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FMC Commissioner Doyle’s keynote address to LNG Bunkering North America conference Vancouver, Canada

June 4, 2014

Contact: David Tubman, Counsel to Commissioner Doyle

Good Morning:

It is a pleasure to be here. Thank you IQPC Director Ms. Carly Greene and Ferus Natural Gas President Sean Lalani, Chairman of this conference.

I am a Commissioner with the U.S. Federal Maritime Commission. The Federal Maritime Commission is an independent regulatory agency responsible for regulating the nation’s international ocean transportation for the benefit of exporters, importers, and the American consumer. I should emphasize that my thoughts and comments here are mine and mine alone – they do not reflect the position of the Commission, and they should not be construed to represent the positions of any of my fellow Commissioners.

Liquefied Natural Gas (LNG) bunkering in North America is moving forward. Quite frankly, it needs to move forward. There is an abundant supply of natural gas in North America. Utilizing natural gas as a marine fuel would help ship owners and operators comply with the MARPOL Annex VI requirements to reduce air pollution from ocean going vessels. Natural gas, as a marine fuel, is strongly supported and endorsed by the Obama Administration. As this fuel source is taking hold in the commercial U.S. domestic coastwise trade, it is now gaining traction in the inland waterway system and the international container trade. Appropriate, safe and secure bunkering operations are mission-critical to a successful LNG marine fuel program.

This morning, I am pleased to open the LNG Bunkering North American conference by addressing the above topics.

MARPOL Annex VI

Under MARPOL Annex VI, sulfur oxide (SOx) content in marine fuels will be cut to 0.5 percent in 2020. There will be, however, a feasibility review on the practicalities of reaching the 0.5% benchmark, scheduled for completion no later than 2018.

Limits inside designated emission control areas (ECAs), in North America and northern Europe, were reduced to 1.0 percent in 2010, from 1.5 percent, and will be reduced again to 0.1 percent in 2015. To comply with these regulations, vessels will have to be fitted with exhaust scrubbers, or use liquefied natural gas or burn marine gas oil.

Last week, Drewry, an international maritime consultancy firm, reported that using marine gas oil (distillate) will add $29 to the cost of shipping a 20-foot (TEU) container between northern Europe and the U.S. East Coast. The round trip voyage cost increase between northern Europe and the U.S. East and Gulf coasts is estimated at $49 per TEU.

The Feasibility Review—MARPOL ANNEX VI

There was a lot of discussion about the availability of distillate fuels during the 57th session of the Marine Environment Protection Committee (MEPC 57) of the International Maritime Organization (IMO) that closed in April 2008. One of the major concerns regarding the Annex VI revision was the sufficient supply of low-sulphur fuel. To this end, the 2018 review clause regarding the switch to a 0.50% sulphur global limit was added to the final measure. The final working group report to MEPC 57 included a statement from the International Petroleum Industry Environmental Conservation Association (IPIECA) cautioning that the oil industry, at the time, did not expect for sufficient availability of low-sulfur fuel at 0.10% and 0.50% sulphur in all regions by 2015 and 2020, respectively. Therefore, from a scientific point of view, the 2018 review would be useful in assessing all aspects of shipping emissions and their effect on air quality and global warming.

The 2018 review is geared toward establishing the availability of fuel oil to comply with the fuel oil standard. In order to help inform the decision to be taken by the parties at MEPC, the IMO is required to establish a group of experts, comprising of representatives with the appropriate expertise in fuel oil markets and suitable maritime, environmental, scientific, and legal knowledge, to conduct the review. Thus, based on this review, only the parties may decide whether it is possible for ships to comply with the 2020 date, or if the standard should be deferred until January 1, 2025.

Environmental Benefits of Natural Gas

The use of LNG reduces SOx emissions by between 90% and 99%. SOx is the major contributor to acid deposition otherwise known as acid rain. This reduction in emissions brings SOx emissions within limits mandated by the Emission Control Areas designated by the IMO. NOx is a major contributor to smog. Using LNG reduces NOx emissions by approximately 90%. Finally, LNG has a lower carbon content than traditional bunker fuels, giving off up to 25% less CO2 emissions.

