Crew training for LNG fuelled ships

I repeatedly speak about LNG fuelled ships, both here at the blog and at all sorts of other events. And there are typically three main concerns I get questioned about; the first is regulatory development, the second is availability of LNG, and the third is training of the crew who are going to operate these ships in a safe manner.

Here at DNV, we are trying to contribute to progress on all three accounts, and lately we have put some effort into the topic of crew training. We are not going to offer training, instead we have developed a standard describing what the objectives for training should be, and what technical contents a training course should cover. We trust this standard will be of help to other companies and individuals when they are developing their training schemes. And we trust it will be a tool to ensure training is consistent and of high quality throughout the industry.

A new DNV standard for certification

A new DNV standard for certification

A tribute to the Norwegian maritime industry

In a conference recently, I was challenged to present the “Norway Case” for LNG fueled ships, and what others could learn from Norway. If you haven’t got the story yet, the maritime world is now scrambling to get their things in order, and launch their first LNG fueled ships. Meanwhile, Norway has built a fleet of 35 ships already operating on LNG, the first one launched in 2001. That’s 12 years ago.

As I considered the various reasons why this has happened, I ended up with a pretty strong tribute to the entire maritime industry in Norway.

First off, the politicians deserve some credit. Firstly, they outright demanded that a ferry route up for renewal should operate on natural gas – the result? The worlds first LNG fueled ship in 2001. Secondly, they introduced the NOx fund, which penalizes NOx emissions, and supports NOx reducing measures – the result? Ship owners are lining up for getting 85% of the delta cost for their LNG fueled ships covered by the fund. This clear and continued support from the Government has been instrumental in developing the case for LNG fueled ships in Norway.

Now, don’t expect me to praise politicians again on this blog.

The second group that deserves credit is the regulators – To be more specific, the Norwegian Maritime Directorate (NMD). The NMD has adopted a much stronger risk based approach than any other flag or port state I know of. This allows the NMD to consider new technology through risk analysis and approve/reject solutions based on risk acceptance criteria. Many other nations’ regulators typically become paralyzed in the face of new technology as there is no known basis for prescriptive requirements.

The third group that deserves credit is the industry, the companies themselves, and those individuals who get up in the morning, design the ships and solve the technical challenges. Those men and women, primarily from small and dynamic companies on the West coast of Norway, have done work over the past decade that the rest of the maritime industry is today benefiting greatly from.

If it wasn’t for these 10 years of experience logged in Norway, I am convinced that the global birth of LNG fueled shipping would be a lot more difficult.

The latest addition to the LNG fueled fleet: Fjord Line's new passenger vessels

The latest addition to the LNG fueled fleet: Fjord Line’s new passenger vessels

How fast LNG will conquer the marine fuel market

Over the past week, here at DNV, we have done another market analysis to assess how fast LNG will win into the marine fuel market. I am not at liberty to share the results, but it got me thinking about a broader theme.

But first, here’s what we did: We have developed a model that combines various sources for number of port calls and future fleet growth. With this model we can estimate the number of ships of a certain type and size that will call in a certain port in the future. Once we have the model, this is quite straigh-forward to do, and it produces a near perfect benchmark for discussing the next step: the implementation of LNG into each ship category. And this is when the head-scratching starts; how many ships in each category will be opting for LNG? and at what time? Take Panamax bulk carriers for example, how many percentages in 2020? In 2030? It is very difficult to make these guesses, even for long time experts in the business.

We can for example anticipate 50% share of LNG for newbuildings of a certain ship type delivered after 2020. After 20 years with expected ship renewal rates, LNG will then fuel some 40% of the global fleet of this ship type.

But, why would the number be 50%? I believe it will only be 50% if the lifecycle economics of oil fueled and a LNG fueled ship are equal. In other words, it will only be 50/50 if the choice doesn’t have an economic impact.

Once LNG is available and the novelty of the technology is a thing of the past, which will be the case by 2020, ships will again compete on cost, and shipowners will opt for whatever solution appears cheaper at the moment of ordering the ships. This means they will all go for the same choice. So it will not be 50/50, it will be all or nothing.

