Saga LNG Shipping plans to launch a fleet of up to 20 midsize LNG vessels, ranging from bunker vessels and coastal carriers to floating storage and regasification units. Founder David Wu and chief executive Truls Rosenberg talk gas-to-power opportunities and explain why LNT A-box will become a game-changer for containment systems
When Landmark Capital boss David Wu travelled to China’s Jiangsu Province in January, he moved one step closer to creating his own fleet of midsize LNG carriers from scratch.
In January, the Shanghai-based businessman attended the keel laying of the company’s first vessel at a ceremony at the China Merchants Heavy Industry (CMHI) shipyard at Haimen near Nantong, where chief executive of Landmark-owned, Norway-based Saga LNG Shipping Truls Rosenberg and officials from ABS joined him.
CMHI will deliver the 45,000m³ newbuilding in first-quarter 2018. Now, Mr Wu and Mr Rosenberg are working to charter a vessel that they hope will lay the foundations for a sizeable fleet of mid-size LNG carriers.
The small to midsize LNG-carrier segment is a tiny one, dominated by elderly tonnage. Data from VesselsValue indicates a live fleet of 14 ships up to 29,000m³ and seven on order, and just 10 carriers on the water in the 30,000m³-90,000m³ size range, plus Saga LNG Shipping’s firm order and one option.
However, Mr Wu feels there is a gap in the market. Landmark Capital – the Chinese-Norwegian boutique finance house he heads – plans to invest in up to 20 midsize LNG vessels, either as shuttle LNG service providers to deliver gas to remote communities or as storage vessels to support a new wave of gas-to-power projects.
Saga LNG Shipping will build up its fleet “stone by stone”, Mr Wu says. His wish-list includes midsize vessels, to meet forecast demand in Asia alone for up to 50 regional and coastal carriers, but also mid-size floating storage and regasification units (FSRUs), floating storage units (FSUs) and floating regas units (FRUs).
The mix reflects the company’s plan to become the shipowner of choice for the emerging gas-to-power market.
“We have talked to a lot of prospective gas-to-power clients, from Asia, Latin America and the Caribbean, where midsize LNG carriers are a hot topic for these kinds of projects, as they will need midsized LNG carriers or FSRUs – or both working in tandem,” Mr Wu says.
“They are typically talking about units with capacities between 30,000m³ and 80,000m³. Several of the projects we are involved in will require an FSRU and one or more LNG carriers, acting as feederships.”
Falling gas prices have brought new impetus to gas-to-power projects. Several have launched in the last year.
In Indonesia, PT Pelindo Energi Logistik (PEL) has set up a supply chain to carry LNG to Bali. At its heart, an FSU and an FRU mooring at a dedicated jetty in Benoa Harbour receive LNG from from Indonesia’s Bontang plant, cargoes delivered by the 23,104m³, Humpuss-owned LNG carrier Triputra.
In Jamaica, New Fortress Energy has developed a US$750 million FSU project, chartering the 140,650m³ Golar Arctic to store LNG for a 190MW power plant. New Fortress Energy wants to use the FSU as a hub to store and supply gas for other Caribbean islands.
And in Malta, Bumi Armada has converted a 125,000m³ LNG carrier into the FSU Armada LNG Mediterrana to store gas for delivery to the country’s first gas-fired power plant. The first cargoes arrived on the island in January.
Mr Wu believes gas-to-power opens a brand new market for midsize vessels. The optimum size for these new projects is in the 30,000m³-50,000m³ range, he says. And many projects – particularly those in island communities such as Indonesia and the Philippines – have shallow waters that are off-limits to deep-draft vessels.
“We see the market developing in parallel,” Mr Wu says. “On the one hand, there are developers of power plants that will request dedicated units of a very specialist size and design spec. On the other, demand will grow for vessels in the 30,000m³-80,000m³ size range for reloading of cargoes and regional distribution as part of hub-and-spoke infrastructure emerging to reach end-users where traditional gas infrastructure is not feasible.
“Interest is particularly strong in Asia, the Caribbean and South America, but we’ve also had enquiries from Spain and from Italy. We are now in very advanced discussions with two or three prospective customers. Our concept features a feeder-sized vessel that also has a very shallow draft.”
Landmark Capital’s decision to invest in midsize tonnage is not the only aspect of this project that breaks new ground. Saga LNG Shipping’s mid-sized carrier will be the first vessel in service fitted with a brand new cargo containment system (CCS). The IMO Type A system’s design comes from Landmark-owned LNG New Technologies, based in Norway.
