Heads I Win, Tails I Don't Lose: How LNG Became a Failsafe Investment

 

For the duration of shipping's decarbonization journey, one question has remained top of mind: how can the industry successfully achieve net-zero while still maintaining commercial viability?

Shipping companies, much like every other business, must achieve revenue and growth goals in order to sustainably operate, support global trade infrastructure, and our broader ecosystems. If they fail to prioritize commercial objectives, many companies will struggle to stay afloat in an increasingly competitive landscape. On the other hand, if they fail to adhere to regulation and legislation, companies are certain to jeopardize their bottom line and longevity.

Achieving the careful balance between decarbonization and commercialism has, for many, been the most significant challenge in recent times. But for financiers, owners and operators who opted for LNG, the optionality of the marine fuel has presented a uniquely beneficial outcome: heads I win, tails I don't lose.

A rise in LNG investment

As the industry is all too familiar with, the urgent need to decarbonize is upon us - and it has set us on a path to identify the most efficient and effective options.

Common solutions explore retrofitting vessels with the technology needed to adopt new energy sources. But the capex required to achieve this presents a significant investment hurdle - not to mention the inevitable downtime as changes to vessel operations are made.

Alternative marine fuels - such as ammonia, methanol or hydrogen - equally have their limitations, largely down to immature engine technologies, bunkering infrastructure, safety considerations, cost and even efficacy.

Now, many shipping companies are turning to LNG as a marine fuel - the clear, compliant, and commercially competitive option.

In its current form, the fuel can achieve GHG emissions reductions of up to 23%, making it compliant with IMO 2030. The use of bio-LNG, or liquefied biomethane, can increase this figure to about an 80% reduction. And with synthetic LNG (liquefied e-methane), shipping can reach net-zero and fully decarbonize its operations.

Suddenly, we have seen a rise in LNG uptake.

Leading up to 2022, LNG dual-fueled container ships enjoyed a compelling opex advantage. Prices of the marine fuel were lower than 'traditional' fuels, and dual-fueled engines presented much-needed flexibility to an industry evolving alongside emerging regulation. This provided substantial cash savings.

Not only this, but the growing bunkering infrastructure worldwide made LNG more accessible. LNG bunkers are currently available in 185 ports (and growing), and SEA-LNG members are prepared to offer bio-methane bunkers in approximately 70 ports. Investments from shipping giants such as CMA CGM set the tone for the long-term viability and commercial strength of the marine fuel.

This comparatively early adoption, before the 2023/24 boom, provided financiers, owners and operators (as well as others in the shipping value chain) with clear savings.

Ergo: 'Heads I Win'.

Then came a market shift…

Post-2022, the industry saw a sharp rise in fuel costings as the Russia-Ukraine conflict resulted in the mass disruption of natural gas markets. At its highest, prices hit US$70.50 per million British thermal units (mmBtu) for LNG. If one thing was evident, shipping companies needed alternative energy sources, and quickly.

But those who had already opted for LNG dual-fueled container ships, by contrast, were in a different position.

Owners and operators now had the option to rapidly switch to conventional VLSFO and remove themselves from the cost spike and subsequent market scramble. This optionality preserved wealth, and it ensured companies maintained trajectory towards emissions reduction goals - and regional regulations - without sudden, additional capex.

Few other alternative fuels could provide this level of flexibility and stability in unpredictable trade and geopolitical landscapes.

This could be called 'Tails I Don't Lose'.

Whichever side of the coin, LNG presents key benefits

So, where are we now in relation to LNG markets?

At the time of writing, the industry has reverted back to a 'Heads I Win' positioning. In 2023, LNG prices restabilized, and moved lower. This, combined with the fuel's proven statistical benefits, resulted in exponential adoption. And in 2024, the industry experienced a 'boom'.

Nearly half of all container vessels ordered over the course of the year were LNG dual-fuel, accounting for 70% of alternative fueled tonnage ordered (excluding LNG carriers) in 2024 - a figure that increased from 43% in 2023.

Most recently, MEPC 83 approved new measures to reduce GHG emissions from ships. This will mandate that ships over 5,000 gross tonnage to progressively reduce annual GHG fuel intensity (GFI) on a well-to-wake basis.

Without a crystal ball, it's impossible to give any certainty on the continued positioning of the fuel. But given the emissions reduction capabilities through the LNG pathway, use of biomethane and further e-methane will enable owners and operators to maintain compliance as regulations tighten. Plus, the technological advances by OEMs to tackle the issue of methane slip and the ongoing increase in global LNG production means we're less likely to see the drastic price spikes we saw in 2022.

Conclusion

The optionality of LNG as a marine fuel brings wealth gains and preservation by adapting to a new business window in minimum time at minimal cost - something which most alternative fuels cannot achieve. Real Asset Options carry the highest value during periods of greater risk and uncertainty, providing investment flexibility to defer, launch, expand, or abandon. For an industry navigating complex and changeable landscapes - and an often volatile global market - this commerciality, compliance and convenience cannot be underestimated.

LNG has stood out not only as a fuel in transition from fossil sourced through bio towards renewable hydrogen - enabling shipping's decarbonization - but also as a strategic enabler for financiers. Its clear capabilities have given the fuel a shrewd edge against an unpredictable backdrop. Growth in adoption of the fuel, global bunkering infrastructure, and technological advancements addressing methane slip has secured a unique outlook for LNG, and its adopters. 

No single solution can claim to be a silver bullet, but LNG offers a practical, realistic and profitable route forward today. And an intelligent investment in the long term.

John Hatley is Chairman, Decarbonization Investments at SEA-LNG. He currently serves as vice chairman of SGMF (formerly the Society for Gas as a Marine Fuel) and was previously VP Marine Solutions & Director Market Shaping at Wärtsilä North America, where he was responsible for global development and market shaping for gas as a preferred fuel.