Cost and Economics of LNG as a Marine Fuel

Based on the current forecasts, natural gas delivered for production of LNG in the U.S. is now more than 50% less expensive on an energy-equivalent basis than marine residual fuel and marine distillate fuel. It is projected that this relative price advantage will continue, and even increase, through 2035. This has opened up an opportunity for significant annual fuel cost savings when converting marine vessels that use petroleum fuel to natural gas operation.

About 70% of domestic shipping relies on distillate fuel oil and the remaining 30% relies on residual fuel oil. By contrast, over 90% of international shipping is fueled by residual fuel oil. Residual fuel has significantly higher sulfur content than distillate fuel – 1% sulfur or more – and much higher heavy metal content.

According to an article in Journal of Commerce (Friday, May 29, 2014 by Bruce Bernard), marine oil gas currently costs around $300 per metric ton more than heavy fuel oil.

International Container Fleet and Natural Gas as a Marine Fuel

United Arab Shipping Company (UASC) is one of the top 20 largest container carriers in the world. In August of 2013, UASC announced its order for a series of ultra large container ships comprised of five 18,800 TEU vessels and five 14,500 TEU ships. Citing the potential for significant future fuel savings, UASC said the ships are being designed to be ready for LNG as a fuel source. At the time, UASC calculated that the necessary LNG infrastructure would be available in 3-5 years. This is the first major deep sea carrier to delve into natural gas as a marine fuel for a long haul trade such as the Asia – Europe route.

LNG Bunkering for North America (Ocean)

I see that Keith Meyer, CEO of LNG America will be presenting this morning. I look forward to his remarks.

LNG America announced in March that it had entered into an agreement to jointly work with Liquiline to develop commercial offerings for LNG marine fuel markets in the North American Pacific Northwest and the transport of LNG in ISO containers to remote markets in Hawaii and Alaska. Liquiline has established the use of LNG ISO containers for LNG fuel markets in Northern Europe. LNG America is developing LNG distribution networks for the United States. This joint effort will focus on the movement of LNG over long distance by ISO containers being moved by ship and the servicing of local markets by way of LNG bunker/shuttle vessels.

In February, 2014, Jensen Maritime, Crowley Maritime Corp.’s Seattle-based naval architecture and marine engineering company announced it would design liquefied natural gas (LNG) bunker barges in the U.S. for LNG America LLC.

Also in February, it was announced by the TOTE that Pivotal LNG Inc. (Pivotal) and WesPac Midstream LLC (WesPac), would provide LNG to TOTE’s ships by developing a new LNG fueling facility in Jacksonville, Florida.

In February, Harvey Gulf International Marine broke ground for its $25 million LNG fueling facility at Port Fourchon, La. In January, Gulf Coast Shipyard Group (GCSG) launched the first of six Harvey Gulf International Marine Dual Fuel (LNG) Offshore Supply Vessels.

Last year, Texas-based Waller Marine announced it would build a small-scale LNG facility at the Port of Greater Baton Rouge, Louisiana, to fuel vessels.

LNG Exports and Synergies with LNG Bunkering

Over the past few years much attention has been paid to the export of LNG from North America. Not long ago, you would have been dismissed out-of-hand if you suggested that the United States would one day be considered a source for LNG exports. Likewise, Canada began ramping up its natural gas production to serve the United States. Both countries were developing LNG import facilities at a rapid pace. In fact, in 2007, there were more than 60 proposed LNG import facilities in some stage of development.

That has all changed with the advent of shale gas.

LNG facilities that were built for import are now adding liquefaction and other associated machinery and equipment for loading of LNG tankers for export. Additionally, new greenfield projects are being proposed for the LNG export market.

As a suggestion, perhaps some of the proposed export facilities may want to consider whether synergies exist for outfitting these export facilities with fueling services for LNG bunkers. It may make sense – from a regulatory, planning, and engineering standpoint. Clearly, and if possible, using some of our domestically produced natural gas (which is aimed for export) for the domestic maritime fleet of would be considered good stewardship.

