Strict new regulations on shipping fuel are driving shipowners to utilize liquefied natural gas (LNG) as a greener option, and ports such as Gibraltar are preparing to launch upgraded refueling facilities in response to the forthcoming big mutation of the shipping industry.
According to International Maritime Organization (IMO) rules which will take effect in 2020, ships will be banned from burning fuels with a sulphur content exceeding 0.5 percent, versus current 3.5 percent, unless they have measures to reduce sulphur emissions.
The forced shift of shipping power from heavy fuel oil or the lighter gas oil to LNG aims to reduce air-polluting emissions of nitrogen oxides and sulphur oxides by 90 to 95 percent, according to IMO.
Analysts at Swiss bank UBS expected the LNG shipping market to expand to at least 250 billion US dollars over the next five years.
To win some shares in that market, the British territory of Gibraltar is working on building an LNG-fueled power station, the accompanying storage tanks of which can be used for refueling cargo ships via barges.
Gibraltar already supplies more shipping fuel than any other ports in the Mediterranean and aims to do the same with LNG, said Manuel Tirado, chief executive of the Gibraltar Port Authority (GPA).
The shipping industry is in the face of an urgent pressure to reduce its emissions of carbon dioxide (CO2), the main greenhouse gas leading to global warming, by at least half by 2050 compared with the 2008 levels, which was agreed by the IMO in April.
In contrast, CO2 emissions from LNG are 10 to 20 percent less than even low-sulphur fuel oil, though LNG in nature is still fossil fuel. A relatively long period of low oil prices damaged the popularity of LNG as a marine fuel. However, as oil prices have picked up over the past year, LNG demand has grown in the container, cargo and tanker sectors.
Currently, there are 125 ships fueled with LNG worldwide, according to ship certification experts DNV GL, with 400 to 600 more expected to be delivered by 2020. This is still a negligible figure given a world total of more than 60,000 commercial ships.
Valuation service provider VesselsValue said 78 ships with dual-fuel engines capable of burning LNG would be delivered this year, the biggest annual number so far.
“Over the last year or so, there is a growing consensus among ship-owners that LNG is a reasonable next step. It is gaining traction,” said Martin Wold, a senior consultant at DNV GL.
But it will not be a one-off to shift to LNG, especially as low-sulphur oil fuels are also used to substitute heavy oil.
DNV GL expects only 47 percent of energy for shipping will be sourced from oil-based fuels by 2050. Gas fuels will take 32 percent of energy supplies, and the remaining will be provided by carbon-neutral energy sources, such as biofuels and electricity.
One of the difficulties in transition to LNG has been the investment needed to build the necessary refueling facilities. Moreover, commercial vessels using LNG cost nearly $5 million more than conventional ships.
Anyway, it is an irreversible trend to shift to cleaner marine fuels, so the biggest losers may be refiners if they don’t positively alter their production mix.