LNG Gas Supply System

Within 10 years the majority of shipping vessels will run on LNG...a cleaner, alternative fuel source. The newest innovation in LNG carrier engine design, M-type, electronically controlled, gas injection (ME-GI) engines, optimize the capability of slow speed engines by running directly off BOG (removing the need to reliquefy the gas) or utilizing fuel oil, and ME-GI propulsion results in less fuel consumption.

Environmental legislation is currently impacting the marine market segment. Ships were traditionally powered by Heavy Fuel Oil (HFO), which produces high levels of harmful pollutants. LNG is one of the only fuel source able to comply with the environmental legislation.

Dynamic Controls designs and manufacture the gas supply system for ME-GI gas-injection system manifolds.


LNG
Gas Supply System for ME-GI gas-injection system Manifold
Gas Supply System for ME-GI gas-injection system Manifold
Technical Data Nitrogen Manifold Methane Manifold
Design Pressure 400 Bar / 6000 psi 400 Bar / 6000 psi
Working Pressure 400 Bar / 6000 psi 310 Bar / 4500 psi
Test Pressure 200 Bar / 3000 psi 600 Bar / 9000 psi
Operating Temperature -40°C to 80°C / -40°F to 176°F -40°C to 80°C / -40°F to 176°F
Media Nitrogen CNG Compressed Natural Gas & Methane
Pressure Regulation Data Must Be Requested From DCL
Space Envelope 1.2mtrs L x 0.8mtrs W x 1.8mtrs H / 47.2” L x 31.5” W x 70.9” H
Flow of LNG Data Must Be Requested From DCL
Weight of Unit Data Must Be Requested From DCL
Total No. of Valves Installed in two blocks 12 x DN 25 (1”) and 5 x DN 10 (½”)
RESPONSE TIME ACTUATED VALVES - METHANE
  • 2 seconds open to close
  • 5 seconds closed to open
  • Two switches on actuated valves indicating open/closed.
PRINCIPLE FEATURES OF NITROGEN AND METHANE MANIFOLDS
  • Each valve has a double sealing arrangement to the outside environment
  • The void between each seal is monitored/analyzed by a flow of air through each of the voids in the manifold block and valves, ensuring that any breaches of the primary seals is detected.
  • Automatic shut down of Methane supply if leak is detected.
  • Nitrogen purging system of the Methane flow paths during a planned shut down or in an emergency situation.
  • All valves of cartridge design enabling quick change in the event of a failure and full maintenance whilst off line.
  • Actuated Valves controlled from 6 Bar / 87 psi source, and spring return for fail safe.
  • Valve leakage to ANSI class VI
LNG
Gas Supply System for ME-GI gas-injection system Manifold
Methane Manifold Block Exploded View
Methane Manifold Block Exploded View
Item No. Part Code Title Material Design Pressure Working Pressure
Size
DN (IN)
Qty
1 861-C4-D-1-D-1-A-4 Stop Valve Assembly Stainless Steel CLASSIFIED
25

1"
1
2 861-C4-D-1-D-1-A-4 Non-Return Valve Cartridge Assy. Stainless Steel
25

1"
5
3 864-C4-D-2-D-4-A-4 Filter Cartridge Assembly Stainless Steel
25

1"
1
4 866-C4-D-3-D-1-A-4 Stop Valve, Normally Closed Stainless Steel
25

1"
4
5 866-C4-D-3-D-1-A-4 Stop Valve, Normally Open Stainless Steel
25

1"
1
LNG
Gas Supply System for ME-GI gas-injection system Manifold
Nitrogen Manifold Block Exploded View
Cunico Gas Supply System for ME-GI gas-injection
Item No. Part Code Title Material Design Pressure Working Pressure
Size
DN (IN)
Qty
1 861-C4-D-1-D-1-A-4 Stop Valve, Normally Closed Stainless Steel CLASSIFIED
10

½
2
2 861-C4-D-1-D-1-A-4 Stop Valve, Normally Open Stainless Steel
10

½
2
3 818A-A2-D-2-D-3-A-4 Regulator Cartridge Assy. Stainless Steel
10

½
1
LNG
Gas Supply System for ME-GI gas-injection system Manifold
Product Code Sizes Type of Manifold Design Pressure Non-vented Ventilated
Application
Methane Ethane
No. of DCL cartridge valves in each manifold
GVT-C4-A-1-D-1-A-4 1" Single line 400 Bar/5801 psi X  
X

 
16
GTV-C4-A-1-D-2-A-4 1" Dual line 400 Bar/5801 psi   X
 

X
16
GVT01-C4-A-1-D-1-A-4 1" Single line 400 Bar/5801 psi X  
X

X
16
GVT01-D5-B-1-D-1-A-4 Single line 420 Bar/6207 psi X  
X

X
16
GVT01-E6-B-1-D-1-A-4 2” Single line 420 Bar/6207 psi X  
X

X
16
GVT-A2-3-A-1-A-1-A-4 ½ Small block* 400 Bar/5801 psi    
 

 
4
*Small block with A2 valves installed, used on Nitrogen only and is supplied as an additional unit with all the above
Market(s) for Dynamic Controls’ LNG, gas supply system for ME-GI gas-injection system manifolds are,Container ships, and other cargo ships—Please refer to, Shipping Industry Fleet -page 21 of 36.