If natural gas and LNG is consistently priced lower than oil over the next three decades, we will see oil more or less replaced by LNG in the marine fuel sector. If LNG becomes, and stays, more expensive than oil then LNG will only be implemented in small niche markets and single trades around the world.

I know which one I believe in; in 2040 a ship burning oil will be a rare sight on the seas, but quite popular in museums.

(Particularly for uncertain situations, I believe an efficient model is an invaluable tool. I can easily play with different assumptions and immediately see what they mean for the demand in the analyzed area. I’d be happy to share, but then you’d have to show me the money.)

It's amazing what a black box can do.

It’s amazing what a black box can do.

 

Forecast marine fuel prices

The single most important input to any economic comparison of future fuel options is the price of these fuels. For a ship, the fuel can represent between 50% and 70% of the total costs of owning and operating that ship. This means that any changes in these prices over the life cycle of the ship dwarfs all other input parameters.

The bad news is that it is impossible to foresee how fuel prices will develop. So, my intention today is just to suggest a base case. And then everybody should play with their own sensitivity analysis to ensure they are as robust as possible should the prices not develop as expected.

The marine fuel oil market is a large global market supplying about 300 million tons of fuel oil annually, and the price developments are generally following that of crude oil. As all fuel qualities are dependent on the same raw material, namely crude oil, relative swings between the different qualities are limited. In other words, MDO will remain more expensive than HFO with a high degree of certainty.

The global natural gas market on the other hand is not set up to supply LNG in small quantities to consumers such as ships. Therefore there are no functioning markets for this, and no reference prices exist. There are many developments across the world, but contract structures and prices for LNG as a marine fuel is uncertain as of today.

To produce my base case, I have relied on the price forecasts for crude oil and natural gas from the International Energy Agency presented in their World Energy Outlook 2012 publication. I have used their “new policies scenario”, as this scenario seems the most likely to me. Here are their price forecasts towards 2035:

Forecast prices for crude oil and natural gas. Ref: IEA World Energy Outlook 2012

Forecast prices for crude oil and natural gas. Ref: IEA World Energy Outlook 2012

In order to convert the forecast resource prices into fuel prices paid by end consumers I have made the following assumptions:

  • For natural gas, I have selected the import prices for LNG to Japan, which should be representative for LNG prices in Asia. I have added 4 $/mmbtu to cover cost and mark-up for distribution from large LNG terminals to bunkering locations for ships.
  • HFO is today trading about 9% below the price of crude oil. I have assumed that this relation will stay constant throughout the period 2011-2035. In 2020, I have assumed the price will increase by 10% due to the implementation of a global sulphur limit.
  • MDO is today trading about 30% above the price of crude oil. Again I have assumed that this relation will stay constant.

The resulting price paths for the various fuels then look like this:

Marine fuel price paths towards 2035

Marine fuel price paths towards 2035

Just remember, there are no right and wrong answers here. You can forecast anything you want, that’s why it’s so easy to be an analyst.

The most important observation is that the choices you make about a ship’s fuel today, will adversely impact that ship’s economic performance over her life cycle.

Basics of LNG safety

“If the LNG terminal offshore Tuscany explodes, the Leaning Tower of Pisa will fall over”

This was stated by an Italian professor in the local newspaper during the approval phase of the now operational LNG terminal offshore the coast of Tuscany. To me it’s just another example that neither a PhD nor a Professor title is proof of a capability of rational thought. The fact is that an explosion of such magnitude is impossible. But let’s not get ahead of ourselves, let’s start with the basics.

The main safety aspects of LNG can be divided into two main topics:

  • Cryogenic effects from LNG
  • Flammability and explosion, including BLEVE and RPT

A spill of LNG might occur. A tank may rupture due to external impact. A flange may leak. A pipe may break. In such events, the initial consequence will be cryogenic effects from being exposed to a liquid at -163 degrees Celsius. Humans will freeze and steel will go brittle. Brittle steel may easily break and lead to secondary failures of other equipment.

Once the LNG has leaked, it will form a pool of liquid LNG. This pool will start to evaporate and form a cloud of gas, primarily consisting of methane. This gas will start mixing with air and once it reaches a mixture with between 5 and 15% gas, it is ignitable. The following sequence of events will depend on whether there is an ignition source, and whether the gas cloud is contained within a confined space.

