Keep calm and carry LNG

LNG carriers have existed in the shipping industry for some 60 years. They go back to Methane Pioneer’s maiden voyage in 1959 as the first commercial seaborne LNG transport by a dedicated carrier. Today’s world LNG fleet consists of approximately 572 LNG carriers in operation, with 130 units scheduled to be delivered in 2021, along with 37 FSRUs – as per the International Gas Union (IGU) World LNG Report 2021. The LNG carriers usually operate in accordance with the long-term time charter party between the exploitation areas and final buyers and predetermined (un)loading terminals. The key factor for a successful and profitable project of LNG exploitation is planned and uninterrupted export of LNG, as well as its safe and reliable delivery to the buyers.

However, the LNG market has been changing in the last decade due to various reasons. It is the result of gas demands supported by large reserves and low prices of gas due to the increased supply competition. Natural gas has become the third source of energy in the last decade, after oil and coal, and it is expected that it will become the second source of energy by 2025 (International Energy Outlook 2016). Approximately one third of natural gas has been shipped by LNG carriers as LNG. It is estimated that by 2035, the transport of LNG by sea will surpass the transport of gas by pipelines. As per the IEA Outlook 2020, it is expected that LNG, the main driver of international gas trade, will increase by 21% between 2019 and 2025. Together with the development of LNG and FSRU ships, a technology for safe, reliable, and efficient cargo loading, discharging, and ship-to-ship (STS) reloading has been developed. STS kit consisting of cargo flexible hoses, supporting equipment for emergency shut down (ESD), and emergency release and disconnection, has successfully complied with the administration’s

Dalibor Ivanisevic, STS Marine Solutions, Croatia, discusses the choice of small scale LNG and how different ship types can deliver whilst keeping OPEX down.

Figure 1. Difference in CO2 emissions for different fossil fuels.

Figure 2. Number of ships built per year.

safe operation requirements, and it has been widely used for reloading LNG cargo in the recent past. A good example of such a situation was a high frequency LNG transhipment project in Norway that involved simultaneous cargo transfer operations from Arctic-classed LNG tankers to conventional LNG tankers at the end of 2018 into 2019. It was carried out by STS Marine Solutions where 123 successful cargo transfers amounted to almost 10 million t of transferred LNG.

Apart from cargo transfer operations between large conventional LNG carriers, LNG STS equipment has been used for required gassing-up operations onboard LNG vessels after a dry docking, offering economical and operational flexibility when compared to standard terminal operation. LNG STS kit is proven and reliable equipment, compact in dimensions, easily transported, and offers plug-in technology compatible with LNG carriers in service today.

LNG STS technology is essential for utilisation of small scale LNG carriers regardless of the primary usage of small scale LNG – which is bunkering LNG or delivering small parcels of LNG to the areas restricted by lack of infrastructure or water depth. It offers obvious advantages in comparison to fixed onshore terminal infrastructure particularly in respect to small parcels delivered by small scale LNG.

Parallel with the growth of the world’s LNG carrier fleet and with the strong development of technology onboard LNG and FSRU carriers, a niche of small scale LNG carriers has been continuously increasing in number, amounting to approximately 87 units today.

The IGU criteria defines small scale LNG as any facility with a liquefaction and regasification capacity of 0.05 - 1.0 million tpy, and vessels with a capacity of 60 000 m3 or less. However, more than 90% of small scale LNG carriers are up to 30 000 m3 capacity.

Some of the main factors consistently influencing small scale LNG market growth include the following: z Small market demand pockets (usually power plant and/ or industrial customers with less than 1 million tpy of aggregate demand). z Substantial potential for LNG bunkering. z Shallow water restrictions (usually less than 8 m). z Countries with developed inland waterways. z Archipelagos where development of pipeline infrastructure is infeasible.

By taking these factors into consideration as well as the LNG industry’s continuous effort to provide cost-effective solutions, it is fair to claim that there are two main drivers for developing and building small scale LNG carriers. The first one is the result of more stringent environmental regulations and limited CO2 emissions where LNG has become a frontrunner amongst marine fuels, and small scale LNG bunkering vessels are utilised to provide bunkering capacity for an increasing number of LNG powered ships. In accordance with DNV GL, there were approximately 175 LNG-fuelled ships in service, with more than 200 on order in 2020.

When looking at differences in emissions for fossil fuels, it is easy to understand why LNG is becoming the first option for most of the shipowners and operators when trying to comply with environmental regulations.

