LNG takes off in most marine markets, growth slower along inland waterways

Faced with new international environmental regulations and an abundant supply of natural gas that has kept prices low, the marine industry — mostly notably ocean-going, offshore and ferry vessels — is increasingly turning to LNG as an alternative to diesel fuel, experts said at a Brookings Institution seminar last week in Washington.

But LNG adoption by the inland waterways industry will be much slower, constrained by technical, regulatory and economic challenges, they said. With the right policy changes, however, some 20,000 inland tugboats could be conversion candidates, John Graykowksi, former deputy and acting administrator at the Maritime Administration told the seminar, which explored the opportunities for LNG use in the marine sector.

“The inland sector is a tough nut to crack,”Graykowski said in a brief interview after his remarks. He said that while the inland waterways marine markets offer strong opportunities for LNG projects, there are also many unique challenges, such as developing an effective infrastructure network along the major river system to serve tugboats, as well as the difficulties of installing LNG tanks on the decks of barges. Given these technical demands and regulatory policies that must be developed by the Coast Guard, some studies predict that LNG won’t take off in the inland sector until 2020 or beyond.

Graykowski said, however, that “as long as there is a price advantage to LNG, this will drive conversions,”as well as encourage construction of dual fuel capability newbuilds. While Europe is forging ahead with LNG development, the United States still lacks a maritime regulatory structure, with responsibility currently divided between the Coast Guard and the Pipeline and Hazardous Materials Safety Administration.

Capt. John Mauger, chief of the Design and Engineering Standards Office at the Coast Guard, said regulations are starting to emerge. “The overriding goal is to provide a safe and efficient maritime system,” he said. “We already have standards for fuel system design, marine training and vessel operation and maintenance. But we need to consider standards for vessels carrying LNG in bulk, especially response capabilities.”

John Hartley, vice president for ship power at Wartsila North America, which has 12 million hp of vessel capacity using LNG, said that companies involved LNG are moving forward with their projects, investing more than $1.6 billion on LNG infrastructure, and placing orders for Jones Act tankers that run on LNG fuel. Hartley said that tugs, ferry boats and offshore supply vessels are strong markets for LNG conversions.

The marine LNG market still remains small, but has a lot of potential, the experts said. While Crowley Maritime, Harvey Gulf International Marine and Totem Ocean Trailer Express and others are investing in LNG, domestic LNG-powered commercial marine fleet is still only a small fraction of the emerging international LNG vessel market.  In the U.S., OSV, cargo and container ships and Great Lakes bulk carriers offer the near term growth prospects, while the inland industry will come later, depending on regulatory and other changes. The Gulf of Mexico is considered to be the key area for growth, especially for LNG bunkering.

Ben Semmes, a senior financial analyst at Cheniere Energy Inc., Houston, said his company’s Louisiana export facility that will be operational at the end of the year could supply 800 bcf a year to the U.S. bunkering market. “We’ve made a 20 year bet on low gas prices,”  he said. “The challenge is to make ship operators and owners make that same bet.”

The natural gas industry regards shipping an “important new market opportunity,” Dena E. Wiggins, president of the Natural Gas Supply Association, told the audience. “We are having to learn for the first time about each other’s business,”she said, adding that supply shouldn’t be a problem, as there’s a lot of gas in the ground, and methane gas emission have been going down as production has increased. 

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