The potential of liquefied natural gas as marine fuel has the industry light-headed with anticipation, with experts only too ready to predict the percentage of vessels that could be LNG powered in 10, 20 or 30 years’ time.
In fact progress to date has been rather more measured, with some early adoption in the ferry market thanks to financial incentives and interest from owners trying to judge whether a leap to cleaner fuel is a better bet than installing scrubbers for operations in ECA zones.
But in the US – where an ECA the length of the US and Canadian coastlines is in force – and cabotage rules in place – progress is rapidly increasing towards an LNG-powered fleet. The advantage of bountiful supplies of shale gas in keeping prices low is clearly a key factor but owners know they have little choice but to comply, a combination that makes for a powerful argument.
But as a white paper by FC Gas Intelligence* makes clear, these owners are moving to LNG at a time when regulations around use of gas as fuel are still evolving – as is the infrastructure to support bunkering for LNG-powered ships. The technology challenge, while complex, is not insurmountable. But what operators, regulators and stakeholders agree on is that maintaining the gas sector’s safety record is of paramount importance if LNG is to take hold as the next generation marine fuel. Further progress in the short term is likely to focus on niche markets rather than deepsea trades, favouring ECA operations, Jones Act trades and US/Canadian Great Lakes.
Bill Sember, vice president of global gas development at ABS, calls 2014 a ‘very dynamic and exciting time’ for the marine LNG market. “All of a sudden this is a hot topic. Five years ago, it would have been: are you kidding me? Ten years ago we were trying to import shale gas. Today we have about 25 or more US companies looking to export it [and] two very forward-looking companies, Harvey Gulf and Tote, taking the initiative on marine LNG.”
Harvey Gulf followed up its landmark order for six LNG-powered OSVs with plans for a marine bunkering facility at Port Fourchon, Louisiana with two sites each having 270,000 gallons of LNG storage. Liner operator Tote is building two dual-fuel container ships for the Puerto Rico trade, with options for three more and is converting a further two. Both companies will class the ships with ABS.
Chad Verret, executive vice president, Alaska & LNG Operations, Harvey Gulf International Marine says the major challenges it has faced during the building and development process was a lack of defined regulations which extended the design and approval process. He says both class society and the US Coast Guard were somewhat cautious on the initial aspects of LNG vessel design but Harvey Gulf is convinced in the benefit – lower vessel OpEx of as much as $2.4 million per ship per year, which more than offsets the 19% newbuilding price premium.
Harvey Gulf has solved the bunkering infrastructure problem for itself but elsewhere at US ports, attention is growing to the potential for fuelling gas-powered ships. Ports in Texas and California are analysing how they can build the procedures to support LNG infrastructure. That will require a forum that includes the port and industry groups in building standards and guidelines – the ports are aware of resistance from local communities who believe that LNG is a dangerous fuel – especially where they are located so close to centres of population.
When it comes to safety, industry sources consulted by FC Gas Intelligence were unanimous: all marine LNG stakeholders must emulate the excellent record of LNG carriers over the last 50 years: one disaster could be catastrophic for the entire business.
“Infrastructure and cost are vital but if parties don’t take the [safety] risk into very serious consideration, the first major blow will probably stop LNG as a marine fuel,” says Johan Gahnström of Sweden’s SSPA.
Keith Stewart, managing director of Herose, which manufactures cryogenic valves to the LNG industry, agrees. “I just hope that everybody takes the risk very, very seriously. There are ways to mitigate these risks but if someone doesn’t act correctly there can be danger. So it has to be the top priority.” He cites an explosion aboard a cryogenic vessel in the mid-1990s, which resulted in one death.
“It cost something like $250m to correct that incident and make the industry safe in a changing environment. Today that company doesn’t exist as they were. That’s much the same as I see it now. There is a potential issue. If someone has an incident – it could be a cryogenic vessel, trailer bunkering, or something else – if that actually happens, it would have a big effect on the LNG business as we know it today.”
He questions which regulatory bodies will set the standards for LNG’s various new or developing applications, and at liquefaction plants. The Compressed Gas Association in the US is now forming an LNG group, so steps are being taken by individual groups but greater co-operation is needed. “Who regulates the bunkering stations? Who’s going to regulate emergency valve closing? Again, there is a standard within the ship-to-ship side but not from bunker into ship,” he adds.
The importance of safety seems to suggest that application of rules from a single regulatory body is the logical development. For shipping that would be the International Maritime Organization but port and local jurisdiction requirements are still emerging and may vary by state or facility.
No-one disagrees that the future of LNG as a marine fuel in the US looks highly promising in terms of environmental compliance and potentially lucrative in terms of operational payback. The fact that LNG has decades of proven performance in LNG carriers as well as favourable economics and decisive environmental advantages creates a compelling case.
But there is a long way to go before some key issues are resolved. US ports must commit to providing the infrastructure needed to encourage further orders and work alongside the owners to ensure that safety standards are rigorous enough. Owners too need a regulatory framework that gives them the confidence two move towards a cleaner-fuelled future in greater numbers.
Author: Neville Smith, a Director of Mariner Communications Source: BIMCO