Study Casts Doubt on LNG As A Long Term Solution for Shipping in the EU

On 22 June 2018, the University Maritime Advisory Service (U-MAS) published a study commissioned by the Brussels based NGO Transport and Environment. It questioned the effectiveness of the EU’s long term investment in LNG as a marine fuel in terms of Greenhouse Gas Emissions (GHGs) savings. The Study “LNG as a marine fuel in the EU- Marketing, bunkering, infrastructure investments and the risks in the context of GHG reductions”  has said that the $250 million EU investment  from programmes  such as the Connecting Europe Facility has produced a total investment of $500 million but  has “no significant climate benefits.”  Indeed the study argues that the emission reductions will range only from six to ten per cent.    This is way below the targets agreed by the International Maritime Organisation (IMO) of fifty per cent cuts to 2008 emissions by 2050.

In terms of the IMO and Paris Agreement temperature goals, the Study concludes that these are “only possible with a switch to non-fossil fuel sources (hydrogen, ammonia, battery electrification, biofuel ) from 2030 and rapid growth from that date.

The Study also questions the “short-term  improvements to air pollution by replacing heavy fuel consumption with LNG” arguing that this investment “locks in fossil fuel infrastructure for decades to come.”

The Report acknowledges the uncertainties of LNG demand and establishes four scenarios based on techno-economic modelling and cash flow analysis.  These were:

1. Business As Usual – This assumes that there are no changes in environmental legislation and provides a baseline for the Study.  It notes that this is not in line with the IMO’s Initial GHG Reduction Strategy of at least 50% reduction by 2050 compared with 2007.

2. High Gas – This assumes that market penetration from biofuels is low and a low LNG price would be maintained. In the early years the LNG demand would be low enough not to lead to a price rise.  In the later years, the price would remain low as other sectors decarbonised thus reducing the overall demand  for gas.  The Study also assumes that hydrogen is not available in this situation but concludes that total GHG emissions continue to grow.  Offsetting carbon emissions is important in this scenario.

3. Transition –  There would be ‘regulatory modification’ post 2030 to move away from LNG and there is less offsetting than in Scenarios 2 and 4.  Biofuels penetration in shipping is low and there would be less investment in LNG due to decreased investment in fossil fuel extraction and LNG carrier shipping.   There is a higher price for LNG but still allows for a relatively high initial take up of LNG as a marine fuel.  Hydrogen is available but synthetic renewable fuels become the  fuel of choice. Decarbonisation is achieved mostly through the reduction of emissions in-sector and partly through an unspecified linkage to other sectors.

4. Limited Gas – Biofuel adoption is mid-range. Hydrogen is available and as the price of off-setting is particularly high in this scenario, it becomes the  fuel of choice for compliance due to the high cost of carbon.  It, thus, outperforms LNG and decarbonisation is achieved mostly in-sector and partly through offsetting in other sectors.

LNG as marine fuel is promoted in the European Commission’s Alternative Fuels Infrastructure Directive of  2014 and it recommends that all TEN-T Ports have LNG available by 2025.   Speaking to European Commission officials, they argue that hydrogen was not an option in 2014, but it has made great strides in recent years.  Hydrogen is being fitted into a number of vessels with the first large ferry proposed for 2021.  There is also potential for the use of hydrogen in the port itself.

European Policy Solutions is organising a hydrogen Ports Conference in November 2018 and further details will be announced shortly.