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Study: LNG-capable fleet could reach total ‘value at risk’ of ~USD 1trillion by 2030

Shipowners should consider not ordering LNG-capable ships and investing in conventionally fuelled ships which are designed for retrofit to zero-emission fuels, says UCL Energy Institute study.

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A new study by UCL Energy Institute released on Tuesday (20 September) revealed that the rapidly growing LNG-capable fleet could reach a total “value at risk” of ~USD 1trillion (USD 850 billion) by 2030.

The study found that if policies that incentivise shipping to decarbonise in line with the Paris Agreement were in place by the end of the decade, the LNG-capable fleet would compete against zero emissions shipping, whilst also being incentivised to switch away from the use of fossil fuel.

Whilst policy and competition would affect all ships built to use fossil fuels, the analysis suggests that more expensive LNG-capable assets (also known as LNG dual-fuel) would see reductions in their value to match the value of similar aged but lower cost conventional vessels designed to use fuel oil.

The report titled Exploring methods for understanding stranded value: case study on LNG-capable ships found that the write-down of the full USD 850 billion value at risk is not realised if LNG-capable vessels retrofit to run on scalable zero emission fuels (hydrogen and hydrogen-derived fuels such as ammonia). Under these circumstances, the stranded value is estimated at approximately 15-25% of their value (USD 129-USD 210 billion if the LNG-capable fleet grows strongly this decade).

The study said LNG has been portrayed as transitional fuel for the shipping sector, but there is growing scientific evidence that shows the environmental benefits are limited, if not negative, compared to LSHFO (Low Sulphur Heavy Fuel Oil), when considering a full lifecycle analysis of emissions and accounting for greenhouse gases (GHG) emissions.

The least-cost pathway for shipping to meet its required shift away from fossil fuels is to a mix of electrification in short-sea shipping, and use of scalable hydrogen and hydrogen-derived fuels such as ammonia and methanol for deep-sea shipping.

Marie Fricaudet, lead author and PhD student at UCL Energy Institute, said: “This report is a first attempt to extend the research on stranded power generation assets and unburnable fossil fuel reserves to the shipping sector.”

“The findings highlight that the risk of stranded assets is also very material in the shipping sector. The longer we leave the LNG transition running and then switch, the more painful it will be and technology lock-in during this crucial decade will create more resistance to change later.”

The report shows a boom in the ordering of LNG vessels over the recent years, with 65% of the newbuilding deliveries by 2025 being capable of running on LNG as a marine fuel, up from only 10% a couple of years ago. Yet, the size of the LNG-capable fleet (by dwt and number of ships) is currently small, therefore there is still time to anticipate regulatory and technology developments and manage exposure to a class of assets that may be particularly exposed to stranded value risk.

Public funding has played a major role in financing LNG vessels through various government run schemes, directives and export credit agencies, such as the NOx Fund in Norway, the European Union’s directive on the deployment of alternative fuels infrastructure, the European Investment Bank and the Japanese and Korean Export Credit Agencies.

Dr Tristan Smith, co-author and Associate Professor at UCL Energy Institute, said: “As this decade proceeds, we will continue to experience more and more severe impacts from climate change. This will further grow pressure both in markets (ESG) and policy negotiations to align assets to a rapid shift to zero emissions. Anticipating this pressure is straightforwards, and whilst the best solutions for zero emissions international shipping are still emerging, it is already clear that LNG-capable shipping is not well positioned and faces a higher risk of stranded value during the transition.”

The study argued that governments should not use public funding to exacerbate the creation of stranded value and identifies methods that investors can use to identify the risks posed by climate change on shipping assets.

The report said shipowners and financiers should consider not ordering LNG-capable ships and investing in conventionally fuelled ships which are designed for retrofit to zero-emission fuels. 

“For existing LNG-capable ships, investors should consider ways to manage the risk of stranded value – e.g. factoring in the cost of retrofit (or other actions to remain compliant) at the point of newbuild or using a steeper than linear depreciation curve,” it said.

For policy makers, the report asks for urgency and clarity of future regulations, especially around when and how methane emissions will be considered, to help investors in both existing ships and newbuilds consider and anticipate the potential impact of regulation on values.

 

Photo credit: Shaah Shahidh on Unsplash
Published: 21 September, 2022

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Ammonia

HD KSOE receives Lloyd’s Register AiP for ammonia fuel supply system

Fuel supply system addresses the pressing need for sustainable fuel solutions, significantly contributing to efforts aimed at reducing greenhouse gas emissions from the global fleet, says LR.

