In the near- and medium-term, liquefied natural gas (LNG) may a transportation fuel market in the marine sector, where globally water-based transportation of goods continues to grow at a robust pace, according to the latest World LNG Report by the International Gas Union (IGU).

Predicting annual growth in worldwide gas demand of 2.5% during the next 10 years, the IGU report, sponsored by global energy giant Total, acknowledged that there are many constraints on the potential of LNG as a transportation fuel, but if those can be overcome, fueling marine vessels may prove to be the best niche in the immediate years ahead.

“While there are arguments for the growth of LNG in both marine and land-based transport, the bunker [marine] fuel market is likely to offer more displacement potential in the short- and medium-term given the stringent environmental regulations that the industry is now facing and due to its importance in global trade,” the IGU report said.

Despite its penetration in many countries for power generation and industrial uses, LNG’s use in transportation is “marginal,” the report said. “Nevertheless, there are several factors that indicate that the transport fuel application could revolutionize LNG demand.”

The report ticks off various reasons why LNG makes sense in the marine transportation fuel space, including world trade and microeconomic drivers, environmental advantages, price competitiveness, and increasing government support.

Noting that about 90% of global trade is delivered by shipping, the IGU document said that if the 47% growth in global trade experienced from 2001 to 2011 is repeated in the next 10 years, as many predict, and demand for transport and fuel persist, “the marine fuel market will need to expand significantly.” LNG is significantly cleaner and cheaper than diesel and fuel oil, the two main marine fuels now used, the report said.

“Another argument for using LNG as a fuel in transportation is the disparity between oil and gas prices, and the expectation that oil prices may continue to rise, exacerbating the gap.”

Nevertheless, the report also documents some significant constraints facing the shift to LNG as a transportation fuel, calling infrastructure “the most challenging hurdle.” It said “substantial investments” are needed in this area, ranging from LNG storage to refueling stations for both road and marine traffic.

There are also regulatory and supply constraints. Even with the LNG industry’s relatively spotless safety record, expanded use of the fuel likely will mean the need for expanded regulation.

In terms of supply, IGU concluded that through 2015 the LNG global market will be “supply-constrained until a wave of new Asia-Pacific capacity comes online. Although North America and other regions have the potential to deliver significant new volumes to the market, demand is growing globally, especially in Asia.”