ANALYSIS: LNG-fueled vessel deliveries strong while supply crunch concerns loom

The LNG-fueled orderbook and deliveries has show strength as of late, however there are concerns that LNG bunker fuel infrastructure and supply is not keeping pace.

As more ships capable of running on LNG come into operation, there is growing concern in the market that on its current trajectory, LNG bunker vessel supply capacity will not be enough to meet theoretical demand for LNG marine fuel.

"The supply crunch for LNG bunkering is inching closer. Bunker vessel orders have not kept up with orders for LNG fueled ships, " said principal consultant at maritime classification society DNV Martin Christian Wold in a social media post on April 5.

Wold added that this is not a reason for long term concern, but rather a change in dynamics on the horizon that the market could start to feel some time in 2025.

Orderbook deliveries

The global LNG-fueled fleet has grown 181% since 2020. Currently 520 LNG vessels are in operation, up from 471 in 2023 and 354 in 2022. As of 2024, 195 are on order. This is set to increase to 348 for 2025, and 514 on order for 2028, according to DNV figures.

In February, the number of LNG-fueled vessel on the orderbook for 2024 was 219, this now stands at 195, indicating the fact these vessels are now starting to enter in the market.

Wold highlighted that orders of LNG-fueled vessels dropped for the month of March, but new delivered vessels were placed on order for the month of March. This included just one LNG vessel, down from 17 LNG fueled vessels ordered in February and 10 in January.

However, despite the slower month for orders, Wold said that new deliveries have continued at a high pace with 11 LNG-fueled vessels and 2 methanol-fueled vessels being delivered in the last month.

Infrastructure tightness

There are 73 LNG bunkering vessels globally, according to data from industry coalition group SEA-LNG. Of these, 45 are based in Europe and 19 are in Asia.

An Atlantic-based trader said that although ARA and Northwest Europe is better positioned than other parts of the world, the industry could start to feel supply tightness on a global basis.

"It is a case of the infrastructure needing to catch up with the orderbook. We won't have enough bunker vessels around the world, there are regional differences but on a global basis there won't be enough," the trader said.

"There are concerns around barge tightness expected to kick in 2025, especially when certain regulations increase demand [for LNG fuel]," a second Atlantic-based trader said.

The International Maritime Organization (IMO) ruled that the Mediterranean would become an emission control area (ECA) as of May 1, 2025. This would see the permissible sulfur content of marine fuels in the region fall from the current limit of 0.5% to 0.1%. Market sources have reported expecting to see an increase in demand for LNG fuel in the region as a result of the change.

Burgeoning demand

On the demand side, in a March 7 report S&P Global Commodity Insights analysts stated that overall bunker demand for 2022 is around 320 million mt compared to 328 million mt in 2030. As the shipping industry looks to decarbonize and meet stricter emission regulations however, demand for LNG fuel is expected to increase.

The report revealed that in 2021, LNG accounted for 0.04% of the bunker fuels consumed. This is expected to increase to 7.8% by 2030 and 12% by 2050.

Demand for LNG fuel has been supported as of late by the fuel's increasing price competitiveness. Platts, part of S&P Global Commodity Insights, assessed the price of LNG fuel in Rotterdam and Barcelona at $10.638/MMBtu and $10.799/MMBtu, respectively as of April 9. LNG fuel in Singapore was assessed at $12.826/MMBtu.

When comparing LNG against conventional fuels on a calorific basis, on April 2, the discount of LNG fuel to HSFO in Rotterdam reached $1.702/Gj, the biggest discount since Sept. 18, 2023 when it stood at $1.896/Gj. On April 5, the discount of LNG fuel to VLSFO in Rotterdam stood at $2.082/Gj, the highest recorded by Platts since the assessments began on Sept. 27, 2021.

To overcome future bottleneck issues, the first trader said market players need to invest in new capacity. More long-term LNG bunkering contracts would help the industry be more confident in doing this.

"We need to see partnerships between the LNG molecule suppliers...and on the demand side the shipowners," a trader said.