INSIGHT: LNG and Bio-LNG Infrastructure, Demand and Price Drivers

Mustafa El Zein is new fuels advisor at Glander International Bunkering. Image Credit: Glander International Bunkering

LNG as a marine fuel is increasingly in the spotlight, offering a unique alternative to traditional fuels. In this interview with our New Fuels Advisor Mustafa El Zein, he shares insights on the current trends and developments in the LNG market.

The alternative fuel has been in use for at least 50 years in marine propulsion, namely on LNG tankers using its own cargo as fuel. In bunkering, LNG started properly developing around the early 2000s, with the earliest LNG bunkering vessel starting operations around eight years ago.

Mustafa El Zein explains that as the shipping industry takes on its mammoth task of reducing GHG emissions, LNG is surely becoming an attractive and viable solution due to its lower emissions (compared to fuel oils) and its relative cost competitiveness. This is resulting in the LNG bunkering industry growing rapidly, with bunkering facilities and delivery infrastructure being developed at various locations all over the world.

El Zein continues, "We are even seeing ship operators and owners who had previously dismissed the use of LNG fueled vessels are now rethinking their decision and opting for the alternative fuel."

Taking all these factors into account, LNG bunker supply will need to continue to increase to account for the large number of LNG fueled vessels currently on order.

LNG Globally

Europe is likely to see the most growth in LNG bunker demand in the next few years, according to El Zein.

The ARA hub is currently the largest location for LNG as a bunker fuel, but Southern Europe is now gaining traction as well; Spain, Portugal and France recently developed solutions both in the Atlantic and Mediterranean.

"Asia – in particular Singapore, Malaysia and China – is also investing heavily, with some good capabilities already in place, and North American ports in the Gulf of Mexico, US East Coast and other strategic locations are expanding their LNG bunkering capabilities," he says.

LNG bunker demand is expected to grow to 20-25 million mt/year by 2030. This increase aligns with the broader global LNG demand, which is currently around 400 million mt/year and expected to reach 600 million mt/year by 2030. At the same time, the global LNG supply will grow in parallel.

What Will Drive LNG Demand?

Power generation and industrial use are likely to remain the dominant influence on the global LNG market because of their relative size.

According to El Zein, the big test for LNG as a bunker fuel will be how quickly production of its alternatives – bio- and synthetic LNG – can be scaled up, and how quickly shipowners show willingness to pay the extra cost for these lower-carbon fuels.

He says, "The EU's emissions trading system for shipping and upcoming FuelEU Maritime regulation are already starting to provide an incentive for that switch."

The regulations are ratcheting up progressively, giving time for ship owners, fuel producers, and industry stakeholders to collaborate towards reaching the goal. El Zein adds, "What's even more encouraging is the growing awareness within the industry of the need to reduce emissions. This is where the voluntary market is gaining momentum."

LNG Price Outlooks

As demand is steadily incentivized by regulation, the challenge will be in supplying bio- and synthetic LNG at sufficient scale.

Biogas prices seem to be on the track of stabilizing, and demand, while not that high today, will surely increase as the regulations catch up with fossil LNG's emissions.

El Zein advises, "Investment in production and infrastructure is needed, and the sooner the better."

The EU's target for overall biogas production is 35 BCM per year by 2030, compared with production levels of about 4 BCM in 2022. And a good share of it can and will be used by the shipping sector.

He concludes, "If this target can be met, and similar growth achieved in other key regions, LNG will be an even more attractive proposition for the decarbonization of shipping."