Low Gas, Crude Prices Slowing Investment in Asian LNG Bunkering: Read Smith

Low gas prices in Asia are slowing investment.

Despite liquefied natural gas (LNG) being a viable bunker alternative for ship owners trying to meet environmental regulations, Reed Smith says the Asian market for LNG bunkering faces "a number of challenges," not the least of which is a lack of LNG-fuelled vessels in the region and slowing investment in the gas fuel alternative.

In a January 6 analysis, Kohe Hasan and Ang Liseah write that with stricter sulfur emissions regulations coming into force in the coming years, the need for LNG bunkers will continue to grow and will be encouraged by favourable prices compared to crude.

However the low price of crude means that LNG prices, which in Asia are usually linked to the crude price, are also down so the payback period for LNG bunkering investment projects is being extended.

"The longer the payback time, the more undesirable a project becomes," the authors sate, adding that the end result is a slowing down in the adoption of LNG bunkering in Asia.

"This is evident in several Asia-Pacific nations such as South Korea and China. Although these countries have been steadily investing in the development of LNG bunker fuel, the prolonged dip in crude oil prices will inevitably defer the adoption of cleaner fuels such as LNG," Hasan and Liseah said.

The authors state that the absence of LNG bunkering infrastructure in Asia "poses the biggest challenge for the adoption of LNG as marine fuel" and note the now well-know Catch-22 problem in which ship owners "have been reluctant to invest in LNG-fuelled ships until they are assured that LNG infrastructures are in place; at the same time, however, terminal owners or operators are unlikely to make significant investments unless there is already a credible demand for LNG bunkers."

Hasan and Liseah believe one solution may be capital or financial support from Asian governmental authorities.

Other problems outlined in their analysis include an absence of LNG bunkering regulations and protocols.

Still, the authors conclude that while the current landscape for LNG bunkering in Asia "may not be smooth sailing as the shipping sector reacts to the sharp drop in the oil price….the outlook of LNG supply is undoubtedly becoming less ambiguous as demand continues to increase."

Reed Smith is not the only organization to write frankly about the challenges facing the nascent LNG market: in December, Nick Brown, brand and external relations manager at Lloyd's Register, said providing investors with the likelihood of returns is "by far" the biggest obstacle in the shift to LNG bunkers.