Shippers from AP Moeller-Maersk /S to United Arab Shipping Co are testing liquefied natural gas to power their vessels, curb pollution and create a new market for the cleaner-burning fuel.
Maersk, the biggest container-shipping line, agreed in February to work with Qatar Liquefied Gas Co and Royal Dutch Shell to develop LNG as a maritime fuel. United Arab Shipping signed a similar accord with Shell and Qatargas, as the Qatari company is known, on April 17, having invested $2.3bn in LNG-capable ships since 2014.
Finding new customers in an oversupplied market is a priority for Qatar, source of almost a third of the world’s LNG, and Shell, the largest LNG-trading company. Total annual capacity of LNG producers is set to surge 45% to 423mn metric tonnes by 2025, with supply exceeding demand for at least seven years, financial adviser Sanford C Bernstein & Co estimates. Shippers are showing interest as the UN’s International Maritime Organization tightens limits on sulphur.
“LNG on a worldwide scale in shipping is something that could happen in the next two years,” Jorn Hinge, United Arab Shipping’s chief executive officer, said in a phone interview. “Right now there are ships operating within certain eco-zones, mainly in Europe and the US, using LNG, but on a worldwide basis a system doesn’t exist yet.”
LNG for shipping is still in its infancy. Most of the maritime industry relies on oil-based products, and Bernstein forecasts that ships will account for 2.5% of global LNG use by the end of the decade.
Out of a global fleet of at least 50,000 ships, 77 LNG-powered vessels are in operation and 85 more are on order, said Martin Wold, a senior environmental consultant at Norway-based DNV GL, which certifies ships for safety. The fleet will grow to five times its current size to 360 ships by 2020, according to Bernstein.
New regulations are driving the growth. The UN’ maritime organization plans by January 2020 to impose a worldwide ban on fuel with a sulphur content of more than 0.5%. Most ships currently burn bunker fuel, a tar-like residue from the refining of crude oil that can contain as much as 3% sulphur, Hinge said.
“We were aware the environmental regulations were coming,” he said. “It made sense for us to plan our $2.3bn new building and get involved in such initiatives and projects.” United Arab Shipping, based in Dubai, is the largest container line in the Middle East, according to its website.
A dearth of LNG-fuelling stations and tight supply of liquefied gas until 2014 limited its popularity for ships. Northern Europe and parts of the US have some fuelling infrastructure in place, and projects to supply the fuel in Rotterdam, Singapore and China are in development.
The UAE is also looking at options to provide LNG as marine fuel. LNG prices peaked in 2014 and have dropped 80% since as new supplies come on stream from projects in Australia and the US.
“The business case has not been strong enough for many ship owners to make the investment,” DNV’s Wold said by phone from Høvik, Norway. “Many of them will now think twice about their choices in the future when they see this movement into LNG fuel.” Qatargas, Shell and Maersk are focusing for now mainly on selecting sites for filling stations in the Middle East. A 7.8mn tonne-per-year plant owned jointly by Qatargas and Shell will supply LNG, and the three companies plan to deliver the fuel to commercial vessels by 2020.
“People have to have the belief that the infrastructure is actually building out,” Lauran Wetemans, general manager of Shell’s downstream LNG business, said from The Hague. Maersk declined to provide details about its partnership, while Qatargas didn’t respond to multiple requests for comment.
The maritime industry used about 70,000 tonnes of LNG in 2013. Demand is expected to grow to 10mn tonnes by 2020, just a fraction of the 372mn tonnes of bunker fuel used in 2013, according to Bernstein. Ships making the shift include car and passenger ferries, support vessels for offshore oil and gas fields, and container ships, according to DNV.
“Qatar is in a position to make LNG happen on a global scale,” Shell’s Wetemans said. “Bringing Maersk to the table, bringing Shell to the table, you really have people that can make things happen.”
Container ship Edith Maersk crosses the Suez Canal at East Port Said Port, 120km northeast of Cairo, in this October 5, 2012 file photo. Maersk, the biggest container-shipping line, agreed in February to work with Qatargas and Royal Dutch Shell to develop LNG as a maritime fuel.
