Transportation
Will Shipping Companies Eventually Transition to LNG?
The transition of the world's shipping companies to liquefied natural gas (LNG) is an emerging trend driven by both economic and environmental factors. As the global shipping industry faces stringent environmental regulations, LNG presents itself as a cleaner alternative to conventional heavy fuel oil (HFO). However, this shift is not without its challenges, particularly in terms of initial capital investment and operational viability.
Increasing LNG Adoption in the Shipping Industry
The global natural gas production continues to rise, with LNG experiencing significant growth. It is projected that by the end of 2019, there will be more than 200 LNG-powered vessels in operation. This increase is fueled by the growing interest among ship owners to adopt LNG as a cleaner fuel source for newly built vessels. This uptake is contributing to the development of both LNG bunker facilities and infrastructure globally.
Challenges in Transitioning to LNG
One of the biggest hurdles in the transition to LNG is the high initial capital investment required to build LNG tanks. These tanks are often prohibitively expensive, making the upfront costs a significant barrier for many shipping companies. However, as ports worldwide express interest in offering LNG bunkering services, the market is adapting to this new fuel type.
Additionally, for bulk carriers, the issue of space is a critical challenge. These vessels do not have much free space to accommodate additional fuel storage, which means that achieving the same cargo capacity while transitioning to LNG will require substantial lengthening of the ships. This further increases the initial capital investment, making the transition more complex.
Comparative Costs and Profitability
In the context of environmental regulation compliance, such as the Global Sulphur Cap (Fuel 2020), the financial implications of using exhaust gas scrubbers and LNG are quite different. The installation cost for scrubbers is relatively low compared to the high capital costs associated with building an LNG tank. Furthermore, LNG, while cleaner, is primarily viewed as a more expensive fuel. To make the use of LNG profitable, shipping companies need to ensure that the operating costs are lower than those of HFO with after-treatment units.
Forecasting the price of LNG remains uncertain, but it is expected to be supply-demand driven. In the short term, the increase in LNG supply is anticipated to put downward pressure on prices, making it a more attractive option for shipping companies in the long run.
Conclusion
Given the increasing production of natural gas and the urgent need to comply with environmental regulations, LNG is becoming a viable solution for the shipping industry. While there are significant challenges, the industry is well-positioned to transition to LNG as a cleaner fuel source.