Debating the merits of LNG as the preferred marine fuel; should you wait or dive right in? It’s much more complicated than you think.
The case for the use of Liquified Natural Gas (LNG) as marine fuel has been building steadily and has now achieved a position in the commercial propulsion equation. A quick check of the global fleet lists 30 vessels built and operating on LNG and a backorder list of another 40 in the pipeline. Global classification society DNV predicts that by 2030, up to 45% of vessels will be fueled by LNG. A growing consensus says that LNG is the future of marine propulsion, while others argue that marine diesel fuel will always have its place in the mix and that the rush to convert to LNG should be done carefully, if at all.
Seemingly, there is every reason to plunge into the LNG waters and few reasons to hold back. High profile newbuild projects are underway in virtually every sector of ocean shipping. TOTE’s recent announcement that it had committed over $350 million to the construction of at least two LNG-powered containerships was probably the most surprising deal. Equally exciting is the Harvey Gulf Marine effort to build a new class of dual fuel offshore supply vessels. The repowering market is heating up, tool. At least one Staten Island ferry will reportedly be converted to LNG; the first in North America to use LNG for power. Separately, the Washington state ferry system is also exploring the use of LNG to power its fleet.
Hamburg-based Marine Service announced late last year the world’s first LNG Fuel Tank Container. Developed as a mobile LNG tank, the 40 feet standard container provides a solution for two of the main issues concerning the use of LNG as marine fuel: limited availability due to lack of infrastructure and the issue of the reconstruction as well as the operation of existing fleets.
This, and other efforts to close the gap on the lack of global LNG bunkering infrastructure inevitably seem to point to a commercial marine world that will be all but 100 percent powered by LNG within a generation. Not so fast, says Ron Huibers, president of Volvo Penta Region Americas.
Not so Fast …
Volvo Penta’s range of engines, spanning all the way to 900 HP, focuses on offshore supply vessels, tugs and other workboats. Primarily known as a leisure market propulsion supplier here in North America, Volvo Penta has been active in the commercial markets in such places as Argentina for many years. Its current push to ramp up its commercial footprint in North America won’t include the immediate headlong rush into LNG, despite being widely known for its on-road success with LNG powered trucks. Huibers says that there are carefully considered reasons why.
“At Volvo group, we supply products for commercial transportation industries, as well as commercial and leisure marine markets. As an engine company, one of our top concerns is efficiency relative also to environmental conditions. We believe that as an engine manufacturer, we are part of the emissions problem, so we should also be part of the solution. We evaluate different alternative fuels, from both an environmental as well as an economic perspective for owners.” He adds, “Back in 2007, we determined that we could produce a diesel engine that could run on seven different alternative fuels. From a technology perspective – whether it is biofuels, different gases, we have the technology to produce these engines – so it is not an engineering challenge.”
Volvo Penta, despite deep roots in gas propulsion, is not dipping its toes into the marine waters with LNG just yet. “Although we leverage off of the Volvo group R&D platform, Volvo Penta doesn’t have an LNG offering right now because the infrastructure and technology isn’t yet there in the marine environment. In 2014, we’ll be producing high pressure direct injection (HPDI) to our highway engines, which will be using LNG. Down the road, we’ll see how that can translate into the marine market.”
According to Huibers, comparisons between LNG, CNG and diesel show that diesel still has the highest fuel density per gallon (BTU wise). And, he insists, “These other fuels are viable and we as a group are riding all of these horses – including LNG and CNG, biofuels and DME. What we also see going forward with the emission regulations is that diesel will still be a prevalent and the primary fuel for propulsion for transportation at least for the next ten years. I don’t see this going away. That has to do with the underlying economics; handling, range, its availability, the infrastructure and other factors.”
Huibers continues, “You can’t focus only on the fuel cost. Even if the price of LNG is one half that of diesel, if that fuel doesn’t have the power density/efficiency, then what have you achieved? Yes, you gain in other areas, emission outputs, NOX, CO2. But, you have to carry twice as much fuel to hit the same range of travel. On top of that, the entry and exit costs are much higher on LNG – 50 to 100% more expensive than a diesel.”
The entire lifecycle cost of the LNG option has to be explored, said Huibers. “If you do that math and add in everything else and it works for you, then fine. On the other hand, at the end of a life cycle, especially for a standalone gas engine – where do you sell that vessel to? Where’s the market for it? Right now, the salvage value on these LNG engines isn’t the same as diesel. It is important for people to pencil the numbers on the total cost of ownership, not just fuel costs, and then you realize that yes – there is a risk here. Put your toe in the water for the right application – but look at the total picture. This is why we at Volvo Penta are taking a measured approach.”
For large LNG haulers, LNG may make perfect sense, but for the regular workboat people that Volvo Penta caters to, the market is still immature and switching to LNG involves risk. Responding to the assertion that the cost of LNG propulsion was only 16 percent more than diesel, Huibers said, “You have to look at the cost of the bunker tankage, running these specially constructed cryogenic tanks at temperatures of minus 250 degrees, the venting that goes on – the cost is huge. So, are they counting the engine or also the tankage as well?” Beyond this, Huibers adds, “Claims of reduced maintenance for the engines are as yet, unproven. In the early stages, it is actually a higher cost. Especially in dual fuel, the argument that maintenance costs will significantly be reduced has not been fully borne out.”
