Concept of LNG
The concept of LNG as a marine fuel is still in a start phase, and it will take time to fully optimize its potential. There are three phases of development for the LNG. First of these three phases is the development in short sea shipping, and especially in the ECAs, where vessels (new buildings, RO-ROs, existing product tankers etc.) will be forced to reduce its emissions. When several ships are adopting LNG as propulsion, it will force a development in LNG availability in ports. The second phase is about the deep-sea vessels. For these ships to run on LNG, they must be new-buildings, since retrofitting will be a huge challenge and not least very cost inefficient for the company. It is not unusual that ship operators will test the LNG by ordering few ships if the testing gives the shipping company and ship owners a positive outcome they will decide to order more vessels that will run on LNG fuel. The third phase is about the development after 2025, when the availability of LNG will be developed further, and LNG will be available at numerous ports in Europe, Asia, and North America.
LNG vs Conventional Maritime Fuel
LNG compared to other conventional maritime fuels is less related to the oil price, but it could have a significant price margin for conventional maritime fuel. One of the reasons for that could come from the cost-structure of a shipping firm, where the total costs for running are divided into fixed-, and variable- and capital costs. The fixed costs are represented by the operating cost, the variable cost is the voyage cost. It is also a cost analysis of the major costs for running a bulk carrier, even though the cost structure differs between ship types this overview is still representative for other ship types. Capital costs related to the purchase of a vessel are the largest cost element. Today, the investment cost of an LNG carrier has a higher initial cost compared to vessels without LNG-propulsion. The fuel cost is approximately 40% of all voyage cost, and that the voyage cost represents 40%, and in some cases more depending on ship size, of the total cost structure for a vessel. The fact that the fuel cost being one of the main cost drives, the bunker prices will be a key focus when ship-owners deciding the future investment of a ships propulsion alternatives.
LNG propulsion for ships provide opportunities to avoid some of the cost burdens associated with more stringent regulation of air emissions from ships that may be imposed. The chances to utilize these savings are marginal, as capital costs related to the construction of LNG engines are higher compared with conventional engines. The pricing of LNG is depended on several parameters; price index, the distance to LNG source, transportation method, and the volume. A typical LNG price will be between the price of HFO and MGO (marine gas oil), but due to the downturn in the oil market, LNG will be more on par with MGO, which applies to the global market.