Nowadays, there are about 150 LNG liquefaction plants around the world and LNG import terminals while there are more than 50 under construction. The challenge for LNG in terms of infrastructure is taking it from the bulk terminals to the ship. Those investments are significant, but small compared to the actual bulk infrastructure; they are currently happening in Northwest Europe, North America, Asia and particularly in Japan, Singapore, Korea and in China.
Another interesting thing is that LNG does not need to be everywhere to play a significant role to the global shipping industry. It needs to be in the right places. If we look at the global bunkering picture, it is very concentrated. About three ports are responsible for 30% of conventional bunkering at the moment. If we look at the top 10 bunkering ports globally, nine either already offer LNG bunkering facilities or have plans to do so by about 2020. The final point I want to make is that if we look at the development of LNG bunker vessels, which are key to the maturity of the industry, in 2017 there was one in operation, now there are nine and in about 18 months the number will go near 20!
Regarding economics, we are told that LNG is incredibly expensive. What we have done is to actually undertake some very sophisticated, detailed investment analysis. We started with the container sector, we have modeled a 14k TEU vessel operating on a transpacific group under a variety of scenarios in terms of relative fuel prices. What we are trying to do here is compare LNG versus HFO, scrubbers and low sulphur fuel, looking at the 2020 time horizon and with the implementation of the IMO sulphur cap. We have also assumed that the open-loop scrubber is a viable solution, so we have been very deliberately conservative in our assumptions. The way in which we have done this is looking at publicly available data.
In terms of results, from our work on the container sector we see that on a 10-year basis, LNG delivers a significantly higher ROI compared with open-loop scrubbers and it is a hands-down winner compared with low sulphur fuels. Looking forward, we can expect to see the LNG CAPEX costs diminishing as scaling factors come into play. A point we made is that in terms of scrubbers, which is a sort of one of the natural competitors to LNG as a marine fuel, we should not underestimate the cost of scrubbers particularly for container vessels. Nor we should underestimate the fact that there is a significant parasitic load. We are also assuming that open-loop scrubbers are going to be unregulated. Here we have some concerns as an industry that in certain territories there is going to be a potential regulation to limit their use. Finally, LNG as a fuel is not only cheap, it is also much less volatile than the traditional marine fuels.
I think the economics of LNG as a marine fuel is being widely recognized. There is a relatively small amount of LNG fuel vessels currently in operation, but what we have seen since about 2010 is an annual growth rate of between 20-40%. As Albert Einstein said ‘there is no important universe as powerful as a compound interest’, so I think we can see strong growth in a number of vessels. We have seen a spread out from the short-sea shipping space, primarily from ferries and offshore supply vehicles, to the deep-sea shipping space. We have seen increasing uptake by the cruise sector, which is particularly sensitive to environmental issues, to container lines, to oil and chemical tankers and car carriers.
Finally, a few words on the environment, which is where LNG comes into its own. LNG provides a proven emissions solution, so it meets and exceeds all current regulations. I am talking about the 2020 sulphur cap and the tighter regulations coming into effect. LNG emits zero SOx, results in a 90% reduction in NOx, and a 99% reduction in Particulate Matter compared to HFO. Consequently, it really worth the investment of the industry against future stricter regulation that we could anticipate for local emissions.
It is also the only scalable marine fuel providing significant GHG benefits. We see these kind of benefits between 10-20% again compared to HFO with a potential for more in the medium turn as issues, such as methane slippage address. In the longer-term, fossil fuel LNG is completely fungible with bio-LNG and synthetic LNG. This provides a longer-term pathway for the decarbonization of the industry.
For SEA/LNG is key that our advocacy is based on objective, credible data, so we are sponsoring a series of academic studies. The first of these was published in April, looking at the GHG benefits of LNG, compared with HFO and low sulphur fuels within the context of the IMO 2020 compliance solutions. Another piece of work that we are looking at is alternative fuels. There is a lot of discussion around alternative fuels. We want to take a hard look at their operational and commercial readiness for use within the shipping industry. Another piece of work that we will be commissioning later in the year will be pathways to look at the role that LNG can play in achieving long-term decarbonization of the shipping industry.
Above text is an edited version of Mr. Steve Esau’s presentation during the 2019 SAFETY4SEA London Conference.
View his presentation here.
The views presented hereabove are only those of the author and not necessarily those of SAFETY4SEA and are for information sharing and discussion purposes only.
About Steve Esau, General Manager, SEA/LNG
Steve is General Manager at SEA\LNG. Before taking up his position at SEA\LNG Steve was Head of Energy at Xyntéo. He began his career as a Geophysicist in BP, subsequently working in a variety of business development, strategy and analysis roles in the company’s gas, power & renewables and energy trading businesses. Steve has also worked in the City of London, for a commodity futures market, leading the development of financial instruments for the energy sector and for management consultants Pöyry Energy and Caminus Energy, where he specialised in providing advice on Carbon Capture and Storage (CCS); gas and power market policy; and commodity trading and risk management.