Piellisch, Rich. Crowley is building two LNG-fueled Commitment- class ConRo ships for the Puerto Rico trade. March 30, 2016 . http://hhpinsight.com/ marine/2016/03/crowley-maritime- sets-first-man-engine/. 4/21/16.

Carnival Corporation Finalizes Contract with Meyer Werft to Build Four Next-Generation Cruise Shipts — August 18, 2016

The four new cruise ships – part of a previously announced nine-ship strategic partnership for the world's largest cruise company – will be the largest ever built based on guest capacity. The vessels will feature a revolu- tionary “green cruising” design as the first-ever cruise ships powered at sea by Liqueied Natural Gas, the world’s cleanest burning fossil fuel MIAMI, June 15, 2015 — Carnival Corporation & plc, the world's largest travel and leisure company, today announced it has signed a multi -billion dollar contract to build four next-generation cruise ships with the largest guest capacity in the world. The contract with Meyer Werft is part of larger previously announced strategic memo of un- derstanding with leading shipbuild- ers Meyer Werft and Fincantieri S.p.A for nine new ship orders be- tween 2019 and 2022.

The four new ships will also feature a revolutionary “green cruising” design. The ships will be the first in the cruise industry to be powered at sea by Liqueied Natural Gas (LNG) -- the world’s cleanest burn- ing fossil fuel, representing a major environmental breakthrough. The company said two of the ships will be manufactured for AIDA Cruises at Meyer Werft's shipyard in Papenburg, Germany. Additional information about the ships, includ- ing which new ships will be added to each brand, will be made availa- ble at a later date.

Based on Carnival Corporation’s innovative new ship design, each of the four next-generation ships will have a total capacity of 6,600 guests, feature more than 5,000 lower berths, exceed 180,000 gross tons and incorpo- rate an extensive number of guest-friendly features. A major part of the innovative design involves making much more efficient use of the ship's spaces, creating an enhanced onboard experience for guests. Pioneering a new era in the use of sustainable fuels, the four new ships will be the first in the cruise industry to use LNG in dual-powered hybrid engines to power the ship both in port and on the open sea.LNG will be stored onboard and used to generate 100 percent power at sea – producing another industry first innovation for Carnival Corporation and its brands. Us- ing LNG to power the ships in port and at sea will eliminate emissions of soot particles and sulfur oxides.

In addition to the two ships be- ing built in Germany, Meyer Werft – which had the capacity to accommodate these four ship -building orders in its produc- tion schedule -- will also build the two additional ships de- tailed in today’s announcement at its shipyard in Turku, Fin- land. Each new ship will be speci􏰂ically designed and developed for the brand and the guests it will serve, underscoring the company's goal to consistently exceed guest expectations and provide f􏰂irst-time and repeat guests with the vacation experi- ence of a lifetime on each and every cruise.Carnival Corporation CEO Ar- nold Donald said the contract is consistent with the company’s measured capacity growth strategy to replace ships with less efficient capacity with new- er, larger and more fuel eff􏰂icient vessels over time. "We are looking forward to executing on the next step in our fleet enhancement plan," said Donald. "At a cost per berth in line with our existing order book, these new ships will enhance the return profile of our fleet. These are exceptionally efficient ships with incredible cabins and public spaces featur- ing a design inspired by Micky Arison and Michael Thamm and developed by our new build teams." Arison is chairman of the board of directors for Carni- val Corporation & plc and Thamm is CEO of the Costa Group, which includes AIDA Cruises and Costa Cruises. Added Donald: “It will be excit- ing to see our shipbuilding team bring these new ships to life. Every step of the way, our focus is on designing state-of-the-art ships that provide a vacation experience our guests will love, and we are putting all of our creative energy and resources into making sure we achieve that goal.” “These ships will expand our leadership position for the Costa Group, the market leader in all the major European markets,” said Thamm. “These will be spectacular ships designed specifically for our guests who sail on our Costa Group brands.” Bernard Meyer, CEO of Meyer Werft, said: “In past years, we have built seven highly successful ships for AIDA Cruises. We are honored that Carnival Corporation has entrusted us with the implementation of this ambitious shipbuilding program, and we look forward to building these four magnificent ships.”

