Shippers Prefer LNG To Power Their Vessels

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LNG

Last month TOTE Inc., a shipper that operates between the U.S. and the Caribbean, launched the World’s second massive container ship fuelled by liquefied natural gas.  The first was launched four months earlier by the same company.

A growing number of shipowners turn to natural gas as oil prices are fluctuating, and the emission rules are stringent.  Now 70 vessels of all sizes are powered by LNG.  Two years ago, it was only 42.  According to DNV GL, which certifies ships for safety, says it may cross 1,000 by 2020.

The increased environmental consciousness, the abundance of supply and the relatively stable prices of natural gas make it a preferred alternative fuel source.  The drop in oil prices makes gas less competitive but, oil prices won’t remain low and are likely to increase over the next two-to-five years.  The LNG emits less carbon dioxide and stops sulfur dioxide release.

But, on the negative side the following points are raised:

  1. Construction costs are higher for LNG-powered ships.  They are 10 to 25 percent more expensive than comparative oil-run vessels.
  2. Cost can be recovered only after five to eight years.
  3. The insulated storage tanks needed for LNG contribute to the higher price tag.

LNG prices are not expected to vary much as exports from the U.S., and Australia have risen and global demand remains sluggish.  But, oil has tumbled to 40 bucks and may be back up to 85 or 90 a year from now which makes it highly volatile.  Natural gas output in the U.S., the world’s largest producer, rose to a record 2.455 trillion cubic feet in December, according to the Energy Information Administration.

Marketed production will expand 5.7 percent to 78.95 billion cubic feet a day in 2015, the government estimates. Cheniere Energy Inc. in Louisiana is to export the first cargo of LNG in the fourth quarter.  At the same time, Australia is also adding to the glut with two liquefaction projects entering service later this year.

“Spare U.S. liquefaction capacity could aggravate the ongoing spot LNG market glut” creating a supply in excess of demand. LNG fueling hubs will be started in Singapore and the U.S. and follow thereafter in a global network.  The U.S. doesn’t yet have an LNG fueling hub, according to shipbroker Poten & Partners Inc.

Source: Bloomberg

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