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GE, Shell, Clean Energy target US LNG fuel market

12.03.2013  | 

Shell, General Electric and a company co-founded by T. Boone Pickens are planning investments in natural gas powered shipping as record US output spurs the merchant fleet to use a new fuel.

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By ISSAC ARNSDORF

HOUSTON (Bloomberg) -- Royal Dutch Shell, General Electric and a company co-founded by T. Boone Pickens are planning investments in  natural gas powered shipping as record United States output spurs the merchant fleet to use a new fuel.

Clean Energy Fuels, which Pickens helped start, will begin construction next year on the country’s first fuel station for cargo ships running on liquefied natural gas in Jacksonville, Florida. Shell said in March it’s planning LNG plants for the Great Lakes and Gulf Coast. GE, evaluating five locations, says United States will need 50 to 100 small-scale plants for ships, trains, mining and trucks by 2025, each costing $50 million to $150 million.

“We truly believe the age of gas is here,” said Mike Hosford, GE’s general manager for unconventional resources, based in Houston. “The industry needs bigger players to step in and start helping to build out the infrastructure.”

While the maritime industry still relies on oil-based products for almost all its fuel, tighter emissions rules and abundant natural gas are convincing ship owners to switch. The global fleet of 42 LNG-powered ships will almost triple by next year and increase 42-fold to almost 1,800 vessels by 2020, according to DNV GL, the largest company certifying the merchant fleet for safety.

Norwegian ferry

Natural gas output in the United States, the world’s largest producer, rose to 2.198 Tcf in August, the highest since at least 1973, according to the latest Energy Department data. Marketed production will expand 1.1 % to 71.03 Bcfd in 2014, the department estimates.

The first LNG-fueled ship, a Norwegian ferry built in 2000, is one of 42 in operation worldwide, out of about 60,000 merchant vessels, according to DNV GL.

Most are small ferries and vessels that shuttle supplies to offshore oil platforms. Tankers hauling LNG in world trade have long used it for fuel through a process known as boil-off.

Thirty-seven new LNG-fueled ships and two conversions are on order, scheduled for delivery in the next three years. By 2020, 1,068 new vessels will be built and 600 to 700 will be converted to run on the fuel, DNV GL says.

The biggest vessels ordered so far are two container ships for delivery in 2015 and 2016 for TOTE Inc., which runs services between the United States and Puerto Rico and Alaska. The design for the LNG-powered vessels won the Next Generation Ship Award in June at the industry’s biggest conference in Oslo.

Anthony Chiarello, TOTE’s president and CEO, keeps the mermaid-shaped trophy in his Princeton, New Jersey, office.

More customers

“Within the next five to 10 years, LNG will become the main fuel source for all marine transportation,” said Chiarello, who says he gets at least half a dozen calls a week from other owners asking about the fuel. “It’s going to catch on. When those ships are actually plying the seas and people are then able to calculate the emissions impact and the possible cost savings, they can do all that math and say, ‘This is really a good decision.’”

Some ship owners are waiting for more harbors to add equipment, and gas providers want to see more vessels that can be customers, according to MAN Diesel & Turbo SE, the largest maker of ship engines. Depending on infrastructure, prices and environmental regulations, there could be as many as 2,000 LNG-powered vessels consuming 15 MMmt by 2020, the Augsburg, the company estimates.

Dual-fuel engines

Matson Navigation ordered two container ships with dual-fuel engines able to use LNG for its West-Coast-to-Hawaii service for $418 million, scheduled for delivery in 2018 from Aker Philadelphia Shipyard Inc. Crowley Holdings Inc., a Jacksonville-based shipping company, ordered two LNG-powered ships to carry containers and vehicles for delivery in 2017 from VT Halter Marine Inc., of Pascagoula, Mississippi.

SEACOR Holdings ordered two 610 ft tankers at the General Dynamics NASSCO yard in San Diego in September that are designed for eventual conversion to LNG. American Petroleum Tankers Parent, majority-owned by Blackstone Group LP funds, ordered four ships with the same design in May. They are scheduled for 2015 and 2016.

“At some point LNG is going to be a viable marine fuel,” said Rob Kurz, the CEO of American Petroleum Tankers in Plymouth Meeting, Pennsylvania. “The infrastructure is coming, but nobody knows precisely when it will be built out.”

Jacksonville plant

While the United States already has about 60 small-scale liquefaction plants producing about 4.47 MMgpd used as transportation fuel and to generate electricity, none of them are close enough to water for ships to use, according to Newport Beach, California-based Clean Energy. GE and Ferus Natural Gas Fuels, a closely-held Calgary-based supplier, are partners on the Jacksonville plant through a consortium called Eagle LNG Partners. The facility will supply trucks and ships with as much as 300,000 gpd by 2016, according to Clean Energy.

There are also plans for facilities to export from the United States, including Cheniere Energy’s terminal at Sabine Pass, Louisiana, which will be the first in the continental United States when it opens in 2015. The plant will be able to process 9 MMtpy, eventually rising to 27 million, according to the company. The Energy Department approved three other projects so far. United States export capacity will reach 72 MMt by 2020, according to Morgan Stanley.



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