Ignition source? Yes or no?

  • No: The gas will continue to evaporate, disperse at ground level while cold, but start to warm and rise to the sky as methane is lighter than air, and thereafter drift away until the entire liquid pool is gone. Nothing will be left.
  • Yes: The gas cloud will ignite.

If yes to above – Confined space? Yes or no?

  • No: There will be an initial poof, not very violent, as the gas cloud ignites, and it will burn back to the pool as a flash fire. The gas will continue to burn as it evaporates off the LNG as a pool fire until the pool is gone.
  • Yes: There will be an explosion causing overpressure and drag loads and potential damage on structures and buildings

Worst case scenarios for LNG accidents, such as the one described by the professor above, typically calculate an explosive release of all the energy in the cargo. This means that all of the 130 000 m3 of LNG stored in the terminal would have to leak, then evaporate to turn into 78 million m3 of gas, then mix with air to turn into 780 million m3 of ignitable gas/air mix (assuming 10% gas). If those 780 million m3 could be contained inside a confined space, then you would have a pretty potent bomb.

A balloon with sufficient resistance and a diameter slightly larger than 900 meter could make such a confined space. And of course you’d have to wait until all volumes are put into the balloon before igniting it. Needless to say, this is not a credible scenario. Another unlikely scenario is that all the gas evaporates and floats at ground level and avoids all ignition sources until a perfect moment when the whole gas cloud is within the 5-15% mix with air, and then ignites.

Most likely, the event causing the leak will also ignite the gas, causing only a low pressure flash fire and then there will be a continuous fire as evaporated gas burns off the liquid pool. This will be a catastrophic fire, similar to fires of any other fuel, but it will not cause explosive overpressures.

BLEVE is a phenomenon that can happen when a pressurised liquid gas tank is subjected to a sustained external heat source such as a neighbouring fire degrading the structural integrity of the tank. The degradation of the integrity can lead to a sudden rupture of the tank, and in the event of such a rupture the boiling liquid simultaneously expands and ignites causing a powerful explosion and thermal dose. BLEVE can only occur with pressurized tanks, it can’t happen to tanks with atmospheric pressure which is what is used for all large scale LNG terminals and ships.

RPT is a phenomenon that may occur when LNG is released onto water. The water will cause quick heat transfer into the LNG making it a superheated liquid. Once evaporations starts the LNG will evaporate instantly and cause a pressure pulse. RPT is a flameless explosion that can be compared with the cracking noises (small explosions) when heating cooking oil with small amounts of water inside. Significant damages caused by the phenomenon are not expected and have not been observed.

In addition to the main safety topics above, there are a few other special phenomenon of more operational interest:

  • Roll-over may occur in tanks where the LNG is stratified, leading to a build-up of pressure in the lower layers which can eventually release causing sudden vaporization (boil-off). Normal procedure now ensures regular mixing to prevent stratification.
  • Sloshing is the effect of waves inside LNG tanks on ships. The consequence of this may be damage to the tanks and potential leaks of LNG.

Gas flame

Yes, natural gas burns. And this is good news, because this is why it can serve as a fuel. Also, under certain circumstances, natural gas can cause explosive over-pressures  This is why any equipment utilized for gas and LNG must be designed in ways where the likelihood of events with high consequences are minimized. As an example, pressurized gas tanks must be located in places where external impacts are unlikely, or they must be shielded from such impacts. Another example is arrangement of equipment so that potential jet fires will not directly hit critical equipment.

In order to ensure safe design, risk management is an integrated part of the design process. To be more concrete, this is a process that follows certain defined steps: hazard identification – risk analysis – risk evaluation – risk treatment. This is a quantified process, so that it can ensure that the safety of the object is within whatever acceptance criteria that apply.

The risk analysis part of the risk management process can take many shapes and forms. It depends on what sort of risk needs to be analysed. There are various computer tools available for this analysis, for example tools for analysing the dispersion of gas clouds and the severity of fires and explosions. For a wide range of LNG leak cases, relatively simple tools can be applied, but for more complex geometries, then CFD (Computational Fluid Dynamics) models are needed.

