By Apostolos Rompopoulos, Tanker Chartering Broker
After the World Bank recently rejected liquefied natural gas, LNG, as a sustainable fuel for shipping in the future, the battle for climate-friendly fuels has increased.
The World Bank discovers that LNG may have a limited role in the decarbonization of the shipping sector", which must halve CO2 emissions by 2050 measured against 2008. It is a niche fuel used on existing routes and special ships, states the World Bank's report, which is titled The Role of LNG in the Transition toward Low- and Zero-Carbon Shipping. The World Bank also advises member countries against new investments in e.g. infrastructure and relevant policies that support the use of LNG as a bunker fuel for international shipping.
Carriers still opt for LNG
Between container companies, numerous are in the process of expanding the fleet with more LNG-powered vessels. French CMA CGM is in the process of strategically expanding its fleet with more LNG-fueled vessels, expecting to have 32 LNG-powered container vessels on the water next year out of a fleet of 538 vessels. Hapag-Lloyd is also investing in LNG, while Danish container company Maersk opted out of LNG from the start. Overall, we estimate approx. 11% of the existing containers orderbook in number of vessels to be LNG fueled. The LNG penetration in containers is highly incentivized due to the fact that they are large fuel consumers and they call ports that LNG refueling infrastructure has already started to penetrate the market.
For the dry bulk sector, the penetration is currently smaller (approx. 2.0% of the current orderbook), as the dry bulk trading patterns are more fragmented and it makes it less attractive to opt for LNG until sufficient refuelling infrastructure across ports increases certainty to the investment. As far as tankers are concerned, approx. 15% of the tankers orderbook in number of vessels is estimated to be LNG fueled.
According to Binyam Reja, the director of transport at the World Bank "CO2-free fuels must account for at least 5% of bunker-fuel mixed by 2030 to ensure that the shipping industry is on par with the original IMO GHG strategy as well as the temperature targets of the Paris Agreement".
In all cases, fossil fuels (incl LNG) will remain substantial % of fuel mix, even beyond 2050, when bio and zero carbon fuels become available and the LNG fueled ships should be capable to accommodate them.
LNG has been continuously criticized for being a transitional fuel that will become obsolete once climate-neutral fuels take over. On the one hand, LNG is able to reduce CO2 emissions by approx. a fifth, on the other hand, the burning of LNG s is argued to emit methane into the air which eventually increases GHG emissions - however there are counterarguments to that as engine advances are able to eliminate the slip as per a Sphera study.
More faith in ammonia and hydrogen
Concurrently with the World Bank's LNG report, two interest groups have published a new commissioned study. A study, according to a publication from SEA-LNG and Society for Gas as a Marine Fuel confirms that GHG emissions from LNG compared to traditional low-sulfur bunker fuels is 14-23 % lower for two-stroke engines and 6-14 %for four-stroke engines. Nevertheless, the World Bank has more faith in two other alternative fuels than LNG.
As per another report from the World Bank, titled The potential of zero-carbon bunker fuels in developing countries, ammonia and hydrogen are "the most promising CO2-free bunker fuels for shipping currently". They are more scalable and cost-effective than other bio-fuels or synthetic, CO2-based options, the report states.
Chartering (Wet: Softer / Dry: Firmer)
The dry bulk index witnessed significant gains last week, strongly supported by the performance of the non-geared sizes. The BDI today (20/04/2021) closed at 2,472 up by 332 points compared to previous Tuesday’s (13/04/2021) levels. Sentiment in the crude carrier sectors remained negative with rates for VLCC’s being the only positive exception albeit without substantial effect on earnings during an otherwise disappointing week. The BDTI today (20/04/2021) closed at 600, a decrease of 14 points, and the BCTI at 515, a decrease of 69 points compared to previous Tuesday’s (13/04/2021) levels.
Sale & Purchase (Wet: Firmer / Dry: Firmer)
Activity in the Secondhand market maintained its volumes, with a large number of SnP dry bulk and tanker transactions materializing last week. In the tanker sector, we had the sale of the “MARAN CARINA” (306,314dwt-blt ‘03, S. Korea), which was sold to undisclosed buyers, for a price in the region of $24.0m. On the dry bulker side sector, we had the sale of the “RANHIL” (81,048dwt-blt ‘15, China), which was sold to Greek buyers, for a price in the region of $23.5m.
Newbuilding (Wet: Firmer / Dry: Firmer)
The newbuilding market activity was very busy, with heightened levels of newbuilding transactions surfacing during the past days across all sectors. On the more conventional segments, all of the freshly reported newbuilding contracts revealed a preference towards the bigger sizes, with a duo of Capesize units and one VLCC materializing last week. On the bulk carrier sector, Kamsarmax units were also popular; a notable order was inked between Nisshin Shipping and Jiangsu Hantong shipyard for the construction of five 82,000dwt vessels with the option for five more. The price for each vessel is estimated at around $28.0 million. In addition, HK based owner EGPN ordered one 82,000dwt unit at Chengxi for an undisclosed price. Contracting activity resumed in the Container sector too; Chinese owner Sinotrans Lines concluded an order for two 2,400teu and two 1,100 teu at Yangzijiang and Jinling shipyard respectively.
Demolition (Wet: Stable+ / Dry: Stable+)
With Covid-19 cases being on a rise last week, it was hard to contain breakers disquiet in the Indian subcontinent demolition market. India is struggling with a daily number of more than 250,000 cases and a lack of oxygen supply which is destined to hospitals. At the same time, lockdown continues in Bangladesh with Covid-19 cases at high numbers for another week. Pakistan has not yet imposed restrictions while in Turkey partial two-week local lockdowns extended to help curb the recent rise in coronavirus cases. However, the uncertainty that Covid restrictions brought to the industry coupled with the slowdown effect of the Ramadan period did not affect average offered scrap values with their levels being overall unchanged w-o-w. Bangladesh remained at the top place with a duo of tanker candidates being concluded in significantly strong numbers. Pakistani breakers are chasing a larger market share, with their offered prices close to their Bangladeshi counterparts, but with no fruitful result at the time of writing. In India, with New Delhi's weeklong lockdown starting yesterday (19/04/2021), it remains to be seen whether a national lockdown will be imposed in the coming days. Average scrap prices in the different markets this week for tankers ranged between 255-485/ldt and those for dry bulk units between $250-475/ldt.
Please click here to open Intermodal's Weekly Market Report for the week 15,2021