Forecasting the Future of Marine Fuel

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LNG-carrier-general-2-e1426843801292-620x330According to an article published at bcg.perpectives website (by the Boston Consulting Group) , liquefied natural gas (LNG) is likely to become the marine fuel of the future—that much is clear to stakeholders in the commercial-shipping industry. But the important question is when will LNG become the dominant bunker? The answer is critical to planning and executing investment decisions that will amount to hundreds of billions of dollars industry-wide in the coming years.

Ship owners and operators must forecast the adoption of LNG as they continue to confront challenging times. For years, the shipping industry’s performance has been weighed down by the twin burdens of plunging freight rates and increasing bunker costs, and a full recovery is not in sight. The plunge in crude oil prices that began in mid-2014 and continued into early 2015 has eased the pressure on margins, but it is premature to declare victory in the struggle against bunker costs. Even though a return to crude oil prices exceeding $100 per barrel is unlikely anytime soon, managing bunker costs remains crucial to maintaining competitiveness. These costs still represent the largest expense item for vessels, accounting for 30 to 40 percent of total operating costs.

Three Main Options for Cleaner Emissions 

In the context of challenging market conditions and stricter environmental regulations, The Boston Consulting Group set out to assess the fuel options that are available to ship owners and operators as they seek to remain cost competitive. LNG is one of three main options for cleaner emissions. The choice among these options is not clear-cut, as each one has benefits and drawbacks:

  • LNG: Natural gas that has been converted to a liquid is the cleanest option from an environmental perspective. However, using LNG will require costly investments in new bunkering infrastructure, which is scarce today. Moreover, the performance of the engines that are designed to be fueled exclusively by LNG has not been fully tested at sea.
  • Heavy Fuel Oil Cleaned by Scrubbers: Scrubbers are systems for cleaning the exhaust gas that is emitted when burning heavy fuel oil (HFO). These systems use fluids to absorb sulfur dioxide and neutralize the effluent that’s discharged with the exhaust gas. This option has the advantage of enabling vessels to continue to use cheap HFO; however, scrubbers require a significant investment, and some components of the technology (such as processes for waste treatment) have not yet been fully proved.
  • Distillate Oils: Marine gas oil and marine diesel oil are distillates that are readily available and have properties similar to the diesel fuel used in high-speed engines. Distillates are cleaner than HFO untreated by scrubbers and represent the easiest solution from a technical perspective. Distillates are much more expensive than the other fuel options, however, and the cost differential could become greater if increased demand throughout the shipping industry drives distillates’ prices even higher.

 

 

Assessing How Bunker Demand Will Develop

evolution of bunker demandTo help shipping companies navigate through the challenging investment decisions in the complex and evolving marine-fuel environment, BCG has developed a proprietary tool that evaluates the economics of selecting each fuel option over the next 15 years. The model’s output is reported for vessels segmented on the basis of type (for example, tanker or container), size, year built, and route.

Two factors will have the greatest influence on LNG’s penetration of the bunker market until 2025: the price differentials among LNG, HFO, and distillates and the date the global sulfur-emissions cap becomes effective. Analyzing these two factors across various scenarios, we estimate that LNG’s market penetration in 2025 could range from 5 to 27 percent.

To build a competitive edge for the future, shipping companies need to decide which marine fuel option will provide the highest return in the coming years and how they will comply with the increasingly stringent rules and regulations imposed by regulators.

For many companies, the answers will point to the need to develop a better fact base for assessing fuel options in the dynamic environment. Companies that take action now to understand their options will be best positioned to reap the benefits of wise investments in the future.

For more information please read the full article here.

Source: bcg.perspectives