In focus - Markets

How cleaning up the shipping industry could put liquefied natural gas in the spotlight

The focus on lowering sulphur and carbon emissions from marine fuels may increase demand for liquefied natural gas

16/01/2019

Global Climate Change Team

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With the impending implementation of new sulphur regulations set out by the International Marine Organisation (IMO), we have revisited the climate change implications of the proposed solutions to meet these new sulphur caps.

These new IMO 2020 rules, which start in just over a year’s time, effectively ban shipping companies from using traditional “bunker” or heavy-sulphur fuel oil. These fuel oils are a bi-product of the oil refining process, and banning them should curb sulphur emissions associated with respiratory disease and acid rain.

There are several methods that vessel owners can adopt to meet the new sulphur rules:

  • shift to burning lower sulphur fuel oil
  • install so-called “scrubbers” to clean engine emissions (if the vessel owner chooses to continue to burn high-sulphur fuel oil)
  • install LNG-fuelled engines

LNG is currently a very small part of shipping’s fuel infrastructure, so in the short term, LNG fuelled ships are unlikely to be used extensively to meet 2020 sulphur caps. However, we believe that when the IMO shifts its focus from sulphur to carbon dioxide – increasingly likely given the focus on shipping’s climate change implications – LNG-fuelled marine engines will have a much more meaningful role to play.

The IMO has set out a strategy to cut marine C02 output by 50% by 2050. Vessels powered by gas meet the short-term sulphur caps. However, they also emit up to 20% less carbon dioxide per unit of energy than traditional diesel engines, according to DNV GL (a body that oversees ship standards). We believe this means LNG-powered propulsion will become integral to marine propulsion in coming years.

In the meantime, the impending 2020 sulphur caps are expected to drive up marine fuel costs, due to limited low-sulphur fuel oil (LSFO) availability. Vessel owners and operators will have to consider any ways they can to ensure their vessels, engines, propulsion systems, steaming speeds, and routes all maximise fuel efficiencies.