Marine Transportation System

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Kindest and Other Trump Cuts

In Congress, Energy/Environ, Federal Government, Infrastructure, Ports, Security, Transportation Policy on March 20, 2017 at 11:44 am

President Donald Trump’s 62-page “skinny” budget proposal — he calls it his budget “blueprint” — is devastatingly consequential for most departments and agencies. (See my prior post.) It tells you, for example, that the State Department will take a 28 percent hit should Congress concur in this first Trump Administration budget request, but it is short on how the programs at State and most other departments will be affected. For that we will have to wait a few more months until the main budget document is to be released — or leaks emerge — and the various budget experts do their analysis.

Will Congress adopt the president’s idea of winners and losers? Maybe not. His proposal is hardly a strictly partisan expression to which all Republicans will faithfully adhere, even if it is in the direction that they want to support. Moreover, as much as he wants to see a big defense build-up, dealer Donald Trump’s budget has to be seen as his opening gambit in an appropriations process that is only just getting started. Meanwhile, the budget document and agency press releases provide some information. Here is what we know.

Corps of Engineers
The USACE civil works program proposed number of $5 billion is $1 billion less than current year funding — a 16.3 percent reduction — but, historically, that’s not so bad. That is actually higher than the Obama FY17 budget. Every White House low-balls the Corps budget. The annual fiscal dance is for the president to bid low because he knows Congress will respond high. There is no more detail to report at this point. If there is a caution here it is that the Corps budget can’t be viewed in isolation from the total Federal budget. This clearly is not a normal year. If the Defense Department and Homeland Security are going to benefit in the substantial way that the White House proposes, the competition will be for your program to lose less than the others. If Congress were to provide the civil works program with more than $5 billion, as it has in recent years, that might come from other parts of the budget that are already proposed for stiff reductions.

Transportation
The budget blueprint shows a $2.4 billion reduction in spending over current year levels — a cut of 13 percent — and contains enough detail to identify some major programs targeted for elimination. Not surprisingly, the $500 million, multimodal TIGER grant program is prominent in that category. The White House would remove this most reliable source of funding for non-navigation port projects, including inside-the-gate improvements. (About $51 million was awarded to six port-related projects in FY2016.) TIGER, started in 2009, has survived past Republican efforts to eliminate funding but it has had strong support from Democrats and even Republicans. The White House is not alone in suggesting that TIGER is to some extent duplicated by the FASTLANE grants program that was created in the FAST Act and is dedicated to freight projects. (The Trump budget retains FASTLANE.) However, that part of the five-year FASTLANE program that most interests ports is the multimodal portion that is not limited to highway projects. Much of the total $500 million multimodal authorization was allocated in just the first year of the $900 million annually authorized spending for FASTLANE. There is no such modal limitation in TIGER. We will see if appropriators allow TIGER to end.

The DOT budget also would also eliminate funding for long-distance Amtrak operations, start down the path to private sector management of the air traffic control system, end the Essential Air Service program that is a major benefit for rural states, and close out a transit capital grant program.

Secretary Elaine Chao issued a statement on the budget blueprint announcement. It includes an oddly incongruent description of a national budget that the OMB itself acknowledges does not address deficit reduction. It also references an Administration talking point that, while proposing to reduce spending on transportation infrastructure, the budget is consistent with whatever will be the promised trillion dollar infrastructure initiative. The Secretary’s statement explains that the “strategy behind” the DOT capital spending cuts “is to move money out” of existing programs and into “more efficient programs” in the still undefined Trump initiative. We will have to see how that manages to end up being a net plus for transportation projects. From Chao’s statement:

This is a strategic document that looks to the future, and is designed to send a clear message on deficit reduction. For DOT, it addresses the department’s discretionary programs, which make up about one-quarter of the Department’s total resources. These proposed savings are largely geared towards future program investments, so they will not have an immediate direct impact on our DOT colleagues. This is just the beginning of the budget process, not the end. We will see the more complete picture when OMB releases its final FY 2018 budget in May, and as the President’s infrastructure initiative takes shape. In fact, OMB Director Mulvaney noted yesterday that the strategy behind the savings in the DOT budget is to move money out of existing, inefficient programs and hold these funds for more efficient programs that will be included in the infrastructure package under development.

E&E News reported that OMB Director “Mick Mulvaney said the cuts to federal funds for transit and roads would be balanced by an infrastructure package coming to Congress in the fall. The grants proposed for elimination in yesterday’s spending wish list were targeted “in anticipation” of a more fleshed-out White House plan…”

The lead Democrat on the House Transportation & Infrastructure Committee, Peter DeFazio (D-OR), was not complimentary, and not without irony, in commenting on the Trump planned cuts for USDOT.

