Listen in on the buzz in the shipping and maritime world right now and you're sure to hear a great deal about LNG. Whether its the first LNG cruise ship, the first LNG powered vessel for Woodside Energy, or the first LNG powered vessel for BC ferries, the news lately has been filled with "firsts" for LNG. Why all the discussion about LNG as a fuel for shipping and why now?
Back in 2012 a report from DNV GL ambitiously predicted 1000 LNG powered vessels by 2020. And in 2014 Lloyd's Register predicted LNG-fuelled ships would be 11% of the global fleet in 2030. Is the industry moving quickly enough in adopting LNG as a marine fuel to reach those optimistic numbers?
To get the answers to my questions, I called upon LNG expert Tony Teo. Mr. Teo works for a large Global company specializing in marine, property, and infrastructure businesses. He is also the owner of LNGaSolutions. Having worked with DNV GL for over 30 years as LNG Business Director (and prior to that almost 5 years at ABS) Mr. Teo is not only an expert on Liquified Natural Gas (or LNG) as a marine fuel, you might say he is a pioneer in the field. Mr. Teo gave me a great history lesson on the development of LNG bunkering and LNG as a marine fuel and provided me with an excellent assessment of the pros and cons of LNG.
KNect365 Energy: You have been in the LNG business for over 30 years. It seems like the increased adoption of LNG fuel in shipping is relatively new and has to do with the IMO's global sulphur emission cap of 0.5 %, right ?
Tony Teo: It all started with the climate change or global warming talks and concerns. The maritime industry or IMO was not under any governmental or UN pressure, but they voluntarily decided to see what it could do. Goods being shipped in the maritime industry still represent the most efficient method compared to other means. However, the maritime CO2 emission collectively ranks close to Germany as the 4th largest. The Californian CARB and SECA in Baltic and English channel were already in force with concerns on SOx affecting public health. EU was also starting to be concerned as individual countries in the Northern hemisphere started moving towards their own national and regional enforcements. With the threat of losing universal control, IMO decided to come forward with the Marpol Annex VI on air emission regulations after the airlines industry voluntarily came forward to clean up their emissions.
KNect365 Energy: Typically you hear about governmental agencies providing guidelines, and businesses following them, not the other way around. I just read how the USCG pointed to DNV GL practices in their “Policy Letters on LNG Bunkering, Personnel Training and Waterfront Facilities” in 2015. Can you tell me a little bit about the history of LNG bunkering and how it came to be that DNV GL developed their “Recommended Practice RP_0006: 2014-01”?
Tony Teo: The history of LNG bunkering started in Norway and today more than 50,000 operations already have been carried out. The ISO TC67/WG10 standard took far too long to be released and by the end of 2012 was still in its draft version. This was probably a result of too many cooks in the workgroup and the widespread locations that they come from. There was at the same time a pressing need from the industry regarding a lack of standard guidelines. Legacy DNV took the initiative and decided to go ahead to issue their RP 0006: 2014-01 which was very well received and even later referred to by the USCG in their Policy Letter on LNG bunkering.
KNect365 Energy: What were shipping companies doing before DNV GL provided their Recommended Practice RP-0006: 2014-01 on the Development and Operation of LNG bunkering?
Tony Teo: LNG bunkering has been identified as the weakest link in the implementation of LNG as a marine fuel. LNG is an unstable chemical and continuously boils at room temperature. Except for cryogenic materials, all others that come in contact with LNG become brittle. The safety aspects of LNG handling cannot be understated as personnel safety is directly involved. During that time, shipping companies carrying out LNG bunkering had their own in-house guidelines based on sound principles and best practices. At that time, the LNG bunkering guidelines available, were limited to the Ship to Ship project bunkering procedure produced by the Swedish Marine Technology Forum/Linde Cryo AB/FKAB Marine Design/DNV AS/LNG GOT/White Smoke AB in the Gothenburg report. Other JiPs were the BunGas in Hamburg, LESAS Netherlands, Flemish port authorities, Singapore Maritime and Port Authority of which legacy DNV had active participation in all. As LNG bunkering grows a need for an international standard became more relevant. Legacy DNV then in 2011 proposed to the ISO organization and got the go ahead to initiate an ISO TC67/WG10 workgroup with the objective of developing a standard for LNG bunkering equipment and procedures. Twenty companies and individuals representing Norway, Belgium, Brazil, Canada, China, France, Germany, Italy, UK and USA participated. The first meeting was in July 16 -18, 2011 with the ambition to publish a draft standard by end 2012. Prior August of 2015, oil prices and low Sulphur diesel prices were also high and shipping companies trading in the Emission Control Areas (ECA) of Europe and US looking for sustainability look towards LNG, as gas was becoming more and more plentiful and making more economic sense.
KNect365 Energy: Can you tell me the pros and cons of LNG as a marine fuel? Do you know what percentage of ships use it now, and can you name any companies that use it exclusively?
Prior to her wide usage of LNG for power generation Japan was a heavily polluted country like China today.
