well worth the read imo…
By MarEx November 07, 2013
By Tony Munoz, Editor-in-Chief of Maritime Executive and the MarEx Newsletter
MarEx: How big will the market for LNG-fueled vessels be?
Johan Sperling: It has the potential to become very big. There are people speculating on how many of today’s petroleum-powered vessels are going to be converted to LNG. One estimate I heard is up to 20 percent of whatever is currently powered by diesel will be converted to LNG. If that’s the case, folks like Jensen and other naval architecture firms are going to be extremely busy in the next few years because this transformation comes with challenges. There’s a tremendous amount of engineering and planning that needs to take place in order to make that happen. For us that means a lot of good business and just the prospect of it is very exciting.
MarEx: What have you got on the drawing board right now?
Sperling: There are not too many LNG construction projects currently. What we have now are a ton of planning projects – from conversions to new construction to Crowley’s various vessels that we want to make LNG-ready. So it’s already meant a tremendous amount of business for us, and it’s great for our team. It allows you to become creative again and start thinking because the solutions are not super simple. You can’t just put the LNG tank anywhere. You can’t design and route piping exactly the same way you did before, so it’s an interesting challenge for everyone in my position.
MarEx: So really you’re at the initial stages of projects before they consider financing.
Sperling: That’s the exciting part. We’re there at the front end. We get to see all the movement. LNG is a bit of a chicken-and-egg type of thing. There’s a bit of this game going on between developing facilities to provide LNG, or building the vessels first. But there’s been lots of movement. Every month the number of projects increases, and that’s everything from harbor tugs to ATBs to oceangoing tankers and bunkering vessels to bunkering barges in the ports, so it’s literally all kinds of projects that we’re lucky enough to be part of.
MarEx: Is this just from U.S. owners or from around the world?
Sperling: Our prospective customers are mainly U.S. owners. Most of the foreign interest we’ve had is through Crowley in some way, wherever they operate, in the Caribbean or Puerto Rico or Mexico. But there’s always been some kind of Jones Act connection in all the projects we have worked on so far. That said, Jensen has teamed up with a couple of European-based engineering firms to get ahead of the game because the LNG movement started in Europe. The U.S. is probably going to move quicker. Although there are a pile of projects in Europe, the sheer amount of LNG that could be available in the U.S., if it comes to fruition, means the U.S. is probably going to be more prominent.
MarEx: Is LNG more efficient than diesel? Everybody knows it’s cleaner.
Sperling: It’s not necessarily a more efficient fuel, but from an EPA standpoint it certainly is – everything with the EPA is about what they are measuring today. But it is way cleaner from all kinds of perspectives. Potentially if you have a pure gas engine, it would be much cleaner than any diesel-hybrid solution you could ever come up with from an EPA standpoint. Is it more power-efficient than diesel? Not today. I don’t know if it is ever going to be. But the price point is so much lower than diesel and is projected to be even lower over the next 30-35 years. So it’s going to be something that will save a lot of money.
MarEx: What is the technology? How much different is it than diesel?
Sperling: It’s not terribly different. In most cases the engine manufacturers take the same engine and modify it for LNG or other fuels. It’s very interesting – just six months ago the available gas engines for the marine industry were very few. Now every manufacturer is trying to figure out a way to sell engines that burn LNG. Being part of Crowley, we purchase a lot of engines, so we get invited to all these engine manufacturers that want to prove to us they can burn LNG. We have been in Japan looking at MAN engines. In a couple of weeks we are going to Italy to look at Wärtsilä’s new LNG system.
The big engines are all only available today in some kind of blended version or dual-fuel configuration, and I think it’s going to be like that for a while. Some of the smaller engines, if you are looking at tugboats or other things where you don’t require as much horsepower, have options for 100 percent gas. But they’re limited compared to dual-fuel, and there are ups and downs because people feel there’s a risk with picking an engine that can only do gas. What if for whatever reason you can’t get gas? Then you just sit there, and most people feel that’s a risk – especially today when there is limited infrastructure for LNG available. So a lot of folks want the dual-fuel engine.
With that said, I actually have a client for whom we are currently designing a harbor tug with a 100 percent gas engine. There are folks that are willing to take the risks and move ahead because if you do go 100 percent gas then you really can claim you are 100 percent green.
MarEx: With all the terminals that are going to be producing LNG, do you think that the refueling could be done with LNG bunkering barges spread out in strategic places?
Sperling: I think there’s a mix of things that are happening at the moment that will keep happening. You have a lot of the big oil companies like Shell, BP, you go down the list, and they’re all currently working on converting facilities so they can actually offer marine LNG, especially in the Gulf. Actually, there are three regions that are big – the Gulf, the West Coast, and the Great Lakes. They’re also waiting for the industry to invest, so it’s a bit of a game between the two, but I think these things will be in phases. Likely you’re going to see small bunkering barges being built first and then in a few years with more LNG-powered vessels around you’ll see larger equipment, maybe self-propelled bunkering vessels like you see on the drawing boards in Europe.
MarEx: Do you see things starting now?
Sperling: I think we are pretty close. I sense from the clients we are working with that we are close to something. Whether that means somebody’s going to really sign another construction contract this year or next year, I don’t know.
MarEx: You said LNG isn’t more efficient than diesel?
Sperling: Not yet. It’s cheaper today than diesel and is projected to stay cheaper over the next 30-35 years, but there is a huge cost requirement to convert vessels or build new LNG vessels. Nonetheless, there is a significant economic incentive to LNG in addition to the obvious green benefits. The big difference between Europe and the U.S. is in Europe the conversion to LNG is driven by government subsidies and the need to be green. In the U.S. it’s a combination of being green and the fact that it makes a lot of commercial sense.
MarEx: Are lower emissions what’s driving the move to LNG?
Sperling: It’s a combination of things. It makes commercial sense and the other factor is the EPA down the road. Once you go to Tier 3 engines and especially when you introduce Tier 4, there will a tremendous amount of retrofitting. There’re really not too many engine manufacturers that offer an engine that you don’t have to buy after-treatment equipment for, and that costs money. So for them LNG makes a lot of sense.
MarEx: What’s your forecast?
Sperling: I can tell you the interest is increasing every month. It’s becoming more real every month. It will be interesting to see in maybe the next six months or so if the interest turns into reality. For us, about 20 percent of our business is Crowley. The other 80 percent is third party. It’s interesting that a lot of our customers pay attention to what Crowley is doing. When they hear Crowley is working on something, their interest goes up tremendously because of Crowley’s leadership position in the industry. I always get a lot of questions when I’m out and about. – MarEx