Preparing Tanker Vessels for Conversion to Green Fuels

The report considered reference designs for two types of tanker vessels: LR2 and VLCC. These vessel types are two of the largest in the tanker segment, often travel long routes, and have a high fuel consumption ― therefore, they can provide a good illustration of the economic and environmental impacts of different choices relating to vessel conversion. For each vessel design, we defined five levels of preparation for alternative fuels, ranging from no preparation (Level 0) to a dual-fuel newbuild ready to operate on methanol or ammonia (Level 4).

Alternative fuels are less energy-dense and so require more storage space than fossil fuels for the same distance traveled. Therefore, the interaction between fuel storage capacity, cargo capacity, and vessel range was a key consideration for this study. For this reason, we included options for transitioning the vessel to a reduced, but still commercially relevant, range after conversion.

The storage requirements for alternative fuels for the LR2 design can be met using tanks located on the deck, without affecting the vessel’s range. This leads to a minimal impact on the LR2’s standard parcel size and cargo capacity. However, additional tanks and fuel volume will decrease the vessel’s deadweight tonnage (DWT).

For the VLCC design, maintaining the same range after conversion to methanol or ammonia would require installing fuel tanks in the cargo space, leading to a loss of cargo capacity. We generally consider that a full-range VLCC operating on ammonia would not be commercially viable. However, operating the VLCC with a reduced range after conversion to either methanol or ammonia would allow all fuel tanks to be located on the deck, preserving the cargo space. The reduced range option for the VLCC is based on a trade route from the Persian Gulf to the Far East, which is relevant for this segment.

For the LR2 design, our model indicates that the total add-on cost of newbuilding and conversion to operation on methanol or ammonia, depending on preparation level and range, is:

Considering the different preparation levels in our study, we found that a dual-fuel newbuild vessel makes the most economic sense if operation on the alternative fuel is expected in 5-7.5 years when converting from fuel oil, or 10.5-12 years if converting from LNG. If building a vessel for later conversion, the best preparation level depends on conversion timeline. Choice of preparation level can impact capital expenditure (CapEx) at the newbuilding stage by 1-3% of the cost of a fuel oil newbuild or around 2-4% of the cost of an LNG newbuild.

For the VLCC design, we generally considered that maintaining the vessel’s full range after conversion is not economically viable. If we consider only the options with reduced range after conversion, the estimated total add-on cost of newbuilding and conversion, depending on preparation level, is:

If we continue to assume a reduced range following conversion, a dual-fuel newbuild is the most economical option if operation on alternative fuels is expected within 4-6 years. For conversions, the choice of preparation level again depends on timeline, and it can impact newbuild CapEx by 1-6% of the cost of a fuel oil newbuild or 5-7% of the cost of an LNG newbuild.

Our analysis indicates that conversion of tanker vessels to operation on alternative fuels after five or even ten years of operation on fossil fuels creates a large reduction in lifetime operational greenhouse gas (GHG) emissions. Furthermore, the CO₂ emissions resulting from the conversion itself are minimal — equivalent to around 0.5% of the vessel’s lifetime operational emissions using fossil fuels.

Converting tankers to green fuels can be technically and economically feasible when carefully considered in the context of fleet transition planning and asset age profiles. The industry has the right technology and engineering knowledge in place to achieve such conversions. When it comes to the economic impact, the differences in CapEx vary depending on the desired green fuel and vessel range chosen. In general, the most cost-effective option is tanker conversion from fuel oil to methanol, followed by conversion to ammonia.

It is important to highlight that conversion to alternative fuels impacts a vessel’s operating envelope, due to the energy density of the alternative fuels and their corresponding fuel tank size requirements. To keep the same operational range as on fossil fuels, shipowners must consider either adding tanks on deck (with a resulting impact on DWT) or giving over part of the cargo capacity to fuel tanks. As part of this project, we have focused on options that reduce the vessel’s operating range but preserve its cargo capacity. Based on industry knowledge, we believe that such solutions have commercial applicability.

Lastly, our analysis here shows that even conversions after ten years of operation on fossil fuels can still yield considerable environmental impact. However, one must also consider the financial viability of making such a CapEx investment at this point in the vessel’s lifetime.