By Stefka Wechsler
24 July 2023
Synopsis
Ship owners in EU waters will soon have to pay for 40% of their emission costs, with EU-traded CO2 valued at an average of $95/t. Burning LNG instead of MGO could lead to savings of around $17/t in CO2 expenses. While Europe has improved gas supply security for winter 2023-24 through stock replenishment and increased LNG import capacity, Russian pipeline deliveries remain low due to the war in Ukraine. The uncertainty of gas demand rebounding means LNG prices might not stay below fuel oil prices this winter.
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| Image used for representational purposes - Open AI |
The northwest Europe LNG to conventional marine fuels price discount continued to deepen in July, meaning LNG/fuel oil dual-fuel ship owners could cut their bunker expenses by switching to LNG.
In June the price of northwest Europe LNG delivered on truck slipped below the price of high-sulphur fuel oil (HSFO) at -$10/t, Argus data showed. The discount widened to -$50/t average from 1-24 July. LNG's discount to very low-sulphur fuel oil (VLSFO) on 1-24 July was even deeper, at $112/t, from a $81/t discount in June. LNG was also assessed at $300/t discount to marine gasoil (MGO) on 1-24 July, from a $231/t discount in June.
LNG emits "virtually no sulphur oxides (SOx)" when burned, according to LNG energy industry coalition SEA-LNG. Thus LNG can be used in lieu of 0.1pc sulphur MGO in the global emission control areas (ECAs) such as Rotterdam, where marine fuel sulphur content is capped at 0.1pc to keep down SOx emissions. LNG for bunkering demand accounted for 2pc of Rotterdam total marine fuel demand in the first quarter of the year, up from less than 0.3pc in the first quarter of 2022, but down from 5pc in the third quarter of 2021.
Compared with MGO, LNG emits 14pc less CO2 from combustion, according to a 2021 study by the independent, nonprofit organization international council on clean transportation (ICCT). Starting next year, ship owners traveling EU territorial waters will have to pay for 40pc of their emissions from combustion. EU-traded CO2 was assessed at $95/t average on 1-24 July, which would amount to about $17/t in CO2 cost savings for vessels burning LNG instead of MGO.
Europe faces less severe natural gas supply security risks in the run-up to winter 2023-24 than it did ahead of the previous winter. Countries have succeeded in rebuilding stocks and the EU can count on much larger, and growing, LNG import capacity. But Russian pipeline deliveries to Europe are a fraction of what they were before the onset of the war in Ukraine, so supply could still be tight if gas demand rebounds. Thus it is unclear if LNG prices would remain below fuel oil's this winter.
Source: www.argusmedia.com
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