Maritime transportation is moving toward LNG, Brookings speakers say

Maritime industries’ use of LNG instead of diesel to fuel its vessels is changing from potential to reality, speakers agreed at a Mar. 3 discussion at the Brookings Foundation. New ship, barge, and boat orders increasingly specify dual-fuel capability, and LNG’s favorable economics are holding up surprisingly well despite the recent crude-oil price plunge, they said.

Their observations came just days before Shell reported delivery from Harvey Gulf International Marine of the first such bifueled offshore supply vessel to operate in the Gulf of Mexico. Two similar vessels will follow for work associated with Shell’s deepwater operations there, the company said.

Maritime industries also are looking more closely at LNG as more stringent emissions control requirements loom, speakers noted at the Brookings event.

“The marine sector needs to, will be, and is engaged in becoming less polluting,” said James J. Corbett, a professor at the University of Delaware’s College of Earth, Ocean, and Environment. “You’re going to see impressive year-to-year gains in it because it got started much later than other forms of transportation.”

Before 2010, when the International Maritime Organization initiated a series of steps, maritime industry emissions basically were the most lightly regulated, according to John Graykowski, who became deputy and, subsequently, acting maritime administrator at the US Department of Transportation in 1994. Operators could buy lower-sulfur diesel, install scrubbers, or consider LNG as emissions control requirements have been enacted, he said.

‘A fortuitous confluence’

Many carriers still await the necessary infrastructure, although “a fortuitous confluence” of better prices and fewer environmental impacts favors LNG, Graykowski said. Major maritime markets are US targets, but there’s no strategy to address issues such as reconciling fuel purchase agreement differences (maritime operators buy diesel on spot markets, while LNG is supplied under contracts), he said.

Meanwhile, Europe has spent $150 million so far to develop LNG infrastructure, and all 26 European Union members, along with Singapore, have committed to having LNG bunkering capacity by 2020, Graykowski said. A week earlier, Canada introduced an accelerated depreciation program for LNG bunkering, he said.

“In my view, LNG maritime projects’ time is here—but with no template to align disparate elements that which haven’t worked together before,” Graykowski said. “It’s all market-driven. There also is no single US LNG maritime regulatory structure. It’s divided between the US Coast Guard and the Pipeline and Hazardous Materials and Safety Administration.”

Significant LNG maritime market changes are occurring within the broader context of the US oil and gas renaissance created by development of US tight shale resources that is changing the country to a net exporter from a net importer, said Capt. John Mauger, chief of the Design and Engineering Standards Office at USCG Headquarters.

“Our overriding goal is to provide a safe and efficient maritime system,” he said. “We already have standards for fuel system design, marine training, and vessel operation and maintenance. But we need to consider standards for vessels carrying LNG in bulk, especially response capabilities; diversify risk to reflect entry of more participants as markets open; and even objections by a vocal segment to using fossil fuels at all, although this probably wouldn’t change our standards.”

Corbett said, “We’re at the edge of a great achievement similar to 1914.” Coal replaced wind as the prevalent maritime fuel in the late 19th century, but diesel was poised to make inroads, especially once its price came down as World War II approached because it did not create soot, he said. “Now, we’re at another 100-year milestone.”

Key questions

One key question is whether other forms of transportation also will embrace LNG, which could affect its price, Corbett said. Others are where and when the necessary refueling terminals will be built, and the extent to which greenhouse gas and other emissions can best be controlled in different situations, he added. “LNG transportation growth in North America has outpaced other parts of the world,” he said. “What we need is more coherent leadership.”

US shipbuilding has been affected already, although it’s hard to quantify, Graykowski said. “Several new passenger and offshore supply vessels are being built already with dual-fuel capabilities,” he said. “But with the right policies, some 20,000 inland tugboats could be conversion candidates.”

John Hatley, vice-president for ship power at Wartsila North America, which has 12 million hp of vessel capacity running on LNG, said, “The early adopters are going forward.” More than $1.6 billion has been so far on LNG infrastructure, and operators are considering ordering Jones Act tankers that run on LNG for their US operations, Hatley told the audience.

Natural Gas Supply Association Pres. Dena E. Wiggins noted that while there’s a lot of gas in the ground in the US, production has increased dramatically, and pipelines are being built, the maritime LNG market could be an important new US gas opportunity.

“Methane emissions have been going down as US gas production has gone up, which is a good news story,” she said. But White House Council on Environmental Quality proposals issued on Dec. 18 requiring federal agencies considering National Environmental Policy Act policies to consider both upstream and downstream impacts could seriously affect US LNG infrastructure development, Wiggins warned.

Ben Semmes, a Senior Financial Analyst at Cheniere Energy Inc. in Houston, said while LNG bunkering differs significantly from export operations, its Louisiana export facility, due to come online at yearend, hypothetically could supply 800 bcf/year to the US bunkering market. “The challenge is to make ship operators and owners make that same bet,” Semmes said, adding that Cheniere has targeted those along the Houston Ship Channel for its first LNG customers.

Contact Nick Snow at [email protected].