that bigger ships consume more fuel.

The importance of this fact when it comes to bunker demand has been witnessed a number of times before.

For example, in 2017 when CMA CGM ordered the world's first LNG-powered mega-containerships, those nine ships alone increased the at-the-time global demand for LNG bunkers by 75%.

And in the run up to IMO 2020, analysis by Ship & Bunker showed it would only take a little over 3,000 scrubber-equipped ships for 30% of global bunker demand to be retained as HSFO in the post-IMO 2020 era.

Fuel Consumption by Vessel Size

While not stated explicitly in official IMO data, it is possible to get a good gauge of 'real world' bunker consumption by vessel size from IMO's Data Collection System (DCS) as reported for its Fuel Oil Consumption Database.

The most recent data was presented last year at MEPC81, for the reporting year 2022, and represents the latest official data on actual vessel fuel consumption.

Fuel consumption by vessel size and type can be calculated by combining the data submitted on the number and size of ships, and cross referencing this with the reports submitted to IMO on the amount of fuel used by vessels in each of its size categories.

The resulting table is seen in Figure 1 at the top of this article.

Readers should note that IMO allocates different size categories for different classes of ship, so there cannot be direct comparisons across ship types.

For example, refrigerated cargo carriers have three size categories: Less than 3,000 DWT; 3,000 ≤ DWT < 5,000; 5,000 DWT and above. Ro-ro vehicle carriers have two size categories: Less than 10,000 DWT; 10,000 DWT and above.

Still, the table clearly shows how larger vessels consume more fuel.

By extension, we are also able to calculate the fuel consumption per DWT for each of the ship types and size categories, and it should also be noted that larger vessels also represent greater efficiency.

IMO data shows that the largest containerships (200,000 DWT and above) with annual consumption of 0.11 mt / DWT are almost four times more efficient than the smallest box ships (Less than 10,000 DWT) with an annual consumption of 0.41 mt / DWT.

The Orderbook by Size vs Order Numbers

Looking at DNV's AFI numbers for the last 12 months shows that a little under 16% of the orderbook is for alternatively fuelled vessels.

However, if we look at the orderbook in terms of DWT, alternatively fuelled vessels represent almost 32% of the orderbook.

If LNG carriers are included, almost 40% of the current orderbook is for alternatively fuelled tonnage by DWT.

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FIGURE 2

Looking at the orderbook in terms of total tonnage shows alternative fuels are clearly a more substantial slice of orders than looking at it purely in terms of vessel numbers.

But what does this mean in terms of bunker demand?

Orderbook Bunker Demand

Using data kindly provided by Clarksons Research, we can determine exactly how many vessels in the orderbook fall into each IMO size category. Applying the previously calculated bunker consumption per DWT for each vessel type and category thus lets us calculate with reasonable accuracy the current orderbook's bunker demand.

From the above data can calculate that the current orderbook represents 33.8 million mt of conventional bunker demand. The breakdown by fuel type is shown in Figure 3.

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FIGURE 3

Of the 33.8 million mt total, 18.1 million mt (54%) is for conventional oil bunker-powered ships and 15.6 million mt (46%) is for alternative bunker fuels.

It is important to appreciate the 15.6 million mt of alternative bunker fuel demand is expressed in terms of the equivalent conventional bunker demand.

Due to the differences in energy density, the actual amount of LNG, methanol etc this will translate into will vary.

For example, a reasonable gauge for ammonia is it will take 3 mt of ammonia to replace 1 mt of VLSFO, so 5 million mt of conventional bunker demand will translate into 15 million mt of ammonia demand etc.

That said, the first thing that is interesting to note is that 10.5 million mt (31%) of total orderbook demand is for LNG, 3.2 million mt (10%) is for methanol, and 1.9 million mt (6%) for other alternative fuels.

This tells a very different story compared to looking at the orderbook by number of contracts. Methanol may have gotten the jump on LNG in 2023 in terms of new contract numbers, but LNG is by far the orderbook's dominant choice of alternative bunker fuel in terms of bunker demand.

Even if we exclude the 3.3 million mt of demand from LNG carriers, the orderbook comprises 7.2 million mt of LNG demand, more than double that of methanol.

But is 15.6 million mt of conventional bunker demand equivalent enough to get suppliers excited about alternative fuels?

That depends.

Containerships account for 40% / 6.2 million mt of that 15.6 million mt alternative fuel demand, and gas carriers and box ships combined make up 9.6 million mt  / 62% of that demand.

These numbers likely spell good news for those involved in alternative fuel projects in big container ports.

For everyone else, shipping may need to provide some clearer demand signals before anyone gets too excited.

Big Picture

Taking the vessel consumption by size and type data we derived from the IMO data and applying that to Clarksons Research's database of 37,569 vessels in the global fleet 5,000 GT and above gives us a total global bunker demand of 256.5 million mt.

Total bunker demand represented by the existing fleet plus the orderbook is thus 290 million mt, with the orderbook's 15.6 million mt of demand from alternative fuels representing 5% of that.

It is also worth noting that the 37,569 vessels Clarksons Research has in its database of ships 5,000 GT and above is quite a bit bigger than the IMO estimate for 2022 of 33,991 ships falling under the scope of regulation 27 of MARPOL Annex VI, which specifies that ships 5,000 GT and above are required to participate in bunker consumption reporting.

This disparity may be for a number of reasons, not least of which being the IMO data is an estimate for 2022 and the Clarksons Research data is at May 2024.

Still, looking at the IMO data in isolation shows total reported bunker demand for 2022 was 201,939,920 mt from ships representing 93.1% of ships by GT. This implies 2022 total bunker demand of 216.9 million mt using IMO data as the indicator.

That number is clearly somewhat smaller than the number derived from the Clarksons Research vessel database, and if nothing else, shows the difficulty in assessing total bunker demand and by extension, total industry emissions.