New Rules Force Shipowners to Use LNG

Strict new regulations on marine fuel are forcing shipowners to explore liquefied gas as a cleaner alternative, while ports like Gibraltar prepare to offer upgraded fuel facilities, which could ultimately trigger the most significant changes in the shipping industry in decades.

Starting in 2020, according to the International Maritime Organization (IMO) rules, ships will no longer be allowed to use fuels with a sulfur content above 0.5 percent, compared to the current 3.5 percent, unless they are equipped to clean sulfur emissions. The regulations also foresee penalties in case of violations.

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By using LNG to power ships instead of the fuels currently in use, harmful emissions of nitrogen and sulfur oxides could be reduced by 90 to 95 percent, estimates from the shipping industry suggest.

The stakes are high. Analysts at Swiss bank UBS estimate that environmentally friendly shipping could be worth at least $250 billion over the next five years.

To capture a share of that market, the British territory of Gibraltar is in the process of launching an LNG facility whose accompanying tanks will be able to refuel cargo ships via barges.

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Gibraltar already supplies most ports in the Mediterranean with marine fuels and aims to do the same with LNG, said Manuel Tirado, CEO of the Gibraltar Port Authority (GPA). “The goal of GPA is to be the number one port with an LNG bunker in the Mediterranean, but that is something that will not happen overnight,” he told Reuters.

The shipping industry is under pressure to reduce emissions of the main greenhouse gas causing global warming – carbon dioxide (CO2) – by at least 50 percent by mid-century from 2008, after the IMO agreed on that target in April following years of discussions.

Although it is a fossil fuel, LNG emits 10 to 20 percent less CO2 than fuel oil, which has a lower sulfur content.

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The period of lower oil prices has slowed the adoption of LNG as a marine fuel. However, as oil prices have risen in recent years, appetite in the cruise industry, as well as in the container, cargo, and tanker sectors, has increased.

Currently, only 125 ships in the world use LNG as fuel, according to data from ship certification experts DNV GL, and this number is expected to jump to 400 to 600 by 2020. This is a small fraction compared to the global fleet of over 60,000 commercial vessels.

The company specializing in shipping market information, VesselsValue, announced that 78 ships equipped with engines that have niches for two types of fuel and are capable of using LNG will be delivered by the end of 2018, the highest number in a single year to date.

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“Over the past year, there has been increasing consensus among shipowners that LNG is a reasonable step forward. This fuel is gaining popularity,” says Martin Wold, senior consultant at DNV GL.

However, transitioning to LNG will take time, with low-sulfur oil fuels also being used as a substitute for heavy oils. By 2050, DNV GL predicts that only 47 percent of ship fuel will come from oil. Gas fuels will account for 32 percent, and the remainder will be carbon-neutral energy sources such as biofuels and electricity.

The global shipping fleet currently consumes about 4 million barrels of high-sulfur fuel daily. Estimates from Reuters analysts indicate that fuel accounts for half of the daily operating cost of shipping.