I know. I know. It’s summer. I am not supposed to think about marine fuel prices, but there is something intriguing about this situation where suddenly the marine industry has two alternative fuel options. And the choices made will have a massive impact on the economics of shipping.

To illustrate, let’s look at two different scenarios. Two generally trusted energy analysis firms are the US Energy Information Administration and IHS. Over the summer, we have compared lifecycle economics for a typical ship based on the fuel prices from these two sources. We have made some assumptions to approximate the fuel quality and in both cases we added a mark-up of 6 USD/mmbtu to the prices of LNG to accommodate for distribution and bunkering. The price paths for the relevant fuels then looks like this for the two sources:

Price projections from IHS and EIA

Using these fuel price paths directly in a 20 year cash flow model gives the following net present values. HFO with scrubber is set as the baseline solution, so LNG and MDO are presented relative to HFO.

Net Present Value calculations for a typical ship in a 20 year lifecycle based on two fuel price sources

It is indicated again, like in several studies before, that MDO can be expected to be the most expensive alternative in a lifecycle perspective, while LNG offers a potentially superior alternative. Still, the most important thing to focus on is the uncertainty:

• Oil prices will develop differently than EIA and IHS forecast
• HFO and MDO will have a different relationship to crude oil than forecast
• LNG prices in the different regions will develop differently than EIA and IHS forecast
• The mark-up for LNG distribution and bunkering may be something else than 6 USD/mmbtu.

In total, the choice of marine fuel for a newbuild ship is among the most uncertain situations we have ever reviewed. Best of luck to those in the process of making this decision.