The historic conundrum of developing Liquefied Natural Gas (LNG) as a marine fuel has a chicken versus egg element to it. Vessel operators interested in LNG are hesitant to make the commitment to build and/or convert ships to LNG without a guaranteed fuel supply. There is plenty of capital willing to build LNG liquefaction facilities, but virtually no one is willing to commit the capital without firm offtake agreements. Demand is stymied by lack of assured supply and optimal supply is not being generated due to concerns about market demand. Recent regulatory changes at the Environmental Protection Agency (EPA) and the International Maritime Organization (IMO) may help to incentivize an end to this stalemate, giving industry watchers reason to be optimistic about the future of LNG as a marine fuel. Stricter emissions regulations on marine vessels are set to take effect, making LNG a viable alternative to expensive compliance measures.
According to Sean Register, Director of Business Development for Chester Engineering, “The marine side is the frontrunner for implementation of LNG as transportation fuel”. Chester Engineering is a company that is introducing module & modular and scalable (MMS) liquefaction plants to bring LNG to directly where it is needed for use. The infrastructure requirements to support LNG as marine fuel is much less than for LNG class 8 Trucks. A standard 100,000 gallon a day LNG liquefaction facility will require as many as 3000 class 8 trucks to justify an investment. A similarly sized LNG facility can be justified with under a 100 ships. The trucking sector of the LNG market has also been retarded by the collapse of the price of oil. The reduced spread between LNG and diesel has made the economics that much more challenging for LNG trucking.
A major motivator for marine vessels to make the conversion to LNG is to comply with increasingly stricter emissions regulations. According to Charlie Riedl, Director of Market Development for America’s Natural Gas Alliance (ANGA), “We have a lot of operators looking for a way to come into compliance to avoid paying fines. We are seeing folks trying to figure out how quickly they can get vessels built in order to comply with [the new EPA emission standards] by January, 2016 ” . He states further, “If we look at the near term opportunity for LNG as a transportation fuel, the maritime industry stands out. Beyond the EPA regulations, vessel operators must also pay attention to (IMO) emissions regulations. Chart Technologies, a leading company in the entire LNG value chain – liquefaction, storage, distribution and end use – added in a written statement, “Any marine vessels that spend significant amount of time operating in the Emissions Controlled Area (ECA) around the United States now have to comply with the 0.5% sulfur limit that has been imposed by the (IMO) in 2015. LNG is certainly a viable alternative to expensive low sulfur distillate fuel and SOx scrubbers… so the growth potential is there.”
The Great Lakes region are an example of an area that has all of the necessary components for a successful large scale conversion of vessels to LNG fuel. There are many vessels that run fixed routes around the clock. Marcellus Shale projects provide nearby fuel to supply to strategically located fueling stations . The combination of fixed routes, and nearby fuel supply are key to the deployment of LNG in the marine sector. According to Sean Register, “ You can give vessel operators just-in-time delivery of fuel requirements. Right along the water’s edge, you can not only fuel [marine] vessels but trucks for inland use as well.” The other regions that stand out for the development of LNG as marine fuel are the Mississippi river and the Gulf of Mexico. These regions have a similar implementation profile as the Great Lakes and all three regions will lead the way for LNG as a domestic marine fuel.
