Sectoral outlook

Consumption from the transport sector grows at an average of 3% per year, but remains limited in its share of total natural gas consumption. Besides the development of gas-powered vehicles in Asia, the growing interest in liquefied natural gas (LNG) as a maritime fuel sees the establishment of an LNG-powered fleet of vessels and associated bunkering market.

Focus on LNG as a maritime fuel

Outside of LNG carriers, the use of LNG as a fuel for maritime transport is currently a niche market, mainly concentrated in Europe. As of early 2019 there are about 155 LNG-fuelled vessels in operation (excluding LNG carriers), of which a large majority are small ships used for short to medium-distance journeys – such as ferries, tugboats, car and small container vessels. However, the fleet of LNG-powered vessels is growing fast and is expected to double by 2024 with about 150 ships on order, and with additional potential from another 140 “LNG-ready” ships (equipped with the technology to use LNG as an alternative fuel) (DNV GL, 2019).

This growing interest of the shipping industry in LNG as a bunker fuel is driven by the implementation of a 0.5% global sulphur cap on maritime fuels by the International Maritime Organization (IMO) as from 1 January 2020, which will dramatically impact a market that consumed 3.4 million barrels per day (mb/d) of high-sulphur fuel oil in 2018 (IEA, 2019b).

LNG has several advantages as a marine fuel compared to more conventional options3 for complying with 2020 fuel specifications – it is a proven technology already extensively used by LNG carriers, it has a stable and standardised quality, and has a lower environmental footprint than oil-based fuels (besides having little sulphur, LNG does not emit particulates, and reduces nitrogen oxides and carbon dioxide emissions by up to 85% and 20% respectively). It would therefore also contribute to the IMO’s greenhouse gas emission strategy (which aims to reduce the sector’s total greenhouse gas emissions by at least 50% by 2050 compared to 2008). Moreover, LNG as a fuel has become increasingly competitive with oil-based marine fuels as gas prices have decreased strongly since the end of 2018.

However, switching to LNG also has additional costs and requirements. It is unlikely to compete with conventional fuels for the existing fleet, as the cost of installing exhaust gas cleaning systems (also known as scrubbers) is cheaper than conversion to a new propulsion system (with payback times up to three times faster than LNG [Parker, 2019]). Even for new-build vessels, there is an additional cost to choosing the LNG option over scrubbers, estimated by Fearnleys Securities at USD 20 million (United States dollars) for a 15 000 twenty-foot equivalent unit (TEU) container vessel (Latarche, 2019). In operational terms, it takes additional tank space (and therefore can have an impact on cargo capacity, especially for small vessels), requires special training of crew members and bunkering operations take longer than for oil-based products. From the emissions perspective, potential methane losses can be an issue, especially for low-pressure engines.

As regards bunkering infrastructure, the number of facilities is currently limited but expanding. As of early 2019 six bunkering vessels are active (mainly in northwest Europe) and nine are under construction, of which five are to be delivered in 2019. Alternative bunkering services by truck to ship are also available, enabled by the large number of LNG regasification terminals equipped with truck loading facilities. The current lack of standardisation and consistency in the licensing and control of LNG bunkering between countries remains a barrier to its development, although the harmonisation of standards and operations across different markets is progressing.