Revolutionising the marine transportation sector: What drives this change in technology and adoption globally?

Rita Conte's picture
Rita Conte, Transportation Advisor, Synergenics Consulting
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If the world is going to embrace an opportunity to take in natural gas as a secondary energy source for fuelling needs in the global transportation industries at the international or national levels, now is the time.

Why? We see a rise in government commitments, specifically in the EU and Canada, in the form of legislation; specifically, by the IMO and Commercial Trucking Manufacturers nationally and internationally. The natural gas industry is competing with renewables, including electric power and bioenergy, but when it comes to the arguments for a reliable, cleaner and adaptable fuel for maritime and commercial trucking vehicles LNG is favourable.

The reasons below will illustrate why in terms of engine power and types that would be more adaptable by engine makers such as Wartsila, Simmons and Westport because each is well suited for the size, weight and amount of power needed to accelerate.

The purpose of the comparison is not to bring an engineering technical expertise to the analysis but rather the position commercially and operationally in which each carrier faces with its fleets when investing in the needed capital. In making this decision the key challenges to overcome for the green light rest on uncertainty about a future of unknown global demand for goods, population density, commodity prices and freight rates.

These are the commercial and economic considerations each is seeking to answer in a crystal ball that forces a future of ‘what if it does not provide a return’. Carriers like CGM CMA and Carnival Cruise lines including Seaspan and regional ferry companies such as BC ferries have taken statistical data for short-term voyages, such as inter-island trips that are not crossing long waterways in time and transit which is a good test run.

The industry as a whole refers to marine and commercial trucking sectors have taken leadership roles in starting the first ordering phase of its fleets based on the statistical data. I want to discuss in this article with a focus on the rate of return, CAPAX considerations in upfront costs for a new build and its life span to maximise savings. What drives this change is the technology that has allowed engines to perform with LNG fuels when liquified, so it can exert large volumes versus density and weight. The ability to have the power to haul heavy hauls long-term for longer voyages is still being challenged and is needing better technology.

Impact of Crude and Natural Gas Prices

Comparing HFO and LNG in terms of price alone and the fluctuation of each in the bunker market provides an argument for LNG in terms of savings per vessel over the life span of at least 10 to 20 years. The price alone playing the economic card and the environmental reduction in emissions and technical adaptability all make this energy a favourable consideration, which brings us to why do we not see many more fleets being replaced or conversions made?

The technology still needs to be tested in terms of long haul trips, specifically, storage capacity. Bunkering facilities will have the transportation via terminal pipeline or barge to ship fuelling avoiding the traditional LNG tanks used to truck fuel to actual ports and fuelling ships while not loading passengers.

For the cargo ships, it is key in terms of logistics costs that add to the supplier rates in terms of the handling, distribution and transportation of the fuel to the actual port or ship. These are bottlenecks that need to be overcome and sold in terms of the business model to the larger cargo carriers who would incorporate the CAPAX costs into the long-term supplier costs of the LNG fuel.

Another factor that is driving the price of LNG to be more favourable in the long-term is the amount of savings in the costs over time versus the engine power given by the HFO fuel versus the LNG. If travelled for longer distances, taking into account storage capacity needs to be there so refuelling would not need to happen as often thus not taking away from revenues in cargo loads, there may be more carriers opting to new builds.

In the chart below, we see a good example describing one methodology on the savings based on hours an engine is performing under LNG over the next few years in terms of demand scenarios.

          

What drives the demand further for LNG are the supplier contracts that are negotiated with local and international flagship owners for bunkering ships with LNG fuel providers situated in major ports and trading hubs in the world.

This is key in terms of justifying where most business can be gained for carriers in long-term charter party agreements with shippers that have stable long-term commercial contracts of freight. It comes down to trust and reliable supply that is ready at any time when the ship bunkers in that region which forces suppliers to build strong credibility with the carriers past and current performance.

The other favourable factor for those owners that are investing in future LNG vessels to add to their fleet is tax credits. Provided by government, agreed state tax laws discount the fuel so upfront costs by carriers are considered.

A good example of ports around the world who are in the process of or have already locked in agreements with carriers for short sea regional shipping in trade zones such as the European shipping lanes, are ports such as the port of Rotterdam and CMA CGM that have entered agreements for future build LNG container ships; or newly built ferry ships such as Seaspan or BC Ferries supported by Fortis BC as their LNG supplier.

What we are seeing as ‘stepping outside of the box’ terminal technology and logistics set up is the Port of Jacksonville in the USA that is directly piping product to the ship from the facility or fuel barges out at anchor to directly fuel while the ship is not loading.

Below is a chart that shows a trend as to which industry will use LNG the most, keeping transportation as the one most attractive to this investment. As we know the drive for this trend is the costs associated with moving goods and people from point A to point B, which fuel consumption is the largest cost to an operator’s pocketbook. The marine industry is pushing further with the LNG option including other sources in which each sector is evaluating in terms of scheduled trips and regular liner services that would reduce their fuelling costs.

          

Source: Proceedings of the Institution of the Mechanical Engineers Part Journal of Engineering for the Maritime Environment. January 2014.

Sustainable shipping in terms of long-term growth and commodity prices or consumer demand

A factor that needs to be taken into consideration when it comes to the demand of LNG in terms of social and economic gains is on the demand for goods in each country which will demand greater shipping volumes securing revenues for vessel investors and owners. As long-term gain in the investment in LNG is projected at least after the first seven to ten years of bringing the vessel to market and operating, this means having demand for goods via freight contracts comes from growth in population and rising demand for commodities.

Today we see some increase in both, specifically in emerging countries where population and demand for goods is rising, including ferry passenger services.

Keep in mind passenger ferry options are increasing in smaller countries that have many islands where bridges, underground tunnels, or monorails above water are not in place as the actual infrastructure we see today or will see in terms of the future proposed infrastructure. LNG will benefit from the growth in terms of the actual regions investing in the fuel supply and facilities as a secondary industry to build its energy supply and economy.

          

Source: Proceedings of the Institution of the Mechanical Engineers Part Journal of Engineering for the Maritime Environment. January 2014.

How far we go in terms of further development in comparison to where we were 5 years ago when the discussions were started, and studies conducted by many groups along with the global marine and energy supply chain who all contributed a great deal of expertise to the studies, will soon seem to be seen.

The year 2020 is just around the corner and that is a new era of ongoing change to take technology in all areas of renewables and LNG including low sulphur fuels that will work for carriers and sectors not ready to adopt or technology not covering the key capital expenditures to make it much more efficient compared to other fuelling options.

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