Keppel LNG bunkering

Keppel O&M has jointly won a bid with BG Group for providing LNG bunkering service to vessels in the Port of Singapore, starting from early 2017, an essential part of the MPA's (Maritime Port Authority of Singapore) LNG Bunkering Pilot Program (LBPP) which aims to develop Singapore as a key LNG bunkering hub in Asia. Keppel O&M and BG Group will establish a 50-50 JV to deliver an end-to-end bunkering solution with BG's LNG supply and Keppel's expertise in LNG vessel servicing, according to the announcement. Details of the JV and bunkering service will be announced later, but we think that it may bring Keppel new construction orders for LNG-fueled vessels and LNG bunkering tankers, and potentially fee-based service contracts for operating the tankers.

We view LNG bunkering an environmental-friendly, fast-growing solution of supplying fuel for ships for their own use, and DNV GL, an industry consultancy, estimates that modern LNG engines can reduce CO2 by up to 20% vs. those running on heavy fuel oil and marine gas oil, which are currently dominating the global bunkering market. Currently there are only ~70 vessels globally running on LNG fuel, many of which we think were built or modified by South Korean shipyards such as Daewoo and Hyundai and more recently, Chinese yards such as CSSC Group. We think that the MPA's incentives for interested companies (need to be incorporated in Singapore) to build LNG-fueled vessels, capped at $S2mn per vessel for up to two vessel per owner, would suggest incremental newbuild orders to be placed in Singapore's shipyards, in particular for Keppel, in our view.