Record high global LNG prices of last year weighed heavily on LNG bunkering demand throughout 2022, but environmental incentives leave firms seeing a robust future for LNG as a marine fuel.
High prices fed straight through to the spot LNG bunkering market, prompting many firms to operate dual-fuel vessels on alternative fuels, or let LNG-fuelled vessels run warm, in a bid to avoid the substantial costs and volatility involved with LNG fuelling. Many firms were also able to increase utilisation of other ships.
Spot LNG delivered-on-board (dob) prices were often at wide premiums to corresponding marine gasoil (MGO) prices in 2022.
The high prices have also prompted some firms to reconsider their plans to use LNG as a marine fuel. Costly LNG prompted Norwegian ferry operator Fjord Line to announce it was going to add MGO as a fuelling option to two LNG-fuelled ferries. Last year also saw some cancellations of orders for both LNG-powered ships and LNG bunkering vessels or projects.
That said, LNG prices have held at much lower levels in 2023, with the Argusprompt LNG dob price around 78pc lower in recent weeks compared with its all-time high in August, though they remain higher than in 2020 and much of 2021. As soon as prices were making broadly consistent falls, the “phone began ringing”, Jacob Granqvist, vice president of maritime operations at Finnish firm Gasum, tells Argus. Firms are still open to indexing contracts to the Dutch TTF gas hub but some have shifted approaches to pricing supply, with more demand for fixed priced deals, he adds.
And high prices have not deterred some firms from ordering new LNG-powered vessels and planning new LNG bunkering projects. Around 108 LNG-fuelled vessels were delivered last year, bringing the global fleet to around 361, compared with 246 on the water in 2021 and 186 in 2020, according to Norwegian shipping certification society DNV. A further 500 LNG-powered vessels are set to be delivered by the end of 2026.
“Even though there has been an astronomical price differential between conventional fuels and LNG, the shipping sector still has belief in LNG in as a marine fuel”, Norwegian firm Kanfer Shipping managing director Stig Hagen says. Kanfer sees LNG prices likely falling in the coming years, as global LNG production steps higher in the middle of the decade, while more environmental incentives to switch away from traditional fuels are being introduced by authorities globally, which could further boost demand for LNG as a marine fuel.
Granqvist takes a similar view on the prospects for LNG bunkering, as new environmental regulations drive firms to boost usage of LNG in their fleets. The inclusion of maritime shipping in the EU’s emissions trading system (ETS) will require shipowners to pay for 40pc of their emissions from 2025, 70pc from 2026 and 100pc from 2027. But the use of LNG as a fuel in fleets will enable operators to compensate for emissions, meaning that “lesser emitting vessels such as LNG-fuelled vessels can compensate for dirtier conventional vessels”, Granqvist says.
In the short term, tighter availability of alternative marine fuels such as MGO may also lead to stronger demand for LNG use as a bunkering fuel. The EU ban on Russian oil products set to come into force on 5 February could have a knock-on effect of limiting MGO supplies.
LNG bunkering availability needs to grow
As the number of dual-fuel vessels and LNG-fuelled vessels is set to increase sharply in the coming years, the bunkering sector is trying to keep up.
Gasum has its eyes on a global LNG bunkering network, partnering with China’s CNOOC and Singapore’s Pavilion Energy under a preliminary agreement signed in November last year, seeking to strengthen ties across the world’s main bunkering hubs from the Nordics and northern continental Europe.
Kanfer’s Hagen similarly sees a need for more strategic LNG bunkering hubs around the world, with the firm targeting high traffic shipping routes. Kanfer plans to start up an LNG bunkering facility at the Suez Canal, tapping into one of the busiest shipping corridors in the world, and sourcing LNG from Egypt. The firm aims to reach an final investment decision (FID) on the Suez Canal project in the first half of this year and to bring the facility on line in mid-2025. “Existing hubs in Singapore and northeast Asia do not produce LNG, meaning they have to import LNG then resell it onto the maritime market,” Hagen says, but Egypt’s own production capabilities give it the “competitive edge”.
The firm also has preliminary plans to develop an LNG bunkering project in the Panama Canal, with potential LNG supply likely available from the US’ expanding liquefaction capacity. More LNG bunkering availability in the US Gulf coast could come from Texas’ Freeport export terminal, which aims to bring on line its marine barge by early 2025.
And China has plans to build on its LNG bunkering presence, with state-controlled firms receiving support from local authorities, with its southern city Shenzhen aiming to become Asia’s largest offshore bunkering centre.