Emission targets may cap LNG growth as marine fuel: IEA

The use of LNG as a bunker fuel is expected to grow sharply in the coming years, but its role in achieving long-term emissions reduction targets is less certain, the IEA said in its World Energy Outlook 2019.

The use of LNG in international shipping is expected to reach 50bn m³/yr of equivalent pipeline gas (39mn t/yr of LNG) by 2040 from less than 1bn m³/yr (777,000 t/yr) at present, according to the IEA's Stated Policies Scenario, which focuses on policies and regulations already implemented or announced.

The IMO 2020 sulphur cap, which comes into force on 1 January, has spurred market interest in LNG as an alternative to heavy fuel oil in maritime transport, with 130 new LNG-fuelled ships on order at present. Two-thirds of these are due to be based in Europe, where bunkering infrastructure is the most developed, the IEA said.

The current order book already represents a doubling of the existing fleet, but this would account for a mere 4pc of the global shipping fleet. And the expected LNG bunkering demand by 2040 would still represent just 13pc of the shipping fuel mix.

In the long term, plans to slash greenhouse gas emissions, coupled with a projected doubling of global shipping activity, may put a lid on the use of LNG as a marine fuel. Even assuming all new orders are either LNG-fuelled or use zero-carbon fuels, a scenario deemed unlikely by the IEA, LNG bunkering demand could not exceed 100bn m³ (78mn t/yr) of gas by 2050 if the IMO initial strategy to cut greenhouse gases by at least half compared with 2008 levels is to be met, the agency estimates in its Sustainable Development Scenario.

Assuming old vessels are replaced with new ones at a rate that is in line with historical averages, the LNG fleet will produce 30mn t of CO2 by 2050, which leaves a maximum of 290mn t of CO2 that could be produced by the rest of the global fleet. Should this volume of emissions come only from LNG-fuelled ships, it would translate into annual LNG demand of 100bn m³/yr (78mn t/yr) of gas.

Global greenhouse gas emissions from the maritime transportation sector were approximately 640mn t in 2018. Burning LNG as a bunker fuel could achieve "at best" a 20pc reduction in CO2-equivalent direct emissions compared with fuel oils, the IEA said.

Thinking small

Developing supply chains for small-scale LNG outside of Europe is "challenging" but the potential is "high" especially in Asian markets, the IEA said.

Up to 60mn t/yr worth of small-scale LNG could be delivered to consumers around the world at a lower cost than oil products, based on the average crude price of $70/bl in 2018. About 40pc of the potential growth lies in developing Asian markets, where gas is 20-40pc cheaper than heavy fuel oil and diesel for industrial consumers.

While the substitution potential is only a fraction of oil demand in these sectors, it represents a sizeable quarter of the global LNG market, the IEA said.

Global small-scale LNG distribution capacity totals nearly 30mn t/yr at present, with the vast majority located in China. China has quickly developed LNG transportation infrastructure in the form of trucks and inland bunkering facilities, and it can count on a fleet of nearly 300,000 LNG-fuelled trucks currently operating — a tenfold increase in four years. Small-scale LNG distributed in China totalled nearly 25mn t last year, accounting for about half of the country's total LNG consumption. That said, only half of these volumes were imported, with the rest coming from small-scale inland liquefaction facilities, the IEA said.

The cost of small-scale LNG today lies in a relatively wide range of $2.5-8.5/mn Btu and largely depends on the presence of existing LNG infrastructure, particularly of LNG liquefaction or regasification terminals with truck-loading capabilities.

By Antonio Peciccia and Livia Gallarati