LNG for a VLCC delivers “strong ROI”

May 21 2020

A study found that running a VLCC on LNG fuel offered a better ROI than low sulphur fuel oil, but not as good a ROI as a scrubber.

SEALNG, a trade association to promote LNG for marine fuel, has commissioned a study to see how the costs of having a VLCC running on LNG fuel would compare with using very low sulphur fuel oil (VLSFO) and scrubbers with heavy fuel oil. The study was conducted independently by simulation and analytics specialist Opsiana.


The LNG fuelled VLCC modelled was a 300,000 DWT vessel running on a trade route Arabian Gulf to China, with high pressure and low pressure 2 stroke engines.


It follows similar studies commissioned by SEALNG for a 14,000 TEU container vessel on Asia-US liner route, a 8,000 CEU car and truck carrier on the Pacific and 6,500 CEU car and truck carrier on Atlantic trade lanes. Background information and maritime expertise for the studies was provided by SEALNG members.


The results for the VLCC study were clear that “LNG as a marine fuel delivers a strong return on investment on a net present value (NPV) basis over a conservative 10-year horizon”, with “paybacks from three to five years.”


The study found that LNG provided a better return on investment than conventional “compliant fuels” – although an open loop scrubber actually proved a better investment.


But to achieve these better returns from scrubbers, “shipowners would take on several risks surrounding HSFO future availability,  pricing savings, future regulatory restrictions, and additional potential technical performance plus operational responsibilities,” SEALNG said.


Using LNG fuel with dual fuel engines would achieve a net present value saving of between $6.1m and $15.1m, compared to VLSFO.


LNG would be worse than scrubbers by $6.4m to $12.7m. Although a $40 per tonne CO2 charge would improve this by $4.4m.


Scrubbers were analysed in two scenarios, business as usual (BAU), and “stranded fuel”. The stranded fuel scenario is on the basis that the price of heavy fuel oil would be substantially discounted (as customers move away from it) to drain down existing stocks. In this scenario, after heavy fuel stocks were drained down, it would be delivered specifically to certain customers, rather than holding supplies in port.


In terms of capital expenditure, the researchers noted that the high capital expenditure of LNG engines and fuel tanks (compared to conventional vessels) has been a barrier to adoption. But this “LNG premium” is reducing, according to recent prices offered by shipyards, as they gather LNG newbuilding experience and the technology improves.


LNG engine manufacturing has been moving towards low pressure dual fuel technology, further reducing the capex, SEALNG said.


In terms of energy costs, researchers noted that while energy is usually priced per ton, LNG holds more energy by mass – 2,000 tons of LNG contains the same amount of energy was 2,436 tonnes of heavy fuel oil.


The investment return calculation did not consider “branding value” gained from using LNG fuel. It did not consider any savings due to lower CO2 emissions, enabling the operator to avoid a possible future requirement to buy emission credits.


There are further possible benefits from LNG fuel if oil company charterers prefer an LNG fuelled vessel over a conventional one, on the basis that it helps them reduce their own CO2 emissions. Another possible benefit is that LNG fuel provides a pathway to using bio or synthetic methane in future, perhaps in a blend with conventional LNG, SEALNG says.


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