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OPINION: what does the future hold for LNG bunker-supply ships?

Fri 01 Sep 2017

OPINION: what does the future hold for LNG bunker-supply ships?
Titan LNG's FlexFueler: cutting LNG bunker-supply costs

By year-end, the number of dedicated LNG bunker-supply ships in service will have increased from one to five. But what does the future hold for this new vessel type? Karen Thomas asked seven of the industry’s leading experts

Shell general manager downstream LNG Lauran Wetemans

Winston Churchill’s push to convert the British naval fleet from coal to oil faced challenges and criticism. But his persistence was rewarded by a faster, cleaner and more efficient fleet.

One century later, the global maritime industry is meeting another historic challenge, driven by regulatory pressures. It is through collaboration, persistence and strong partnerships that the industry is benefiting from a new fuel.

With 230 LNG-powered vessels in operation or on order, LNG is taking off as a mainstream transport fuel, playing a role in nearly every shipping segment. Shell is providing a range of fuel solutions, as we recognise there is no one-size-fits-all solution.

We have built on Gasnor’s successful experience in small-scale distribution. Cardissa, our innovative 6,500m³ LNG bunker vessel, recently arrived in Europe to serve customers across the continent.

In Singapore, we have a joint venture with Keppel Marine to develop LNG-bunkering services. We also signed a framework agreement with Qatar Petroleum to develop bunkering infrastructure at strategic global shipping locations.

Shell is working directly with vessel owners and operators. We have agreed to supply marine LNG for the word’s first LNG-powered Aframax crude oil tankers, built by Sovcomflot. We are fuelling the world’s first LNG-powered cruise ships, being built by Carnival and expected to set sail in 2019.

We’re proud to work with these industry pioneers, and others, such as SABIC and Containerships, who are leading the transition to a cleaner maritime industry.

Realising the full potential of marine LNG fuel requires sustained cross-sector collaboration. Governments need to provide a regulatory framework supporting wider use of cleaner-burning gas in the marine sector.

Fleet owners need the confidence to invest in more LNG or dual-fuel engines. To do that, they need to know they can count on companies like Shell to put the LNG fuel supply infrastructure in place.

I am confident that we can bring about significant change through industry and government collaboration. Shell is proud to be a part of this important transition to a cleaner maritime industry.

 

Nauticor managing director Mahinde Abeynaike

Although the marine market in northwest Europe is developing, with nearly 100 ships running on LNG, as shipping fuel LNG is – for now – limited to shortsea traffic. Most LNG-fuelled vessels in operation are passenger carriers.

Because local demand in each port is still too small to utilise a dedicated LNG bunker vessel, bunkering infrastructure must be flexible in terms of location.

Nauticor has ordered the world’s largest LNG bunker supply vessel. Instead of waiting in port for the customer, the vessel will travel between customer locations, transporting sufficient fuel for several operations – but it is still small enough to be manoeuverable and to provide excellent bunkering capabilities. It can also conduct offshore bunkering.

Locally, LNG is well supplied by a few dedicated bunker-supply vessels. The breakthrough in using it as marine fuel and increasing the number of such bunker-supply vessels will depend on deepsea cargo shipping starting to run on it.

Deepsea cargo shipping, operating mainly outside ECAs, may still burn cheap, heavy fuel oils until 2020. And the shipping crisis has hit cargo shipping badly, depressing demand for new vessels.

How can we overcome these hurdles? From 2020, a much stricter global sulphur cap will reduce emission limits from 3.5 per cent to 0.5 per cent. This will have a fundamental impact on the shipping sector and on the traditional bunkering and LNG sectors.

High-sulphur fuel oils will not be an option any more. Today’s standard marine fuel, HFO, will make way for marine gasoil, low-sulphur fuels and LNG. Scrubber solutions are likely to remain in the minority.

This will lead to a dramatic drop in demand for HFO in ports. Probably, this will mean that bunkering infrastructure for HFO will significantly ramp down.

