LNG-powered ship launches boost emerging US market

The shift to liquefied natural gas (LNG) to power marine vessels in North America is set to pick up in the medium to long term after early movers refine the setting up of new LNG infrastructure, according to Bob Kamb, managing partner at US-based marine consultancy Mystic River Partners LLC.

TOTE's Isla Bella vessel is the world's first LNG-powered container ship. Image credit: TOTE, Inc.

LNG has yet to kick off as a marine transport fuel in US waters due to the underdeveloped logistics chain and the high capital costs of port infrastructure and vessels.

However, TOTE Inc, Harvey Gulf International Marine, LLC and Crowley Holdings, Inc all announced major projects for large-engined, LNG-fuelled ships earlier in 2015, and the US can learn from the faster growth in Europe, which is driven by similar underlying regulatory pressure.

"Companies like Harvey Gulf, TOTE and Crowley have bitten the bullet and actually built, and are now or will soon be successfully operating LNG-fuelled vessels. As operational experience accrues, more ship owners will be tempted to join in," Kamb said.

The main driver behind the activity in Europe and US is new regulation on sulphur emissions enforced from 2015 in designated Emission Control Areas (ECA) in Europe, North America and the US Caribbean Sea.

The International Maritime Organization set standards to lower sulphur content maximums in these areas from 1% to 0.1% from January 2015.

The marine LNG market includes fuel for cargo vessels, tugboats, ferries and cruise ships.

The development of LNG infrastructure for marine vessels is expected to pick up in the US region in the next 5-10 years, according to a December 2014 report by DNV GL, on the back of cheaper natural gas, better transporting infrastructure and more stringent ECA regulations, which require ships operating within 200 miles of the US coast to reduce sulphur oxide and nitrogen oxide emissions.

LNG will likely initially grow in relatively small ships operating in areas with developed gas bunkering infrastructure, where LNG prices are competitive with heavy fuel oil (HFO) prices, before expanding into larger ocean-going vessels as more bunkering facilities are built.

There are about 50 LNG-fuelled ships (excluding LNG carriers) operating worldwide – 44 in Norway, three in Asia & Pacific, two in Europe and one in America -- while another 69 new vessels are confirmed (as of September 2014) – 26 in Europe, 20 in America, 19 in Norway and four in Asia & Pacific, according to DNV GL.

In Europe, the North Sea area alongside Scandinavia was the first area of growth, and this has since been followed by projects on the coast of mainland Europe.

Cooperation between ports, LNG terminal operators, governments and regulators produced new regulation to accommodate LNG bunkering, and this has been followed up with infrastructure investments by terminal operators.

Ports and waterway authorities have co-operated to produce harmonized rules for inland shipping so that operators can use the inland ports on some of Europe’s major rivers as the main distribution points for LNG.

TOTE launches first gas-powered cargo ship
New Jersey-based TOTE launched April 18 the first of its two LNG-powered Marlin Class container vessels to operate from Jacksonville, Florida to San Juan, Puerto Rico.

The two vessels are the world’s first container ships with dual fuel LNG technology, according to TOTE Executive Vice President Peter Keller.

The first vessel is expected to start commercial operations in Q4 2015. The second ship will be launched in Q3 2015 and will enter into service in Q1 2016.

TOTE, which has operations in maritime, ship-holdings and logistics, is to invest more than $350 million to build the two ships.

The company is also converting its two 839-foot, MAN-powered Orca-class Ro/Ro vessels to mostly LNG operation. The ships – which operate on the Tacoma, Washington to Anchorage, Alaska trade route – are to be fully converted in 2016 and 2017, according to Keller.

In March, New Orleans-based Harvey Gulf became the first US operator to bunker LNG, when it put in service its first LNG-powered Offshore Supply Vessel (OSV) to transport supplies to Royal Dutch Shell’s deep-water operations in the Gulf of Mexico.

The vessel is the first of its kind in the region to run on both LNG and diesel, according to a statement from Royal Dutch Shell.

Earlier this year, Jacksonville-based Crowley Holdings, a holding company of Crowley Maritime Corporation, started building the first of two LNG-powered combination container ships, which will exclusively serve the company’s US-Puerto Rico trade lane.

Expanding bunkering facilities in North America
The development of LNG bunkering facilities and other logistics infrastructure is the first step to adopting LNG as maritime fuel.

"It’s a case of the chicken and egg. Companies ready to invest in LNG fleets or natural gas trucks say they need more infrastructure like a network of filling stations in order to run their fleets. One side is waiting for the other to develop," said Abhishek Despande, London-based oil and gas analyst at French corporate and investment bank Natixis.

In 2014, 59% of port participants in Lloyd’s Register LNG Bunkering Infrastructure Survey indicated they had specific plans for LNG bunkering. Four of those ports (18%) were in North America: Vancouver, Los Angeles, Long Beach and New York, according to the survey.

There are other proposed bunkering facilities in Tacoma, Seattle, Duluth, Sarnia, Tadoussac, the Mississippi River and Jacksonville.

Meanwhile, Harvey Gulf is building the first LNG marine fuelling facility in the US, to be located at its vessel facility in Port Fourchon, Louisiana. The station, which will serve both the oil and gas industry and over-the-road LNG vehicles, will consist of two 270,000-gallon LNG storage sites capable of transferring 500 gallons of LNG per minute.

"The Gulf Coast is home to the largest confluence of natural gas piping and supply sources, making for much cheaper pricing and easy transport to coastal locations,” Kamb said. “Currently, the liquefaction sources in the Gulf of Mexico region are not as close to the end consumer as would be hoped, but that infrastructure is developing."

TOTE plans to strategically locate LNG fuelling stations to support its natural gas-powered fleet. To that end, Pivotal LNG Inc, a unit of AGL Resources, and WesPac Midstream LLC have formed a joint venture – JAX LNG – which will supply TOTE with LNG to fuel the two new Marlin Class container ships, according to a statement from TOTE.

Pivotal and WesPac are building a new natural gas liquefaction (NGL) facility at Dames Point in Jacksonville, Florida, close to the Sea Star Terminal from which the vessels will operate.

To support its new duel fuel container vessels, TOTE is working with partners to build the first LNG bunker barge in the US, Keller said.

The Jacksonville LNG facility is expected to be operational in mid- to late 2016. The unit will also have additional NGL and LNG storage capacity to supply other customers in Jacksonville and regional markets.

On the US West coast, initial LNG supply for TOTE’s trailer ships operating out of Tacoma will come from Canada by barge, which is currently under construction in Texas, Kamb said.