Drewry expects LNG to be feasible as a marine fuel until 2035 amidst the EU Emissions Trading System (EU ETS) and the FuelEU Maritime (FEM) despite the scrutiny over its fossil footprint and methane slip.
According to Drewry, over 1,100 LNG-fuelled vessels and 1,000 LNGCs will be in service by 2029, securing LNG’s maritime demand while vessel re-routing and technology-led structural fleet changes are expected to befall under the regulated regime. Maersk’s recent decision to pivot towards LNG-fueled container vessels and delay its order for methanol-powered ships underscores a broader trend in the shipping industry towards LNG as a preferred alternative fuel.
This shift is largely driven by the current challenges associated with green methanol, such as high production costs, lack of economies of scale, and technological hurdles. Maersk is reportedly negotiating with Seaspan to build around 23 LNG dual-fuel ships, reflecting a significant change in their fuel strategy.
This move has prompted other shipping companies to reassess their fuel options, with LNG gaining traction due to its availability and cost-effectiveness. As of now, there are 560 LNG-fueled vessels on order, representing 57% of the alternative-fuel fleet, and the number is expected to exceed 1,100 by 2029. LNG’s reliability, technological advancements, and stable pricing make it an attractive choice, despite its limitations in achieving zero-carbon shipping.
Efforts to address emissions associated with LNG are ongoing, including retrofitting ships with technologies like Exhaust Gas Recirculation (EGR) and Selective Catalytic Reduction (SCR), and exploring shore power to eliminate emissions in ports. Additionally, the future integration of low-carbon bio-LNG and synthetic e-LNG is anticipated to further mitigate emissions.
EU ETS impact analysis: LNG shipping readjusting under regulatory regime
However, regulatory challenges, such as the EU Emissions Trading System (EU ETS) and the forthcoming FuelEU Maritime (FEM) regulations, which target methane slip from LNG vessels, remain a concern for shipowners.
Drewry’s analysis of 2023 data reveals a 20% decrease in emission compliance costs for LNG carriers (LNGCs) under the EU Emissions Trading System (EU ETS) compared to 2022.
This decline is unexpected, given the anticipated rise in costs due to increasing emissions in Europe, especially with the shift from piped gas to LNG following the Russian-Ukraine war.
The reduction in compliance costs is largely attributed to the phase-out of steam turbine LNGCs, which are being replaced by more efficient XDF/MEGA carriers. The share of steam turbine carriers engaged in European trade fell to 17% in 2023, while XDF/MEGA carriers increased to 27%.
Steam turbine carriers’ high greenhouse gas intensity has become a concern with new regulations like the Carbon Intensity Indicator (CII) and EU ETS. Although Diesel-electric carriers (DFDE) haven’t been significantly impacted yet, they will face stricter scrutiny starting in 2025 with the FuelEU Maritime (FEM) regulations targeting methane slip.
Additionally, a reduction in the overall number of vessels used for European LNG imports, coupled with lower congestion at European terminals and improved infrastructure, has also contributed to the lower compliance costs.
The increased use of modern 2-stroke vessels (mainly XDF/MEGA) in Europe reflects the shift towards more environmentally friendly options, with older steam turbine carriers likely rerouted to Asia or other non-European markets.
By the end of this decade, the LNG fleet is expected to undergo significant changes to comply with stricter maritime regulations. Over 350 new LNGCs are scheduled for delivery by 2030, with 92% of these featuring 2-stroke low-pressure engines, which are more efficient and have lower methane slip compared to older models. This transition underscores the industry’s adaptation to evolving regulatory standards and environmental considerations.