Meanwhile, the global LNG market is looking for new demand centres. US, Australian and Russian LNG liquefaction plants will deliver enormous volumes of new output, some of it seeking a new home. Qatar’s plan to boost LNG production from around 70 million tonnes a year (mta) to 100 mta adds to that bearish sentiment.

The LNG and marine fuel sectors – which have had limited overlap so far – will need to work together to develop environmentally friendly global transportation solutions. The timing is just right to create these synergies.

 

Anthony Veder Group manager business and fleet development Bjorn van de Weerdhof

We prefer to start with the question, what is an LNG bunker-supply ship? It’s evolving. The ships ordered so far to act as LNG bunker-supply vessels are varied – in terms of their appearance, in the capabilities they offer, in their equipment and where they can operate.

We expect the LNG bunker-supply fleet to evolve in a similar fashion to the conventional bunker fleet. In the long run, we expect in-port or in-harbour barges to supply the fuel to the ships. This will require sufficient volume to be able to make a return on investment in these assets.

Such ships do not yet exist. Titan LNG has ordered one barge. There’s also one barge on order to the US that will have a GTT membrane containment system.

All the LNG bunker-supply vessels built so far are seagoing vessels. The more costly seagoing vessels will initially unlock new demand. We expect a few more to be built, but in future, barges will become the norm. These vessels can be pretty large, certainly large enough to deliver bunkers to, say, LNG-fuelled container ships.

Shipping must optimise the supply chain and control the costs associated with LNG bunker-supply. At the same time, specialist barges require sufficient volume concentrated in one port. You need all the regulations in place.

Because that needs to develop, you need supply ships to deliver bunkers in port and offshore. These can be flexible, delivering fuel to more than one port, or shipping LNG from terminal to terminal.

Anthony Veder builds vessels that offer a hybrid solution – LNG carriers with add-ons to trade LNG and deliver bunker supplies. We aim to offer the best of both worlds.

Tougher emissions rules from 2020 will drive up demand for LNG-fuelled vessels, we believe. While this could be deferred to 2025 pending a review in 2018, it is a matter of time before shipowners must make the choice for using cleaner fuels.

This year and next will see record deliveries for LNG-fuelled vessels and we expect orders to pick up in 2018 and 2019. In Europe, we have had an emission-control area (ECA) since 2015, yet shipowners have been slow to turn to LNG. This highlights how difficult the road to LNG can be.

Many single consumers are too small to justify investing in an LNG supply chain. Take the small ethylene gas carriers that can run on LNG. These ships take on bunkers at Teesside, UK, delivered on trucks loaded at Gate Terminal in Rotterdam, the Netherlands, or in Zeebrugge, Belgium, that travel over to Britain by ferry.

The supply-chain costs mean it doesn’t make sense to run these ships on LNG. It’s not just about the commodity price; it’s the transport price. To optimise the supply chain, you must reduce the transport costs.

Demand for LNG bunker vessels seems to be picking up. We will build where we secure contract coverage. However, as the supply chain evolves, in-port barges will take over. You can then move your ship around to offer LNG bunkering, or use it to transport LNG between terminals.

Also, these vessels have a second life when these contracts finish that may not involve LNG bunker supplies. This should create a more cost-effective solution for our customers.

 

NYK Tokyo fuel group general manager Koji Shinozaki

This year marks the dawning of the LNG-bunkering vessel age, with several newbuildings due to make their debut, including Engie Zeebrugge, at Zeebrugge, with which NYK is involved.

Since the decision to implement the global sulphur cap from 2020, shipowners and operators are looking at how to comply with the regulation, including LNG as marine fuel. Increasing the number of ship-to-ship LNG bunkering operations should encourage momentum in shipowners’ decisionmaking, leading to an increase in LNG bunker demand.

Through live operations, owners and operators of LNG bunker-supply ships should learn lessons that can be utilised to design new specs and guidelines for these kinds of vessels in future.

