BHP in Talks with for LNG Bunker Supply Contract

BHP Group is in talks with three companies for the supply of liquefied natural gas (LNG) to fuel five ships it plans to use to transport iron ore between western Australia and China, a senior company executive told Reuters.

A contract is expected to be awarded next month after an initial 8 to 10 firms vied for delivery of the super-chilled fuel to the miner over 2022 to 2027, Rashpal Bhatti, BHP's vice president for maritime and supply chain excellence told Reuters.

BHP earlier this month awarded a tender to charter five LNG-fuelled Newcastlemax bulk carriers to Singapore-based Eastern Pacific Shipping, aiming to cut greenhouse gas emissions on voyages to biggest customer China by more than 30%.

The five vessels will be able to carry about 10 million tonnes per year (tpy) of iron ore, or about 3.6% of BHP's 280 million tpy in exports.

BHP will assess the vessels once they are on the water before deciding whether to expand its LNG-fuelled fleet, Bhatti said.

Currently, less than 400 out more than 80,000 registered ships run on LNG as fuel source, according to Mohd Rafe Mohamed Ramli, head of global LNG bunkering at Petronas Marine.

"Our five vessels will make up 10% of all Asian (LNG) bunkering volumes. That equates to 1.5% of all global LNG bunkering requirements," BHP's Bhatti said.

Miners are under pressure to reduce pollution to meet concerns about the environment, while investors increasingly demand that companies offer a compelling sustainability strategy.

Spot LNG prices have fallen sharply over the past two years due to new supply from Australia and the United States.

"LNG is significantly less expensive than VLSFO (very low sulphur fuel oil)," Bhatti said.

"When it comes to cost, the build of the vessel is more expensive than a conventional vessel ... but the gas supply is the one that really allows us to take a like for like view." 

(Reporting by Jessica Jaganathan; editing by Richard Pullin)