Market Segment - Marine

Despite the current oil price dip, large marine operators continue to pursue the use of natural gas as a fuel that offers long-term price stability, operational simplicity, and environmental advantages over scrubber systems, low-sulfur marine gas oil and other marine fuels. Compounded by the long asset life of the average marine vessel, natural gas offers an appealing solution to a variety of issues faced by operators around the world. 

Join us for the Natural Gas for High Horsepower Summit to gain insight on:

• Key lessons end-users have learned during the last full year of LNG marine operations
• Insight on two dozen LNG-powered vessels under contract for deployment in North America
• Innovative solutions to LNG bunkering (e.g., multiple ISO containers, purpose-built barges, direct short-to-ship operations)
• Continued focus on environmental drivers – regulatory and sustainability
• The value of fuel price stability, predictability and risk mitigation as oil prices creep back up
• Hot spots for LNG market growth in the maritime industry

 

Project Highlights: Natural Gas for the Marine Sector

International Investment in LNG

Natural gas has proven to be a very viable replacement for other marine fuels in various operations, from tankers, container ships, and carriers, to tugs, cruises and ferries. In Europe and elsewhere, where diesel prices remain high, governments provide direct support to deploy cleaner vessels and have strong regulations that prohibit operation of heavily polluting fuels within controlled coastal regions. Some operations – such as the Fjord1 ferry line in Norway – have been running a 100% LNG fleet for years and others are moving in this direction.

The Society for Gas as a Marine Fuel (SGMF) believes that 2018 will be a banner year for LNG in the marine sector, given the recent, significant increase in the number of projects and infrastructure that demonstrate just how much the maritime industry has embraced LNG-fueled shipping. In November 2017 CMA-CGM announced their order of nine new ultra-large LNG-fueled container ships. These 22,000 TEU container ships are a game-changer for LNG as a marine fuel. Total Marine Fuels (TMF) inked a 10-year contract with CMA-CGM to supply LNG bunker fuel beginning in 2020.

New projects are announced almost weekly, with planned or existing operations in the Netherlands, Singapore, Scotland, Spain, Ireland, China, the United Arab Emirates, Germany, Australia, and others. Ports in these areas, including the Port of Antwerp in Belgium and the Port of Rotterdam the Netherlands, have developed comprehensive and integrated strategies to facilitate the deployment of LNG vessels. These ports have detailed plans for bunkering services across multiple countries, incentive programs to encourage LNG vessels to call at their ports, and other strategies to help drive the market for this clean fuel. The cooperation, innovation and progress achieved with these projects are all tremendous examples that should be carefully considered by the gas-rich countries such as the U.S. and Canada.

Domestic LNG Sails Ahead

Here in North America, natural gas powered ships have become increasingly appealing with the phasing in of more stringent emission standards and the Emission Control Areas (ECAs). When the price of diesel began its downturn, some operators opted for the use of scrubbers, low-sulfur marine fuels, and other engine technologies to meet regulations. However, ship owners are now beginning to better understand the shortcomings of these systems. At the same time, those with the knowledge and preliminary investments in a natural gas pathway are seeing themselves as competitively positioned for the long-term. A few key projects in North America include:

