Russia-Ukraine war puts LNG in the spotlight, cleaner shipping rules: SEA-LNG chairman

The Russia-Ukraine crisis has highlighted the importance of LNG in the global energy commodities mix, with LNG bunkering set to receive a boost from a growing ship fleet, reflecting the need to switch to cleaner marine fuels as international environmental rules loom, SEA-LNG's chairman Peter Keller said May 5.

"The terrible situation in the Ukraine has highlighted the importance of LNG as an energy source and I think has reinforced the notion that energy transitions must occur in an orderly and well-planned process," Keller told S&P Global Commodity Insights in an interview.

This comes as the European Union plans to phase out Russian crude oil imports within six months or so.

As the focus shifts from fossil fuels and Russian natural gas, global LNG prices are expected to be supported.

The tight LNG supply balance is expected to remain and keep prices above $15/MMBtu annually, through at least 2025, as Europe looks to replace Russian pipeline flows with LNG amid a new wave of liquefaction projects coming online, S&P Global Commodity Insights said in an April 29 report.

While skeptics might ponder whether it was a good idea to move to LNG, particularly as prices were propped up by the Ukraine invasion, LNG's benefits for shipping still hold it in good stead as it offers a transition to net-zero greenhouse gas emissions, based on incremental decarbonization of existing assets as fuel production, transportation, storage and bunkering infrastructure, and engine technologies develop.

"LNG is a fuel in transition, not transitional," Keller said.

LNG will follow a future pathway that leads to Bio-LNG, which is already being used, and eventually synthetic or e-methane. This is a clear and accepted path that provides critical air quality benefits as well as decarbonization, he said.

Just over 30% of tonnage on the current order book is LNG-fueled, while the LNG bunker vessel fleet, both operational and on order, is already approaching 75 globally, Keller said.

Risk management and verification company DNV suggests that the deep-sea LNG fleet will reach about 1,000 vessels by end-2022, which is significant, Keller added.

This comes as numerous shipping companies in Asia as well as charterers are also embracing LNG-fueled ships.

Pacific International Lines on March 4 said it had contracted Jiangnan Shipyard to construct four 14,000 TEU container ships that will be equipped with dual-fuel engines and auxiliaries to run on both LNG and low sulfur fuel oil, while Japan's Mitsui O.S.K. Lines has committed to LNG as a marine fuel and aims to launch around 90 LNG-fueled ships by 2030.

BHP welcomed the MV Mt. Tourmaline, the world's first LNG-fueled Newcastlemax bulk carrier that it had chartered from Eastern Pacific Shipping, in Singapore in February for its first LNG bunkering operation.

LNG bunkering prospects

LNG bunkering is available at major ports around the world, including Asia, Keller said.

In 2021, Singapore, the world's largest bunkering port, bunkered its first LNG-fueled container ship when the FuelLNG Bellina provided ship-to-ship bunkering for the CMA CGM Scandola.

Last year, the Maritime and Port Authority of Singapore awarded its third LNG bunkering license to Total Marine Fuels for a five-year term starting Jan. 1, 2022, to promote LNG as a marine fuel.

Other Asian ports such as in Japan and South Korea are also promoting LNG bunkering.

Meanwhile, skeptics have raised the issue of methane slip from LNG-fueled vessels as a recognized problem.

"SEA-LNG is disappointed to see the ongoing campaign of misinformation that misrepresents the progress the industry has made, and is continuing to make, to reduce slip," the coalition said in a statement last month, citing a Sphera study. The study showed that LNG-fueled engines have GHG benefits compared with current oil-based engines of between 20% to 30% for 2-stroke slow-speed engines, and 11% to 21% for 4-stroke medium speed engines, inclusive of methane slip.

The GHG benefits will only improve in future versions of LNG-fueled engines as technologies are more widely adopted by the shipping sector, SEA-LNG said, adding that regulations are also being developed by the International Maritime Organization and EU to reinforce this industry-led direction.

While there was a need for standards and common regulatory regimes, there are currently no major impediment that the industry has not effectively dealt with, Keller said.

"These expressions of confidence will continue to promote LNG as a long-term solution to decarbonize," he added. " As the only current solution, vessel owners understand that

action now is far better for the environment than waiting for an unproven future alternative."