Gas fuel take-up is price-driven, says LR

Some of the findings were discussed in a presentation by LR’s Jesper Aagesen at the 2012 Motorship Gas Fuelled Ships conference in Bergen, and the full report is now available.

LNG fuelled deep-sea shipping – Outlook for LNG bunker and fuelled newbuilding demand up to 2025’, found that widespread adoption of LNG-as-fuel will be driven by price, the growth of alternative fuels and the degree of global collaboration. Its base-case scenario predicted that, by 2025, there could be 653 deep-sea, LNG-fuelled ships in service, consuming 24 million tonnes of LNG annually. These ships are most likely to be containerships, cruise vessels or oil tankers.

“We needed to develop an approach that would help us to get a clear sense of what LNG-as-fuel might mean for our clients,” said Hector Sewell, Head of Marine Business Development for Lloyd’s Register. “We have the in-depth capability to handle the technology and the risk issues associated with gas, but we wanted to be able to help our clients understand what will be driving industry adoption. We were most interested in the deep-sea trades as these are responsible for most of the world’s tonnage, emissions and fuel bills.”

When the study modelled relatively cheap LNG – for example, priced at 25% lower than current market prices – the projected number of LNG-fuelled ships tripled to about 1,960 in 2025. If the cost of LNG increased 25% against current prices, hardly any new LNG-powered tonnage was projected to hit the water.

Mr Sewell said that what was perhaps most interesting, is the way that working on the report had been a catalyst for a broader understanding of how many alternate fuels might be adopted by the shipping industry. “LNG is unlikely to simply replace heavy fuel oil. We will see specific niches – such as in Norway – embrace LNG in small scale applications,” he said. “Adoption in the deep-sea trades is a different affair; there are different drivers, and we are also likely to see other fuels and technologies emerge as options.”

“Despite the excitement [about LNG as fuel], there has yet to be an order for deep-sea, large-engined, LNG-fuelled ships,” Sewell said. “The most likely first movers could be the big containership operators who are able to bunker at two ports at either end of a liner trade route, such as in Rotterdam and Singapore or Shanghai. This might take years. Or it may happen tomorrow.”

Latifat Ajala, Lloyd’s Register’s Senior Market Analyst, who built the dynamic demand model for the study, said: “Yes, price is a key. But it’s going to be all about collaboration. There has to be a group of stakeholders who want it to happen. Political will and commercial ambition combined with environmental objectives and regulations have driven the modest take-up so far. There is no global market for LNG bunkers, so local or regional initiatives, investment, environmental and fiscal policy all have a part to play. Shipowners who are serious about using LNG as bunker fuel may need to cut their own supply deals and lock in prices for years ahead. It’s going to be really interesting to see what happens.”