At this early stage, it is not only about the shipowners; we also need involvement and support from port authorities, industrial organisations and class societies to create safe, practical and user-friendly regulations and standards.

   

Bernhard Schulte Shipmanagement corporate director energy projects Angus Campbell

The LNG bunker-supply ship is a critical component of global LNG fuelling infrastructure. Because of this, the specialised ships needed to deliver this cleaner, cryogenic fuel will have a bright long-term future.

The immediate future is more challenging. Demand for LNG as a marine fuel is developing slowly and, although it will accelerate, utilisation of purpose-built LNG bunker-supply ships has to be managed with care to justify the investment needed.

This challenge for the shipowners involved extends across the entire value chain, impacting the delivered cost of the fuel.

Babcock Schulte Energy (BSE) believes that multiple drivers will increase demand for LNG as a marine fuel, which will in turn ensure the commercial success of the ships that deliver it.

Regulatory requirements, environmental benefits, operational efficiencies and through-life savings on fuel and maintenance costs will play a part in generating demand.

Timing and adoption are difficult to predict with certainty. We suggest that the key drivers of LNG fuelling are: the business case ensuring acceptable utilisation, technology and designs for safe delivery of this new fuel to specific ship types, and seafarer training and selection.

The safe operation of this new service is paramount. Technology for simultaneous operations in harbours will be advanced and effective. The training and expertise of the crews that operate this new class of ship must also be of the highest standard.

BSE is investing heavily in training and crew selection, working with equipment manufacturers and educational experts, using the combined resources of Babcock International and Bernhard Schulte Shipmanagement.

Because the cost of retrofitting ships to use LNG as their primary fuel is high, demand growth is likely to centre on newbuildings.

ExxonMobil is predicting that by 2040 gas is likely to account for about 10 per cent of total marine fuels, up from less than 1 per cent now. Momentum is building across many sectors, led by cruise ships, ferries and container shipping. This is due to the reasons indicated above, but cargo owners are increasingly concerned about reducing their carbon footprint.

The design and capacity of LNG bunker-supply ships may change in future. The ships under construction now can generally serve a region, delivering to land and sea-based consumers.

This will enhance utilisation and support the business case in the early years. But smaller, port-based solutions will evolve in major bunkering hubs as new ships that use LNG as their primary fuel enter service and increase port-by-port volume.

Larger bunker-supply ships will then specialise in more complex ship-to-ship operations and transhipment services that require higher parcel sizes.

 

Titan LNG commercial director marine, Michael Schaap

Titan LNG expects a variety of LNG bunkering solutions to offer safe, fast deliveries to all the different vessels that consume LNG as marine fuel.

The LNG-bunkering process must be as smooth as the normal bunkering process with marine gasoil. LNG-powered vessels require, as much as possible, concurrent cargo operations in ports. That creates a clear need for infrastructure that resembles conventional bunkering methods.

Larger ports with sufficient throughput will have permanent bunker vessels. Other ports may require vessels to come in incidentally or will provide bunkering services ex-wharf.

Ports with emerging LNG-bunkering demand are using waterborne solutions, such as the Titan LNG FlexFueler bunkering pontoon, as a stepping stone to providing bunkering services to the first movers’ concurrent cargo operations.

-The bunker vessels of the future will probably be smaller than those announced so far, if loading fees are lowered at terminals. Titan believes that a robust supply chain comprises multiple vessels andor barges trading in a port or region, backing each other up to service LNG-powered vessels.  

Ports with protected water will replace seagoing bunkering vessels with barges that are more cost-efficient in terms of crewing and harbour fees and can manoeuvre without pilots or tugs.

Larger, seagoing LNG bunkering vessels are not always the most suitable to serve smaller vessels. Mooring may be more difficult, if the breadth of the delivering vessel hinders passing traffic. The turnaround of smaller receiving vessels is also much quicker, requiring different scheduling of the bunkering vessel.

