As the LNG carrier fleet grows, more shipowners are opting for two-stroke, dual-fuel engines to lower fuel consumption, comply with EEDI and reduce carbon emissions
Two-stroke, dual-fuel engines from MAN Energy Solutions and WinGD have taken the LNG shipping market by storm. Over the next three years, the percentage of the LNG carrier fleet operating with two-stroke, dual-fuel propulsion – either high-pressure, Diesel-cycle MAN ME-GI or low-pressure, Otto-cycle WinGD engines – will more than double, according to data from Poten & Partners.
Based on data shared during a Poten & Partners’ webinar, some 12% of the existing fleet has either ME-GI or X-DF engines, with the market share forecast to reach 30% by 2023 based on the current shipbuilding order book. Besides ME-GI and X-DF propulsion, other technology being employed in the LNG carrier fleet includes steam, slow-speed diesel (SSD), dual or tri-fuel diesel-electric (D/TFDE) and ultra-steam turbine – dual-fuel diesel-electric hybrid (UST-DFDE hybrid) and reheat steam, ultra-steam turbine (RHST/UST).
It is shipping’s decarbonisation drive that has spurred the uptake of two-stroke, dual-fuel ME-GI and X-DF technology. To comply with tighter NOx emissions limits and the Energy Efficiency Design Index (EEDI) the propulsion plant requires improved fuel efficiency and emissions performance.
In August, Shell agreed long-term charters for six X-DF propulsion 174,000-m3 newbuild LNG carrriers. The energy major signed separate agreements for two LNG ships each with affiliates of Knutsen LNG, Korea Line Corporation, and ICBC Financial Leasing and institutional investors advised by J.P. Morgan Asset Management.
At the time of the signing of the charters, Shell Shipping & Maritime head Grahaeme Henderson, said: “These ships will deliver a 60% reduction in carbon emissions compared to 2004 steam turbine LNG carriers. Shell’s ambition is to be a net-zero emissions energy business by 2050 or sooner and highly efficient ships like these are one of the ways that we are reducing emissions in our operations.”
The newbuild LNG carriers will be integrated into Shell’s time-chartered trading fleet and staggered delivery is expected to take place from mid-2023. Shell announced the long-term charter of eight ships of the same class in December 2019.
One of the X-DF propulsion LNG carriers that was recently delivered to a long-term charter with Shell, SCF Timmerman, features a boil-off gas (BOG) partial re-liquefaction system, which significantly reduces cargo losses while on long voyages or awaiting cargo operations.
These fuel-efficient, lower carbon intensity ships will underpin’s Shell’s recently announced ‘Powering Progress Strategy’ to become a net-zero emissions business by 2050. Using its net carbon emissions from 2016 as its baseline, Shell has set short-term goals for reducing net carbon intensity by 6 to 8% by 2023, 20% by 2030, 45% by 2035 and 100% by 2050.
Meanwhile, Oslo-listed Flex LNG operates both ME-GI and X-DF propelled ships in its 13-vessel fleet. In its Q3 2020 presentation to investors, Flex LNG highlighted that LNG carriers propelled by ME-GI or X-DF propulsion were receiving in excess of US$100,000 spot headline freight rates per day.
“These ships will deliver a 60% reduction in carbon emissions compared to 2004 steam turbine LNG carriers”
As of early November, ME-GI propulsion vessels were outperforming tri-fuel, diesel-electric (TFDE) tonnage. Average spot rates for TFDE LNG carriers were US$112,500 per day, while ME-GI vessels were US$125,000 per day, according to Clarksons Platou Securities.
While not nearly as lusty as spot rates secured during the same period over the previous two years, ME-GI and X-DF propulsion still outperformed TFDE, with charters averaging US$145,000 versus U$130,000 during the same period a year earlier. At the same time, steam-propelled vessels were securing average day rates of US$90,000.
Major four-stroke order
Of course, not all shipowners are opting for two-stroke, dual-fuel propulsion. At the end of January, Wärtsilä reported it would supply 36 Wärtsilä 46DF dual-fuel engines, plus gas valve units and auxiliaries for a series of LNG carriers being built for the Yamal LNG project. Deliveries of the equipment will commence in August 2021, according to Wärtsilä.
The order, which is valued at more than €100M (US$121M), was placed in December 2020 by DSME and includes the option for a further four ships.
Fleet growth ahead
There are 176 LNG carriers, including floating storage and regasification units (FSRUs) on order, according to recent BRL data. Not including small-scale vessels, FSRUs or laid-up vessels, the conventional LNG carrier fleet grew 6% year-on-year (y-o-y), from 503 in 2019 to 529 in 2020. Based on the delivery schedule, the fleet will grow another 10% y-o-y, to 581 vessels, according to Poten & Partners.
LNG exports edged up in 2020 0.3% y-o-y to 362M tonnes and are forecast to grow another 3% in 2021, to 371M tonnes.
In Q4 2020 and Q1 2021, most of the shipping demand has been driven by a rise in US LNG exports, with increasing demand from Asia driving up tonne-mile demand and requirements for efficient vessels.
Overall, global LNG export cargoes rose from 415 in September to 444 in October to 460 in November, with the US accounting for 44, 64 and 83 cargoes, respectively, tightening the market for spot tonnage.
Poten & Partners reports as of December 2020 there were 41 LNG carriers uncommitted on term charters out of a fleet of 529 vessels, or 7.7%. Over the next two years, however, vessels available on the spot market could grow. By December 2021, this will more than double to 95 vessels out of a fleet of 581 LNG carriers, or 16.4%. By December 2022, this will grow to 140 vessels out of 611, or 22.9% of the fleet.