LNG as shipping fuel: a future-proof investment?

Fuel oil is finally giving way to cleaner alternatives in shipping, and momentum continues to build behind LNG as the most popular of these alternatives.

JOSEPH MURPHY

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Shipping has traditionally been considered a relatively conservative industry, which treads carefully when investing in new modes of operation. Understandably so, as the investments made today will be with the operators for many years into the future, and need careful evaluation. But in recent years, the industry has undergone dramatic accelerated changes as shipowners adopt cleaner alternatives to fuel oil to tackle their emissions in reaction to stricter regulations and increased customer and investor pressure to deliver meaningful reductions in greenhouse emissions and air pollution. The landmark piece of regulation for air quality improvement was the International Maritime Organisation (IMO) 2020 requirement that the upper limit of sulphur content in shipping fuel should be lowered from 3.5% to 0.5%. IMO 2020 gave shipowners a choice – continue using fuel oil but with a lower sulphur content, invest in exhaust gas cleaning systems or switch to alternative, cleaner fuels. (sulphur is the key contributor to air pollution, contributing to the exhaust of the toxic sulphur oxide (SOx) and particulate matter (PM)). By far, LNG, which releases no SOx, has been the most popular of these alternatives.

The following year, the IMO introduced additional requirements aimed at reducing the carbon intensity of shipping by 40% by 2030 versus the 2008 level.

Of the 275 newbuilds capable of running on alternative fuels that were ordered from yards last year, 222, or 81%, were LNG-fuelled, according to Norwegian classification society DNV.

In addition to the practical elimination of air polluting emittants to meet the IMO Sulphur regulation, LNGfuelled engines can reduce overall greenhouse gas emissions – primarily CO2, methane and nitrous oxide – on a well-to-wake basis versus oil-fired engines by 20-30% for two-stroke slow-speed engines and 11-21% for fourstroke medium-speed engines, a 2021 analysis by ESG lifecycle specialist Sphere estimates.

Other, fuels such as hydrogen and ammonia can offer even greater environmental advantages on the GHG front in the future, but these are technologies still being commercialised. LNG provides a valuable immediate solution, because it is already available and production can be scaled relatively fast, while major infrastructure for the supply and bunkering already exists. And this infrastructure is growing at a quick pace. According to shipping services specialist Clarksons, 185 ports worldwide were capable of bunkering vessels with LNG in January 2023, up from 141 a year earlier. And a further 50 ports are due to join them by 2025.

Despite its advantages, though, the use of LNG as a bunkering fuel has faced criticism. The main argument against its adoption is that doing so locks in hydrocarbons in shipping for longer, and that moving from fuel oil to LNG to the likes of hydrogen, ammonia and methanol will take more investment than leapfrogging straight to the latter options.

However, most infrastructure used now for LNG can be repurposed in the future for bio-LNG and synthetic LNG cost-effectively, providing an accessible future-proofing for investments made today. A study published in October last year by the Maritime Energy and Sustainable Development Centre of Excellence (MESD CoE) at Nanyang Technology University (NTU), Singapore, estimated that pure bio-LNG could be used to meet 3% of shipping fuel demand by 2030, and 13% by 2050, taking into consideration fuel availability, cost, lifecycle emissions and logistics. And if blended in a 20% ratio to standard LNG, those shares rise to 16% and 63% respectively.

“Our research concludes that bio-LNG, produced from sustainable biomass resources, has the potential to meet a significant proportion of future shipping energy demand,” associate professor Jasmine Lam at MESD CoE commented on the report. “The findings show that bio-LNG is among the cheapest sustainable biofuels and can potentially offer significant cost advantages over electrofuels by 2050.”

A 2020 study by CE Delft, commissioned by SEALNG, calculated that the global maximum sustainable supply of bio-LNG far exceeds the forecast demands of the shipping sector in both 2030 and 2050, but also suggested that enough could be produced in its lowest output scenario.

The CE Delft study estimated the current cost of biomethane at $19-49 per mmBtu when anaerobic digestion is used, and $24-63 per mmBtu when gasification is used, but projected that this would fall to $15-21 and $13 respectively by 2050, as a result of upscaling and further development of gasification technologies.

As for synthetic e-LNG, availability will be dependent on how quickly renewable electricity capacity is expanded, and how much of that capacity is spare after grid needs are satisfied. But the same can be said of other electrofuels such as e-methanol and e-ammonia. The bulk of the cost of e-LNG, e-methanol and e-ammonia is associated with renewable hydrogen production costs, putting them on a fairly level playing field in terms of affordability. Estimates for the future cost of synthetic methane vary significantly, according to CE Delft, at anywhere between $23 and $110 per mmBtu in 2030, and $15-60 in 2060.

Innovations in biomethane and synthetic methane production, particularly with regards to the latter, can help drive down costs further. And this will further strengthen the case for these fuels as a means of combating shipping emissions, therefore future-proofing the investments made in the LNG bunkering chain today.

At the same time, much work is taking place all across the gas supply chain to analyse how to adapt its infrastructure to also support other types of low and zero carbon gas (e.g. hydrogen, ammonia) and gaseous mixtures.

These topics will be addressed at length in the IGRC2024 Conference, and we encourage experts from all over the global gas chain and the broader energy community to submit their innovative projects and ideas to the ongoing Call for Papers, which is open until DATE.

The gas industry welcomes change and encourages bold ideas to be showcased at the International Gas Union’s Tri-Annual International Gas Research and Innovation Conference in Canada next year.