Cost of regulatory compliance ‘lower with LNG’


Analysis from SEA-LNG, the coalition established to demonstrate the commercial and environmental benefits of the LNG pathway, shows the lifetime fuel costs of meeting key European decarbonisation targets for shipping through the LNG pathway are expected to be roughly half that of the methanol or ammonia pathways.

Building on recent work by the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping (MMMCZCS) projecting fuel costs for alternative marine fuels out to 2050 and using long-term price benchmarks for ammonia, methanol and LNG as a marine fuel, SEA-LNG has calculated the cost of compliance with FuelEU Maritime regulations for a typical 14k TEU newbuild container vessel coming into operation in 2025.

FuelEU Maritime requires vessels to reduce the intensity of greenhouse gases produced by their energy consumption in coming years against a benchmark of the fleetwide average in 2020.
Grey versions of ammonia and methanol start at a significant disadvantage to LNG.

The additional greenhouse gas emissions involved in producing ammonia and methanol from natural gas means that respectively these grey fuels emit 47% and 14% more GHG emissions than VLSFO on a well-to-wake basis. Fossil, or grey LNG, offers up to 23% immediate GHG emission reductions compared to VLSFO on a well-to-wake lifecycle basis.

What this means is that owners opting for LNG-fuelled vessels will be able to meet the reduction targets until 2039 without needing to blend their fuel with low-carbon bio-LNG or renewable synthetic e-LNG. By contrast, owners of methanol and ammonia fuelled vessels will need to include significant proportions of a green fuel immediately to meet the regulations, vastly inflating their fuel bills.

Assuming an average fuel burn for the typical 14k TEU newbuild container vessel of 146 tonnes of VLSFO equivalent per day (as per Figure 2 above), a methanol-powered vessel would require a 14% green fuel blend to comply with FuelEU Maritime in 2025 at a fuel cost of almost USD55m per year, assuming the use of biomethanol. An ammonia powered vessel, if such a thing existed, would require a 33% green fuel blend to comply and face a fuel bill of about USD80m per year if using e-ammonia. LNG by contrast would require no blending with a fuel bill of just over USD20m per year.

By 2040, LNG would require a 14% green fuel blend and annual fuel costs are expected to reach around USD25m, assuming the use of bio-LNG. Methanol’s green fuel blend requirement, will have increased to 40%, resulting in an annual fuel bill of just over USD 55m, assuming the use of biomethanol – the effects of the increased volume of biomethanol required offset by the falling costs of the green fuel. For ammonia the blend ratio will have increased to 53% with a blended fuel cost of approximately USD70m – the effects of the increased volume of e-ammonia required more than offset by the falling costs of the e-fuel.

By 2050, SEA-LNG analysis shows that all three fuel options will have significant blends of green fuels in the form of bio- and e-fuels and we expect to see a convergence in overall fuel costs.

In summary, this simple analysis shows that the LNG pathway to compliance with FuelEU Maritime offers massively lower fuel costs than both the methanol and ammonia pathways, particularly in the first 15 years’ of the vessel’s life – a period critical for vessel financing decisions. The methanol pathway is approximately 2.5 times more expensive and the ammonia pathway 3.5 times more expensive.

Similar analysis can be undertaken for other sectors and while the absolute numbers will be different the cost ratios for the different pathways will be similar.

Commenting on the analysis, SEA-LNG COO Steve Esau said: “Our analysis shows that lifetime fuel costs of achieving net-zero emissions through the LNG pathway are expected to be roughly half that of those for methanol and ammonia. This underlines the importance of understanding the implications of the journey to net zero as well as the destination. LNG offers GHG reductions today and a low cost, incremental solution for decarbonisation.”

SEA-LNG is currently developing a cost of compliance calculator that will enable ship owners, investors, charterers, and operators to explore the commercial implications of different fuel choices in complying with EU and IMO regulations.