LNG for Marine Transportation – The USA

With proven performance seen in cutting-edge ship designs, favourable economics and decisive environmental advantages, there is a compelling case for the US maritime industry to commit to LNG.

The increasing role of key players from vessel builders to energy giants, component manufacturers and government bodies including the Coast Guard – plus environmental and cost imperatives – should all ensure the industry keeps building on the momentum it currently has.

However, challenges remain in the form of infrastructure, supply, regulation and risk management, meaning that at least in the short term, progress is likely to focus on niche markets within environmental control areas (ECAs).

As Nick Brown of Lloyds Register says: “We’re still talking about a fairly low level of investment to date, but it seems to us it could be North America where things start to accelerate fairly rapidly.”

Bill Sember, vice president of global gas development at the American Bureau of Shipping (ABS), calls it a “very dynamic and exciting time” for the marine LNG market. The recent abundance of shale gas within the US, and initiatives from several major companies, have galvanised the fledgling sector.

A number of key players are indeed starting to think – and act – seriously in terms of LNG development. Harvey Gulf International Marine is the biggest LNG player in the US, with six offshore supply vessels on order, and an LNG marine fuelling facility under construction at Port Fourchon, Louisiana.

Meanwhile, Interlake Steamship Co., a bulk carrier on the Great Lakes, has committed to converting its vessels to LNG and has signed a deal with Shell to be its exclusive supplier.

Tote is also building two dual-fuel container ships for the Puerto Rico trade, with options for three more vessels for additional domestic service. Likely to be biggest ships of any kind primarily powered by LNG, they will also be able to run on low sulphur diesel. Washington State Ferries also plans to convert vessels to LNG, while Staten Island ferries in New York are also due for conversion to LNG in 2014.

Infrastructure

Despite this activity, a barrier to development is the need for extra LNG production infrastructure. According to a report by the American Clean Skies Foundation (ACSF), this “could double the price of delivered LNG relative to commodity price of the natural gas being liquefied, thus eroding annual fuel cost savings after vessel conversion.”

MJ Bradley & Associates estimates a plant needs to produce at least 100,000 gallons of LNG a day with average utilisation of at least 80%. In the marine market, that would equate to about seven Great Lakes bulk carriers, 24 ferries or 38 tugs in order to be viable.

“It will be critical for the market how plants are going to be sized for those initial projects,” said Peter Tumminello, executive vice president of natural gas distributor AGL Resources. “Extra capacity might have to be built in to anticipate rising demand from other LNG sectors, such as road transportation.”

Conversion

And beyond infrastructure, there remains of course the cost of new-build vessels or converting those that run on conventional fuel. New-build LNG vessels are estimated to cost between 25% and 30% more than conventional HFO-powered vessels, while retrofitting makes sense only in certain circumstances.

“Retrofitting is worthwhile when it’s a fairly new vessel and its life can be expected to be quite long. It all depends what engine manufacturers have and how old the vessel is,” says Johan Gahnström, senior project & business development manager at SSPA Sweden AB.

Bill Sember of ABS, meanwhile, says using distillate fuels, i.e. with lower sulphur content, is the best option for vessels with no more than five years remaining. These will cost more than HFO but demand no capital investment.

For vessels with between five and 10 years left, scrubbers are probably preferable, meaning lower cost fuel but the extra cost of the device and disposal. “Over about 10 years, you would go with LNG - you pay the conversion cost but get payback over that time,” said Sember.

Safety

There is always the importance of safety to consider. The goal of the industry is to match the excellent safety record of bulk LNG transportation over the last 50 years, and to this end, the Society for Gas as a Marine Fuel (SGMF) was founded in May 2013 as a major step towards the enhancement of safety and best practices.

However, the exponential progress that some are sensing in the next few years is unlikely to be simple.

“It’s going to be more complicated than many might think for the wider industry to be gas ready – it’s hard enough to get trained gas engineers for LNG carriers. Imagine the amount of training needed for global bunkering and ship operations. It’s not going to happen overnight,” Andrew Clifton, general manager of SIGTTO (the Society of Gas Tanker and Gas Terminal Operators) told the Lloyds Register report.

One single disaster, however, has the potential to be catastrophic for the industry.

“Infrastructure and cost are vital but if parties won’t take the [safety] risk into very serious consideration, the first major blow will probably stop LNG as a marine fuel,” says Gahnström. “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.”

In summary, the future of LNG as a marine fuel in the United States looks highly promising and potentially lucrative. But it remains clear that there is a long way to go before certain key issues are resolved. Despite the obvious benefits to using LNG as a marine fuel as new regulations come into force, and as the infrastructure needed develops, the prospect of a deep-sea global LNG powered trade remains some way off.