London (Platts)--15Aug2011/114 pm EDT/1714 GMT

The UK's shipping industry is considering the potential of using LNG to fuel ships as a way of cutting emissions, the British Chamber of Shipping said Monday.

However, while LNG could offer emissions savings, any large-scale switch is still some time off, Adrian Lester, marine environment and offshore spokesman, told Platts.

Lester said that it was "certainly something our members are interested in," and he noted that Norway was working hard to grow LNG as a ship fuel. But he said that currently shipowners had questions about switching from traditional oil bunker fuels to gas.

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He said people were used to oil markets, but were not so certain about the gas market, and would need some "certainty" about future gas prices to invest in a gas-fueled ship that could last 30-40 years.

Potential purchasers of a gas-fueled ship might also have concerns about their ability to sell a ship on to a new buyer after 10-20 years. Anyone selling an LNG-powered ship would only be able to sell it on to an owner in an area with LNG infrastructure in place.

But Lester said that LNG could have potential as a ship fuel, especially for applications where the route was predictable and there was certainty that fueling opportunities would be in place. For example, ferry services that are going to operate long-term in northwest Europe might switch to LNG more easily than ships planned to operate across the world.

The UK now has three LNG terminals, while there is one in Belgium and the new Gate LNG terminal at Rotterdam is currently commissioning. Although designed mainly to supply gas to onshore gas networks, such terminals may also offer bunker possibilities for shipping.

Lester said that "the primary attraction [of LNG] to start with is going to be the sulfur benefit," although the carbon savings benefit of gas compared with oil was also a potential gain.

Norway has LNG-fueled ferries and coastal patrol vessels.

At the European Gas Conference in Oslo in June Henrik Madsen, CEO of shipping classification group Det Norske Veritas, identified international shipping as a growth market for gas, through using LNG as a bunker fuel for ferries, cargo ships and tankers.

Madsen said the 90,000 vessels now in the world fleet used around 370 million mt/year of petroleum fuels, which represented a potential market for LNG of up to 315 million mt, double the amount of energy traded as LNG today.

SHIPPING CONSIDERS EMISSIONS SCHEMES

The carbon saving aspect of using LNG as a shipping fuel may become increasingly attractive as the shipping industry is forced to pay more attention to its carbon emissions in coming years.

The European Union is currently bringing aviation into the remit of its EU Emissions Trading Scheme from 2012, and has indicated to the shipping industry that if industry does not act to control its own emissions, the EU will also bring European shipping into the EU trading scheme in the future.

The British Chamber of Shipping last week published two papers on possible emissions control mechanisms for the global shipping industry.

One paper covers the potential for the International Maritime Organization to set up a global emissions trading scheme for shipping, and the second covers the potential for an emissions levy -- or fuel tax -- to be set up, with the proceeds paid into a fund for use in emissions reduction.

Under a levy scheme a ship using LNG as a fuel might perhaps pay a lower levy than one using oil.

Lester said that the international industry needed to work on global carbon reduction plans to avoid the implementation of region-specific solutions, such as an EU scheme, that could potentially skew trade.

Lester said that trading schemes and levy approaches both had "positive sides" and "drawbacks." He said that the levy system was initially perceived by many to be "an awful lot simpler" because it would spare shipowners from having to get involved in trading. But analysis showed that "quite quickly" such a levy stopped looking so simple, with complex administration required.

Emissions trading might be simpler scheme to administer, but more complex for the companies taking part.

Lester said that the British Chamber of Shipping was hoping its reports would provide material for the international industry to debate.

He said the chamber would also welcome another organization with relevant expertise providing a paper outlining the possibilities for a third approach, of efficiency trading, which he said had found some favor in the US.

--Alex Froley, alex_froley@platts.com