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HD KSOE receives LR AiP for ammonia fuel supply system

Classification society Lloyd’s Register (LR) has granted Approval in Principle (AiP) to HD Korea Shipbuilding & Offshore Engineering (HD KSOE) for their ammonia fuel supply system, which will be used on ammonia new constructions.

The newly developed ammonia fuel supply system shows complete compatibility with high-efficiency cargo handling systems and ammonia engines.

The approval certifies the fuel supply system against LR’s rigorous risk-based certification (RBC-1) process and marks the successful conclusion of a Joint Development Project (JDP) between LR and HD KSOE, which began in April 2024.

The primary objective of the JDP was to develop and refine the design concept of an ammonia fuel supply system for ammonia-fuelled vessels.

LR said the AiP represents the substantial step that LR and HD KSOE have taken towards pioneering innovative solutions for emission reduction in the maritime industry.

“Ammonia, with its capacity to meet the rising demand for emission reduction solutions, represents a promising alternative fuel for the maritime industry,” it said.

“This fuel supply system addresses the pressing need for sustainable fuel solutions, significantly contributing to efforts aimed at reducing greenhouse gas emissions from the global fleet.”  

Young-Doo Kim, Global Technical Support Office Representative for Korea, Lloyd’s Register, said: “This approval in principle represents another significant step for developing the technology required for shipowners and operators' adoption of ammonia, one of the primary candidate fuels for the maritime energy transition.”

“We are pleased to continue our strong working relationship with HD KSOE through this joint project that will provide a valuable solution for ammonia propelled ships.”

Young-jun Nam, Vice Present & COO of HD KSOE, said: “Ammonia is a zero-carbon fuel that is attracting great attention in terms of economics and supply stability. HD Korea Shipbuilding & Offshore Engineering will lead the field of eco-friendly equipment and materials to take the lead in commercialising ammonia in 2025.”

 

Photo credit: Lloyd’s Register
Published: 25 June, 2024

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LNG Bunkering

Erik Thun takes delivery of LNG dual-fuel tanker “Thun Vettern”

Vessel, which is the latest contribution to the Vinga-series, has dual-fuel capability, runs on LNG/LBG or gasoil and is fully equipped for shore power connection when available in ports.

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Erik Thun takes delivery of LNG dual-fuel tanker “Thun Vettern”

Shipping firm Erik Thun on Monday (24 June) said it has taken delivery of Thun Vettern, a 17,999-dwt vessel, which was built by China Merchants Jinling Shipyard in Yangzhou.

The vessel is an upgraded version of the sister Thun Venern. Thun Vettern is the latest contribution to the “Vinga-series”, all trading within the Gothia Tanker Alliance. The Thun Vettern is the newest and latest edition to the Vinga-series and she has ice class 1A. 

The vessels in the Vinga-series all have dual-fuel capability, run on LNG/LBG or gasoil and are fully equipped for shore power connection when available in ports.

They are designed with a battery hybrid solution and several innovative features that reduce fuel and energy consumption, resulting in extensively lowered emissions of CO2, sulphur oxide, nitrogen oxide and hazardous particles. 

The firm said the ships have scored the best Energy Efficiency Design Index or EEDI value in their segment globally, meaning that they are the most energy efficient vessels according to the International Maritime Organization (IMO). 

The Vinga-series is designed for the intense and demanding trade in the North Sea and Scandinavia, well suited to meet the growing European demand for biofuels and renewable feedstocks.

Erik Thun´s close partner Furetank will technically and commercially manage the new vessel which upon delivery will enter into the Gothia Tanker Alliance network.

“Sustainability work has always been and will be a focus ahead for Erik Thun. To take delivery of a resource efficient, top performing product tanker like Thun Vettern, and further deepen our good and long-term co-operation with Furetank is a great example of our vision to be a sustainable Swedish partner over generations,” said Johan Källsson, Managing Director at Erik Thun AB.

 

Photo credit: Erik Thun
Published: 25 June, 2024

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LNG Bunkering

Wärtsilä on LNG bunker fuel: Expert answers to 17 important questions

Firm gives an expert overview on top questions on LNG bunker fuel including if LNG is a future fuel and what does LNG being a transition fuel means.