Tony Teo: The Pros: LNG fuel emission provides 20 to 25% reduction in greenhouse gas (CO2), about 80% reduction in NOx and 100% reduction in SOx and Particulate Matters (PM). It is the cleanest fossil fuel we have. With the advance of fracking technology in onshore drilling, the supply of natural gas became plentiful. In the US, gas storage became hugely insufficient at the ongoing production rate. For decades, gas has been safely used in households for cooking and heating. In many countries such as Pakistan, Argentina, India and Brazil, LPG and CNG are widely used in automobiles. Prior to her wide usage of LNG for power generation Japan was a heavily polluted country like China today. LNG is an excellent source of energy to store or transport. By itself, it will not burn or explode. It is light (less than half the density of water), odorless, non-toxic, colorless and expands 600 times into clean natural gas when heated. Subsequent to GOP 21 on climate change, many countries have pledged to do their part in lowering their greenhouse gas emission. Over the past two years, the fastest growth is seen in developing countries installing Floating Storage Regasification Units (FSRUs) for power generation as LNG meets their long term energy policies for cleanliness, plentiful and reliable supply and affordability.
The Cons: Gas if contained, can explode, so safe handling is very important. Some capital investment is necessary in order to use LNG as a marine fuel. Ship owners are going through tough market conditions today and on top of that they've to comply with new regulations like the ballast water treatment system implementation in effect from Sept 8, 2017. If not for cheaper oil and low Sulphur diesel fuels as a result, countless ship owners would be in financial trouble today.
The % of ships with LNG fuel is small today. Of the 50,000 or so international merchant ships trading today, about 80 are on LNG fuel and another 100 are on order. The ships that use these are generally of the type that trade to regular routes such as ferries, offshore supply vessels, harbor tugs and container ships where bunkering infrastructure can be developed. Even new cruise ships are being built with dual fuel capabilities today.
As more bunkering infrastructure gets developed like what's happening now in northern Europe as a result of governmental support, the popularity and number of LNG fuel vessels will grow. Ship owners with long term prospective, know that oil prices cannot remain low forever over the lifespan of their ships. Come 2020 when the sulphur limit requirement worldwide drops to 0.5%, prices of clean diesel will rise as the 50,000 ships rush to use it. LNG fuel will become more attractive, bearing in mind that there is limited growth in the number of new refineries worldwide. In 2020 EU will also be imposing the NOx IMO Tier III limit which is a 80% reduction from Tier I limits, and as LNG satisfies this requirement its popularity will rise. Companies based in Norway, EU and USA with ships trading locally are the first adopters of LNG fuel. More and more Asian based companies are preparing themselves with their new fleet being fitted with dual fuel engines in order to stay sustainable. Today there are about 60 new buildings on order and built with “LNG Ready” capability with the flexibility to easily switch later to be powered by LNG when needed.
A company that stands out in terms exclusive usage of LNG as fuel is “Fjord Line” in Norway. They are a pioneer in this in 2000 with their car/passenger ferry “GULTRA”. There was no national or international rules or regulations governing this technology at that time. The “GULTRA” basically was a prototype that contributed to the development of the rules put together by my ex-colleague, Ms Torill Grimstad Osberg. In US and Canada, LNG fuel propulsion has quickly caught up with commitments made prior to the 2015 oil price plunge. Trading today are OSVs from Harvey Gulf, container ships from Tote, Car/passenger ferries from Canadian companies such as STQuebec, BC Ferries and Seaspan Ferries. Miami based Carnival Corp has also ordered four LNG powered Cruise ships to be delivered in 2018, 2020 and 2022. These will be the first Cruise ships to join the ‘Green Propulsion Club’.
KNect365 Energy: Do you have a prediction for LNG to be used in all ships at some point in the future? Why or why not?
Tony Teo: 2020 will be the tipping point. On the table for the IMO are discussions on how to finance the effort to reduce CO2, a greenhouse gas. Since April 2015, a monitoring, reporting and verification scheme for air emissions from ships has been adopted by EU for all ships trading to EU waters. With this scheme, better statistics and data will become available. Since October 2016, China implemented three ECA areas for max of 0.5% sulphur limits on ships’ emissions and so did the port of Hong Kong since July 2015. So universally from East to West, the coastal waters’ sulphur limits from ships’ emissions will continue to spread and expand.
We have to be reminded that it took approximately a hundred years for shipping to switch from coal/steam to fuel oil propulsion. Looking at the crystal ball, it will not take another hundred years but much less as the industry is now driven by the IMO requirement for the reduction of CO2 and SOx emissions. The reduction in the CO2 part is directly proportional to fuel savings or efficiency which is a good thing. As the supply of gas and LNG grows exponentially, bulk prices will continue to be suppressed. When this spills over to small to mid-scale market, it will encourage more usage and infrastructure as shipping is all about economics. Like I mentioned earlier, ultra-low sulphur diesel usage will spike come January 2020 and so will the prices. Ship owners need to seriously start planning ahead to remain sustainable and not rest on the laurels of cheap refined oil forever or over the long lifespan of their ships.
Mr. Teo will be presenting the Chairman's Opening Remarks this May 31 during our: “Small Scale LNG & LNG as a Fuel Summit”.
Don't miss Tony Teo and over 40 other LNG experts at our LNGgc Americas event, May 31 through June 2 in Houston.