As part of it’s Annual Energy Outlook 2019, the U.S. Energy Information Administration (EIA) has conservatively estimated domestic consumption of Liquefied Natural Gas (LNG) as a marine fuel will grow to 10% by 2050. The operating life of vessels is long, typically 25 to 30 years, but the upswell of natural gas powered newbuilds means the fuel market is going to change significantly.
The International Marine Organization’s (IMO) new regulations limit the sulfur content in marine fuels used by ocean-going vessels in international waters to 0.5% by weight starting in January 2020, a reduction from the previous global limit of 3.5% established in 2012. This lower limit will change the way bunker fuel (the fuel mix consumed by large ocean-going vessels) is consumed in the United States, which, according to AEO2019, accounted for about 411,000 barrels per day (b/d) in 2018. This volume represents 3% of total transportation energy use and 1% of total U.S. petroleum and liquid fuel use.
EIA says this upcoming change will have wide-scale repercussions for the shipping industry and refineries in the United States and worldwide. Globally, marine vessels account for a critical part of the global economy, moving more than 80% of global trade by volume and more than 70% by value. Marine vessels also consume about 4 million b/d of petroleum, 4% of total global oil consumption.
A sea change is occurring
Switching from petroleum-based fuels to other fuels such as liquefied natural gas is one of the solutions being adopted by ship owners and operators. This is not just a temporary adjustment, it is a profound transformation. According to SEA\LNG, a multi-sector industry coalition, “2018 saw a sea-change in attitudes and actions towards LNG as a marine fuel”. It observed that by March last year, of the 94 cruise ships on the global order-book, 18 under construction were LNG-powered. “This represented 20% of all newbuildings for the cruise industry, but 25% of newbuilding capacity due to the size of the vessels ordered.”
Peter Keller, Chairman, SEA\LNG, last week released an independent study which showed that for a newbuild 14,000 TEU containership, the focus of the study, LNG has the answers: “The study unequivocally shows that for this vessel type, on this trade route (Asia-US West Coast), LNG as a marine fuel delivers the best return on investment on a net present value (NPV) basis over a conservative 10-year horizon, with fast payback periods ranging from one to two years.”
DNV GL’s Alternative Fuels Insight (AFI) platform reports that LNG-fuelled vessels in operation and under order had reached 261 by August last year. By December that total had risen to 282. Awaiting the increased availability of LNG bunkering infrastructure are another 139 vessels built with capacity to accommodate LNG fuel systems, the so-called ‘LNG ready’ ships.
Although there are now more than 70 locations worldwide that have facilities to bunker LNG, the US has so far been slow to recognise the advantages of natural gas as a marine fuel and to take advantage of the synergies that are possible between port and land-based operations. Europe will soon have more than 130 LNG bunkering ports; the U.S. currently has one in operation and four more may be forthcoming (see SEA\LNG map). EIA expects the use of liquefied natural gas (LNG) in U.S. marine bunkering to be limited in the next five years, reflecting the limited infrastructure available to accommodate LNG bunkering at U.S. ports.
As infrastructure adapts, EIA predicts LNG’s share of U.S. bunkering to grow to 7% in 2030 and to 10% in 2050. A global overview suggests these projections may be challenged in not-to-distant future, particularly given the U.S. is transitioning to a gas-rich economy.
(Adapted from U.S. EIA press release)