- A new sulfur emission cap is going to come into effect.
- It seeks to reduce the allowable sulfur emission rate to 0.5%.
- Shipping Industry Giants are opting for LNG to comply with the new rules.
The new sulfur emission cuts are just a year away. The cap seek to reduce the allowable sulfur content in marine fuels to 0.5 percent by January 2020 from the existing emission rate of 3.5 percent. Already a 0.1 percent sulfur cap is in place in the coastal Emissions Control Areas (ECAs) of Europe and North America since 2015.
As carriers struggle with deciding which is the best way forward to compliance, liquid natural gas – or LNG – has emerged as an attractive option, because it is “…virtually sulfur-free…” as oil major Shell explained in their brochure, IMO 2020: What’s next?, a document aimed at marine fuel customers.
LNG as the White Knight?
In late 2017, the use of LNG as a fuel has seen a groundswell of support, and gained status as the next wave. Giants like the CMA CGM, Harvey Gulf International Marine announced use of dual fueled system which consumes LNG. CMA GGM’s newly built 22000 will be dual fueled while Harvey Gulf International Marine’s 6 dual fueled vessels will have a LNG bunkering terminal in southern Louisiana, Quality LNG transporters (Q-LNG) will build an Articulated Tug Barge (ATB) to transport LNG for charterer Shell Trading, to fueling stations around Florida and the Caribbean.
Meanwhile, Tote Maritime, an owner of 2 newly built LNG fueled container vessels, have already announced that two existing Ro-Ro vessels would also be converted to dual-fuel capabilities. Owners of vessels presently burning the most typical grades of the fuel widely used in slow speed marine diesel engines, Intermediate Fuel Oil (IFO; a blend of higher sulfur “residual” fuel and lighter distillates) are faced with three difficult choices to meet the new rules:
- Consume diesel fuel/gasoil with a low sulfur content;
- Consume heavy residual fuel, with exhaust gasses cleaned with a scrubber; and/or
- Switch to an alternative fuel, such as LNG or, perhaps, methanol.
Location, Logistics … & LNG
The uncertainty of price and availability pose a danger in abiding with the new rules. The price of low sulfur fuels reflect the grim situation that we are in and capital investment in scrubbers or LNG propulsion looks more attractive, with shortened payback times and/or increased incremental savings over time.
The path towards January 2020 is laden with several such uncertainties like
- Availability of low sulfur fuels at strategic bunkering locations
- Sufficient quantities of low sulfur distillate fuel in the aggregate.
For owners choosing to install scrubbers, the primary concern is regarding the slope of the installation learning curve, and the efficacy of adapting a landside technology to the maritime environment. Whereas, for owners choosing to build LNG fueled vessels, the most immediate question centers around availability of the fuel itself. It is here that the conundrum of ‘chicken and egg’ suggests that LNG fuel must be available as a precondition for LNG propelled vessels to enter a particular trade lane or the fuel should be available to LNG capable vessels calling at the ports.
The World Ports Climate Initiative of the International Association of Ports and Harbors (IAPH) notes that LNG bunkering facilities are already available, or planned, at ports in Scandinavia and Northern Europe and some Asian ports. While most ports are studying the LNG fueling system but very few are actually using it, due to limited availability. With the Harvey Gulf’s foray into the LNG bunkering in Fourchon port, LA, the Jacksonville and Florida area of the US has become the epicenter of the LNG-fueling map. Several ports in the US West Coast i under pressure to achieve this “zero emission” are opting for LNG vessels.
An inchoate business/logistical model that seems to be emerging is that of a waterside liquefaction operation (where gas is cooled and transformed into LNG), tied to a terminal that handles local landside distribution, on-site marine fueling, and trans-loading into LNG barging across a broader distribution network. Importantly, the barges can also be used for marine bunkering operations. Integral to this new model is a long term supplier of gas.
While the existing facilities use trucks to deliver LNG to vessels at the fueling dock, the new complete model suggested by the Tornio Manga LNG Terminal on the Gulf of Bothnia in Finland seeks to receive gas in small tankers and provide them to the vessels. In North America, Harvey Gulf Marine’s pioneering LNG fueling installation at Port Fourchon will be serving the company’s fleet of LNG fueled OSV’s (several of which are on charter to Shell) and those of third party customers.
Seacor Holdings, has acknowledged that LNG bunkering “…is starting to come into the market…” according to Chief Operating Officer Eric Fabrikant. Fabrikant says that Seacor looks closely at non-commoditized sectors of the market, and described LNG bunker barges as “a nascent space.”
