As a response to stricter exhaust emission regulations, an increasing number of diesel-powered ships are switching to liquefied natural gas (LNG) fuel or installing post-processing devices to reduce exhaust gas. However, these methods are not feasible for small ships operating primarily along the coast. This is because the cost of the exhaust gas post-processing devices is high, while a large-volume fuel system is required in the case of LNG. Thus, this study used a propane gas fuel system based on a 5.0 L gasoline engine for easy application to existing small ships without major modifications. To optimize the control according to changes in the fuel system, a 1D simulation was performed on the engine to be developed, and ignition timing optimization was investigated. In addition, fuel consumption was compared with that of a gasoline-based engine. The propane engine achieved over 95% power in comparison to a gasoline-based engine. During cold-start tests, starting performance at −15 °C was ensured. The purpose of this study is to provide guidelines to assist the development of LPG or propane engines based on gasoline engines through these processes.