Last month for instance, SCT&E LNG (a subsidiary of Southern California Telephone & Energy) announced that it was seeking to apply to the US Department of Energy for LNG export authority. There, SCT&E LNG stated that it would consider including bunkering facilities, in addition to multiple LNG storage tanks, as fuel for ships – this would be along the Calcasieu Ship Channel in Louisiana (connecting Lake Charles to GOM).

In May, the West Coast Marine LNG Joint Industry Project Steering Committee in Canada issued a report stating that Vancouver is positioned to be North America's preferred LNG bunkering destination.

Inland Waterways: LNG Marine Fuel and Bunkering

On May 12, 2014, the Port of Pittsburgh Commission began soliciting proposals from qualified consultants to provide research support for a liquid natural gas project for the Pittsburgh marine-corridor by developing cost/benefit analyses and identifying shore-side and midstream refueling requirements. The Port of Pittsburgh Commission is coordinating the efforts of several entities to produce a study that would evaluate the possible business opportunities that might become available to the inland waterway operators in the Pittsburgh Marine Corridor, should liquid natural gas be introduced as an alternative fuel for regional towboats.

There is an ongoing Pittsburgh Marine Corridor Natural Gas Feasibility Assessment which is examining whether realistic opportunities exist for converting inland waterways vessels from diesel to natural gas propulsion. This Assessment is being conducted through collaboration between Life Cycle Engineering, 3 Rivers Clean Energy, Marshall University Rahall Transportation Institute, and the Shearer Group, LLC.

Pittsburgh is the third busiest inland port in the United States. About 34 million tons of cargo move through the Port of Pittsburg each year. Approximately 45,000 jobs are dependent upon this inland waterway transportation system.

Overseas LNG Bunkering Ramping-up

Methods used in Norway consist of a direct supply from LNG storage tanks located onshore, where vessels can refuel at their convenience, and using LNG tank trucks that deliver LNG similar to the method used to deliver diesel fuel. Additionally, vessel-to-vessel transfers whereby LNG is offloaded from a barge alongside a vessel also are being considered.

The Port of Rotterdam continues to actively develop its LNG bunkering infrastructure in anticipation of its expected launch operation by 2015. The port appears to be in a position to oversee LNG bunker supplies, given that the port presently has gas pipelines connecting it to supplies in Germany.The port is looking to have one LNG bunker barge operating in port by next year.

Last year, the Antwerp Port Authority announced that it had appointed EXMAR as its strategic partner for LNG bunkering in the Port of Antwerp. Both partners have teamed up for the development of an LNG bunkership.

And with no surprise, Singapore is looking to become the terminus for LNG bunkering in Asia.

Coordination in North America: Bunkering

Safety and security are critical. Stakeholders must participate in developing the requirements for safe and secure operations and stay on top of all developments and contribute to the regulatory process as it evolves.

In February, the U.S. Coast Guard issued a notice seeking public comment on two draft policy letters regarding safety measures for LNG as a marine fuel. The first draft policy letter provides voluntary guidance for LNG fuel transfer operations on vessels using natural gas as a fuel and for the training of personnel. The second draft policy letter discusses voluntary guidance and existing regulations applicable to vessels and land based facilities conducting LNG marine fuel bunkering operations, and provides voluntary guidance on safety, security, and risk assessment measures for these operations.

In March, the American Bureau of Shipping (ABS) released a report entitled Bunkering of Liquefied Natural Gas-Fueled Marine Vessels in North America. The objective of the report is to provide guidance to potential owners and operators of gas-fueled vessels, as well as LNG bunkering vessels and facilities, in order to help them obtain regulatory approval for projects.

I hope that I have presented you with some meaningful insight on LNG as a marine fuel and LNG bunkering. Both go hand-in-hand and one cannot exist without the other. I cannot overstress the safety and security aspects of the bunkering operations and it will take the private sector’s active participation with regulators to ensure proper protocol and oversight.