The skinny budget exposes that as a big, fat lie. These are real investments. They could be putting people to work this summer. It’s infinitely stupid for Republicans who have just taken over everything to give up TIGER grants, which are at the discretion of the Republican Secretary of Transportation, and I’m sure they’ll use them much more politically than the dunces at the Obama administration did. [E&E News]

Homeland Security
DHS is proposed to get 6.8 percent more in the coming year to benefit the construction of a southern border wall and heightened enforcement of US immigration law through technological and human resources. Significant additions of personnel — 500 more in Customs & Border Patrol (CBP)  and 1,000 more for Immigration Control & Enforcement (ICE), plus support staff — also are intended to strengthen border security. Another $1.5 billion is slated for cybersecurity activity to protect Federal networks and critical infrastructure.

The budget proposes to cut State and Local security grants by $667 million. Earlier reports suggested a probable 40 percent reduction in the Port Security Grant Program but analysis by the Democrats of the House Appropriations Committee concludes that the budget means a 25 percent reduction in the program, from $100 million to $75 million.

According to prior releases of information the budget includes a cut in the Coast Guard, but that is not highlighted in the materials released by the White House and DHS yesterday. Instead, the DHS release simply says that the budget “sustains current funding levels [for the Coast Guard]…which allows for the continuation of day-to-day operations and investments in the Acquisition, Construction, & Improvements account.”

The budget document also states that the Transportation Security Administration will experience the elimination and reduction of “unauthorized and underperforming programs.” Details presumably to follow.

Environmental Protection
Of all the Federal agencies, the Environmental Protection Agency is targeted by the Trump Administration for the deepest cut — a 31 percent spending reduction. The budget statement offers an ironic compliment (kindest cut?) in suggesting that the “budget for EPA reflects the success of environmental protection efforts…” as if to say, “job well done.” The EPA section appears to be the only one of the two-page department and agency sections that specifically notes the anticipated reduction in personnel — “3,200 fewer positions.”

The proposed budget provides “robust funding for critical drinking and wastewater infrastructure” that is comparable to current levels. It ends funding for Obama’s “Clean Power Plan, international climate programs, climate change research and partnership programs, and related efforts…” It reduces the Office of Enforcement and Compliance Assurance budget, reduces Categorical Grants funding, and “eliminates more than 50 EPA programs that are “lower priority,” “poorly performing,” and “duplicative.”

The budget document proposal to end funding for multi-state regional efforts such as restoring Chesapeake Bay. The proposal to end funding for the Great Lakes Restoration Initiative  is no partisan matter. Nine senators led by Rob Portman (R-OH) and Debbie Stabenow (D-MI) sent a letter to the White House expressing their concerns, and Wisconsin Gov. Scott Walker (R) joined them in opposing the cuts.  Pbea

Still a Compelling Alternative

In Efficiency, Energy/Environ, Green Transportation, MTS Policy, Vessels on April 19, 2016 at 10:56 pm
TOTE_LNG_PropulsionSystem

Rendering of TOTE LNG Propulsion (NASSCO)

One can imagine the LNG pioneers – TOTE, Crowley, and Harvey Gulf Marine – looking over their shoulders and asking, “where is everybody?”

Others might wonder if LNG is losing its luster. If it will ever achieve its potential to become a dominant marine and transportation fuel.

Before we start hanging black crepe, let’s not lose sight of the ample evidence that LNG remains a compelling alternative to meet growing emissions requirements.

Interest in LNG as a marine fuel was initially driven by three factors: Emissions Control Areas (ECAs) in North America and Northern Europe; the rapid growth of natural gas production; and LNG’s potential to significantly reduce all categories of marine air emissions, particularly sulfur oxide. LNG was predicted to displace a significant portion of the marine fuel market by the end of the decade with forecasts of 30 percent market penetration by 2030. This development then likely would spur broader adoption of LNG and CNG by other transportation modes.

The optimism, however, was tempered by the challenges encountered by the first adopters. These challenges were not a matter of technology. Rather, first adopters encountered a lack of regulatory structures and existing market relationships. It would require creating entirely new market relationships, and logistics, distribution and fueling infrastructures.

These challenges persist, particularly in the United States, where infrastructure development remains tied to specific vessel projects. Unlike in other countries, here there are no national policies or programs to foster and promote LNG development. There has been no credible signal from the gas supply industry that the fueling infrastructure will be built absent assured demand. With the exception of Tacoma and Jacksonville, which are tied to specific vessel projects, no major US port has stepped forward to actively promote and facilitate the construction of LNG terminals or to partner with gas suppliers to construct distribution facilities.

The major Jones Act ocean carriers have new build programs underway. In large part, the Jones Act blue water market potential for LNG has been realized but little progress is seen elsewhere. Ferry operators in New York and Washington State have signaled intent to incorporate LNG in their new vessel plans. The inland waterways fleet has seen no significant movement in that direction. In contrast, the 2012 EU Master Plan calls for the entire inland system to be LNG-capable. Considerable effort is also underway to develop harmonized standards and regulations across national boundaries. Conversion of the fleet has begun.

There is a phrase: “Money talks…” and if that is indeed the case, then the continuing investment in LNG vessels and infrastructure around the world is clear evidence that the migration continues elsewhere. The EU has not altered its formal commitment to support LNG-related projects despite economic difficulties and the drop in oil prices. New projects continue to be funded.

