LNG AS A BUNKER FUEL MARKET ANALYSIS

LNG bunkering is the practice of providing liquefied natural gas fuel to a ship for its own consumption. Ship owners have turned to liquefied natural gas (LNG) as the bunker fuel of choice to curb air pollution from shipping, since it emits significantly fewer air pollutants and contains 30% less carbon than HFO (Heavy Fuel Oil).

The global LNG as a bunker fuel market is estimated to surpass US$ 627.53 million in terms of revenue by the end of 2028, exhibiting a CAGR of 28.10% during the forecast period (2021 to 2028).

Drivers

Strict regulations on marine fuel emissions coupled with advantages offered by LNG has been augmenting the target market growth. Stringent rules, regulations, and environmental policies designed to control or reduce marine emissions are favoring demand and adoption of cleaner fuels. For instance, the International Maritime Organization (IMO),  the United Nations specialized agency with responsibility for the safety and security of shipping, stated that from January 01, 2020, sulphur limit in fuel oil used in board ships should be reduced to 0.5% m/m (mass by mass). In order to meet the IMO regulations, ships will have to use fuel oil which has low sulphur content. This is expected to drive demand for LNG as a bunker fuel across the globe as LNG enables almost complete reduction of sulphur oxide emissions and has very significant NOx and CO2 emissions.

Low cost of LNG is expected to foster the market growth of LNG as a bunker fuel. The fuel cost is a key factor for ship operators as it represents roughly 60 to 80% of the total operating costs. LNG is, and has been, less expensive than marine gas oil (MGO), very low sulfur fuel oil (VLSFO), and HFO (in some regions). Thus, using LNG as a fuel can bring down the operating costs of the vessel drastically and benefit ship operators. This is creating a favorable growth environment for the global LNG as a bunker fuel market.

Among regions, Europe held dominant position in the global LNG as a bunker fuel market in 2020, accounting for 76.2% market share in terms of revenue, followed by North America.

Figure 1. Global LNG as a Bunker Fuel Market Revenue Share (%), By Region, 2020

Market Restraints

Limited LNG infrastructure and high cost of LNG-fueled vessels is expected to hamper the market growth of LNG as a bunker fuel over the forecast period. LNG-fueled vessels can be operated on very limited routes owing to relatively smaller number of ports providing LNG as a bunker fuel. Moreover, the costs of renovating conventional ships to use LNG as a fuel and LNG bunkering infrastructure are quite high.

Market Trends

Increasing subsidies on LNG-fueled vessels is the current LNG as a bunker fuel market trend. LNG fueled vessels can help to minimize the costs of LNG-fueled ships. This is also expected to drive ship owners and charterers to buy LNG-powered vessels, which is likely to have a positive impact on the global LNG as a bunker fuel market.

Figure 2. Global LNG as a Bunker Fuel Market – Opportunity Analysis

On the basis of vessel type, in 2020, offshore tugs & service segment accounted for 48.9% of the revenue share. Offshore vessels are designed to perform operational purposes such as oil exploration and construction work at high seas. Offshore vessels can be classified into oil exploration & drilling vessels, offshore support vessels, offshore production vessels, and construction or special purpose vessels.

Figure 3. Global LNG as a Bunker Fuel Market Revenue Share (%), By Vessel Type, 2020

Global LNG as a Bunker Fuel Market - Impact of Coronavirus (COVID-19) Pandemic

Curtailment of global economic activity has put a break on fuel oil use for shipping. For instance, according to International Energy Agency, demand for natural gas declined by around 2% in Q1 2020, with China, Europe, and the U.S. experiencing the most significant declines. Moreover, according to the same source, LNG imports in Japan fell by 3% in Q1 2020 relative to Q1 2019, while in South Korea domestic sales of LNG for January and February in 2020 fell by 2.5%.  Furthermore, average price of Brent crude, West Texas Intermediate, and Dubai crude hit the lowest monthly average since January 2016 falling to US$ 32.98/bbl, US$ 29.88/bbl, and US$ 33.75/bbl, respectively The lower crude oil prices are expected to negatively impact demand for LNG as a marine fuel.

Competitive Section

Key players operating in the global LNG as a bunker fuel market include BP P.L.C., Conocophillips Corporation, Chevron Corporation, China National Petroleum Corporation, ENI S.P.A., Equinor ASA, Exxon Mobil Corporation, PJSC GAZPROM, Petronas, Rosneft Oil Company, Royal Dutch Shell PLC, and Total S.A.