LNG to benefit from IMO and EU sulphur regulations

The article below was published in Interfax Natural Gas Daily on 1st November 2018. Peter spoke at the Gas Asia Summit during Singapore International Energy Week, and chaired a panel discussion on new uses for LNG.
 
Shipping companies around the world are scrambling to meet new fuel standards being put in place by the EU and the International Maritime Organization (IMO). Although the switch will not be immediate, LNG is back on the table again as potentially the main beneficiary.
Delegates at the Gas Asia Summit in Singapore this week said many shipping companies are largely unprepared for the tightening of the IMO regulations, which would see the limit on the sulphur content of marine fuels cut from 3.5% to 0.5% worldwide by 2020. Shipyards are full with vessels being converted to meet the new regulations and orders have picked up for new LNG-fuelled ships.
Under the EU’s Monitoring Reporting and Verification regulation, which came into force in July 2015, shipping firms must collect data on emissions from their vessels on a voyage-by-voyage basis from this year. The data will be collated by the European Maritime Safety Agency, and aggregate emissions data will be published in June 2019. The data will over time be used to bring the shipping sector into the EU Emissions Trading System.
In parallel, the IMO introduced regulation 22a of Marpol Annex VI in March. This will require all vessels above 5,000 gross tonnage to keep a detailed record of their fuel consumption from 2019. Under the new rules, shipping companies will have to issue a statement of compliance with the new fuel standards by the end of May 2020.
The new rules apply only to international shipping and not to vessels on domestic voyages, where exemptions are allowed.
Shipping companies have three options to meet the IMO fuel standard: switching to lower-sulphur fuels such as diesel or specially formulated heavy fuel oil; investing in scrubbers to clean the exhaust from their vessels; or using LNG, either by buying new LNG-fuelled or dual-fuelled ships or retrofitting vessels to allow them to run on the fuel.
Oil price spike
The new standards being introduced in 2020 are the biggest challenge the refining industry has faced in more than a decade. Philip Verleger, a veteran oil consultant, has predicted the new rules will contribute to a massive spike in oil prices in 2020. Verleger issued a report in July that predicted that oil prices could rise to $200 per barrel – and perhaps double that – because the refining industry will be unable to make enough diesel to meet the demand created by the new IMO standards.
LNG has for years been touted by oil and gas companies as a potential alternative to fuel oil and diesel in the transport sector, and its greater uptake could be the key to a step-change in global gas demand growth. But the volatile spread between oil and gas prices has to date discouraged shipping companies from investing in gas-fuelled vessels. Many companies looked at making the switch when oil was above $100/bbl, but the drop in oil prices in 2016 to below $30/bbl took away the incentive to do so.
Ports around the world are rushing to ensure that fuels meeting the IMO standard are available in time for the 2020 deadline. Singapore – the world’s largest bunkering port – is already offering LNG bunkering on a small scale, and its first LNG bunkering barge will be operating by mid-2020. The Singapore Maritime and Port Authority has invested around $20 million in building the necessary infrastructure to supply LNG to vessels. Other large ports in emissions control areas such as Rotterdam and Los Angeles already offer LNG, but uptake of the fuel has so far been restricted mainly to coastal vessels or image-conscious cruise firms.