U.S. LNG Bunker Fuel Just Got Easier

The growing readiness for U.S. shipping companies to opt for LNG as bunker fuel has not escaped the attention of entrepreneurs.

VT Halter Marine made the news last week with the commencement of construction on the first of two LNG-powered, combination container RoRo (ConRo) vessels for Crowley. The vessels, designed by Wärtsilä Ship Design and Jensen Maritime, are due for delivery in 2017. 

Jensen is also currently designing LNG bunker barges for LNG America.
 
Last year, Harvey Gulf International Marine claimed to be the first U.S. vessel operator to contract for construction of vessels capable of operating exclusively on natural gas. The company is currently building the first LNG marine fueling facility in the U.S. located in Louisiana to serve the region’s offshore support vessel fleet.

Other movers on LNG include Matsen and Totem Ocean Trailer Express, both with dual-fuel container ships under construction, and Horizon Lines, retrofitting six container ships with LNG engines. 

LNG is an attractive fuel choice for many vessels because it exceeds the air quality standards set by the North American ECA, and the price of LNG is significantly lower than other ECA-compliant fuel. The problem for shipowners is that there is currently a lack of national infrastructure for LNG bunkering.

Enter Clean Marine Energy (CME), a global facilitator of finance mechanisms for LNG conversion and ECA compliance. The company has partnered with WesPac Midstream and is offering an Emissions Compliance Service Agreement (ECSA) that provides both the funding required for LNG conversion of ships and the construction of the infrastructure for LNG supply and delivery to the ships. The funds are managed by Oaktree Capital Management, a leading global investment manager.

Pace Ralli, CEO and co-founder of CME, explains: “The first question every shipowner asks is ‘Where will I get the LNG?’ because if they cannot ensure the future delivery of LNG then they will not see the investment payback. CME’s partnership with WesPac provides the answer to this question and greatly simplifies the decision to convert to clean, lower-cost LNG fuel.”

Ralli says that converting a ship to LNG can cost anywhere from $5m to $25m. ECSA is a capital efficiency solution that leverages third party capital to fund capex investments without adding to the shipowner’s cost basis by transitioning capex to opex. The shipowner pays no upfront capital for ECA compliance, and the company that pays for the ship’s fuel continues to pay what they would have paid anyway, with some immediate shared savings during the ECSA, says Ralli. The fuel purchasing arrangement is put in place for an agreed number of years.

“We’re dealing with all types of vessels: tankers, dry bulk carriers, car carriers, ferries and tugs,” says Ralli. “The best fit is typically vessels that have a higher fuel consumption. That creates higher savings which can be used to pay for the upfront capital.” The agreement is also ideal for liner services or vessels with fixed routes, so that the LNG infrastructure can be matched to the appropriate ports. “We will help convert your ship to run on LNG. We will also build the liquefaction plant to create the LNG out of the pipeline, and we will build the barge that moves the LNG from the plant to the ship. No one else is offering all three legs.”

CME already has a project underway: a Great Lakes 40,000dwt dry bulk carrier owned by VanEnkevort Tug & Barge that has a CAT 3612 engine being converted to dual-fuel. 

Ralli sees North America taking a leading role in the adoption of LNG due to its abundance of clean, cheap natural gas. Additionally, the longer lifetime of Jones Act vessels, as a result of their increased value, means that LNG bunkering can make more sense than installing a scrubber in many vessels.
 
CME is not alone in moving on infrastructure development. LNG America has announced an agreement with Buffalo Marine to cooperate on the design of an LNG bunker fuel network for the U.S. Gulf Coast region. LNG America is developing a hub-and-spoke delivery system for LNG as fuel for the marine market and other high horsepower applications. Buffalo Marine is one of the premiere bunkering companies in the Gulf of Mexico with over 50 vessels dedicated to bunkering in the region.

“Through LNG America’s LNG bunkering initiative, we plan to serve and facilitate the growing marine demand for LNG,” said Keith Meyer, CEO of LNG America. “LNG America sees the demand for marine LNG to be robust as long as LNG can be made available to the maritime industry on a reliable, dependable and cost-competitive basis. Our mission is to deliver competitively priced LNG as fuel where needed, when needed and in the quantity needed.”

LNG America was formed last July to develop LNG distribution infrastructure that serves not only the marine market but the burgeoning use of LNG in the oil and gas, rail, mining and heavy-duty trucking markets. 

Despite the financial boost offered companies such as by CME and LNG America, a report prepared by DNV GL for the U.S. Maritime Administration points to a number of issues that need to be resolved at a strategic level in the U.S. for LNG bunkering to move ahead. It is recommended that an analysis of vessel types that use U.S. ports is undertaken to determine what bunkering methods will be necessary. This would include assessing which ports would be best suited to LNG bunkering based on practical and security reasons and a comparative risk assessment looking at large-scale truck transport to port locations, large-scale rail transport to port locations and natural gas pipeline and local liquefaction. 

The report also states that proper training for crew and operators involved with LNG bunkering operations is critical to the establishment and maintenance of safe practices.

Although much of the LNG bunkering experience to date has been gained in Scandinavia, Ralli is optimistic that expertise in the U.S. will grow with the infrastructure, and he believes the next five years will see a lot of development in the industry.

“We want to create bunkering solutions that are as close to business as usual as possible. The easiest way to change an industry is to make it feel like it’s not changing at all, and that’s CME’s vision,” he says.