LR, Penn Oak Energy Partner for LNG Retrofit Service

Lloyd’s Register North America, Inc. (LR) has teamed with Penn Oak Energy Corp to help companies raise capital and mitigate the technical risks associated with retrofitting ships fuelled by liquid natural gas (LNG), by providing a one-stop-shop solution to the industry.

Ships that are fuelled by LNG can reduce operating costs while meeting stricter environmental regulations. LNG-fuelled ships have reduced emissions (nitrogen oxide, sulphur oxide and particulate matter) as compared with heavy bunker oil and even low-sulphur marine diesel.

Historically, the leading expense for ship operators is fuel and personnel. The challenge to building these new ships has been that shipowners are unwilling to invest in LNG-fuelled ships if supplies of LNG bunker are difficult to obtain, but that has started to change as more LNG facilities are built. LR's LNG Bunkering Infrastructural Survey 2014 indicates that major ports around the world are either planning for, or are anticipating, the wide-scale development of LNG bunkering. The other challenge for shipbuilders is the large initial capital costs to build these new ships.

"LNG as a fuel has emerged as one of the most considered choices for a new generation of vessels. The infrastructure to support this new class of ships has started to mature, and we have seen great strides in companies willing to convert their existing ships to this new fuel or constructing new ships in the U.S. Emission Control Areas. Our relationship with Penn Oak Energy will help provide the private equity to ship owners to undertake these ambitious projects, and assist those ship builders that the U.S. will need to expand this growing demand,” said LR's Rafa Riva, Marine Business Development Manager.

Penn Oak Energy, based in Scottsdale, Arizona, is a developer of LNG fuel solutions for industrial clients. The company specializes in turnkey solutions that take into consideration technology, natural gas liquefaction and supply, as well as logistics and financial considerations.

Although Penn Oak Energy began in land-based infrastructure finance, it is through this approach of project finance methods that they can apply their expertise to the unique financial structuring of LNG conversions for the maritime industry. The value that Penn Oak Energy adds to ship-owners and their fleets is through a fuel-procurement agreement, where they can spread the cost of the LNG conversions and the upfront capital requirements for these conversions over the life of the project.

"The reason Penn Oak Energy chose to partner with Lloyd’s Register after doing a thorough review on other class societies throughout the maritime industry was that Lloyd’s Register was the most experienced in LNG conversions and transport vessels," said Philip Parker, head of business development for Penn Oak Energy. "Working with Lloyd’s Register and various shipyard owners throughout North America, Penn Oak Energy has been able to sign up exclusive relationships with various shipyard builders to bring their yards up to spec on certification, safety and standards required to convert ships to dual fuel solutions."

LR as a leading classification society in the gas carrier market – both for LNG and LPG – is also leading the way in the international development of gas as a marine fuel. LR is well placed to support a new fleet of gas-fuelled ships – and help them to operate safely and efficiently. For example, in response to industry demand for clarity over options for gas-fuelled readiness, LR has established clear standards describing different levels of readiness to use natural gas as a marine fuel. LR also provides training on the key practical aspects of modern LNG carriage by sea and risk management services to support safe LNG bunkering.