SEA\LNG is commissioning a series of independent studies by simulation and analytics experts Opsiana, this time focusing on LNG and its impact on VLCCs, highlighting LNG’s benefits, concerning strong return on investment for VLCCs on the Arabian Gulf to China trade route.
- LNG fuel for newbuildings
- Use existing engines burning 0.5% sulphur fuel-oil either:
#1 Low Sulphur Fuel Oil (LSFO) or a blend of existing sulphurous HFO with no or low sulphur fuels such as 0.1% Low-Sulphur Marine Gas Oil (LS-MGO6) LS-MGO.
#2 Continue consuming HFO and employ scrubbers to achieve alternative compliance.
The report compares the investment performance of four propulsion alternatives; a conventional VLCC sailing with Very Low Sulphur Fuel Oil (VLSFO); a conventional VLCC equipped with Advanced Air Quality Systems (more commonly known as Exhaust Gas Cleaning Systems or scrubbers) sailing mostly with Heavy Fuel Oil (HFO); and two LNG powered vessels, including high-pressure (HP) and low-pressure (LP) 2-stroke (2s) engine variants.
Therefore, the study supports that LNG as a marine fuel provides a strong return on investment on a net present value (NPV) basis over a conservative 10-year horizon; This result concluded from the analysis of compelling paybacks from three to five years for the 300K DWT VLCC trading from Arabian Gulf to China.
Consequently, it is suggested that those investing in LNG will be the winners.
The report presents seven key finding around LNG as a marine fuel:
- Better Return on Investment
LNG delivers a superior return on investment, than conventional compliant fuels across all fuel scenarios investigated and charter markets but trails behind the open-loop scrubber.
However, to achieve the returns illustrated for the scrubber in business as usual or stranded fuels forecasts, shipowners would take on several risks surrounding HSFO future availability, pricing savings, future regulatory restrictions, and additional potential technical performance plus operational responsibilities.
- Diminishing CAPEX Hurdle
Historically, the high capital expenditure (CAPEX) for LNG engines and fuel tanks was a barrier to adoption. However, recent shipyard prices signal substantially smaller LNG premiums above traditional vessels. LNG newbuilding experience and technology improvements have led to shipyard and other efficiency gains.
- Competitive Energy Costs
LNG offers a lower energy cost per ton. When priced against HFO the differential is nearly 22% because LNG contains more energy for a given mass. LNG as a marine fuel provides 49.32GJ of energy per ton, whereas HFO only provides 40.5GJ/ ton on a Lower Heating Value (LHV) basis. Therefore, 2,000 tons of LNG provides the same amount of energy as 2,436 tonnes HFO.
This study clearly indicates that LNG as a marine fuel delivers a strong return on investment on a NPV basis over a conservative 10-year horizon with fast payback periods ranging from three to five years.
- Enhanced Environmental Performance
LNG is known to be an environmentally friendly marine fuel, leading to many charterers who as beneficial cargo owners give greater cargo volume preference to environmentally conscious transport providers. These customer demands create a strong competitive advantage for shipowners who embrace LNG as a maritime fuel.
The thinkstep study confirmed that emissions of other local air pollutants, such as sulphur oxides (SOx) and particulate matter (PM), are close to zero when using LNG compared with current conventional oil-based marine fuels. Additionally, emissions of nitrogen oxides (NOx) are reduced by 95% with LNG fuel.
Current fuel use monitoring regulations facilitate measurement of emissions and the means to enforce reductions in local air pollution and GHG emissions towards the IMO goals of total fleetwide 50% GHG reduction by 2050 compared to 2008 base year.
- Most Financially Effective Long-Term Means of Complying with 2020 Sulphur Cap
LNG as a marine fuel provides a greater return on investment than conventional compliant fuels across strong, average, and weak charter markets with NPV wealth gains of several million dollars.
LNG fuel provides a lower return on investment for VLCCs than the installation of scrubbers in the stranded fuel forecast with plunging HFO pricing.
- Scrubber Operation is Significantly More Expensive than Widely Reported
LNG fuel’s operational expenditure (OPEX) cost savings balance out the CAPEX premium. Where open-loop scrubbers are restricted, the additional cost for consuming costly Marine Gas Oil or the increased CAPEX for more complex hybrid/closed-loop Scrubbers must be added to the scrubber investment analysis.
- The Cost of LNG is Stable
LNG pricing is much more stable in comparison to traditional maritime fuels which reflect the volatility of crude oil prices. Long term LNG fuel price certainty provides a competitive advantage to those responsible for fuel payments.
Concluding, the idea that LNG pricing is relatively stable, provides a positive budget and business advantage to shipowners and operators.
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