At least four LNG bunkering vessels will be operating in the United States and Europe by the end of 2016 and DNV GL estimates that 73 LNG fueled vessels are operating today, with another 80 on order. Upwards of 600 vessels could be operating worldwide by 2020. While this is only a small percentage of the global fleet, it represents significant financial investments by shipowners who clearly believe that LNG will be available to fuel these vessels at prices below the projected costs of MGO.

So there are silver linings on the LNG horizon, and I am convinced the real breakthrough for LNG will come when the major liner companies incorporate LNG as a standard element in their newbuild plans. A decision by any of the major ocean carriers to install either full LNG capability in their new generations of vessels, or, in a hedging strategy, install dual fuel engines with the intent to move to full LNG at a later date, would provide a strong impetus for the expansion of LNG globally. But this has not happened on a large scale for reasons that may be related to oil prices but also to concerns about the availability of LNG in their ports of call and uncertainty related to the 2018 IMO Annex VI consideration.

I believe that this challenge must be approached in a different way by moving forward with infrastructure development without a firm commitment from a shipping company. If LNG infrastructure proceeds first in one of the major load ports in the United States, it would be a powerful signal to the major liner companies that fuel will be available and would likely incentivize ship owners to accelerate the move to LNG.

If one accepts the “inevitability” of LNG, which I believe is a reasonable proposition, it would seem prudent for ports and gas suppliers to move forward to build the necessary infrastructure in the absence of a guaranteed offtake commitment. Clearly there are risks in this approach. Perhaps it is too much to ask ports and gas suppliers to assume this risk in the current investment climate, particularly for public companies. It is far easier to gain approval for a large investment if there is a guaranteed customer. But risk is intrinsic to life and business, and the key is how risks are managed and mitigated, particularly when the upside potential for the gas industry and ports is so great.

Something has to break the continuing “chicken and egg” impasse and energize the slow and somewhat sporadic development of marine LNG in the U.S. If there is broad consensus that LNG is a net positive, then it seems we need to approach this market opportunity in a way that does not fit traditional investment analyses.

One risk that must be addressed is the 2018 IMO global fuel sulfur decision. Global fuel sulfur standards are scheduled to be reduced to 0.5 percent in 2020 from the current 3.5 percent. As written, MARPOL Annex VI gives the IMO only two choices: either affirm the 2020 standard or delay it until 2025, and the basis for the decision is the worldwide availability of MGO and other “relevant” factors.

I strongly believe the IMO should affirm the existing 0.5 percent standard. If this is not possible, I would propose that the IMO implement an interim standard of 1.0 percent in 2020 with the more stringent standard delayed until a later date. Such an approach would essentially mirror the ECA implementation that resulted in LNG moving from a novelty conversation to a serious alternative compliance strategy in the United States and Europe.

This single act would create a powerful regulatory incentive to spur development of LNG infrastructure and vessel construction and provide the impetus to the international liner companies to adopt LNG in their next generation of vessels for delivery by 2020. Therefore, if the ports and gas supply industries have already begun the process of site selection, permitting and possibly construction by 2018, it would serve a dual purpose of undermining arguments that LNG is not a viable replacement fuel for lack of distribution infrastructure..

Yogi Berra was right when he said: “It’s tough to make predictions, especially about the future.” It is certainly true about LNG as a marine fuel. But as a longtime member of the maritime industry and proponent of LNG as a fuel I believe that this year LNG will continue its inexorable growth as the most effective way to meet the increasing environmental requirements our industry is facing.   John Graykowski

Uncertain Future for Marine LNG

In Energy/Environ, Environment on December 14, 2015 at 12:48 am

We welcome a new post by John Graykowski on the subject of LNG as a marine fuel. He describes this period as a “crossroads moment” requiring parties to hold fast to the original timeframe for vessel emissions reductions as set by the IMO in MARPOL Annex VI.

Despite many indications that LNG is gaining acceptance as a marine and transportation fuel, ship owners still appear reluctant to fully embrace the new fuel. Many owners are hedging their bets by installing dual fuel engines and other LNG-specific features on their new vessels, but delaying the installation of the fuel tank and fuel gas system until some later date. Others are placing new build orders with conventional propulsion systems, effectively dismissing LNG as a credible alternative.

Since stringent worldwide limits on fuel sulfur content are scheduled to become effective in 2020, these decisions might seem questionable. A provision in MARPOL Annex VI, however, creates significant uncertainty whether the IMO will in fact hold to this schedule, thus allowing some operators to make a strategic calculation that the limits will be delayed.

Adopted in 2008, Annex VI created a two tiered regulatory structure to phase in fuel sulfur requirements. For those states that implemented emissions control areas (ECAs), fuel sulfur limits were reduced in two stages from 1.5% to 1% in 2012 with a final reduction in January 2015 to 0.1%. Outside the ECAs, the current 3.5% limit is scheduled to be reduced to 0.5% in 2020. However, this will happen only after a mandatory 2018 IMO review which must find that sufficient compliant fuel will be available in 2020; otherwise the limit will remain at 3.5% until 2025.