The new ship order will allow the Costa Group to continue to build on its leader- ship position in the European cruise mar- ket – a market in which f􏰂ive out of 10 cruise guests in 2014 sailed onboard a Costa Group ship. The Costa Group – along with Princess Cruise Lines, also part of the Carnival Corporation family -- also occu- pies the leading position in the rapidly growing cruise market in China. As part of each shipbuilding company's long-term strategic partnership with Car- nival Corporation, additional new ship or- ders are being explored over the coming decade.

About Carnival Corporation & plc

Carnival Corporation & plc is the largest cruise company in the world, with a portfolio of 10 cruise brands in North America, Europe, Australia and Asia, comprised of Carnival Cruise Lines, Holland America Line, Princess Cruises, Seabourn, AIDA Cruises, Costa Cruises, Cunard, P&O Cruises (Australia), P&O Cruises (UK) and fathom.

Together, these brands will operate 100 ships in 2015 totaling 219,000 lower berths with eight new ships scheduled to be delivered between 2016 and 2018, along with an additional four ships to be delivered between 2019-2022. Carnival Corporation & plc also operates Holland America Princess Alaska Tours, the leading tour companies in Alaska and the Canadian Yukon. Traded on both the New York and London Stock Exchanges, Carnival Corpo- ration & plc is the only group in the world to be included in both the S&P 500 and the FTSE 100 indices.

By, John Coles:

““The vessels will feature a revolutionary “green cruising” design as the first‐ever cruise ships powered at sea by Liquefied Natural Gas, the world’s cleanest burning fossil fuel
The four new ships will also feature a revolutionary “green cruising” design. The ships will be the first in the cruise industry to be powered at sea by Liquefied Natural Gas (LNG) ‐‐ the world’s cleanest burning fossil fuel, representing a major environmental breakthrough.
The company said two of the ships will be manufactured for AIDA Cruises at Meyer Wer ’s shipyard in Papenburg, Germany. The two other liners will be built in Finland, I think.
Pioneering a new era in the use of sustainable fuels, the four new ships will be the first in the cruise industry to use LNG in dual‐powered hybrid engines to power the ship both in port and on the open sea. LNG will be stored onboard and used to generate 100 percent power at sea – producing another industry‐ first Innova on for Carnival Corpora on and its brands. Using LNG to power the ships in port and at sea will eliminate emissions of soot parcels and sulfur oxides. and more fuel efficient vessels over time. All these ships will be fitted with MAN Diesel and Turbo’s ME‐GI engine, and will incorporate Dynamic Controls LNG gas supply system for ME‐GI gas‐ injection system manifolds.

I expect this to be a growing trend for other large ships and should enable a steady flow of such orders for Dynamic Controls Ltd., for this and other ships as green propulsion is becoming increasing required to meet environmental standards. As part of each shipbuilding company's long‐term strategic partnership with Carnival Corpora on, additional new ship orders are being explored over the coming decade.

Carnival Corpora on & plc is the largest cruise company in the world, with a portfolio of 10 cruise brands in North America, Europe, Australia and Asia, comprised of Carnival Cruise Lines, Holland America Line, Princess Cruises, Seaboard, AIDA Cruises, Costa Cruises, Cunard, P&O Cruises (Australia), P&O Cruises (UK)

Together, these brands will operate 100 ships in 2015”

*Excerpt from Mr. John D. Coles*
e‐mail dated Aug. 18, 2016

[* John Coles CB FR Eng RCNC, re red from the Ministry of Defence (MOD) in 2007. Key points of his career/ experience: 1982, headed the British Admiralty Office in New London, Connect cut overseeing design/ integration of center sec on of Vanguard class submarines. 1998, Design and Acquisi on Project Manager, Vanguard class submarines, and Project Manager for BATCH 2 Trafalgar submarines, 1994, Superintendent Ships at Davenport. He became CEO of Warship Support Agency in 2001, and Director General Nuclear, for the MOD’s nuclear programs. In 2005 he became IPTL for Future Aircra Carrier (CFV) Integrated Project Team Leader.
In 2001 he was awarded and honorary degree, Doctor of Engineering, from Bath University. In 2004 he was elected a Fellow of the Royal Academy of Engineering and awarded CB in 2005.]

Slump Sends Big Ships to the Scrapyard. By Costas Paris August 15, 2016

Up until a year ago, the shipping industry was ordering ships in droves. This year, orders of new vessels have fallen to a record low and companies can’t get rid of ships fast enough.

About 1,000 ships that have the combined capacity to haul 52 million metric tons of cargo will be dragged onto beaches, cut into pieces and sold for scrap met- al this year. That is second only to the record amount of capacity of 61 million so-called dead weight tons that were scrapped and recycled in 2012.