• Harvey Gulf International Marine, an operator of offshore supply vessels (OSVs) for deepwater operations in the Gulf of Mexico, continues to propel its natural gas operations forward at an impressive rate. Four of the six LNG-powered OSVs Harvey Gulf has ordered have been delivered and entered service with Shell, with additional units to soon follow. In November 2017, the company announced the formation of a new marine transportation company, Quality Liquefied Natural Gas Transport, LLC (Q-LNG), which will own and operate assets providing marine transportation of LNG. Q-LNG has contracted with VT Halter Marine, Inc. for the construction of America’s first offshore LNG articulated tug and barge, designed to carry 4,000 cubic meters of LNG.
• Crowley will soon put into service two LNG powered ConRo ships (El Coqui and Taino). The vessels, undergoing final testing, were built and launched in Pascagoula, MS, by VT Halter Marine and will operate between Jacksonville, Florida and San Juan, Puerto Rico. A new LNG plant in Jacksonville, FL, built by Eagle LNG will supply LNG to these vessels. Crowley Maritime has also taken delivery of four LNG-ready petroleum tankers.
• TOTE Maritime’s two LNG-fueled container ships (Isla Bella and Perla Del Caribe) are the world’s first and have logged more than three years of service making regular weekly runs between Florida and Puerto Rico. Jax LNG, a partnership between Pivotal LNG and Northstar Midstream, has built an LNG facility at Jacksonville’s Dames point. The new facility will produce LNG that will be transferred to TOTE’s vessels via a dedicated-LNG bunker barge (Clean Jacksonville).
• There is a new generation of cruise ships on order, all powered by LNG. Currently there are 16 confirmed orders for large LNG-powered cruise ships. Carnival Corporation started construction on the first of seven LNG-powered cruise ships and expects delivery of the first unit by 2018. Royal Caribbean International has ordered two ships, Disney Cruise Line has three ships on order, and MSC Cruises plans to build four LNG powered cruise ships.
• In Canada, LNG-powered ferries are making extraordinary progress. The Societe des traversiers du Quebec (STQ) took delivery of the first natural gas ferry (Gauthier) to operate in Canada, with two additional ships to follow. Seaspan Ferries Corporation has taken delivery of its second of two LNG commercial ferries (Seaspan Swift and Seaspan Reliant), while BC Ferries took delivery in 2017 of three new LNG-powered Salish Class ferries (Salish Orca, Salish Eagle and Salish Raven). BC Ferries is also conducting LNG retrofits of two existing Spirit Class ferries (Spirit of British Columbia and Spirit of Vancouver Island) expected to by completed in early 2019.
• Canada is seeing progress in more than just ferries. Quebec’s Groupe Desgagnes recently launched the second of four LNG dual fuel tankers that will transport asphalt-bitumen on the Great Lakes and St. Lawrence River, on the US East Coast, and in Canadian and Canadian Arctic waters.

Dozens of LNG Vessels Confirmed to Hit the Water in the Years Ahead

In the last 12 months, the North American LNG marine market has seen exceptional progress. While this is exciting and notable, this is just the beginning. There are currently more than two dozen natural gas powered commercial marine vessels on order for operations in the U.S. and Canada. Now in various stages of design, build and deployment, these vessels will result in 300% market growth in the next few years. Beyond these forthcoming deliveries, industry experts expect to see significant additional near-term growth, especially in applications such as cruise ships and other vessels that spend a majority of their life in the North American ECA.

To prepare for this forward growth, LNG production plants and bunkering strategies are being aggressively developed from the Pacific Northwest to South Florida. To meet the fuel needs of this growing fleet, a half dozen new LNG production plants from Pivotal LNG, Eagle LNG, and others are under construction and near completion, while existing production sites like FortisBC’s Tilbury plant are being upgraded and expanded. Bunkering vessels of various shapes and sizes are also being designed, constructed and delivered, and other innovative truck and rail-based supply chain solutions are being developed. In spite of the low oil price environment, it is an exciting time to be in the LNG marine business.

Beyond the engines, fuel and supply chain solutions deployed in the market week-after-week, tremendous progress is also being made on training programs, standards and other considerations needed to accelerate the use of LNG as a marine fuel. A cross-industry initiative called SEA\LNG was launched in 2016 to help further address market barriers and stimulate demand for LNG vessels. Founding members include Carnival Corp, DNV GL, Engie, ENN, GE Marine, GTT, Lloyd’s Register, Mitsubishi Corp, the NYK Line, the Port of Rotterdam, Qatargas, Shell, TOTE and Wartsila.

Environmental Stewardship, Reduced CapEx Costs and Shorter ROI Driving Market Penetration

While the North American market for LNG powered marine vessels has only been under development for the last five or so years, tremendous innovation has occurred in this relatively short period of time. This innovation continues with new approaches, technologies, and systems designed to significantly reduce Capex costs and therefore the ROI periods for new natural gas ship builds. One soon-to-be-announced innovation could reduce the incremental cost of an LNG vessel by as much as 50%, which would then reduce ROI periods to as little as two to three years. Such cost reductions will further accelerate investment in LNG as a marine fuel in the years to come, particularly as the regulatory environment for marine emissions and fuels continues to tighten, and the price of petroleum fuels inevitably rises. Of course, as we have seen with companies like TOTE, Carnival and many others, investments in LNG fueled vessels often come as a result of a company’s strong commitment to environmental stewardship and sustainability; because reducing discharge from their vessels is simply the right thing to do.

For the latest information on the accelerating deployment of natural gas engines in marine operations, join us at this year’s High Horsepower (HHP) Summit.