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Cost and benefits for ship owners

Parameters influencing the appeal of LNG

LNG as a ship fuel is a tool for the maritime industry to meet upcoming environmental regulations, improve air quality and reduce GHG emissions. Its appeal compared with scrubber technology and/or use of MGO is down to four main reasons:

  1. the time spent by vessels within ECAs
  2. cost differences between LNG and HFO+scrubber or MGO
  3. investment costs for LNG technology (engine/tanks/piping)
  4. availability of financial incentives

At present, ocean-going vessels typically spend 5-6% of their operating time within ECAs, but this figure is growing considerably on a number of shipping routes as a result of new requirements for ship fuel along Canadian and U.S. coastlines. The business case for LNG strongly depends on the designation of NECAs and SECAs. The Regulations section of this website provides an overview of recent IMO policy developments.

Container feeder vessels, RoRo ships and other ships with fixed routes operating in ECAs are regarded as potential early adopters of LNG technology. 

Comparison of different compliance strategies

The Danish Maritime Authority (DMA) study details information on the return on investment, or payback, for LNG and HFO+scrubber compared with use of MGO as fuel, for ships operating entirely within ECAs. The study uses an MGO price of $1,105/tonne and an HFO price of $670/tonne. LNG user prices are between $11.7 and $17.9/mmBTU.

The payback time of RoRo ships with low fuel use in relation to installed power is slightly longer than that of container ships that have higher fuel consumption in relation to installed power.

 

Payback time relative to MGO compliance strategy for LNG and HFO+scrubber
 retrofitnew-build
 RoRotankercontainerbig RoRoRoRotankercontainerbig RoRo
Scenario 1
HFO+scrubber2-3yr2-3yr1-2yr2-3yr1-2yr2-3yr1-2yr1-2yr
LNG1-2yr2-3yr1-2yr2-3yr1-2yr2-3yr1-2yr1-2yr
Scenario 2
HFO+scrubber2-3yr2-3yr1-2yr2-3yr1-2yr2-3yr1-2yr1-2yr
LNG2-3yr2-3yr1-2yr2-3yr2-3yr2-3yr1-2yr2-3yr
Scenario 3
HFO+scrubber2-3yr2-3yr1-2yr2-3yr1-2yr2-3yr1-2yr2-3yr
LNG2-3yr3-4yr2-3yr3-4yr2-3yr3-4yr1-2yr3-4yr

 

The investment cost figures and fuel consumption data used for the calculations can be found here.

 

A study by MAN and GL on use of LNG to fuel container vessels indicates a payback time of less than two years for a ship sailing in the ECA 65% of the time, based on current differences in fuel costs. These conclusions are roughly in line with the DMA study.

 

                                               Payback for LNG technology

 

On the basis of daily cost figures for conventionally and LNG-fuelled ships of different types and sizes, Royal Haskoning have calculated their relative costs, using the following data:

  • capital costs + 10%

  • cargo capacity -2 to -5%

  • operational costs (+)

  • insurance costs (+)

  • fuel costs (60-80% of HFO costs on an energy basis)

The study concludes that LNG-fuelled ships are between 10 and 25% cheaper for, respectively, Panamax bulk ship operation outside a SECA, in a high relative fuel price scenario, and RO-PAX ship operation inside a SECA, in a low relative fuel price scenario.

Sensitivity analysis

A sensitivity analysis by DMA shows how changes in fuel price and capital cost, the two most important variables in this investment study, affect payback times. The study concludes:

  • A 10% change in the price ratio between LNG and MGO reduces the payback time by one quarter of a year. If LNG were to be unexpectedly priced against marine fuel oils rather than in relation to land-based use of natural gas, the price relation would probably be closer to 1, resulting in longer payback times.
  • A 10% change in investment cost changes the payback time by 0.5 years.

Impact on fuel supply

The Danish Maritime Authority calculated the impact of using LNG to fuel ships sailing only in the North Sea and Baltic Sea ECAs, which were found to have acceptable payback times, as illustrated. The study concludes that in 2030 overall LNG consumption in these ECAs will be between 3 million and 8 million tonnes, 15-40% of total projected fuel consumption there. An analysis by oil giant Total yields comparable figures. The maritime fuel consumption figures presented in these studies are limited compared with the anticipated size of the global LNG market, projected by the IGU to total 500 million tonnes in 2020.

Oil distributor Vopak estimates the global potential of LNG as a shipping fuel at 12-21 million tonnes per year, with market sizes differing per region.

 

Estimates of regional market sizes by Vopak
RegionSize of market (million tonnes per year
Caribbean/Central America4-6
Indian Ocean1-2
Asia2-3
North Sea / Baltic Sea5-10

 

Lloyd’s Register estimates a global demand of between 1 million and 66 million tonnes per year in 2025, representing between 0 and 2.3% of total HFO bunker demand.

Reduction of global average sulphur fuel content

These studies have not taken into account the potential reduction of the global average sulphur content of fuels used, nor have they examined the potential designation of certain seas as NECAs. These factors could increase the attractiveness of LNG as a shipping fuel in the future.

Further reading

Payback time

Based on LNG prices indexed to a projected reference oil price of 100 $/barrel, and compared with the use of MGO, the payback time for ships using LNG is between one and three years, depending on specific investment costs, ECA operating time and fuel cost difference.