SEA\LNG: Factual Analysis Shows LNG is Optimal Fuel Choice
Environmental regulations controlling SOx, NOx and greenhouse gases have completely changed the equilibrium of the shipping industry. Until a few years ago, there was little rationale for shipowners to give much thought to fuel choice as heavy fuel oil was the cheapest and easiest option. The choices were simple and there was a level playing field.
Today, however, the “game” has fundamentally and irreversibly changed. To remain competitive, choosing the right fuel has now become a critical component of owners decisions not just in the short term but the longer, strategic view as well. Owners and operators are challenged with making significant operating and investment decisions amidst a range of seemingly future uncertainties.
As a veteran of our exciting and dynamic industry, I have noticed that informed decisions are often being jeopardized by unqualified assumptions about the operating and investment case for the available choices. Today, there are really only three viable options: very low sulfur fuel oil (VLSFO), installing onboard abatement technology (scrubbing) or switching to an alternative fuel such as LNG.
Ultimately, while the majority of us understand and support the environmental rationale of compliance, it goes without saying that no one wants to be at a competitive disadvantage. It stands to reason that we must therefore choose the safe option that enables compliance, future proofs organizations against regulations which will likely continue to drive change, while safeguarding our competitive posture.
To support informed analysis of the viable options, SEA\LNG commissioned a series of investment case studies from simulation and analytics expert, Opsiana. The first case study, released in January of this year, was based on a newbuild 14,000 TEU container vessel plying its trade on an Asia-U.S. West Coast (USWC) liner routing. This independent study, using the latest available data sources, clearly indicated that LNG as a marine fuel delivers the best return on investment on a net present value (NPV) basis over a conservative 10-year horizon. It also has relatively fast payback periods ranging from one to two years. The full results can be found on SEA/LNG’s web site.
SEA/LNG has now just released the next case study evaluating the investment case for newbuild pure car and truck carriers (PCTC) on Pacific and Atlantic trade lanes. The study measured two PCTC trading scenarios using a 6,500 car equivalent unit (CEU) vessel on the Atlantic Trade and an 8,000 CEU vessel on the Pacific Trade. The results of this second study show that for the PCTCs modelled, LNG as a marine fuel delivers the best return on investment on an NPV basis over a conservative 10-year horizon. Consistent with the earlier container case study fast payback periods ranging from one to three years on the Atlantic Trade, and from less-than-one year to two years on the Pacific Trade were noted.
Importantly, this higher investment return was achieved without including the significant extra benefits and shareholder value gained by choosing LNG as a more environmentally friendly marine fuel. While these benefits are admittedly difficult to quantify they could be worth hundreds of millions of dollars across the global PCTC fleet. Customers of major car manufacturers are demanding action to address environmental sustainability goals.
Environmental performance is of growing importance amongst leading shippers, who are being asked to contract greater cargo volumes to environmentally conscious transport providers. These customer demands create a strong competitive advantage for shipowners who embrace LNG as a maritime fuel.
The study also concluded that the CAPEX hurdle is diminishing, Historically, the CAPEX for LNG engines and fuel tanks was considered one of the barriers to adoption. Recent changes in manufacturing and shipbuilding have focused on technological advances that are now reducing LNG CAPEX and improving air quality as well as GHG emissions performance.
When it comes to fuel price, both case studies concluded that the cost of LNG is relatively stable and continues to be less volatile than traditional marine fuels. Historically, the cost of LNG has been consistently fixed with little fluctuation, due to a higher percentage of the cost being linked to generally fixed production and transportation costs and not commodity trading. This is compared to HFO or diesel which we all know have been incredibly volatile in the past. Due to the high percentage of OPEX that fuel commands, having a commodity that is relatively stable over time is a strategic advantage to shipping companies and their customers.
As there were a variety of scenarios possible for LNG-delivered prices, Opsiana modelled six scenarios based on SEA/LNG members professional judgment following research. However, to provide a wider variety of fuel pricing scenarios to evaluate, “reader’s choice” charts have been included. If the reader does not agree with Opsiana’s six scenarios, they can choose their own anticipated LNG price point and see where the business case tipping point lies.
LNG’s environmental credentials are becoming increasingly clear and accepted. This latest investment case study follows the recent Lifecycle GHG Emissions Study conducted by independent data and consultancy provider, thinkstep. The study was also extensively reviewed by a distinguished International peer group. Released in April, the study verified that LNG can achieve up to 28 percent tank to wake reductions, (21 percent on a well to wake), for two-stroke engines – which constitute over 70 percent of marine engines, especially in the biggest commercial ocean vessels. This represents a major step forward in terms of GHG improvements and moves the industry in the right direction towards the IMO targets.
Ultimately, LNG is the only alternative fuel that is available now. It will solve the air quality issues that still directly affects human health and led to the IMO 2020 rules. LNG also significantly reduces NOx and particulate matter while moving the maritime industry in a positive direction in terms of carbon reduction. Until an alternative technology is developed which is commercially viable, scalable and most importantly, safe, there are no other viable options on the horizon for deep sea shipping. With expected developments in bio and synthetic natural gas, LNG also represents a pathway to 2050 and beyond.
For the maritime industry to achieve GHG reductions and deliver on its promise to improve air quality around the globe, we need to act now if we are to capitalize on the opportunities before us which prove that long-term sustainability, environmental stewardship and an organizations competitive position need not be mutually exclusive.
Peter Keller is SEA\LNG Chairman.
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.