The LNG-powered vessel market is expected to experience a stable growth phase over the next 1-2 years, with an anticipated breakthrough in the following 3-5 years. Compared to LNG-powered vehicles, the ship market has a larger scale and greater potential. Industry insiders are actively preparing to seize this opportunity. A senior manager from an investment banking firm specializing in clean energy investments shared this insight.
According to a reporter from China Securities Journal, policy barriers that previously hindered the development of the LNG-powered vessel market are expected to be lifted this year. Specifically, technical standards for LNG-powered vessels will be introduced in the second half of the year. The Ministry of Communications has also included LNG-powered vessels in its energy-saving and emission-reduction subsidy program, with annual subsidies potentially reaching up to 200 million yuan.
Market participants believe that the gradual relaxation of policy restrictions will drive rapid growth in the LNG-powered vessel industry. It is conservatively estimated that the market could reach between 30 billion and 60 billion yuan. If new ships are built, the market potential could reach hundreds of billions of yuan. This expansion will significantly boost the LNG industry. Listed companies involved in shipbuilding, engine manufacturing, refueling stations, and storage and transportation equipment are expected to benefit greatly from this opportunity.
**Policy Doors Are Opening**
A survey conducted by industry experts revealed that 70% of shipowners would opt for LNG engines if government subsidies were available, while only 16% preferred to continue using diesel engines regardless of subsidies. Gao Huijun, deputy chief engineer at the Institute of Water Transport Science under the Ministry of Transport, emphasized the importance of subsidies in driving the transition to LNG power.
As of June 2013, there were 40 LNG-powered ships and nearly 40 LNG-diesel hybrid ships in operation globally, with another 35 under construction. The Norwegian Classification Society predicts that the number of LNG-powered ships will rise to 63 in 2014 and reach 1,000 by 2020.
China's LNG-powered vessel market started later and is mainly based on retrofitting existing ships. According to the Institute of Water Transport Science, there are currently 14 approved LNG-powered vessels in China, mostly using hybrid technology.
In the past, the slow development of LNG-powered vessels was due to insufficient policy attention and lack of technical standards. However, these issues are gradually being addressed. In 2011, the Ministry of Transport issued a five-year plan promoting energy-saving and emission-reduction in water transport, including pilot applications of inland LNG-diesel hybrid ships. By 2012, the Ministry further encouraged the use of LNG in ports and mobile machinery.
Research on technical standards for LNG-powered vessels is ongoing. The Ministry of Communications is working on LNG filling station design specifications, while the National Energy Administration and Maritime Bureau are conducting safety research on LNG-powered ships. Additionally, the Ministry of Industry and Information Technology is focusing on LNG fuel system technologies and risk design for LNG-powered ships.
Subsidies are also playing a key role. In 2012, the Ministry of Finance announced tax reductions for energy-efficient vessels, including exemptions for new energy-powered ships. The Ministry of Transport’s energy-saving fund of 1.5 billion yuan now includes LNG-powered vessels, with potential annual subsidies of 200 million yuan.
The draft of the “Guiding Opinions on Accelerating the Application of LNG Fuel in the Water Operation Industry†is expected to be released this year, along with the long-awaited technical standards for LNG-powered vessels.
**A Ten Billion Market Is Emerging**
Over the past three years, pilot projects for LNG-powered vessels have been implemented in some river basins under the support of the Ministry of Communications. Gao Huijun estimates that around 30,000 domestic river vessels meet the criteria for conversion.
According to Tang Limin, a professor at Dalian Maritime University, the cost of converting ships to LNG power varies depending on size, age, and operating range, with minimum costs ranging from 1 to 2 million yuan. This suggests that the market for LNG-powered vessel conversions could reach 30-60 billion yuan in the coming years.
New LNG-powered vessels will also contribute to market growth. The Institute of Water Transport Sciences estimates that China will build 1.2-1.4 million new inland vessels from 2017 to 2020. If 70% of them use LNG as fuel, about 10,000 new LNG-powered vessels could be added. Coastal vessels are also expected to see increased LNG adoption.
Analysts from UBS Securities note that the longer lifespan of ships and higher refueling volumes mean that once the market opens, the scale will be substantial. With continued policy support, the LNG-powered vessel market is expected to grow rapidly.
**Natural Gas Price Increases Pose Challenges**
While policies and market conditions are favorable, rising natural gas prices and infrastructure gaps remain challenges. For example, if gas prices increase too much, the economic benefits of LNG may diminish, similar to what happened with LNG-powered cars.
Industry experts suggest that China should maintain a balanced oil-gas price ratio to support the natural gas industry. Additionally, the lack of LNG refueling stations remains a major obstacle. Many proposed stations face land-use approval issues, delaying the progress of vessel conversions.
Gao Huijun identified five main challenges for China’s LNG-powered vessel development: lack of safety standards, limited funding for retrofits, a sluggish shipping market, high reforming costs, and incomplete supporting infrastructure.
To promote LNG use, he suggested that China adopt incentives such as tax reductions and subsidies for refueling stations and new ships. He also called for faster standardization and technological development to support the industry’s growth.
Author: Wang Jun
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