At that time, there were only two “viable” compliance options for ship owners: use marine gas oil (MGO) or install exhaust gas scrubbers. The natural gas “revolution” was in its infancy and there was little, if any, discussion of LNG as a cleaner and more economical alternative to either MGO or scrubbers. Despite giving fuel suppliers over a decade of advance notice to prepare, the potential magnitude of demand for compliant fuel and concerns that MGO production would be insufficient led the IMO to create this 2018 “gate” before the 0.5% limit would become effective.

A fortuitous confluence of factors led to the emergence of LNG as an alternative marine fuel. The ECAs created unambiguous regulatory imperatives and hard deadlines; the unforeseen increase in worldwide gas production led to a steep decline in prices; and there were no technological barriers to the use of LNG as a propulsion fuel. MGO and scrubbers involve significant expense, provide less comprehensive emissions reductions, and, in the case of scrubbers, increased risk, In contrast, LNG offers compliance with sulfur limits, significant improvements across the entire spectrum of emissions and long term cost advantages. Even with the current drop in oil prices, LNG is projected to maintain its economic and environmental advantages for many years to come. The ECAs made it possible for the first adopters to move forward in the U.S.; the EU to propound a formal policy to support LNG deployment throughout Europe; and Norway to emerge as a dominant player in the marine LNG world.

Experience in the ECAs has demonstrated that concerns about fuel availability are largely unfounded, and that the fuel supply industry can and will respond to demand signals, particularly those driven by clear regulatory requirements and deadlines. The phased approach in the ECAs allowed fuel suppliers and operators to first adjust to the 1% standard and then to prepare for the lower limits in 2015 and resulted in a smooth transition to MGO earlier this year with no apparent supply shortages. This approach had another important impact on marine operators in the ECAs who began looking at LNG as a credible alternative to either MGO or scrubbers.

The Annex VI review provision allows the IMO to consider “other relevant issues” and thus offers the means to include LNG in the analysis of fuel availability. LNG adoption that has already occurred is directly related to the implementation of the ECAs with their interim steps and fixed deadlines. The IMO should emulate this approach by requiring global fuel sulfur limits to be reduced to 1% in 2020 with a permanent reduction to 0.5% in 2025. The ECA experiences and the growth of LNG as a marine fuel provide ample justification to support this decision, rather than simply allowing the 3.5% limit to remain in place.

By 2018, more than 150 vessels worldwide will be using LNG as a fuel; the EU will have bunkering capabilities in several of its major ports; LNG powered ships will be operating in the US; China will be well on its way to transforming its inland fleet to LNG, and Singapore and Korea will be in the midst of building LNG bunkering infrastructure. The adoption of an interim 1% standard would likely galvanize the world shipping community to accelerate the movement to LNG when new vessels are ordered. In turn, this would be an unequivocal signal to the gas supply industries to move forward with infrastructure development, thus banishing forever the chicken and egg cliché in connection with LNG development.

This is a crossroads moment for the IMO and it can make a clear, definitive, and compelling statement to advance environmental quality and affirm its commitment to continued reductions. The US, Canada, and the EU made the hard political decisions to implement stringent marine emissions standards, and the markets have adjusted. As 2018 approaches, the IMO will be under increasing scrutiny from many parties, including those with a vested interest in LNG development. I would urge those nations that have implemented ECAs, or are contemplating them, those that have enacted formal policies to encourage the development of LNG as a marine fuel, and the natural gas suppliers and the environmental communities –admittedly a somewhat nontraditional alliance – to insist that the IMO adopt this phased approach.

Anything less would be a lost opportunity to take a giant step forward in the effort to reduce marine air emissions, and likely would slow the pace of LNG adoption for another five years.   John Graykowski

Europe is Breaking the Egg

In Efficiency, Energy/Environ, Infrastructure, MTS Policy, Ports on October 5, 2014 at 11:16 pm

Before we get to John Graykowski’s “Europe is Breaking the Egg” I would like to pose my own chicken-and-the-egg question as one might ask it here in Wonkington, D.C. Which comes first: the policy or the strategy? One might also ponder how good is a forward looking strategy when the policy is of the past century. The Maritime Administration is preparing a “National Maritime Strategy.” It is a principal objective of Administrator Chip Jaenichen and probably has been encouraged by congressional supporters of the U.S. flag industry who, like most of us, have not liked seeing the merchant fleet decline but who, unlike us, are in a position to redefine U.S. maritime policy. The piece below begs the question whether a new national maritime strategy would benefit by first fixing the national maritime policy that for the most part has been in place while the United States lost its prominent role in world shipping. Certainly it would make it easier on Mr. Jaenichen and the Secretary of Transportation to have an updated national policy framework as a basis for new strategies to get to where we need to be. John Graykowski’s article first appeared in Pacific Maritime Magazine on September 1, 2014. You can find it here. He poses the policy question in the context of a growing American supply of natural gas and the multiple benefits to be realized by fostering a bunker switch to LNG. This is the third in his series for MTS Matters on the subject of developing LNG distribution infrastructure to advance the adoption of LNG as a marine fuel. It also is a recurring theme in these pages.  Pbea

We may soon be able to retire the tiresome “chicken and egg” cliché to describe LNG development, since there has been movement in the last year in Europe and the United States that indicates the circle may be breaking; but it’s too soon to tell whether the movement is temporary or permanent. What is apparent, however, it that Europe has moved forward in a more focused and strategic way, to create LNG infrastructure and markets, which is yielding results. By 2016, permanent LNG bunkering facilities will be in operation in Rotterdam and Antwerp – both among the largest ports in the world – thereby signaling that the supply uncertainties have been resolved. It bears asking, therefore, how Europe has done this, and whether we should consider similar measures here if the goal is to expand LNG as a marine and transportation fuel throughout the United States.