The second driver for developing and building small scale LNG carriers is small scale LNG-to-power, i.e. taking small parcels of LNG from import terminals – a process known as break-bulk – and transporting them to areas unconnected to the gas grid, with no infrastructure for a standard LNG carrier. This enables customers and users in remote locations to obtain and use LNG as low emission fuel, avoiding construction of expensive or impractical infrastructure.

Small scale LNG carriers are successfully adding the following values: shallow draft accessibility, operational flexibility, shorter project lead-time in comparison to large LNG carriers, and smaller CAPEX on absolute level – although less economical in terms of cost per m3 of the vessel’s capacity.

Some limitation factors of small scale LNG carriers include: z Distance between the source of LNG and small demand centre, where the economics of small scale LNG carriers rapidly deteriorates with increased distances. It is firmly determining utilisation of the small scale LNG carrier on short voyages and distances. z Restricted market for re-deployment. Unlike large LNG carriers, small scale LNG carriers are generally deployed regionally and closely connected to a specific project.

This includes economically unviable shipping over long distances, some limitations on the compatibility globally, and undeveloped small scale LNG carrier markets across the globe. This limitation factor determines more market risk for small scale LNG carriers in comparison to conventional LNG carriers.

z Relative economic disadvantage when compared to conventional LNG carriers as mentioned above. By taking into consideration the almost equal amount of technology used onboard a small scale LNG carrier, which is similar to conventional LNG carriers, and the fact that most of

the small scale LNG carriers have been constructed using costlier Type C tanks for storage, it is obvious the cost does not fall proportionally with size. However, relative economic efficiency of small scale LNG carriers is improving as a result of the fact that LNG as a fuel is still very competitive.

Demand keeps growing

Despite the aforementioned limitations, demand for small scale LNG carriers has seen rapid growth in the 2010s, due to increased environmental regulations for cleaner fuel, availability of low-price LNG on the market, and continuous development of proven LNG technologies used onboard LNG carriers. In the last six years, the small scale LNG fleet has almost doubled in number of ships in service (Figure 2).

It is important to emphasise the fact that the use of small scale LNG carriers for bunkering is regionally dependent and it advanced mostly in Europe and the US because of four emissions control areas (ECA) zones designated under Regulation 14 of MARPOL Annex VI with specific SOx requirements: North American, Caribbean, Baltic Sea, and North Sea.

Additionally, a refuelling station that is supplied with small vessels is already operational in Singapore.

However, whilst LNG technology is already mature onboard LNG carriers, as per BV Marine and Offshore, small scale LNG carriers will bring a novel design in the market of LNG bunkering vessels trying to utilise modern technology with optimal solutions. Challenges such as the handling of boil-off gas (BOG) would require one of the few available technical solutions.

Reliquefaction of cargo vapours, withstanding higher pressure in the tanks by utilising thicker cargo walls, or liquid cargo cooling. Type C independent cargo tanks can withstand higher tank pressures thus it is often a design option when constructing small scale LNG carriers. However, using a membrane tank concept offers flexibility in sizing the tank capacity, tailoring it as per customer requirements. It is a costlier technological solution with a limitation in narrow tank pressure tolerance. On the other side, construction of more robust, higher pressure allowing Type C tanks requires thicker tank walls resulting in heavier and costlier material for tank building.

Looking at LNG bunkering vessels, requirements for controlling BOG are different from the small scale LNG vessels delivering small parcels. It is fair to assume that a new solution might be introduced in attempt to reduce CAPEX and high relative cost per m3 of storage capacity of small scale LNG carriers.

Bearing in mind all parameters and economics, the market share of small scale LNG carriers is, nowadays, small when compared with the entire LNG industry; however, potential for strong growth in the future is obvious. In accordance with the IEEJ 2022 outlook, supply and consumption of natural gas is expected to increase globally, and utilising gas and LNG instead of petroleum fuels is considered the key role in decarbonising the shipping industry as well as road transport ashore.

Environmental demands and recent commitments of high CO2 emitting economies toward net zero emissions targets is giving a strong signal of an irreversible process globally, where it is expected that gas and LNG will replace a large number of coal-fired power plants and is significantly contributing to the reduction of CO2, NOx, and SOx emissions.

Combined with an increased number of LNG-powered vessels, it is fair to expect that small scale LNG carriers will become a growing part of the industry and will be followed by new technological solutions and vessel designs.