Beyond the Iron

Beyond the Iron - LNG as a Marine Fuel

Beyond the Iron

LNG

 

 

This week at Beyond the Iron, we look at a white paper posted last year by Gusto MSC. It is the work of Douwe de Jong, Gusto project manager Research and Development, who looks into feasible uses of liquefied natural gas as a marine fuel.

De Jong thinks there is a lot of room for LNG off shore, especially in mobile offshore units – that is, in construction vessels, drillships, jack-ups, and semi-submersibles. These units often operate in Emission Control Areas (ECAs), where there are limits to Sulphur Oxide, Nitrous Oxide, and Particulate Matter emissions.

Three broad approaches to emissions compliance are available: the use of an exhaust gas abatement technology (scrubber, or selective catalytic reduction); a targeting of the engine through exhaust gas recirculation; or the use of an alternative fuel, whether LNG, methanol, or ultra-low Sulphur MGO. De Jong maintains that LNG meets a greater range of compliance demands than do any of the other approaches. It “covers all the individual emissions limits” and so “could be a very suitable solution for new builds.”

Geographically, de Jong identifies two zones with the highest potential for the successful use of LNG: the North Sea, along with the English Channel and adjoining waters near northwestern Europe, on the one hand; the Gulf of Mexico on the other. These two zones represent the intersection of three sets in a Venn diagram: they are ECAs, they each have a local LNG supply, and in each area operational factors are favorable.

 

Infrastructure and Flexibility

Historically, one of the main issues with reliance on LNG fueled vessels has been the relative spottiness of the infrastructure.

But ship-to-ship bunkering services may help expand the spots, as demand brings forth a supply of bunker vessels.

The Gusto report tells us that there are “several LNG suppliers planning to start operating bunker vessels based in Rotterdam (ML) and Zeebrugge (B)” which is of course in the heart of one of the two zones mentioned above. These vessels provide “valuable information to test the LNG business case on the logistical possibilities and typical limitations.” The bunker vessels can supply shippers in a 500 nautical mile transport radius from base. From Belgium or the Netherlands traveling 500 NM gets one passed the British Isles or allows for a rendezvous along a substantial chunk of the coast of Norway, all along the coast of Denmark, etc.

There’s also an issue of fuel flexibility to consider. LNG is less dense than other marine fuels, so it requires space of two times or more that necessary for marine diesel oil or marine gasoil (MDO or MGO). The tasks of mobile offshore units (MOUs) include an occasional need for long transits from project to project. “Achieving this required flexibility on NG would result in very large tanks, which has a detrimental effect on design due to the associated increase in main dimensions” and the capital expenditure involved.

De Jong suggests that MOU owners might address this problem by introducing LNG capacity as part of a dual fuel design. The “LNG capacity can be dimensioned on operations in ECAs and average operation cycles” rather than those occasional long hauls as called for in a design maximum.

Safety Issues

Another historical issue with LNG fueled vessels: safety. Due to a patchwork of “prescriptive and goal-based regulations” designed to “limit the probability of tank rupture after collision and post-failure consequences with respect to crew safety,” what is called the Type C tank has become dominant. These tanks, with a prefab cryogenic design come in a range of sizes up to 500 cubic meters and “have relatively low impact on the surrounding structure and can be built elsewhere for later integration into the unit’s build process,” De Jong says. But new alternative designs can be expected to proliferate as the use of LNG for offshore purposes expands.

 

Gigajoules and Prices

The markets for oil, natural gas, and other marine fuels “have had a tumultuous decade” since the financial crisis of 2008. The low prices of oil for much of the period have made for a significant rise in global liquefaction capacity, which in turn has made it “very hard to predict the price climate for marine LNG using past trends.”

More recently, in the period from the end of 2010 until middle of 2014 the cost of both Brent crude and MGO Rotterdam plateaued at about $24 per gigajoule. [A joule is the amount of energy required to send an electrical current of one ampere through a resistance of one ohm for one second. A gigajoule is 1 billion of those, and works out to 277.8 kilowatt hours.] In mid 2014 the prices of both Brent and MGO Rotterdam fell off this plateau into a rather steep drop, hitting $12 GJ in early 2015, and falling into a historic basement of $6 a year later. Price has rebounded a bit since then, back to above $10 GJs.

The price of LNG measured as TTF plus small-scale costs has been much less volatile during this period than the price of crude. LNG was selling at approx. $12 GJ through 2011 – 2013, then fell to $10 GJ in early 2014. In mid 2015 it slipped further, to $8, and in that neighborhood it has remained.

As a consequence of the volatility of the oils and volatility’s absence from the market for LNG, the price delta between the two dropped precipitously beginning in 2014, and went negative (though briefly) in 2015. Delta now resides near $2.

 

Design and Offshore Wind

On the hypothesis, de Jong says, that “the current climate becomes a trend,” that the spread between LNG and other fuels remains small, then given associated CAPEX what he calls “dynamically positioned designs” have a high potential for successful use.

The optimization of design, business cases, and supply chains will all prove crucial in a move to greater LNG use, and these considerations require careful alignment with operations, “making an independent designer uniquely positioned to support early stage LNG concept development.”

It is very possible that the use of LNG may grow as the number of offshore wind power projects grow. An LNG fueled vessel could be “sized to single voyage autonomy, with a single roundtrip consisting of the vessel loading wind turbine components to capacity at the shore base and installing these offshore,” de Jong notes.

 

Short Sea Shipping

Going beyond MOUs, and thus beyond de Jong’s specific concern, another potential use of LNG on the open sea has been much discussed for short sea shipping on fixed routes, such as the luxury cruise vessels or ferries calling at city harbors.

The harbors along those routes have or may soon acquire the necessary infrastructure, and these vessels (especially the luxury cruises) are on the radar of environmental groups. They have a great incentive to maintain their own green image. A recent article by Allan E. Jordan in The Maritime Executive projected that the number of LNG powered ships will more than double in the next three years, with the cruise lines as early adopters.

Carnival Corporation alone has entered into a contract with Meyer Werft for seven LNG fueled ships.

 

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