Containment system market leader Gaztransport & Technigaz (GTT) has traditionally focused on the largest carriers. LNG New Technologies has developed the LNT A-box as a building-friendly, robust system for small to mid-scale projects for which cost-competitiveness is critical.
Its CCS aims to bridge a gap in the market between the smallest ships, fitted with Type C tanks, and larger vessels that use membrane containment. The LNT A-box comprises an IMO independent Type A tank installed inside an insulated hold space. LNT has registered the patents for its system globally in the past four to five years and secured approvals in principle from the class societies.
“At its core, this technology features an uninsulated, self-supporting A-tank placed in an insulated box, hence the name, A-box,” says Mr Rosenberg. “This makes for an accessible space between the primary and secondary containment barriers which is fully accessible for inspection. That makes it easier to check their condition and to carry out repairs, a design feature well received by class and unique to our product.”
“Type A tanks have an internal structure that mitigates sloshing. The result is that the cargo tanks may be filled at any level and cargo sloshing during transport will not be an issue. A solution where sloshing is acceptable gives full operational flexibility to carriers and floating units and is also ideally suited for LNG-bunkering vessels.”
Saga LNG will not say how much its first midsize LNG carriers cost. Even so, it maintains that using the LNT A-box saves both time and money.
“In cost terms, we estimate that our LNT A-box works out 20-30 per cent cheaper than existing containment systems,” Mr Rosenberg says. “The ability to construct LNGCs at any decent shipyard saves time in waiting for a build slot, which can be an issue when order books are full at top tier LNG yards. We also build the tanks in parallel to the hull, which offers further time savings.”
Saga LNG Shipping also believes that the technology can adapt across a range of vessel sizes, from 3,000m³ bunker vessels to large-scale FSRUs. The company adds that the LNT A-box system is especially well suited to LNG fuel tanks for non-LNG tonnage, on which space is at a premium.
“Space is money for shipowners looking at fuel-tank designs,” Mr Rosenberg says. “We believe that our A-box can offer a significant advantage as it can easily be integrated into conventional ships.
To spur the development of the LNG bunkering industry, LNT has developed a concept to convert a platform-supply vessel into a 5,000m³ LNG bunker vessel using LNT A-box technology. It believes this will interest PSV owners facing under-utilisation in the offshore market.
“Everything depends on our first vessel. We need to prove, beyond a doubt, that the LNT A-box containment system is the most effective solution yet brought to market for these types of vessels.”
Orders for conventional-sized LNG carriers slowed to a trickle last year, reflecting delays to projects and a subsequent glut of tonnage on the water. It’s anyone’s guess when shipowners will run back to the shipyards waving chequebooks – but when they do, there’s a chance they will be looking for smaller tonnage.
Low gas prices have created a new wave of small importers. As demand slows from traditional import giants Japan and South Korea, analysts now predict that new buyers seeking less than 5 million tonnes a year (mta) of LNG will drive demand growth to 2030.
Shipping companies, from LNG newcomer Stolt-Nielsen to Japanese deepsea LNG giant Mitsui OSK, are looking with new interest at the small to mid-size shipping segment, to tap new-market growth.
What is striking is how slowly that interest is translating into orders.
Meanwhile, many new import nations see FSRUs as the cheapest, fastest way to take delivery of their first cargoes. However, offshore LNG is not an easy market to enter. As BW LNG managing director Yngvil Asheim told LNG World Shipping last autumn, three-quarters of recent FSRU contracts went to vessels ordered on spec.
In today’s tough shipfinance markets, few newcomers have the confidence or the resources to build on spec.
Mr Wu maintains that Saga LNG Shipping can break into the LNG-to-power segment if it offers the right logistics solution and the right cost structure.
“We understand, from looking at the small and mid-sized LNG segment geographically, that reaching stranded demand in developing markets will always be driven by optimisation and economics,” he says. “We are absolutely convinced that what we can offer will achieve that breakthrough.”
Once Saga LNG Shipping has fixed its first carrier – by this summer, Mr Wu and Mr Rosenberg maintain – it expects other business to follow, both for similar-sized ships and for the new containment system. At that point, the company will also exercise its option for a second 45,000m³ LNGC at CMHI.
“When it comes to midsize LNG carriers, the segment is small but there is a lot of interest from prospective clients,” Mr Wu concludes. “We believe we can win a significant market share. In 10 years’ time, we expect to be the major player in supplying containment systems and owning midsize LNG carriers and FSRUs.”
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