Circling back to Volvo Penta’s deep experience with LNG, Huibers charts the future of the marine markets that he serves. “Because so many diesel engines are of automotive origin, we’re already achieving the toughest environmental compliance standards in the world – right here and without the use of credits. Since 1988, in NOX and in particulate matter, from what EPA standards were, an exponential reduction in emissions has been seen.” Relating that land-based experience to marine, he adds, “EPA 2010 is really what is going to be equivalent to Tier IV on the water. In the marine industry, we’re not there yet. We already have the solution; proven, on the road with the diesel package that we provide. It utilizes after treatment because that’s the only way you can do it efficiently. Simply looking at acquisition costs, it makes sense to stay with diesel. We’ll have an LNG marine engine – but it is going to have to hit the right spots, market, and the right application.”
Class Weighs In
From the class side of the equation, DNV CEO Henrik O. Madsen says that there a number of drivers for LNG on the water today. “Clearly the new regulations, particularly the regulations in North America will drive a lot. And LNG is the obvious choice; to me it’s a no-brainer. If you are going to travel in ECA areas, and LNG is available, then for the newbuildings LNG should be the fuel. Then in the U.S., the LNG is very cheap compared to diesel or distillates, so that also gives a huge incentive in North America.”
Tony Teo, also of DNV, condensed the discussion of fuels, their downsides and advantages, within the context of coming regulations and the options available to shipowners. He notes that, “From August 1st, 2012 new regulations on the sulphur content of fuel for shipping in US waters within 200 miles will come into force. Accordingly, this will be further reduced to 0.1% by 2015. Within the shipping industry, the next decade will see a significant challenge as IMO’s Marpol Annex VI Emission Control Areas (ECAs) and the EEDI are imposed for SOx, NOx and CO2 limits.” That said, Teo asserts that there are three main options available to operators. These include (a.) the use of low sulphur fuels/distillates (MGO), (b.) the installation of EGS (Scrubber) or (c.) switching to LNG as a fuel. The table below illustrates the benefits and challenges of each option.
Another View from the Engineroom
Ole Grøne, Senior Vice President Low-Speed Sales and Promotions at MAN Diesel & Turbo also weighed in. Grøne said in January, “There is absolutely a future for Diesel engines, especially for our ME-GI engine, which is a dual-fuel engine that works according to the Diesel principle, in contrast to the majority of medium-speed engines that follow the Otto principle. The first development we will see is that, over a relatively short period of time, all LNG carriers will move 100% to being powered by dual-fuel engines – there are currently still some with steam turbines as prime mover. Subsequently, there will be a trend for coastal ships sailing between two points to adopt LNG-powered engines and, as we see with the TOTE order for containerships, for shipping lines sailing permanent routes where LNG is available at a low cost combined with local emission rules. The future will show what is most beneficial for owners.”
MAN Diesel’s approach to the question is pragmatic. Grøne continues, “The pure diesel engine still has a future as long as owners can procure fuel oil at a beneficial price. However, if LNG represents a better business case as a fuel, then owners will shift to it. We develop our engines to fulfill future, as well as contemporary, emission legislation. In this respect, we have the first Tier-III heavy fuel oil-powered engines already in service.”
The advent of more stringent emissions requirements and the possibility that, at some point, both diesel and LNG will eventually require after-treatment in order to meet future, more stringent emissions requirements was also addressed. MAN’s Senior Vice President added, “There could very well be a time where regulations are such that after-treatment will be required for all combustion engines, but a cleaner fuel like LNG will always be less demanding, in respect to after-treatment requirements, than a liquid diesel fuel.” But Grøne says MAN will be ready for all eventualities. “Practically all of our Low Speed Engines are offered in an ME-GI version today. The majority of orders are still purely diesel engines and this will remain the case for years to come. You could compare the situation today with 100 years ago when we first introduced Diesel engines aboard oceangoing vessels with the famous MS Selandia. In the beginning, it was only ships in liner trade that were ordered with Diesel engines and it was only after 10 years that the first tramp ships were ordered with Diesel engines. Even up to the 1970’s, some tankers were still being ordered with steam turbines. We are prepared for all fuel scenarios.”
MAN Diesel & Turbo sees significant opportunities arising for gas-fueled tonnage as fuel prices rise and modern exhaust-emission limits tighten. Indeed, previous research indicates that the ME-GI engine delivers significant reductions in CO2, NOx and SOx emissions. Furthermore, the ME-GI engine has no methane slip, and Grøne touts it as the most environmentally friendly technology available.
Not unlike ballast water technology solutions, perhaps, and when it comes to environmentally correct and economically sound propulsion solutions, there may be no silver bullet to get every sector and size of vessel to the Promised Land. Considering the more than 115,000 commercial vessels on the water today, the introduction of less than 100 boats to the global propulsion equation does not necessarily constitute a done deal for LNG. LNG is coming. Indeed, it is here. To what extent that it eventually permeates the global marine markets is still to be determined. How operators determine what is right for them is another thing altogether.
(As published in the 1Q edition of Maritime Professional - www.maritimeprofessional.com)