In 2008, Norway effectively made LNG the preferred fuel choice for marine operators through a combination of regulatory mandates relating to Nitrogen Oxide (NOx) and financial incentives covering up to 80 percent of the capital cost of the LNG-related components. Following these actions, the number of Norwegian vessels using LNG as a primary fuel went from 3 to 12 vessels in five years, with more than 50 vessels of various types now under construction along with the supporting LNG infrastructure. Concurrent with this, Norway is addressing the regulatory and operational issues, and is now seen as a leader in marine LNG development.

The European Union (EU) is also pursuing a comprehensive effort to increase LNG as a marine fuel with the goal of developing LNG infrastructure in every major seaport by 2020, and every inland terminal by 2025; a total of 139 ports across Europe. This goal coincides with estimates that by 2020, 1,700 dual fuel vessels will be built or converted worldwide, with many of these operating in, or calling on, the EU.

By 2020, the United Arab Shipping Corporation (USAC) dual fuel container vessels will be operating between the Far East and Europe. This activity will spawn additional interest and movement in Europe and among its global trading partners leading to a rapid transition from diesel to LNG as a major transportation fuel.

The EU is employing a “carrot and stick” approach combining financial support for the conversion and construction of vessels and infrastructure with increased regulation. Projects such as the Trans-European Network for Transport (Ten-T) and the Rhine-Main-Danube initiatives have produced significant results. $139 million has already been allocated to 7 Ten-T projects to support vessel conversion and LNG infrastructure development, with more funding promised. Support of up to 50 percent of project costs is available for vessel conversion, construction and infrastructure, and just recently the first inland dual fuel barge was delivered and will shortly begin operations.

The EU adopted an approach that combines: (1) clear and defined goals that LNG will displace traditional marine fuels; (2) increased environmental regulations; (3) financial incentives to spur the initial transition; and (4) coordination among ports, governments; regulatory agencies and stakeholders to create uniform regulatory structures. Given the intrinsic advantages of LNG, there is recognition that the market would likely drive toward greater adoption of LNG without assistance. However, many vessel owners and gas suppliers are reluctant to be the first to make the investments in LNG vessels and infrastructure regardless of the advantages. The EU has determined that these measures are necessary in order to reduce perceived risks, accelerate market decisions, and attain the stated goals for LNG deployment.

In contrast, the United States does not have a national policy to support LNG as a marine and transportation fuel. Instead, our LNG market is developing project-by-project, driven by first-adopters such as Harvey Gulf, Tote, Matson, and Crowley with no federal support or strategy; despite the tremendous benefits LNG offers to the country. While we have seen some movement in disparate locations, there is not so much as a policy statement that commits this country to the development of LNG as a transportation fuel; and there are certainly no programs to support the construction of vessels and infrastructure to make this possible nor to address regulatory uncertainties and enhance public acceptance of LNG.

The challenges and obstacles that exist here are no different from those in Europe, and LNG is new to everyone. It appears, however, that the EU has tackled this question in a more coherent, direct, and proactive way that is rapidly producing results. To be sure, there are major differences between the US and the EU in terms of governmental structures and processes. The EU can promulgate Europe-wide regulations and implement promotional programs, and has a history of doing so. Here, that role would be shared between Congress and the Executive Branch, and that is yet another challenge given the continuing dysfunction between both branches of government.

A policy declaring that LNG as a transportation fuel is in the national interest, and committing to the support, promotion and encouragement of its development would have several immediate effects:

  • It would be a clear signal to all potential stakeholders that LNG is “real” and has the backing of Congress and Administration;
  • It would put federal agencies on notice – and could require them– to collaborate with industry on practical and uniform regulation, reduced delays and greater certainty; and
  • It could include limited and temporary financial incentives such as loan guarantees or tax incentives to accelerate LNG conversion, because early adopters should be encouraged in order to build a sustaining market that benefits the entire country.

Federal resources are constrained, but without a national commitment, LNG may not gain the critical mass and momentum to create a long-term viable market. Regulatory direction is important, and does not involve direct costs, but if combined with properly structured and managed loan guarantees or tax incentives they would have a greater likelihood of jump-starting this industry at low risk and large benefit to the whole nation in emissions reductions, energy independence, economic activity in shipyards and elsewhere. The promise of LNG is so great it deserves this sort of recognition, attention, and effort. Clearly the EU sees it that way, and we should as well and the risk if we don’t address it in this way is diminished potential for LNG to transform this country and the lost opportunity to lead the world in LNG development and utilization.   John Graykowski

2013: The Year Before the Year of LNG?

