LNG must tap 2020 sulphur cap boost

The LNG shipping industry has welcomed last week’s decision by the IMO’s marine environment protection committee (MEPC 70) to adopt the global 0.5 per cent sulphur cap from 2020, rather than from 2025.

That means that from 2020, shipowners must adopt one of three options: burn more expensive distillates, install scrubbers or switch to alternative fuels. Some estimate this will cost global shipping some US$50 billion a year.

Retrofitting gas propulsion systems remains prohibitively expensive. Meanwhile, orders for new tonnage remain sluggish, as South Korea’s Big Three know to their costs. Nevertheless, there is an opportunity here to press for LNG to become the obvious choice for all new ships ordered from this point.

According to class society DNV GL, LNG is already first choice for new tonnage. According to its LNGi database, there are now 86 LNG-fuelled ships in operation and 93 on order.

By 2020, DNV GL expects that number to have risen to 400-600 vessels. It also expects the price of sulphur cap-compliant fuel to rest somewhere between that for heavy fuel oil (HFO) and marine gasoil (MGO), strengthening the business case for shipowners to switch to LNG – notably among deepsea operators, rather than the coastal players that have dominated take-up thus far.

Already this year, the cruise industry has thrown its weight behind LNG-fuelled newbuildings. And container ship giants such as United Arab Shipping Co and CMA CGM are getting LNG-ready.

There is also an application to the IMO to impose a NOx emissions-control area across the Baltic and North Sea regions from 2021. If that application succeeds, it will only strengthen the case for LNG against the two rival solutions, DNV GL says.

What happens next is therefore crucial. LNG bunker supply is still in its infancy. The IMO-commissioned fuel-availability study concluded that fuel shortages are unlikely in 2020.

Clearly, there is no shortage of LNG supply – the issue now is one of delivery.

LNG supply chains need to grow sooner, rather than later, to maximise the opportunities that come with last week’s vote in favour of an earlier push. The pace at which LNG bunker-supply infrastructure develops will be critical to take-up rates for new tonnage.

“This is one of the deciding factors for the success of LNG as ship fuel,” DNV GL concludes.

This year has seen some groundbreaking ventures that bring more joined-up thinking to LNG bunker supply. Industry sources are at last working together to develop practical supply solutions, notably the cross-industry lobby SEA\LNG, the LNG-supply partnership in Europe between Shell and Carnival, and Gas4Sea, the new global partnership that Engie, Mitsubishi and NYK have announced.

Although 2016 has been tough for everyone involved in the LNG value chain, the regulatory push is now gathering momentum. We may well look back at this year as a turning point in take-up of gas as marine fuel.

source: http://www.lngworldshipping.com/news/view,lng-must-tap-2020-sulphur-cap-boost_45233.htm