With a proper risk management approach in both design and operation, gas and LNG are equally safe, or even safer than other fuels.

Should you wish to dive deeper into LNG safety, I can recommend a book by my colleague, Robin Pitblado: LNG Risk Based Safety.

The FPPU enters the LNG scene

As if the LNG industry wasn’t laden with enough acronyms already, here’s another one for you: FPPU. Floating Power Production Unit.

In a conference in Singapore recently, BW Offshore presented their thoughts on gas fired power production for the future. The logic is quite simple; emerging countries will need loads of electricity in the years ahead, and in South East Asia as an example, as much as 40% is expected to be developed as small to medium scale plants (50-500 MW).

In all these locations, getting access to necessary land areas is going to be one of the challenges. Jetties, LNG storage tanks, re-gasification terminals, and power plants are all facilities that require a lot of space. BW Offshore’s solution practically moves everything to sea, and just sends a cable to shore. The solution offers quick deployment, minimal impact on land and environment, flexibility in use of the asset, and presumably good economics.

The unit would have LNG transfer arrangement to get cargoes of LNG from LNG carriers, it would have LNG storage tanks, it would have a re-gasification unit, and it would have a combined cycle gas turbine power plant. That is a hefty amount of equipment on board a ship, and detailed design has not yet been done, but there is no reason to believe this should be too difficult.

The unit could also serve double purposes, and both produce electricity and supply break bulk LNG to small scale consumers near-by. A true hub for LNG distribution and consumption.

The LNG value chain will continue to evolve over the coming years, and the FPPU is a welcome addition to the industry.

Bend it like BW Offshore - Photo courtesy of BW Offshore

Bend it like BW Offshore – Photo courtesy of BW Offshore

LNG in the Philippines

I visited Manila this week. The occasion was a seminar on LNG hosted by the Ambassadors of Norway, UK, the Netherlands, Japan, and Russia. The Philippine Secretary of the Department of Energy attended along with most of the who’s-who in the Philippine natural gas industry.

There was a range of us who got to share our thoughts on the topic of how the Philippines should transition to more use of natural gas, and I learned a lot through the day. Here are some of my main observations:

Energy mix in the Philippines

The Philippine energy mix is actually quite green compared to most other nations. Geothermal, hydro, and biomass represent as much as 40% of total energy supply. But only 8% natural gas is far below the global average of almost 25%, which should indicate quite strong opportunities for natural gas. However, if a transition to natural gas shall make sense, it must steal market share from oil and coal, and not from the renewable sources.

97% of the natural gas in the Philippines is used for power production, but the opportunities for future growth are evident, not only for power production, but even more so for industrial heat and power, road transportation, and marine transportation.

The whole nation is running short of power, so significant capacity increases are expected for power generation. The Philippine Energy Plan from 2009 describes an ambitious plan to expand from 2,700 MW of gas fired power generation capacity in 2009 to 17,750 MW in 2030. There are, however, not much domestic reserves to tap into, so most of this gas would have come from imports of LNG. The challenge then is pure economical; imported LNG can’t compete with coal for power generation. And the Secretary of the Department of Energy said he was not a fan of putting penalties on the use of coal. So how they are going to motivate this big investment in gas fired power generation is unclear to me.

I think it is more promising to look at the industrial sector. There are many dense industrial areas in the Northern parts of the Philippines, where a broad roll-out of small scale distribution with trucks and small ships should be possible. There are also many small industrial size generators scattered around the islands further to the South. Making LNG available to these sites would allow them to switch away from HFO and diesel products and thereby both reduce costs and more or less eliminate local emissions. The challenge is to get the ball rolling; it will not be economical for only one or a small number of sites to switch. In a study for small scale distribution in Indonesia, we have estimated that about 10 sites of 50 MW capacity each would be necessary to share the cost of distribution and make the whole chain economical. The Philippines would be similar, so if they can coordinate this first group of consumers, the rest of the implementation should drive itself through economics.

For road transportation, I believe implementation is fairly straight-forward for any nation; this is simply about making LNG and CNG available where trucks, buses, and cars need it. Admittedly, somebody has to carry the burden of the initial investments in fueling stations until the demand starts growing, but this investment is fairly small if a country decides that this is what they want to do. No further studies or discussions needed here, just go out and do it.