The global economic slowdown is putting shipping through its most bruising period since the 2008 financial crisis. Companies including Maersk Line, a unit of Danish conglomerate A.P. Møller Maersk A/S, Germany’s Hapag Lloyd AG and China Cosco Bulk Shipping Co. have 30% moreb capacity in the water than cargo. As the companies, mostly based in Europe and Asia, fight for bigger shares of the global market, freight rates have dropped so low they barely cover fuel costs.

In the five years through 2015, owners ordered an average of 1,450 ships annually. This year orders through July fell to 293 vessels, or 11.6 million tons, according to U.K. marine data provider Vessels Value.

“Given the tremendous overcapacity, it will take much more recycling and at least two to three years of no growth in capacity to see some balance between supply and demand,” said Basil Karatzas, chief executive of New York-based Karatzas Marine Advisors Co.

In the benchmark Asia to Europe trade route, shipping rates are at an average of $575 a container this year, compared with $620 last year and $1,165 in 2014. Anything below $1,400 is unsustainable, operators say.

“Freight rates are dismal,” says Anil Sharma, president and chief executive of U.S.-based Global Marketing Systems, the world’s largest cash buyer of ships for recycling. “So you either idle ships, if you can afford it, or recycle.” Mr. Sharma said the typical age for recycling a ship is 30 years. This year the average age of ships getting scrapped is about 15 years.

“What’s changing is that young- er ships are being scrapped, but recycling won’t solve overcapacity on its own,” said Maersk Line CEO Soren Skou. “Only market growth can do this,” he said, adding that his company hasn’t scrapped many vessels this year only about 1% of its capacity but it expects to recycle more ships over the next three to five years.

Others are more active. Hapag- Lloyd scrapped 16 ships last year, or 60,000 containers, roughly 6.2% of its total capacity.

The overcapacity problem has been exacerbated by China’s slowing economy and anemic growth in Europe. Last year, Chinese imports from the European Union fell nearly 14%; Chinese exports to Europe were down 3% in the period. In this year’s first quarter, Chinese imports from the EU fell 7% from a year earlier, a decline matched by exports to Europe.

That has drastically affected the container trade. Last year, some 100 Asia-to-Europe sailings were canceled. That amounted to 10% of the traffic that moves 98% of the world’s manufactured goods, including electronics, household goods, shoes, clothing and food.

“Drastic fleet-management strategies have been implemented by container operators to reduce their exposure on oversupplied trades, and scrap- ping is one of them,” said Jona- than Roach, a container- shipping analyst at London- based Braemar ACM Ship broking.

A global commodities slump hasn’t helped. Beijing has also substantially cut down on imports of commodities such as coal and iron ore, forcing hundreds of previously chartered dry-bulk ships to be idled or recycled. The world’s largest bulk carrier, China Cosco Bulk Shipping, a unit of China Cosco Shipping Co., said in June it would recycle 53 vessels by the end of next year, or 8% of its existing fleet capacity.

In the past, recycling a ship has typically generated about one- quarter of the price of a new vessel of the same type and size. But owners say a sharp drop in the price of steel has cut the rate of return to an average of 10% to 15% of the price of a new ship.

Two years ago, in India, Pakistan and Bangladesh were paying about $460 a ton of steel.Last year it was $300 and it is now roughly $250, shipowners say. Officials at the Alang scrapyard—one of the world’s biggest, on India’s West Coast— said prices were likely to stay low through the rest of the year,as China is flooding the market with recycled steel.

Braemar ACM expects about 550 dry-bulk ships to be recycled this year, 29% more than last year and 48% more than in 2014. About 170 container ships are likely to be scrapped this year, compared with 85 last year and 164 in 2014. The scrapping of other ship types, such tankers, car carriers, general cargo ships and fishing boats, bring the year’s total to

LNG Engine set in Crowley’s new ConRo ship—March 31, 2016

The main engine has been set onto Crowley Mari􏰀me Corpora􏰀on’s new vessel, El Coquí, the first of two new Commitment Class ConRo (combina􏰀on container and Roll/On‐Roll/Off) ships that will be pow‐ ered by liquefied natural gas (LNG) for use in the ocean cargo trade between Jacksonville and Puerto Rico.

“This state‐of‐the‐art engine technology will add efficiency while con‐ tinuing to reduce impacts on the environment, one of Crowley’s top priorities,” said John Hourihan, senior vice president and general man‐ ager, Puerto Rico services.

“Utllizing this green technology is just another way we are demonstrating our commitment to the people of Puerto Rico, our customers and the environment. It alsobears mentioning that neither of these ships, which have been design specifically for the Puerto Rico trade, gets built without the Jones Act – a federal statute that provides for the promotion and maintenance of a strong American merchant marine.”

A video showing the progress of settng the engine may be viewed online here.

The engine was placed using a series of heavy lifts by 500‐ton cranes in the shipyard of VT Halter Marine, a subsidiary of VT Systems, Inc., where El Coquí (ko‐kee) and sister ship, Taíno (tahy‐noh), are under construction. The engine has a total weight of 759 metric tons and measures 41 feet high, 41 feet in length, and 14.7 feet wide.

