LNG Now Cheaper than Very Low Sulphur Fuel Oil

In Sea-Intelligence's latest Sunday Spotlight, the shipping specialists have analyzed developments in prices for liquid natural gas (LNG) as a maritime fuel and found that it is now more cost-effective than very low sulphur fuel oil (VLSFO).

The IMO2020 regulations have necessitated the need to reduce sulphur emissions meaning the choice between VLSFO, scrubbers (devices to control emissions) and LNG is a major decision for shipping lines.

Sea-Intelligence said: "As the market evolved, we first saw a spike in VLSFO prices, suggesting a good case for scrubbers.

"Then the premium dropped rapidly, and scrubbers seemed like less of a good idea.

"With the Russian invasion of Ukraine, LNG prices spiked to extreme levels. Now, LNG prices are getting to a point, where it is cheaper than VLSFO.

"LNG should be compared to VLSFO prices, as LNG is a fuel which, like VLSFO, adheres to the IMO2020 low-sulphur regulation, without the vessel having to install a scrubber."

In the absence of publicly available global LNG prices, Sea-Intelligence stated that they have used Rotterdam prices as a proxy.

The question is, of course, whether Rotterdam prices are representative of the global prices.

By comparing IFO380 prices in Rotterdam to the global average for IFO380, we there is indeed a good match, although the fuel price at Rotterdam is typically lower than the global average.

In the first half of July 2023, this price discount in Rotterdam was on average 34 USD/ton, yet the extreme LNG price spike in 2021-2022 “drowns out” the more recent developments.

To get a better view of those, Figure 1 shows the price difference between LNG and VLSFO in 2023, and even with the -34 USD/ton discount taken into account, it is evident that we are now in a situation where the usage of LNG is financially advantageous compared to VLSFO fuel.

Read more: Egypt Signs Major Ports & Shipping MoU with CMA CGM