Analysis shows economic case building for alternative fuels in tanker segment

Amid new European emissions regulations and forthcoming IMO measures, Lloyd’s Register Advisory global head of energy transition Jack Spyros Pringle, presented comprehensive data highlighting an altered investment landscape for shipowners, particularly in the tanker segment. The presentation referred to a potential halving of total ownership costs for vessels powered to use alternative fuels versus conventionally fuelled ships.

One of the most striking trends identified by Mr Pringle, who was speaking at Riviera’s Maritime Decarbonisation Conference Asia, was the accelerating uptake of LNG dual-fuel technology in tankers. "We currently have 312 tankers that are LNG dual fuel. That includes 125 vessels that are on order," he reported. Breaking this down by vessel size, the data showed this technology is being adopted across the Aframax, Suezmax and VLCC segments.

"This is a very clear signal from the market that LNG is a strong fuel choice for the tanker segment," Mr Pringle noted. "Why is that? It’s basically the alignment between LNG supply and the tanker trade."

His research also identified emerging interest in other alternative fuels, with 52 methanol dual-fuel tankers and two ammonia dual-fuel tankers currently ordered. However, LNG remains the dominant alternative fuel choice, representing 16-18% of all tanker orders.

"If we just sense-check that percentage of LNG dual-fuel orders against those uptake projections, we’re talking about 20% of vessels rolling out of yards with LNG dual-fuel capability. That’s pretty solid," Mr Pringle observed. "The market has moved in response to regulations."

The most compelling element of Mr Pringle’s presentation was a total cost of ownership case study for an Aframax vessel trading 50% of the time in European waters. His analysis compared a conventionally fuelled Aframax against an LNG dual-fuel version equipped with onshore power supply capability.

"What we’re talking about is roughly halving the total cost of ownership there," Mr Pringle explained. "Over that 15-year period from 2025 to 2040, we’re talking about a total cost of ownership of US$104M versus US$54M."

This stark differential emerges primarily from rapidly escalating EU ETS and FuelEU costs that conventional vessels will face through 2040, while dual-fuel vessels with lower carbon intensity can substantially mitigate these regulatory penalties.

Mr Pringle emphasised the importance of context-specific analysis rather than generic solutions, "It’s absolutely vital we look at the fuel question in the context of the specific vessel and its operational profile, but also the regulatory regimes, taking into account all the technical aspects associated with operating dual-fuel vessels as well as the commercial side."

His concluding advice to conference delegates emphasised methodical, data-driven approaches, "Be disciplined. We’ve got a greenhouse gas fuel intensity standard now. I’d recommend everyone goes away and does some calculations. They’re pretty simple. Start to look at what drives the penalties up and start to understand what levers you can pull to reduce those penalties.

"My recommendation is to get to grips with these fuel markets. If we’re talking about ammonia, unpick that market, understand what drives supply and demand for clean ammonia and the production costs. Then understand the value of that low-carbon ammonia to a ship and how that ripples through to your underlying business case for the vessel."