To make LNG as a marine fuel attractive for shipowners, bunkering vessels’ operating and capital expenditures must be as low as possible – otherwise, these supply ships will command a higher day rate than the receiving vessel.

The confirmed orderbook for LNG-powered vessels reveals a clear gap between the largest and smallest consumers. Large cruise ships with 3,000m³ fuel tanks require different infrastructure to tankers of just 250m³. Tomorrow’s LNG bunker barges will service specific segments, small or large.

Titan LNG is building its FlexFueler for inland water use and developing a design to be positioned in protected waters that lead to open seas. The latter can serve a second port once demand justifies it.

What matters most is supply security and reliability. Titan believes that customers are better served in port, using two FlexFuelers that back each other up, rather than by having one larger, more expensive seagoing vessel that, when occupied, has no back-up.

 

SEA\LNG general manager Steve Esau

SEA\LNG has been encouraged by the trajectory of regulation so far, supporting adoption of LNG as marine fuel.

This is a combination of the IMO’s global 2020 sulphur-cap deadline and the implementation of ECAs with stringent controls on emissions of SOx and, increasingly, NOx in northwest Europe and the US. Three more are planned, or being developed, in China.

China is starting by regulating emissions through the sulphur content of fuels when ships are berthed in key ports, before launching full ECAs.

New ECAs support local and regional take-up of LNG as a marine fuel and, longer term, bunkering infrastructure established in the ECAs. ECA zones are also being considered in the Mediterranean and Central America, in Australian and Japanese territorial waters, and in the Strait of Malacca.

SEA\LNG has grown from 14 founding members to 29 at the last count, representing the entire marine LNG value chain. What’s interesting for our members is the transformation of LNG from a bulk commodity, traded point to point, to become – in time – a true commodity.

We are also seeing broader small-scale infrastructure emerging.

Meanwhile, the LNG bunker-supply fleet has grown this year from one vessel to five additional, much bigger vessels by year-end.

Three – Engie Zeebrugge, Cardissa and Clean Jacksonville – have been commissioned by SEA\LNG member companies. These vessels are key to scaling-up demand for LNG as a marine fuel – to doing things in the way that shipowners are used to having things done.

Another SEA\LNG member, ENN Group, plans to develop an LNG-bunkering hub at Zhoushan, near Shanghai, including an 8,000m³ LNG bunker-supply ship.

The LNG bunker-supply ships ordered to date have not necessarily been fully contracted. All have identified key customers, but most also have unused capacity.

These vessels have been developed to be as flexible as possible, because in the early stages of this market, they don’t want to have to turn customers away. They can deliver LNG as marine fuel, or provide breakbulk services.

As demand grows, we will see more standardisation. There is a big difference between the big Shell and Gas4Sea vessels, on the one hand, and the barge being built to deliver LNG as marine fuel to container ships at the port of Jacksonville, Florida. Simpler solutions will develop.

If you look at the list of the world’s top oil-bunkering ports, see below, nine of the top 10 – apart from Long Beach, California – offer LNG bunkering, or are planning and putting together proposals to do so. Things are moving in a clear direction.

LNG may be a more complex fuel to bunker but, as the market takes off, there is already a drive to meet demand for LNG as marine fuel at these locations. We are seeing the start of a virtuous circle. LNG as marine fuel will be available in the right quantities in the world’s most strategic shipping locations.

We’ve heard all the talk about chickens and eggs. SEA\LNG members have gone out there and hatched a few eggs.

 

Top 10 oil bunkering ports

Rank

Port name

Million tonnes a year (mta)

1

Singapore

42.4

2

Fujairah

24

3

Rotterdam

10.6

4

Hong Kong

7.4

5

Antwerp

6.5

6

Busan

4.6

7

Gibraltar

4.3

8

Panama

3.5

9

Algeciras

2.9

10

Los Angeles/Long Beach

2.6

 

Source: SEA\LNG, July 2017

 

Read LNG World Shipping’s exclusive data, the global LNG-fuelled fleet, 2017

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