“Customers will not only be able to experience the same reliable and dedicated service they have with Crowley today, but also will have the added benefit of lower emissions once these two ships join the Crowley fleet,” said Jose “Pache” Ayala, Crowley vice president, Puerto Rico. “Crowley is making a significant investment in the Puerto Rico trade to provide faster transit times while continuing with the ability to carry and deliver the containers, rolling cargo and refrigerated equipment our customers count on.”

Designing, building and operating LNG‐powered vessels is very much in line with Crowley’s overall EcoStewardship positioning and growth strategy. The company formed an LNG services group in 2015 to bring together the compa‐ ny’s extensive resources to provide LNG vessel design and construction management; transportation; prod‐ uct sales and distribution, and full‐scale, project man‐ agement solutions.

These Commitment Class, Jones Act ships are de‐ signed to travel at speeds up to 22 knots while maxim‐ izing the carriage of 53‐foot, 102‐inch‐wide contain‐ ers. Cargo capacity will be approximately 2,400 TEUs (20‐foot‐equivalent‐units), with additional space for nearly 400 vehicles in an enclosed Ro/Ro garage.

LNG-Diesel Dual Fuel Powerplant Placed in First of Two Ships –March 30, 2016

CrowleyMaritimeSets1stMANEngine. in Dual Fuel, LNG, Marine, Milestones by Rich Piellisch Crowley Maritime is trumpeting the setting of the main engine onto its new El Coquí container ship as ‘a critical milestone.’ El Coquí is the first of two Commitment‐class LNG‐diesel dual fuel ships being built for the Puerto Rico trade. Photo from Crowley’s excellent video shows the MAN Diesel & Turbine 8S70ME‐C8.2‐GI engine ‘A‐frame’ being lowered into place.

Crowley Maritime reported “another critical mile‐ stone” as the main engine has been installed in its El Coquí newbuild, the first of two Commitment‐class ConRo (combination container and Roll/On‐Roll/Off) ships that will be powered by liquefied natural gas to connect Jacksonville and San Juan.

The engine is a MAN Diesel & Turbo‐design 8S70ME‐ C8.2‐GI built at the Tamano Works of Mitsui Engineer‐ ing & Shipbuilding in Japan. It was installed in El

Continued: LNG- Diesel dual fuel powerplant placed in First of Two ships.-March 30, 2016

Coquí by VT Halter Marine in Mississippi, where a second Commitment‐ class ship, the Taíno, is also under construction.

The engine is a MAN Diesel & Turbo‐design 8S70ME‐C8.2‐GI built at the Tamano Works of Mitsui Engineering & Shipbuilding in Japan. It was installed in El Coquí by VT Halter Marine in Mississippi, where a second Commitment‐class ship, the Taíno, is also under construction.

“This state‐of‐the‐art engine technology will add efficiency while continuing to reduce impacts on the environment, one of Crowley’s top priorities,” Crowley Puerto Rico services senior VP John Hourihan said in a release.

Placed in Stages

The engine was placed in stages via a series of heavy lifts by 500‐ton cranes at the VT Halter yard.

“This ship is basically being built around the engine,” Jensen Maritime construction manager Patrick Sperry says in a video on the El Coquíin‐ stallation. (Jensen is Crowley’s Seattle‐based naval architecture subsidi‐ ary. Also quoted in the video are Crowley new construction engineering manager Raymond Bland and construction management VP Ray Martus.)

Faster

“Crowley is making a significant investment in the Puerto Rico trade to provide faster transit times while continuing with the ability to carry and deliver the containers, rolling cargo and refrigerated equipment our customers count on,” said Crowley Puerto Rico VP Jose “Pache” Ayala.

The Jones Act‐compliant, Commitment‐class, Jones Act ships are de‐ signed to travel at speeds up to 22 knots while maximizing the carriage of 53‐foot, 102‐inch‐wide containers. Cargo capacity will be approxi‐ mately 2,400 TEUs (20‐foot‐equivalent‐units), with additional space for nearly 400 vehicles in an enclosed Ro/Ro garage.

Deep Experience in Puerto Rico

In addition to their main ME‐GI engines (the first to be built in Ja‐ pan; HHP Insight, July 30, 2014), each of the new Crowley ships will have three MAN Diesel & Turbo 9L28/32DF auxiliary engines.

Crowley notes that it has served the Puerto Rico market since 1954, “longer than any other carrier in the trade.” The firm has more than 250 Puerto Rico employees, and is “the No. 1 ocean carrier between the island commonwealth and the U.S. mainland with more weekly sailings and more cargo carried annually than any other shipping line.”

