New independent study confirms LNG delivers strong return on investment for VLCCs on the Arabian Gulf to China trade route

LONDON, December 12 2019: SEA\LNG has today released the results of its third investment study, which underlines liquefied natural gas (LNG) as a compelling investment solution for Very Large Crude Carriers (VLCCs) on the Arabian Gulf to China trade route. 

Conducted by independent simulation and analytics expert Opsiana, the study demonstrates clear benefits of LNG as a marine fuel for a newbuild 300K DWT VLCC on the Arabian Gulf to China trade route, in comparison with other alternatives currently available and scalable to the shipping industry across three fuel pricing scenarios.

The business case compares the relative investment performance of four propulsion alternatives: a conventional VLCC sailing with Very Low Sulphur Fuel Oil; a scrubber-equipped VLCC sailing mostly with Heavy Fuel Oil; and two LNG powered VLCCs, one with a high-pressure 2-stoke engine, the other a low-pressure 2-stroke engine. 

The study clearly indicates that LNG as a marine fuel delivers a strong return on investment on a net present value (NPV) basis over a conservative 10-year horizon. The analysis is bolstered by compelling paybacks from three to five years.

Peter Keller, Chairman, SEA\LNG, commented: “This is the third in a series of investment studies commissioned to support ship owners and operators in decision-making at this crucial time. In addition to the positive results of studies undertaken by Opsiana for the liner and PCTC segments, this study underlines the compelling investment case for VLCCs.” 

The route was chosen because it is the major energy trade corridor from the Middle East to China. Providing greater clarity for those investing in LNG, the study highlights several key findings: compelling returns on an NPV basis, the diminishing CAPEX hurdle for LNG engines, LNG delivers competitive energy costs, has higher environmental performance, and is the most financially effective long-term method for complying with the IMO 2020 sulphur cap. 

Importantly, the higher investment return was achieved without including the significant additional benefits and branding value gained by choosing LNG as a more environmentally friendly marine fuel. When corporate sustainability and environmental goals are included, choosing LNG as a marine fuel brings additional benefits.  

To ensure the best possible data was available to Opsiana, SEA\LNG members contributed maritime expertise and current, timely background information and data from across the LNG value chain to ensure a high level of creditability in the study and results. 

While the results of this study are based on a set of fuel forecast assumptions, through the “Reader’s Choice” modelling, provision has also been made for each reader to apply their personal crystal ball on future prices. Impacts of other CAPEX values whose premiums may change as a result of differences across three principal categories - market, technology, physical – can also be incorporated. 

Keller concluded: “As convincing, qualified evidence supporting the environmental, operational and commercial benefits of LNG continues to emerge, acceptance of its credibility is becoming increasingly widespread and concrete. LNG is the only safe, mature, commercially viable marine fuel that offers superior local emissions performance, significant greenhouse gas reduction benefits today, and a pragmatic pathway to a zero-emissions shipping industry.”