VLCCs and container ships set to follow Qatars LNG carriers in gas-fuelled transport trend.

On 28 May Korean shipbuilder Daewoo will test offshore an LNG-powered large container ship, MEES learns. It is a milestone in a slowly emerging market of gas-fuelled vessels that could alter energy markets and change the long term face of bunkering, including hubs such as Fujairah in the UAE.

The Daewoo launch comes at a time when traditionally powered vessels face rising oil costs, and ever-tightening emissions regulations in the maritime waters of many countries. Gerd Wursig, Manager for Process and Gas Technology at Germanischer Lloyd, said at Gastech conference in Amsterdam on 21-24 March: Environmental benefits and cost are the two main driving factors in the push for gas-fuelled ships.

Daewoo is also developing an LNG-powered very large crude carrier (VLCC), which is dual fuel able to run off fuel oil or gas. Some analysts think that if the worlds VLCC fleet switched to LNG it would theoretically create a 12.5mn tons/year of demand for LNG.

Running large vessels off LNG is not new. In Qatar, Shell has pioneered technology to power LNG carriers from boil-off LNG the gas which evaporates during a voyage and has to be flared or used to prevent a pressure build up. The 25-plus LNG carriers, which Shell one of the largest LNG vessel operators in the world manages for Qatars state-controlled Naqilat shipping firm, are all dual fuel. When they run off LNG they cannibalize a small proportion of their own cargo, a Shell spokesperson pointed out to MEES. Bruno Brethes, Chief Operating Officer of Frances Cryostar, which makes LNG compressors and pumps, tells MEES: LNG carriers can now be fuelled 100% by boil off depending on the speed of the carrier and the amount of LNG on board.

But other commercial vessels using LNG would need LNG storage tanks and a network of purpose-built bunkering terminals. Europes adjusting to the changing LNG supplies for the power generation market is helping the continent is preparing to turn LNG import terminals to dual purpose import-export outlets. The move will help facilitate the fledgling gas-powered fleets, Dr Wursig said. Furthermore, small LNG tankers of 12,000-35,000 cu ms capacity are being designed to allow bunkering in ports that cannot have big LNG terminals, he said.

Industry In Infancy

The industry is still in its infancy. In 2000 the first commercial vessels went into service a car ferry and a patrol boat. Today there are 26 LNG-powered vessels in operation mainly smaller vessels in Norway. By the end of 2011 the first ocean-going LNG powered chemical tanker will begin operations. Large container vessels and cruise ships are expected to follow.

The growth in international gas-fuelled shipping is held up by the lack of international regulations covering the technology and its safety risks. Issues include the following: if LNG mixes with water it expands violently; collision resistance and risk; low flash point methane is highly flammable when mixed with air; and bunkering risk due to possible gas releases.

Existing laws are fragmented and do not cover all aspects in a unified code. But a framework International Gas Fuelled Ships code is expected in 2014. Joseph Morelos, senior surveyor at Lloyds Register of Shipping, said at Gastech that the code will lead to wider acceptance of gas-fuelled ships. The growth of the industry, however, also faces technical obstacles. The bunker system for large container ships is not easy Jung Han Lee, Vice-President at Daewoo Shipbuilding and Marine Engineering, tells MEES.

Our LNG-fueled VLCC design is almost ready. However, the more important thing is a decision from ship owners who have to decide based on the LNG bunkering logistics and LNG supply price scheme. The long-term price compared with conventional fuel oil would be one of the most important risk considerations to ship owners. In short, the LNG price and commercial aspect is more a governing factor than the technical one, I personally believe, he says.

From 2015 stricter global nitrogen and sulfur oxides emissions rules come into force under the International Maritime Organizations MARPOL convention. Locally, even stricter regulations are in place in Emission Control Areas (ECAs) which include the Baltic and North Sea, and next year France, the US and Canada, extending 200 nautical miles from shore. The moves will add upward pressure on low sulfur fuel oil prices 1.5% sulfur marine fuel is $30/ton while 0.1% sulfur fuel is $300/ton or force ships to add scrubbers or exhaust treatment facilities.

Construction costs for LNG-fuelled vessels are 8-15% higher than for conventional ships, but gas is already much cheaper than fuel oil. In the first quarter this year Henry Hub prices were $3.90/mn BTU compared to $15.76/mn BTU for Rotterdam heavy fuel oil.

LNG-Powered Ship Economics

Mr Lee says that assuming $8/mn BTU for LNG, compared to $500/ton for fuel oil half its current market price Daewoos experimental 14,000 TEU [twenty-foot equivalent unit] container ship, traveling from Europe to Asia-Pacific, with 19 days in an ECA and 25 days in a non-ECA, would save $12mn/year and recover its capital expenditure in 10 years. The pay-back period would allow for a long term supply contract, which is a win-win for both ship operator and LNG producer Qatar is strongly in favor of long term contracts.

A shift away from fuel oil bunkering would not harm Fujairah, which is one of the worlds top three bunkering hubs, alongside Rotterdam and Singapore. Fujairah is perfectly aligned to be an LNG refueling station for large container vessels and VLCCs, Dr Wursig tells MEES. It has plenty of land for new terminals and storage and is en route for passing LNG carriers heading out of Qatar Naqilats jointly and wholly owned fleet of 54 vessels represent a total investment of approximately $11bn.

Fujairah had previously been considered as a site for an LNG depot to take advantage of arbitrage between the Asia-Pacific and European markets and changing demand in the seasons. The emirates LNG future may now be based on shipping needs rather than power station demand.

Copyright MEES 2011.