Chevron plans more capital spending cuts– March 9, 2016

MELBOURNE, Australia—Six years ago, Big Oil was so confident in the outlook for global energy demand that it bet tens of billions of dollars to turn part of a remote Australian island known for its breeding grounds of rare sea turtles into a vast gas‐export hub.

Now, the Chevron Corp.‐led Gorgon plant has become emblematic of how quickly the assumptions that underpinned giant energy bets world‐wide have been shaken by falling energy prices.

On Tuesday, Chevron said it had started producing liquefied natural gas—natural gas cooled to a liquid form so it can be transported by ship—from the Gorgon project and the company expects to send its first cargo to customers in Asia next week. However, the plant is becoming operational at a time when investors are more skitish about the health of China’s economy, amid an oversupply of major commodities.

Last month, Chevron, which owns nearly 50% of Gorgon, was among 10 U.S. oil companies whose credit ratings were cut by Standard & Poor’s due to the oil‐price rout. Another of Gorgon’s big investors— Exxon Mobil Corp.—had its triple‐A corporate rating placed on watch by S&P for a possible downgrade.

Many experts say Gorgon, now estimated to cost $54 billion to build versus an original budget of $37 billion as site construction progresses, offers a scant return on the huge investment with energy prices at current levels. Oil prices were at around $60 a barrel—and rising—in September 2009, when Chevron, Exxon and Royal Dutch Shell PLC signed off on the project’s construction. That is roughly 60% above where oil prices sit now. Gas sales from LNG projects in the Asia‐Pacific region such as Gorgon are linked to swings in oil prices, meaning returns on investment are more vulnerable to volatility in commodity markets than export‐ oriented facilities in the U.S. In 2015, LNG prices in Asia roughly halved.

Energy companies say shareholders will benefit from a guaranteed revenue stream from Australia, backed up by a stable regulatory regime. Chevron estimates gas output from Gorgon will last at least 40 years. Also, Chevron and its partners have locked Asian customers including China into deals linked to oil prices that last up to 20 years, meaning they must pay for natural gas supply whether they need it or not.“We expect legacy assets such as Gorgon will drive long‐term growth and create shareholder value for decades to come,” John Watson,Chevron’s chief executive, said. Spokespeople for Exxon and Shell, which own about 25% of Gorgon each, declined to comment.

Last year, China’s LNG imports fell 1% as the econo‐ my cooled. At the same time, rapid growth in North American shale‐gas production sparked fears of a global energy glut that is likely to take years to clear.

“We’re looking at a world of significantly lower returns compared to the old days of the LNG indus‐ try,” said Michelle Neo, a Singapore‐based analyst at energy consultancy FGE.

Gorgon is Chevron’s biggest global bet on LNG and it will produce up to 15.6 million metric tons of LNG a year, plus enough gas to generate electricity for 2.5 million Australian homes.

Gorgon, along with seven other gas‐export facilities in Australia and neighboring Papua New Guinea, promised to help redraw the energy map by moving the epicenter of the global gas trade away from the politically volatile Middle East. About $180 billion was commitied by companies including Chevron,ConocoPhillips and France’s Total SA to Australia’s gas‐export industry between 2009 and 2012.

As well as concerns raised by the impact of falling prices on margins, onshore LNG projects are costly because they require refrigeration tanks and a network of transportation pipelines, while in many cases sea channels need to be created for LNG tankers to arrive at ports and load up.

In addition, Gorgon’s checkered record since starting construction has undermined confidence in its returns.

The project “is the poster child of rampant cost inflation gone wrong in the Australian LNG industry,” said Neil Beve‐ ridge, a Hong Kong‐based senior analyst at Sanford C. Bernstein. He estimated that the project’s overall cost could come in at close to $60 billion, or roughly $4,000 a ton of capacity—about twice the current break‐even estimate based on current prices.

Gorgon’s construction on isolated scrubland off Australia’s northwestern coastline coincid‐ ed with a parallel investment boom in other resources such as iron ore and gold.

The result was that Chevron had to pay more to hire people—from pipe fitters to welders—while the construction frenzy helped to drive up the cost of raw material imports such as steel. A strength‐ ening Australian currency inflicted more pain for Chevron, which had calculated its costs in U.S. dollars.

Barrow Island’s status as a government‐protected nature reserve since 1910 also brought complications. Chevron and its partners had to comply with strict environmental conditions, ranging from shrouded lights to avoid disturbing the nightime mating of marine turtles to some of the world’s toughest quarantine procedures to cut the risk of invasive species being brought in by workers.

Chevron expects the project to add a little more than 200,000 barrels a day to its production when fully operational. That compares with the company’s output of 2.67 million barrels a day in the final three months of 2015. Gorgon and another Australian LNG project, known as Wheatstone, together accounted for nearly half the US$15.4 billion that Chevron invested in oil and gas in 2014.

