World Bank warns policymakers off LNG as a bunker fuel

London, (Quantum Commodity Intelligence) - Policymakers should think twice before adopting policies to promote liquefied natural gas as a bunker fuel, the World Bank said in a report this week, claiming the benefits of cutting emissions are too uncertain.

In a report called "The Role of LNG in the Transition Toward Low- and Zero-Carbon Shipping", the Bank said the life-cycle emissions of using LNG over other fuels were not clear and, regardless, broader use of LNG as a bunker will not allow the IMO to meet its carbon reduction target.

Under the auspices of the International Maritime Organization (IMO), the world's shipping industry has pledged to cut emissions of greenhouse gases 50% under 2008 levels by 2050.

To meet that goal the IMO has adopted an Energy Efficiency Design Index that incentivises ships to improve efficiency and use alternative fuels.

However, because the shipping industry measures only onboard combustion, it does not take into account broader emissions in the life-cycle of the fuel or emissions of other gases such as methane leakage in production.

This, the Bank said, means focussing on LNG as a bunker will not help achieve the IMO's goals to drive down emissions of heat-trapping gases, which will inevitably involve weaning the industry off fossil fuel together.

"In light of… (the) Paris-aligned GHG emissions reduction trajectory, the uncertainties surrounding the GHG benefits of LNG suggest that new public policy support for LNG as a bunker fuel should be avoided," the Bank said.

"This relates, for example, to policy that provides a regulatory advantage to LNG over oil-derived alternatives in shipping. Furthermore, the same reasoning also suggests that existing policy support for LNG as a bunker fuel should be curtailed," it said.

LNG has long been touted as a potential bridging fuel to replace existing bunker fuels, such as residual fuel oil and diesel-based residual fuel oil substitutes, while potentially much cleaner hydrogen- and ammonia-fuelled ships and their supply chains are developed.

Investment has been pouring into the sector with the latest company Japanese shipmaker Tsuneishi announcing on Thursday it has received approval for its "Kamsarmax GF" from accreditation firm Lloyds Register.

But despite this, the World Bank estimates LNG will make up just 10% of shipping fuel, if the IMO target is to be met.

"Consequently, the IMO's climate targets lead to the question whether the shipping industry, as a whole, would be well-advised to further invest in the vessels and supply infrastructure necessary to use LNG at large scale," the Bank said.

"Any major investments in LNG capacity would imply that over the three decades from 2020–2050 the shipping industry would be required to undergo not just one but two major energy transitions: first from oil-derived bunker fuels to LNG, and then from LNG to zero-carbon bunker fuels," it said.