Early Adopters: Market Leaders
Among the oil majors, Shell has taken early and big steps in LNG fuel supply by making Rotterdam the base for its 6,500 cbm bunker tanker “Cardissa,” which takes on LNG at the Gas Access to Europe (GATE) terminal. This in turn takes delivery of LNG in large quantities from oceangoing tankers that bring gas from the Mideast and Asia and then store it. A second vessel will be working out of Rotterdam, and placed on charter to Shell Western LNG BV. With Wartsila supplied cargo handling systems and tanks, the 3,000 cbm vessel that will be owned through French / Belgian consortium and then chartered by the oil major.
The world’s first bunkering vessel, the 5,000 cbm “Engie Zeebruge” went into service in Belgium in early 2017. The vessel (jointly owned by Mitsubishi Corp, NYK and two European gas companies) boasts customers that include United European Carriers, who also operates LNG fueled vessels calling in North Europe. In Scandinavia, the 5,800 cbm “Coralius” was delivered this past summer and will be serving the Skagerrak/Kattegat area and also the Baltic Sea. It will be on charter to Skangas, a distributor serving Norway, Sweden and Finland. Skangas Chief Executive Officer Kimmo Rahkamo offered in a prepared statement, “It is a valuable add-on to our existing bunkering methods of trucks and terminals along the coast.” Initially, the vessel loaded LNG at the Skangas production facility at Stavanger.
In the U.S. marketplace, the first strides have been taken by TOTE Maritime which has deployed two NASSCO-built 3,100 TEU containerships, both with capability to be fueled by LNG, in the Puerto Rico (Jacksonville/San Juan) trades. Its Alaska division has announced plans to retrofit two roll-on roll-off vessels for LNG propulsion at the Seaspan Shipyard in Vancouver, with BC. MAN Diesel & Turbo undertaking the conversion.
In late summer, TOTE Maritime’s fuel provider, JAX LNG, has received a Letter of Acceptance (LOA) from the United States Coast Guard (USCG) for the operation of its waterfront LNG facility (which will include a small liquefaction plant) and the approval to conduct barge-to-ship LNG bunkering operations. According to TOTE, “Barge-to-ship LNG bunkering is scheduled to commence in early 2018.”
The Way Forward: Looking Past Existing Markets
Financial complexity is coupled with logistical complexity when it comes to LNG bunkering. LNG JAX LNG is a newly formed company owned by Pivotal LNG (a wholly owned subsidiary of Southern Company Gas), and NorthStar Midstream, LLC (under leadership of Tim Casey from K-Sea Marine and backed by funds that are managed by an infrastructure group within Oaktree, and Clean Marine Energy LLC). The principles of the latter include the van Reesema family, best known for their investment in the Jones Act tanker “American Phoenix.”
“The facility will include a marine dock to load bunkering barges that will deliver marine LNG up and down the East Coast of the United States”, says Mr. Casey from Wespac Midstream, a part of the Oaktree family and the Clean Marine Energy LLC which owns the “Clean Jacksonville” barge.
The recurring themes of the new business model are clear. A Ferus news item explains, “The produced LNG will be transported to markets in the Caribbean and Latin America for power generation. It will also be delivered to local and regional markets, including marine bunkering and high horsepower applications for domestic consumption.” Crowley has already been supplying LNG, in tank containers, to Puerto Rico, through its Carib Energy subsidiary, acquired in 2013. Carib Energy is positioned to take on project management activities throughout the markets served by Crowley. While Crowley has not yet ordered LNG transporting barges, it is important to note that its wholly-owned naval architect, Jensen Marine, has created an ABS approved design for an ATB combo capable of transporting 4,000 cbm of LNG.
In the near future, barges based in Jacksonville may also be supplying LNG to a new generation of cruise vessels that will deliver in coming years and will serve European and Caribbean markets. A deal already announced has fuel for two of Carnival Corporation’s new LNG powered cruise ships (set to deliver in 2020-2022) supplied by Shell Trading through the new LNG ATB being built by Q-LNG and the Harvey Gulf connection. Carnival brand AIDA, operating out of northern Europe is already using LNG, supplied by Shell. Once further approvals are in place, barges based in Rotterdam and Zeebruge will form part of the supply line for AIDA, and for Costa Cruises (also a Carnival brand) which also has placed orders for LNG powered vessels.
Thus, LNG fueling option is gaining momentum in the global market as the 2020 deadlines are closing in. It’s slated to become the ultimate solution for the shipping industry in the coming years.
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Source: Maritime Logistics Professional