However, such LNG projects will welcome long‐term cargo revenue and analysts recognize their future potential, despite current price concerns.

“If you look from the point when the investment decisions were taken, back between 2009 and 2011, then the project economics are pretty marginal and have suffered,” Giles Farrer, a research director at consultancy Wood Mackenzie Ltd. in London, said. “[But] if you look at the point where we are now, the projects are going to deliver fantastic revenue.”

Maersk’s stumble highlights sluggish state of global trade –February 11, 2016

For moving containers during 2015 than 2014, and the group reporter a $2.5bn net loss for the fourth quarter of last year.

US railroads including Union Pacific, the largest, have also recorded big falls in profits for the fourth quarter. Companies that ship dry bulk commodities are in precarious financial positions after rates to charter vessels fell to the lowest levels since the Baltic Dry Index was set up in 1985 to track such data.

One key question now is how far the sharp falls in prices for moving goods are a leading indicator of further de‐ mand problems in a global economy shaken by China’s deepening slowdown.

The general picture of gloom is countered by conditions in oil tanker markets. Here, despite some recent falls in rates, owners can still generate profits by charging $50,000 a day for a very large crude carrier. It is also noteworthy that Maersk forecasts growth in world container trade of 1 to 3 per cent in 2016, not a downturn in traffic. The air freight market — often quick to slow down in a downturn — is experiencing modest growth. US railroads, while losing traffic in many areas, are benefiting from the booming domestic car market.

Erik Stavseth, analyst at Oslobased Arctic Securities, says demand to move freight in many markets appears to be slackening. But he says that in most shipping markets the problem is that owners were too optimistic about future growth levels and overinvested in new vessels.

Mr Stavseth points to the oil tanker market as one of several cases in the global economy that illustrate the delicate balance between supply and demand. While the low oil price has stimulated demand for crude and hence the need to move it, the biggest factor in the tanker sector’s positive performance is that the market is short of ships. “That tanker rates are strong doesn’t really underline that the economy is great,” says Mr Stavseth. “It just underlines that the supply‐demand balance is positive.” There is little doubt that conditions in the market to move dry bulk commodities are catastrophic.Average short‐term rates to charter Capesize carriers — the largest kind were at $2,756 per day on Thursday, well below their roughly $8,000 operating cost. Paul Slater, a shipping finance expert based in Florida, says China’s de‐ mand for commodities has waned not only because of its economic slowdown but also because of changes in the coun‐ try’s buying practices. The Chinese government under Xi Jinping has brought order to once chaotic commodity‐buying practices, greatly reducing China’s stockpile.

But overall demand is flat ratherthan declining and few industry observers believe a surge could revive the dry bulk ship market, which has been swamped by ves‐ sel deliveries that expected to increase the world fleet by 4 per cent this year.

“There’s really an extreme over‐ supply of vessels, built on the premise that China doesn’t slow down,” says Mr Stavseth.

Most industry observers believe container shipping lines' problems reflect world economic conditions more closely than trends in other transport segments. Container shipping lines such as Maersk and Hong Kong's Orient Overseas International, parent of Orient Overseas Container Line, carry manufactured and semi-finished goods. They are consequently far more exposed to worldwide consumer demand.

Continued—Maersk’s stumble highlights sluggish state of global trade –February 11, 2016

Container throughout at the Port of Singapore, the world’s second busiest container port after Shanghai, was down 8.7 per cent in 2015 on the rec‐ ord 33.9m 20‐foot equivilant units han‐ dles in 2014. Maersk said container de‐ mand grew by 0 to 1 per cent in 2015.

But even in this market, the problem has been least as much shipping lines’ over‐optimism in forecasting future demand and buying big new ships as it is underlying weakness in demand. N

Drewry, the London‐based shipping consultants, calculate that shipping lines earned and average $2,063 per 40‐ foot container in 2014, but that the figure fell to $1,570 in 2015, and is down to $1,548 so far this year.

No sector illustrates the complexities of the demand swings currently sweeping freight markets as well as the US’s rail‐ road industry.

According to the Association of Ameri‐ can Railroads, the number of carloads moved in the first five weeks of 2016 fell 15.7 per cent on the same period last year. Movements of containers and truck trailers — together known as in‐ termodal traffic, which is counted sepa‐ rately — were 4.8 per cent up.

The carload figures were domi‐ nated by a 30 per cent decline in coal traffic. This is a reflection of falling worldwide demand for the US’s high‐quality metallurgical coal and power companies’ grow‐ ing preference for gas for generating electricity.

The low oil price, mean‐ while, helped to depress once‐buoyant movements of oil and refined products.

The increase in intermodal shipments looks positive. But that trend reflects mainly the end of last year’s go‐ slow at US west coast ports, which held up many container movements.

