With the Mediterranean set to introduce stricter limits on maritime emissions in just over 18 months time, market players in the region are already predicting that LNG is well placed as an alternative to more traditional — and polluting — marine fuels.
The International Maritime Organization adopted new rules late last year that will see the Mediterranean become an Emission Control Area (ECA) as of May 1, 2025, reducing the sulfur cap of marine fuels, in a development that has won praises from environmentalists but could push up traditional bunkering costs.
Compared with heavy fuel oil, the use of LNG could reduce nitrogen oxide emissions by up to 80% and almost eliminates sulfur oxide emissions and particulate matter, according to maritime classification society DNV.
“The Mediterranean becoming an ECA will increase interest in LNG,” according to Jason Stefanatos, global decarbonization director at DNV. “We expect that many business cases [for the use of LNG] would change for these vessels compared to the past.”
The move also comes at a time when the global LNG-fuelled fleet is being built out, according to the DNV. LNG-fuelled vessels account for the largest share of the alternative-fuelled ship orderbook, the body added.
Currently, there are some 438 LNG ships in operation, with 97 on order. But the DNV predicts that, by 2025, some 425 ships will be on order, reaching 505 in 2026.While the majority of the 978 LNG-fuelled ships currently in operation operate globally, 19% operate exclusively in Europe. Followed by Asia at 8% and America at 5%.
Alternative-fuelled ships on order make up 16.28% of the total orderbook worldwide, of which 10.30% are LNG-fuelled vessels and 3.58% are methanol-fuelled ships.
In the Mediterranean, the port of Barcelona, which is seen as a bunkering hub, saw LNG bunkering operations account for almost 11% of total bunkering operations in 2021, according to the local port authority.
Further, according to data from industry coalition group SEA-LNG, there are around 16 LNG bunkering locations situated in the Mediterranean region, including major bunkering hubs such as Algeciras and Gibraltar.
“There is a clear steady increase of LNG bunkering in the Mediterranean in the past year and we would expect more,” Stefanatos said.
Stefanatos said that, when the North Sea become an ECA in 2015, the industry saw this trend play out, suggesting the same could potentially be true for the Mediterranean, although he added that the conditions are quite different.
The designation of the Mediterranean as an ECA would render very low sulfur fuel (VSLFO) as non-compliant as a shipping fuel. The new legislation would still allow the use of marine gasoil (MGO), although trading sources said that LNG is likely to be more competitively priced.
Platts, part of S&P Global Commodity Insights, assessed the Rotterdam LNG bunker fuel price at $15.160/GJ on Nov. 20, with Rotterdam MGO at $17.793/GJ and VLSFO Rotterdam at $14.390/GJ.
One market source suggested that shipowners may consider other fuels, such as ammonia and methanol, but these are less established in the market and fewer ships are currently equipped to use them.
“It is problem of the technology not being there yet, as well as the availability [of those fuels]. LNG is much more available,” the source said.
Another factor to consider, according to the source, would be the use of scrubbers — devices that can reduce the sulfur content of the fuel the vessel is burning.
“But the industry is moving away from their use,” the source said, adding that the more competitive LNG fuel prices seen in the market recently, coupled with the Mediterranean becoming an ECA would mean “there would be a real incentive to start converting ” vessels to LNG-burning vessels.