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RESIZED Chris Pagan

Technology group Wärtsilä on Wednesday (19 June) gave an expert overview on top 17 questions related to LNG bunker fuel in this insight article including if LNG is a future fuel: 

Your choice of fuel affects both your profitability and your vessel’s environmental compliance. Liquefied natural gas (LNG) is a safe and cost-effective fuel that reduces greenhouse gas emissions and other harmful pollutants. LNG is playing a key role as a transition fuel and is widely seen as the first step towards decarbonising the maritime industry.

Switching to LNG as fuel for ship propulsion requires investment but can save you fuel costs, increase your profitability and reduce compliance risks. The expert answers to these 17 questions will tell you what you need to know about LNG as an alternative fuel for shipping.

What is LNG?

LNG is natural gas that has been cooled to -162°C (-260°F), turning it into a clear, odourless liquid that is easy to ship and store. LNG is typically 85–95% methane, which contains less carbon than other forms of fossil fuels. It is a compact, efficient form of energy that is ideal for ship propulsion.

What is LNG used for?

LNG is primarily used as a clean-burning energy source. It is used for electricity generation, heating, cooking, and as a transportation fuel. LNG is also used as a raw material for products like fertilisers and plastics.

In the shipping industry, LNG as fuel is used for ship propulsion, auxiliary power generation and other onboard energy needs. LNG as an alternative fuel for shipping has gained wide popularity due to its clean-burning properties and potential to help meet stricter emissions regulations.

What are the sources of LNG as fuel for ships? What is bioLNG?

LNG as fuel for ships is produced from natural gas extracted from underground reserves, including both onshore and offshore gas fields.

BioLNG is LNG produced from biogas, which is generated from organic waste like food scraps, agricultural waste, manure and sewage sludge. BioLNG is considered a renewable fuel and can further reduce the carbon footprint of ships using LNG fuel systems.

 Is LNG just methane?

LNG is primarily methane (typically 85–95%), but it also contains small amounts of ethane, propane and other hydrocarbons. LNG can also contain trace amounts of nitrogen and carbon dioxide. The exact composition of LNG may vary depending on the source of the natural gas and the liquefaction process used.

 LNG fuel vs. fuel oil: is LNG better than diesel?

Compared to diesel fuel oil, LNG offers several advantages. LNG produces significantly lower emissions when burned, including:

  • 20–30% less CO2 
  • 15-25% less total GHG
  • 90% less NOx 
  • 99% less SOx 
  • Almost no particulate matter (PM) 

LNG engines are also quieter. 

However, LNG has a lower energy density than diesel, so using LNG as an alternative fuel for shipping will require more fuel and therefore larger fuel tanks to achieve the same range.

 What are the advantages and disadvantages of LNG fuel?

The key advantages of LNG as fuel include reduced emissions and cost competitiveness. There is also an established and continuously growing global network of LNG bunkering facilities.

The disadvantages of using LNG as fuel for ships include the need for specialised equipment and training and the potential for methane slip.

Methane slip is when unburned methane, a potent greenhouse gas, escapes into the atmosphere. Modern dual-fuel engines will minimise this issue. Depending on engine type and load, you can reduce methane slip by up to 65% by upgrading your ship’s existing engines. Over the last 30 years, Wärtsilä has reduced the methane slip from its engines by around 90%.

 Is LNG environmentally friendly?

LNG is cleaner burning than traditional marine fuels, but it is still a fossil fuel. BioLNG, which is LNG produced from organic waste or biomass, can be considered a more sustainable alternative to fossil-based LNG as it has a lower carbon footprint. However, the production and combustion of bioLNG still emit some greenhouse gases. LNG can be seen as a bridging fuel in the transition to alternative fuels like methanol and ammonia, which aren’t yet widely available at scale.

 Is LNG a future fuel?

LNG both is and isn’t a future fuel. It enables lower greenhouse gas emissions and reduces other harmful air pollutants compared to fuel oil, but it is still a fossil fuel. Sustainable future fuels are crucial for maritime decarbonisation, but the current cost, limited availability and insufficient infrastructure are challenging for operators. This gives LNG an important role to play in the shipping industry’s transition to a zero-carbon future.

As more ports develop LNG bunkering infrastructure and more ships are built with LNG fuel systems, the use of LNG as an alternative fuel for shipping is expected to increase. LNG is considered a stepping stone on the path to decarbonisation as the industry moves closer to using true future fuels such as methanol and ammonia.

Note: The full article by Wärtsilä can be found here.

 

Photo credit: Chris Pagan on Unsplash
Published: 24 June, 2024

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