Will Small-scale LNG shipping boom?

For all intents and purposes there is little to doubt what LNG will do in the future. It is clean, highly touted and something that the IMO wants used across the world. But, as that maybe the case so long as the IMO is concerned, how prepared is the shipping fraternity for the marine fuel of choice?  

There is little to doubt to where liquefied natural gas’s (LNG) future lies. 

It lies right in the drawing rooms of major shipping majors and by ancillary with ship operators, who in turn will impress upon ports and other vested interests in the maritime ecosystem to why they need to latch onto LNG.  

And nobody understands the potential for growth better than the International Energy Agency (IEA). The body forecasts a “gradual recovery in demand in 2021 and 2022, but the impact of the coronavirus will be long lasting, increase uncertainties and dampen growth rates. What recovery is there is in demand is likely to be led by liquefied natural gas and will be led by Asian countries, it said”. 

The IEA is especially effusive in its praise of China which it says “the emergence of fast-growing LNG importers such as the People’s Republic of China (“China”) has led to substantial market growth, which has coincided with more diversification on the supply side, thus resulting in shorter and more flexible LNG contracts. Such an evolution in the contractual structure has had implications for price formation towards more diversity in indexation and more cross-influences between regional markets.” 

In the words of the IEA, over one hundred billion cubic metres of new LNG supply capacity is to be commissioned between 2018 and 2023, with the bulk of these additions coming from Australia and the United States. 

While carriers are commonly used for transportation, something that is increasingly becoming visible is small-scale delivery and bunkering vessels.  

Like a motorcycle that takes one straight to one’s location when traversing a narrow alleyway – not otherwise, possible by a car – the use of small-scale fits a just logic.  

While large LNG carriers can carry up to 260,000 m3 of cargo – with 180,000 mbeing the most standard capacity – small-scale LNG vessels typically transport no more than 30,000 m3. These ships take small parcels of LNG from import terminals to be transported over to locations with no access to natural gas. 

That is a boon to nations that can ill afford the use of large carriers that typically can cost up to US$60billion!  

‘Small-scale LNG shipping is ideal for short-sea shipping’, opined Kaushik Seal, a marketing development manager in Singapore’s, DNV-GL. 

By the use of small-scale shipping users in remote locations and on small islands can obtain the gas without having to build expensive infrastructure, and thereby benefit from lower regional emissions. And LNG bunkering vessels are designed to facilitate ship-to-ship transfer of LNG as marine fuel, allowing LNG-powered vessels to refuel in port. 

Like how tugboats are needed to haul across a huge ocean liner to ports lacking passable channel access, the use of small-scale vessels is just what is needed to transport the gas over to places and ports that either lack bunkering facilities or do not have large enough channel access for carriers. 

Practicality an Issue 

The frosty gas, treated to immense fanfare over the last decade for its supposed and more expensive alternative of distillates, is perhaps just what has regaled the world. 

From its purported good properties over bunker fuel – which actually is a by-product of petroleum refining – LNG is the ‘poster boy’ of the clean energy movement 

“Singapore has a head start and that is a good sign”, declared S.K Singam, a retired crewing manager to Petromin, over how he feels and thinks small-scale LNG ship deliveries and bunkering will continue within the context of its growing importance and global use.  

That ‘global use’ is just what now ails industry operators. In 2019, Europe only had 17 LNG bunkering facilities with 15 of them being operational. 

“It not only requires infrastructure but the costs of building one can be astronomical”, pointed Vivek Jain, a maritime lawyer. What is an added concern, is that not everybody will use LNG and not many nations have built LNG bunkering facilities, he observed?  

Because of the huge capital there is a time component needed to recoup investments. The longer the time that is needed to recoup, the more undesirable any such undertaking becomes. And as most LNG supply contracts are linked to crude oil prices, what can be foreseen is price volatility in LNG.  

Even as Singapore is seeking to develop LNG operational protocols the flip side still tells of a dearth of LNG specifications and measurement requirements in Asia as well as safety and competence training.  

With many collaborations lining up, the lack of a binding set of rules regulating LNG bunkering could potentially leave many stakeholders uncertain about their investment plans.  

The future is what one makes of it. Until and when the world can work in unison the future of small-scale LNG shipping and bunkering will remain where it is: small, insignificant and pale in comparison to crude oil.