Travelin' Clean, Part 2 - New LNG-Fueled Ships and LNG Bunkering Infrastructure Coming Online

A few years ago, the most damning things skeptics could say about using LNG as a fuel for large ocean-going ships were that very few ships were fitted with LNG storage tanks and that there was little or no infrastructure in place at most ports to load the fuel. Well, they can’t say that anymore. About 170 large, LNG-powered vessels already are in operation around the world — including a French containership that just set a world record for carrying the most containers — and another 220 or so are on order. Just as important, the vast majority of key ports either have robust LNG bunkering operations in place or are in advanced stages of developing them. Today, we continue our series with a look at LNG’s growing acceptance and use as a ship fuel.

The International Maritime Organization (IMO) governs the safety, security, and environmental performance of the more than 50,000 tankers, dry bulkers, container ships, and other commercial vessels that ply international waters. For more than a decade now, IMO has been ratcheting down the limits on sulfur emissions from these ships, most recently on January 1, 2020, when the cap on allowable sulfur content in bunker fuel was slashed to 0.5% from the old 3.5% limit. [An even stricter 0.1%-sulfur cap remains in place in the IMO’s Emission Control Areas (ECAs), which started with Europe’s Baltic and North seas, then was adopted in areas within 200 nautical miles of the U.S. and Canadian coasts.] As we said in Part 1, there are three ways that shipowners and charterers can comply with the new 0.5% rule, which is commonly known as IMO 2020: (1) switch to very-low-sulfur fuel oil (VLSFO) or marine gasoil, (2) continue using high-sulfur fuel oil (HSFO) and install scrubbers to remove sulfur from the exhaust gases, and (3) use liquefied natural gas (LNG) as bunker fuel, typically with VLSFO as a dual-fuel option.

Our understanding is that using LNG as bunker fuel offers a number of important benefits. Perhaps the most compelling is that, in addition to easily meeting the sulfur-related requirements of IMO 2020, fueling ships with LNG generates about 20% less carbon dioxide (CO2, a key greenhouse gas, or GHG) than fueling them with VLSFO or scrubber-mitigated HSFO. That is significant because, in addition to implementing tougher and tougher rules on sulfur emissions, the IMO is requiring that ocean-going vessels significantly improve their energy efficiency and in 2023 is expected to implement requirements to reduce the international shipping sector’s GHG emissions by at least 40% below their 2008 level by 2030 and as much as 70% by 2050. So, by investing in LNG-powered ships now, shipping companies would, in essence, be preparing for compliance with anticipated GHG mandates. We should note here (as we did last time) that LNG is viewed by some as a sort of transition shipping fuel to zero-carbon alternatives such as liquefied biomethane (LBM) and liquefied synthetic methane (LSM), either of which could use the same bunkering infrastructure and on-ship fuel storage and engines as LNG.