In Efficiency, Energy/Environ, Green Transportation, Infrastructure, Ports on December 29, 2013 at 4:51 pm

A year in which U.S. shipyards announced contracts for over twenty new ocean going vessels (with options for several more) is noteworthy, especially given the recent difficult times experienced by the shipbuilding industry.  What makes this fact even more significant is that LNG as a propulsion fuel is a central feature in each of these vessels, either as the intended fuel source upon delivery or at some point in the future.

So does this mean that the U.S. maritime industry in America has reached the LNG tipping point, where a tidal wave of even more marine projects will be announced in the coming year?  My short answer would be a heavily qualified, but nonetheless definite: “maybe.”

A distinction has developed between ships that will be “LNG-ready” as opposed to those that are “LNG-capable,” the difference being those vessels that will use LNG upon delivery and those that can be converted to operate on LNG at some later date.  While certain design modifications are incorporated into these ordered vessels, such as foundations for LNG fuel tanks and dual fuel main engines, they will operate on conventional diesel fuels when they are delivered.

The reasons for taking a half step to LNG rather than making the plunge are several, among them the additional cost of the entire fuel gas system, including the fuel tanks.  However I suspect the greatest reason is uncertainty related to LNG supplies in the ports where these vessels will call.  This is particularly the case with the product tankers that have been ordered that, unlike the LNG-powered container vessels do not operate in a classic point-to-point liner service.  Their deployment is largely dictated by cargo availabilities throughout the United States and thus, until LNG is more widely available, the owners will likely hold back on a full commitment to LNG.

If one is looking for positive signs on the infrastructure front, they are there.  The Port Fourchon terminal project on the Gulf of Mexico in Southern Louisiana is being developed by Harvey Gulf Marine to serve its fleet of LNG-powered offshore service vessels.  It will be the first operational LNG bunkering facility in the United States and is expected to be operational next year.  Clean Energy has announced its intent to construct facilities dedicated to the marine industry in Jacksonville.  Tote, Inc. issued a request for proposal (RFP) to potential LNG suppliers to provide LNG for their vessel operations based in Tacoma, Washington and Jacksonville, Florida.  Each announcement of new LNG-powered ships results in a deluge of phone calls from potential LNG suppliers seeking meetings and making proposals to vessel owners.  So again, there is clear movement, growing interest and some tangible progress; but it is slow and these projects still face regulatory challenges and uncertainty that may result in delays and higher costs.

Given the delivery schedules of the Tote, Inc. ships, in late 2015 and early 2016, and the Crowley vessels in 2017,  it seems that the window for putting bunker infrastructure in place—completing land acquisition, clearing Federal and local permit requirements, and facility construction—is growing very tight.  This raises the possibility of ships being delivered and no LNG being available, which will greatly increase operating costs due to the requirements to use ultra-low sulfur diesel (ULSD) to meet Emission Control Area (ECA) regulations.

So, to offer a slightly more elaborate answer to the tipping point question, the U.S. is closer today than a year ago but one cannot conclude that the LNG revolution has begun.  Of the limited number of Jones Act liner operators, three have already announced projects–Matson being the third–and another has announced intentions to convert existing vessels to LNG. The product tanker market has been effectively replaced over the last ten years so there are limits to the expansion there.  I think the greatest opportunities for achieving critical mass in a marine fuel transformation can be found when and if several large harbor services or tug and barge companies either convert existing tugs to LNG or CNG or acquire new tonnage or the top-tier international liner companies announce new construction programs with LNG-fuelled vessels.  Either – and certainly both – of these developments would be a critical next step to accelerate widespread LNG deployment.

Marine vessels represent the potential for a large concentrated market for LNG/CNG, and a port that has both ocean going and harbor vessels that need LNG for fuel would surely provide sufficient basis for investments in LNG marine terminal infrastructure for bunkering.

While there is still a way to go until we all agree that the breakthrough has occurred we are seeing some decisions and investments that are the necessary predicate to making LNG a common transportation fuel throughout the country.  John E. Graykowski

LNG: Ports as a Catalyst?

In Energy/Environ, Green Transportation, MTS Policy, Ports on October 10, 2013 at 8:47 am

MTS Matters welcomes a well-known and regarded figure in D.C. transportation circles. John Graykowski, a Principal of Maritime Industry Consultants, served as Deputy Administrator of the Maritime Administration, and for two years as Acting Administrator, during the Clinton Administration. He is an attorney with experience in both private and public sectors. The subject of LNG-fueled transportation and how it might develop in the context of maritime policy and port communities has been a focus of his attention in recent years. This is the first of his contributions to this blog’s musings on port/maritime policy—present and future.

Over the past year, LNG as a marine fuel has gone from novel concept to an accepted alternative fuel here in the United States. Some LNG-capable vessels are operating and more will be under construction as appreciation is growing for the environmental, economic and energy security benefits offered by LNG. This transformation of a marine cargo commodity to emerging marine fuel in here and elsewhere might lead one to conclude that the broad deployment of LNG throughout the U.S. is underway and faces no challenges or constraints—but this is not the case. Lagging behind LNG-fueled vessel development here are the necessary market and regulatory structures that promote its widespread development.

