LNG: Oil shock boosts fuel-switch economics – ING

ING economists Gerben Hieminga and Rico Luman argue that the Middle East conflict and closure of the Strait of Hormuz have sharply lifted oil-based bunker costs, improving LNG’s relative appeal. Their modelling shows LNG price increases lag Marine Gas Oil, making LNG the most attractive near-term hedge and a commercially compelling transitional decarbonisation fuel for shipping.

Oil shock favours LNG in shipping

"Our analysis translates the current geopolitical risk into a simple message for shipowners and cargo owners: when oil products spike and gas rises less, the relative economics of LNG and (to a lesser degree) methanol and even ammonia improve quickly, even if the absolute cost of all energy carriers rises."

"The key mechanism is that the high case hits oil products harder than gas and power inputs. LNG becomes the most attractive “available now” hedge. In other words, the Hormuz-driven oil shock makes LNG not only a transitional decarbonisation option, but also commercially the most attractive option."

"LNG still looks like the stronger near-term route for ship owners, based on our numbers, because it combines lower emissions with lower costs compared to oil products. So, the Middle East oil supply crunch could accelerate a shift away from conventional fuels without necessarily accelerating a shift to synthetic fuels, like ammonia and methanol. It rewards the “closest substitute” that is available at scale, which is LNG."

"In the current environment, shipping owners face significant uncertainty, as geopolitical tensions around the Strait of Hormuz continue to drive volatility in bunker fuel prices, like marine gasoil (MGO). Elevated MGO prices are narrowing the cost gap with synthetic fuels such as methanol and ammonia, at least in Europe. However, LNG stands out as the most cost-effective option, solidifying its position as the preferred fuel choice."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)