For marine transportation, the logic is similar to that of both industrial use and road transportation – once LNG is available, the shipping operators will start switching. The good thing is that also shipping will rely on the same small scale distribution grid, so once the volume starts increasing and the distribution network grows, also shipping will come around.

There is a promising future for natural gas in the Philippines, but Government incentives or actions are needed to kick-start the development. And they should focus on small scale developments rather than full scale power generation, as small scale has a better chance a becoming economically sustainable.

I remain optimistic, and will take any opportunity to visit the Philippines again in the future.

Joint industry project on LNG bunkering completed in Australia

I have presented the rationale behind this joint industry project before, but really it is very simple; several players can benefit from switching to LNG as a marine fuel also in Australia, so let’s see what it takes to make this happen.

The work is now done, and the final report can be downloaded here. The main take-away for me is that there are “no significant legal restrictions hindering development of LNG bunkering in Australia“. And as a switch from liquid fuels to LNG in Australia represents a switch from imported products to domestically produced products, I believe the greatest motivation of all is right there.

I’d like to extend a thanks for valuable contributions and interesting discussions to our partners in the study:

The local emissions benefits of switching from oil products to LNG as a marine fuel in Australia are undeniable.

The local emissions benefits of switching from oil products to LNG as a marine fuel in Australia are undeniable.

LNG carrier collisions

Over more than 50 years, the LNG industry has built up an impeccable safety record. As far as I know there have only been two grounding incidents for LNG carriers, and no collisions. There have probably been some incidents that have never been reported, but nothing that has resulted in any catastrophic events.

It is important to observe that this is no coincidence. LNG shipping has been much safer than other types of shipping because stricter rules, regulations, and practices have been applied.

Such rules and regulations have also extended to the operations of the LNG carriers, not just their design and construction. For example, for harbor operations there are specific, and stricter, requirements to LNG carriers than other ship types. And in order to avoid overly conservative solutions, a risk based approach has been adopted so that less costly solutions can be selected without jeopardizing safety.

The following presentation describes this risk based approach to LNG carrier collision assessments.

Energy and the world economy

OK, that heading indicates some pretty big and fluffy thinking for today’s blog post. But I just can’t help but wonder how it all connects when so much is happening. Last week I talked about the consequences of dirt cheap natural gas. Afterwards, several of you sent me even more evidence of these consequences: New chemical plants opening in the US. Manufacturers of carbon products favoring locations in the US. New Fertilizer plants in the US. New ethylene plants in the US. The list goes on. Search the news, and you’ll even find our eminent analysts starting to use the term “Industrial Renaissance”.

Well, good for the US economy; cheap natural gas fuels job creation.

But what about the rest of the world? If natural gas remains 3-4 times more expensive in Asia and Europe than in the US, it is a huge competitive advantage that will keep attracting business to the US. For how long? For several decades. At least that’s what “everybody” expects right now. You may think that natural gas alone is not enough to create an overall advantage for US business – But it is. The thing is that no other energy source will offset the advantage the US has in natural gas. It’s not like Asia suddenly will have very cheap coal or oil or wind turbines.

With industry moving to the US, Americans will buy less foreign stuff and they will export more. It leaves Europe in the dust, that’s easy to see. But what will it do to Asia? Is the energy cost advantage large enough to drive a swing of industry back towards the US? Of course it is, at least for those industries and companies who only had a marginal benefit of being in Asia in the first place. The real question is only “how much?”.

Taking a look at China for example, it doesn’t take a very big change in their trade balance before it goes negative. And if it goes negative, it will pretty quickly become evident how dependent China is on their trade balance.

I am not trying to predict doomsday either for China or for the world economy here. My point is merely that energy is the main driving factor in our economy. Value creation eventually comes from the multiplication factor of putting 1 unit of effort into energy production and getting 20 or more units of effort back. It doesn’t come from you and me consuming more and more stuff, as politicians keep telling us.

This tells me that whichever country can get the most energy out of the least effort will come out ahead. Just how much impact this will have on the world economy, and how fast, will be interesting to observe. But the stage is set for a phenomenal experiment to test how important natural gas is to the world economy. Stay tuned.