The most common platitude in any discussion of LNG is the “chicken and egg” problem. Ship owners are loathe to make the large capital investment in LNG technologies absent certainty of supply.  Meanwhile gas suppliers are averse to spending $150 million or more on bunkering infrastructure without firm, long term purchase contracts by ship owners. This reflects the lack of historic relationships between the gas supply industry and marine operators, who purchase bunker fuel in virtually every port on a spot basis and never needed long term contracts.

Compounding that is a lack of understanding and knowledge about each other’s industries. Marine operators are not familiar with gas production, transportation and market dynamics and gas suppliers have little direct knowledge about the marine industry practices, requirements, and the like. Emblematic of the divide between the two industries is the simple fact that marine operators purchase fuel on the basis of metric tons or barrels of oil, while the gas industry sells LNG on the basis of million BTUs. Potentially complicating this market disconnect, are increasingly stringent accounting rules that likely require a long term LNG contract to be carried as a contingent liability, thus impairing a balance sheet and constraining future capital expenditures for a marine company.

Beyond these market issues are significant regulatory challenges related to both operational procedures for bunkering vessels and, more importantly, the siting, permitting and operation of small and medium sized LNG marine terminals. It may come as a surprise to some, but there are no existing uniform federal regulatory structures that apply specifically to LNG marine fueling terminals.

The United States Coast Guard (USCG) and Pipeline and Hazardous Materials Administration (PHMSA) each have regulations that apply to LNG fueling terminals. These regulations, however, were developed with large scale export and import facilities in mind and thus are largely inapplicable to a small marine fuel terminal and the fueling of other than LNG carriers. In many cases these regulations may conflict, which creates a large area of potential regulatory confusion and will most likely result in ad hoc development of LNG regulations. Adding to this uncertainty is the probable requirement that these facilities will be subject to local permitting actions, which can provide opponents of LNG the opportunity to intervene and delay the project.

Where do ports fit in this puzzle of a marketplace?

Ports can and should be a catalyst to spur LNG development throughout the transportation industries since they are at the center of marine activities in the United States. They provide a ready-made, multi-modal market for LNG expansion beyond large oceangoing vessels, which includes ferries and harbor craft, trucking, and rail operations. Port agencies may have some degree of jurisdiction, and even control, over property where LNG operations will occur. Depending on the port, it may have a role in the siting, permitting, financing, development, or even operations of an LNG fueling terminal. As a responsible economic development agency, a port can also play a critical role in the public education and promotion of LNG and the mitigation of local opposition to such projects.

Public port agencies generally understand this is a constructive role they are in a position to play. We are seeing that in isolated initiatives, notably on the West Coast, as well on an international scale with Antwerp leading a working group that includes the Ports of Los Angeles and Long Beach.

The expansion of LNG and compressed natural gas (CNG) as a replacement fuel in port related operations, already showing benefits, is also a powerful tool that ports can use to achieve significant emissions reductions and thus reduce the cost and impact of increasingly more stringent environmental regulations or measures to meet local community demands. If LNG is used to fuel vessels’ auxiliary generators while in port there may be no need to install costly shore power systems for cold ironing since equivalent emissions results could be obtained with LNG.

Collectively, ports can be in the forefront of a “Green” initiative, leading to the expansion of LNG as a transportation fuel throughout the nation. Individually, ports that facilitate LNG bunkering operations could find them to be a competitive factor in attracting and retaining liner business as those companies bring LNG-capable vessels on line to meet IMO global standards by 2020.

Much has been written of the significant impact that domestically produced natural gas and its liquefied form will have on our on our nation. Ports are where all surface modes of commercial transportation intersect and where LNG distribution will naturally occur. They are in a position to be influential in the development of national policies that promote and accommodate the broad deployment of LNG as a transportation fuel.
John E. Graykowski

 

Shipping The T. Boone Way

In Efficiency, Energy/Environ, Green Transportation, Marine Highway on November 2, 2010 at 10:43 am

T. Boone Pickens and I have something in common.  You probably do, too.

The uber-capitalist wants to end our nation’s dependence on foreign fuel sources.  Especially those nation sources that love to take our money and use it to cut US off at the knees.

No doubt T. Boone has an uber-financial interest in domestically produced energy through wind turbines and natural gas.  But let’s give the guy great credit for hitting the road and taking what is an urgent policy campaign to folks around the nation.

Although he doesn’t mention it in his plan, I think T. Boone would give a thumbs-up to LNG fueled ships.   Here are a few notes to add to an earlier post at this address.

With IMO limits on emissions facing the sector, and a tougher emission control area (ECA) regime adopted for the US and Canada starting 2012, natural gas powered ships should be in the mix.

Heavy fuel oil is not an option for future shipping within ECAs. Alternatives have to be introduced. A DNV study concludes that LNG is the obvious alternative to satisfy future ECA requirements, particularly for the short sea shipping.  (DNV item and link to a presentation are here.)

