Market Challenges And Opportunities

LNG as a Bunker Fuel Market Drivers:

Cost competitiveness of LNG compared to conventional fuels: Cost competitiveness of LNG as a bunker fuel compared to conventional fuels like Heavy Fuel Oil (HFO) and Marine Gas Oil (MGO) is a major growth driver of LNG as a ship fuel. LNG offers significant economic benefits to ship owners and operators due to lower prices compared to other fuels. As per data from the International Energy Agency (IEA), the worldwide average spot price of LNG was around U.S$6-7/MMBtu in 2021-2022, while HFO was U.S$450-550/tonne in the same period. Considering an average LNG price of U.S$7/MMBtu and an energy conversion factor of 25 MJ/kg, the landed price of LNG as a bunker fuel works out to be around U.S$350-400/tonne. This is at least 25-30% lower than HFO prices currently.

The price advantage becomes more prominent in emission control areas like North America and Europe, where LNG prices ship owners to comply with stringent sulfur cap regulations at a lower total cost of ownership compared to compliant fuels like MGO or Very Low Sulfur Fuel Oil (VLSFO). For example, MGO prices in North West Europe reached above U.S$1000/tonne in early 2022 due to limited supplies, whereas delivered price of LNG as a bunker fuel would be less than half of that. This substantial price difference is incentivizing ship owners and operators to increasingly opt for LNG as a greener and more cost-effective alternative.

However, higher capital expenditures for installing onboard LNG tanks and associated setups remain a challenge for widespread adoption of the fuel. But with the growing number of LNG bunker vessels worldwide and the development of small scale and mobile bunkering infrastructure, the supply chain is expected to improve substantially over the next 3-5 years. This along side efforts through International Maritime Organization (IMO) to regularly lessen emissions from ships is projected to enhance LNG call for from international delivery enterprise significantly, setting up it because the number one transition gas till broader commercialization of zero-carbon fuels along with hydrogen and ammonia over the longer term.

Diversification of fuel supplies: The shipping industry has traditionally relied heavily on heavy fuel oil as the primary bunker fuel to power vessels. However, stricter emission regulations aimed at reducing sulfur oxide and particulate emissions from ships have forced the industry to explore cleaner alternatives. Liquefied natural gas (LNG) is emerging as one of the most viable options as it produces less pollution and carbon emissions than conventional marine fuels when combusted. The International Maritime Organization's low sulfur regulation, implemented in 2020, has accelerated the need for cleaner fuels. Shipping companies are actively investing in LNG-fueled vessels and bunkering facilities to comply with the new rules and future emission standards.

Diversifying fuel supplies is a logical strategy for shipping companies to insulate themselves from price volatility and uncertain availability of single fuels like heavy fuel oil. Many ports and shipping routes now offer LNG as a bunker option alongside traditional fuels. For example, Rotterdam became the largest bunkering port for LNG in Europe in 2021, according to data from Port of Rotterdam, with over 150 LNG bunkering operations conducted. Growth in the number of LNG-fueled ships, coupled with expanding global LNG infrastructure, is driving further demand for LNG as a marine fuel. Countries and companies are investing heavily in new import terminals, ships, and bunkering facilities, which will help establish LNG as a widely used and globally available bunker fuel in the coming years. This creates opportunities for established oil and gas firms as well as new players focused specifically on LNG as a marine fuel.

LNG as a Bunker Fuel Market Opportunities:

Increasing LNG production: As the global focus shifts towards reducing carbon emissions from the shipping industry, LNG is increasingly being seen as a viable alternative to conventional marine fuels. Producing LNG requires significant capital investments and infrastructure build-out. However, many governments now see increased LNG production and its use as a bunker fuel as aligned with their energy transition and decarbonization goals. For instance, a recent report from the International Energy Agency states that global LNG trade reached record high levels in 2021 and may continue significant growth through 2025 as countries look for less polluting sources of energy.

As worldwide LNG infrastructure continues to expand to meet growing demand from other sectors like power generation and land transportation, there is potential to leverage that infrastructure for wider availability of LNG bunkering sites and supply routes. Shipping companies are recognizing the cost benefits of switching to LNG compared to other low-carbon alternatives currently in development. The savings would be amplified if LNG supply and distribution networks intensify to serve more ports strategically located along key global trade routes. This could help LNG emerge as a true drop-in solution for ship owners looking to future proof their fleets against impending emissions regulations. Some forecasts from the International Group of Liquefied Natural Gas Importers project LNG demand for bunkering could rise fivefold over the next decade if production and delivery investments are made to accommodate the shipping sector’s needs.

Growing adoption of gas powered ships: The maritime shipping industry has been facing increasing pressure to reduce emissions and adopt more environmentally friendly fuel options. With stricter emission regulations coming into effect, such as IMO 2020, there is a growing need for fuels that can provide comparable energy while emitting less pollution. Liquefied natural gas, or LNG, is emerging as one of the leading alternative fuels for ships seeking to comply with these new mandates. The use of LNG as a marine bunker fuel produces significantly fewer sulfur oxides and particulate matter compared to conventional heavy fuel oil. It also generates lower carbon dioxide emissions on a well-to-wheel basis.

As ship owners respond to regulations by exploring cleaner fuel technologies, many vessel operators have been turning to LNG as a realistic and commercially viable option. Major ship classification societies like DNV now approve the use of LNG propulsion systems on various vessel classes. Shipbuilding yards are also gaining experience in constructing LNG-fueled ships. For example, South Korea built 86 LNG-powered ships in 2021, according to data from the Korean Statistical Information Service, representing a clear shift in new builds toward gas-fueled designs. The number of ships equipped or designated to use LNG as a marine fuel has nearly doubled since 2019, based on data from the Society for Gas as a Marine Fuel. If this trend of adoption continues, it could dramatically increase the global demand for LNG as a bunker fuel by 2030. This growing demand potential presents a major market opportunity for LNG suppliers and bunkering infrastructure developers to scale up services in ports worldwide.