- LNG is regaining traction as a preferred marine fuel, with new dual-fuel ship orders rising.
- LNG’s price stability and emissions advantages make it a strong alternative despite methane slip concerns.
- Regulatory support and potential compliance benefits are driving LNG adoption, but higher CAPEX remains a challenge.
LNG is making a comeback as a leading marine fuel option, with several shipowners placing large orders for LNG dual-fuel ships. This resurgence comes despite competition from methanol, ammonia, and conventional fuels. LNG offers several advantages, including price stability, supply certainty, and lower emissions compared to traditional fuels. However, challenges such as methane slip and higher capital expenditures persist. With ongoing regulatory support, LNG may secure its place as a dominant alternative fuel in the maritime industry, provided it can navigate these hurdles, reports Gibson.
The LNG Comeback
LNG as a marine fuel is experiencing a revival, with several shipowners, including prominent companies like Maersk Line, announcing plans to invest in LNG dual-fuel ships. This marks a shift in the industry, where LNG had previously lost ground to other alternative fuels such as methanol and ammonia. The resurgence of LNG is driven by its increasing availability, improved price stability, and the development of associated bunkering infrastructure.
One of LNG’s key advantages over other alternative fuels is its price stability. Following the initial price surge due to the Russia-Ukraine conflict, LNG prices have stabilized, now nearing parity with marine gas oil (MGO). This stability, combined with a well-established supply chain, offers shipowners greater price visibility compared to green or blue ammonia and methanol. Additionally, LNG boasts significant emissions benefits, including 20-30% lower CO2 emissions and 90% less NOx compared to fuel oil. However, the issue of methane slip, which can negate these benefits, remains a concern.
Regulatory frameworks are currently supportive of LNG adoption, with LNG-fueled ships expected to remain compliant with FuelEU standards until the late 2030s. This compliance potential is a significant draw for shipowners, as it allows them to generate surplus compliance credits that can offset non-compliant vessels within their fleet. However, LNG’s lifecycle greenhouse gas (GHG) emissions, particularly methane emissions, will be counted under the EU Emissions Trading Scheme (ETS) from 2026, potentially reducing its attractiveness.
Despite the benefits, the adoption of LNG as a marine fuel comes with significant capital expenditure (CAPEX). The cost difference between a conventional vessel and a dual-fuel LNG vessel can be substantial, with estimates around $19 million for a Very Large Crude Carrier (VLCC). This higher CAPEX necessitates greater time-charter equivalent (TCE) earnings to justify the investment, making LNG a viable option only if the fuel’s price remains competitive with conventional fuels and if the savings from emissions regulations can offset the additional costs.
Did you subscribe to our daily Newsletter?
It’s Free! Click here to Subscribe
Source: Gibson