MARINTEK  – the Norwegian Marine Technology Research Institute – does research, development and technical consulting in the maritime sector.  A 2009 presentation on the Norwegian experience with LNG fueled ships is interesting reading.

In China (of course)…

The company succeeded in fueling a tugboat weighing over 300 tons with LNG for Wuhan Ferry Company. The ship now runs on a fuel formula of 30% diesel and 70% natural gas, representing significant energy and cost savings.  The Chairman of the board & CEO of the company, Qinan Ji, said. “This achievement is a big step in the history of China’s new energy industry and will contribute to environmental protection and reduce energy consumption. The marketing of LNG-powered ships will be implemented on a full scale in the forthcoming years.“ (Marine Link, August 8, 2010)

And from the pens of college students…

DNV CEO Henrik O. Madsen, said: “I was very impressed to see what the students presented here today. At times I have found it difficult to understand why the shipping industry has not switched to LNG – given the great commercial and environmental advantages. Today, with their presentation the students have provided ship owners with a blueprint, showing us all that it is 100% realistic to overcome the challenges with regard to LNG as fuel.”  (Ship Management)

I would rather not add LNG powered ships to the long list of things on which America ranks twenty-something—or last—in the world.  And as a matter of law we can’t buy Chinese vessels to work the American coastline.  So, what say, gang, let’s build them here!

LNG is a natural for coastwise shipping, less so for trans-oceanic vessels.  American start-ups including Coastal Connect, American Feeder Lines, and Intermodal Marine Lines see a role for natural gas in powering the modern vessels planned for marine highway service.  They intend to provide prospective customers with cleaner and highly efficient transportation options.

A few months ago the natural gas industry focused their monthly Washington roundtable luncheon on LNG and the maritime sector.  It was well-attended with a few of us maritime folks also in the room to hear John Hatley of Wartsila North America.  Now there are obvious regulatory and distribution issues to be addressed.  But sitting there, surrounded by a US industry group that knows little of shipping and a lot about natural gas, I realized that comparatively smaller US maritime shipping sector could have a major lobbying partner to advance innovative US-flag shipping if we only were willing to engage.  What do you say, Mr. Pickens?  What do you say, Washington?   Pbea

The Grass is Greener — Pt. 3

In Efficiency, Energy/Environ, Green Transportation on July 28, 2010 at 8:26 am

Here in the U.S. some vessels may qualify as green or, in the instance of refitted tugs and ferries by the Port Authority of NY & NJ to mitigate against dredge emissions for a major deepening project, are greener than they once were.  Then there’s the Foss Marine hybrid tug that was built with help from the Port of Long Beach.  And there are the efforts in the Port of Los Angeles which along with POLB has a multifaceted vessel emissions reduction program including regulation, financial inducements, technology demonstrations, and infrastructure investments.  What the U.S. government is doing to support technology improvements as part of an energy/environment policy is not readily apparent.  Lest we be satisfied that all is well in America let’s peer across the pond to Norway and see….ships powered by LNG and fuel cells.

LNG-powered ship nominated for ‘Ship of the Year’

A liquefied natural gas (LNG)-powered ship has been nominated for the “Ship of the Year 2010” award by Skipsrevyen, a Norwegian maritime publication.

The KV Bergen, and its sister vessels KV Barentshav and KV Sortland, “are by far the world’s most energy efficient and environmentally friendly coast guard vessels,” said a statement from Norwegian shipbuilder Kleven Maritime.

According to the company, the vessels use LNG as a primary source of fuel.  In addition, the vessels are equipped with large capacity marine diesel oil (MDO) engines to ensure high speed (maximum 20 knots) and towing performance when required.

“This, along with an optimized hull with very low resistance through the water again optimises fuel consumption during the vessels main operations – patrolling at low speed in rough waters,” the statement added.

“The reduction in NOX emission when using LNG is measured at around 90% compared to MDO, likewise the reduction in CO2 emission is measured at 25%.”

_____________

From Eidesvik Offshore of Norway

“Launched in 2003, the FellowSHIP project began with a feasibility study and completed basic design and development of fuel cell technologies for vessels by 2005. In 2006, the JIP began development of an auxiliary electric power pack (320kW) fueled by LNG, which was successfully installed in September aboard the OSV Viking Lady…   The third and final phase of the project, intends to be testing, qualifying and demonstrating a main fuel cell electric system…

“The success of the project so far has raised expectations that fuel cell technology is close to a commercial application and has resulted in a regulatory review to establish frameworks for moving the technology forward.

“The FellowSHIP project was developed in response to rising concerns about the environmental impact of harmful emissions to air, including NOx, SOx, and CO2. ….

“With new tougher, emissions regulations now being considered by the IMO and EU, demand for commercial alternatives to traditional onboard power systems has risen. Fuel cell technology is not expected to manage the issue alone, but the technology represents a vital piece of the puzzle in certain shipping segments, such as short sea, local port traffic, commuter ferries and cruise ships and offshore, among others…”

The FellowSHIP project is a Joint Industry Project with Norweigian and German support.