With IMO 2020 now just a couple of months away, it’s worth taking a look at alternatives towards compliance, such as LNG fuel. In its latest weekly report, shipbroker Gibson said that “back in May we discussed the IMO’s plan to reduce CO2 emissions by 40% by 2030 and GHG emissions by 50% by 2050 (compared to 2008 levels). LNG propulsion, whilst by no means perfect, appeared to offer the best route to towards meeting the IMO’s targets. Since then, LNG has gained popularity with more orders placed across the sectors, most notably for containerships, whilst new orders for tankers and bulkers have also emerged. If an owner is to order a ship today, what should they invest in? Will investing in LNG propulsion today give an owner first mover advantage, or lead to a technological or economic disadvantage? And will we see a surge in investment in the sector over the coming years?”
According to Gibson, “the biggest barrier appears to be costs and corresponding charter rates/periods. Newbuild pricing requires owners to secure a premium over conventional charter rates to justify the investment and whilst deals are getting done, liquidity has been limited and rates are not often disclosed. Reports have emerged in the container sector of a $15,000 premium being paid for an LNG fuelled 15,000 TEU ship versus a scrubber fitted vessel of similar specifications, which if correct would represent a sizeable premium and see the owner recover the investment in a relatively short space of time. In the tanker and bulker sector, whilst deals have been concluded, rates have been harder to validate making it difficult to assess the economic benefit of an owner investing in LNG propulsion against long term charters. Owners also have to decide how to apportion the additional investment made in dual fuel vessels, in terms of whether to apportion the investment over the vessels life or try to recoup the investment in a shorter timeframe”.
The shipbroker added that “forward visibility on fuel availability and costs, although nothing new, is also an issue. Supply concerns are likely to be overcome in time, whilst many of those going big on LNG have teamed up with LNG suppliers. CMA CGM has partnered with Total to fuel its 20 LNG fuelled containerships, whilst those chartering dual fuel tankers already have LNG experience. Interest has also emerged in the dry cargo space with several ‘LNG Ready’ bulkers already operating, orders on the books and tenders placed for further tonnage”.
Meanwhile, “pricing of LNG in the future is also a matter of uncertainty. Supply is projected to rise with the market being in surplus until 2023-2023. However, beyond this point the LNG market could become tighter on the supply side, pushing up LNG prices relative to conventional fuels. Similarly, LNG prices are highly seasonal meaning that prices peak in winter when demand is highest for heating and power generation, potentially eroding higher seasonal freight rates”.
Gibson concluded that “large scale uptake of LNG is by no means a perfect route to solving the world’s climate issues. However, right now it appears to be the most applicable and ready technology to meet the IMO’s targets.
Indeed, according to DNV GL “LNG is viewed as an attractive fuel for global shipping as it has potential to reduce emissions to air and is priced competitively compared with liquid marine fuels.” However the Classification Society warns “[for all ship types] there is a significant risk that for a vessel built in 2020, the most competitive fuel in the ship’s early life will not necessarily be the same as when it is scrapped… allowing for flexibility to switch to another fuel during the vessel’s operating lifetime, would be crucial in mitigating the risk of becoming a stranded asset.”, the shipbroker concluded.