While global economic weakness has sent earnings tumbling at operators of dry bulk vessels, and also put container shipping com‐ panies’ profits under pressure, a very different set of factors has played out in the market for mov‐ ing crude oil.

The crude price collapse since mid‐2014 has increased de‐ mand to move oil, while ship‐ owners, who suffered a prolonged period of weakness in 2012 and 2013, did not place the excess orders that dry bulk ship‐ owners and container shipping lines did.

Tanker owners have also benefit‐ ed from changes in the oil market following the crude price rout. More of the world’s oil supplies are now coming from low‐cost producing areas led by the Gulf, and this makes tanker voyages longer, and therefore soaks up more capacity.

But there are some signs of weak‐ ness in the tanker market. For example, shipowners face a sud‐ den surge of competition with the return to the market of Iran’s oil tankers, following the lifting of international sanctions.

Air freight is particularly vulnera‐ ble in economic downturns. When demand softens, shippers tend to move freight from expen‐ sive aircraft to far cheaper con‐ tainer ships.

Data from the International Air Transport Association, the air‐ lines’ representative body, sug‐ gest such a process might be under way. They show a gap open‐ ing up between world trade growth and the more sluggish expansion of the air cargo sec‐ tor.

Trade nevertheless continues to grow, albeit very modestly. Traffic in December 2015 was 0.8 per cent up on the same month in 2014.

Conditions for air cargo opera‐ tors, however, have deteriorat‐ ed sharply. Record deliveries of large passenger jets with sub‐ stantial cargo holds meant that capacity to move air freight was 6.5 per cent up year‐on‐year in December. Only 43.9 per cent of available capacity was used.

These difficult conditions were the backdrop to Boeing’s decision last month to slow production of its 747 jumbo jet, which sells mainly to cargo operators.

MAN Diesel & Turbo Inks Deal with Japan’s JFE

Supply of German manufacturer’s energy efficient marine engines to Japanese market complies with stringent environmental regulations.

Japanese engine manufacturer JFE has entered a new cooperaon agreement with MAN Diesel & Turbo for MAN's 32/44CR, 35/44DF, 48/60CR and 51/60DF modern four‐stroke engine types. The agreement applies to marine newbuild projects for ships to be deployed on japanese domestic trade routes, and where the shipyards and shipowners involved are located in Japan. JFE has produced and supplied medium‐speed diesel engines since 1964 under the SEMT pielstick license, which was acquired by the MAN Group back in 2006.

The aforementioned MAN Diesel & Turbo common rail engines cover a power range of 3,600 to 21,600 kWand their well‐proven, state‐of‐the‐art, fully electronically‐controlled,common rail injection system is suitable for both heavy fuel oil and distillate fuels. This technology,developed in‐house by MAN Diesel & Turbo and fully optimized for its engines, provides superior performance in terms of fuel consumption and smoke emissions, especially at part load, com‐ pared to the same engines’ IMO Tier II versions that feature conventional injection system.

Upon customer request, the common‐rail engines can be provided with ECOMAP capability, an innovative feature for the MAN 32/44CR and 48/60CR engines: the flexibility of the CR‐ system permits the engine to be programmed to follow differ‐ ent SFOC/power characteristics, with each having an optimal efficiency at different load points. Hence, the customer is provided with the potential to realize a beer fuel economy through changing the engine’s operating profits. Especially aboard vessels with multi‐engine installations, the combination of such CR engines with an intelligent power management system enables the maximal exploitation of the engines’ flexibility potential.

The dual‐fuel engines covering the power range of 3,180 to 18,000 kW can be operated in the Otto (gas mode) or Diesel (diesel mode) cycles from LNG in the former to more traditional HFO, MDO or MGO in the latter mode. Significantly, the dual‐fuel engines can switch between these fuels at any engine load between 15 to 100 percent maximum continious ratting (MCR) without disruption to the power supply. Extremely environmentally friendly operation is achieved in gas mode when using LNG as fuel with negligible sulphur (SOx) and particle emissions, while carbon dioxide (CO2) and nitrogen oxide (NOx) emissions are respectively reduced by 20 and 85 percent compared to diesel mode. Accordingly, running the engines in gas mode complies even with the stringent IMO Tier III levels without the need for any exhaust ‐gas after‐treatment

G50ME-C9 Engine Successfully Passes TAT

MAN Diesel & Turbo’s G50 engine has successfully passed its Type Approval Test at Mitsui in Japan. Upon entering service, the engine will power the world’s first ethane‐fuelled eco‐ friendly LEG (Liquefied Ethane Gas) carrier – the first of three such vessels to be built in China by SinoPacific Shipyard for the German shipowner, Hartmann Reederei.

Finland Breaks the Ice on LNG

Due for delivery in Q2 2016, Finland’s new icebreaker Polaris is the world’s first to feature dual fuel liquified natural gas (LNG) and diesel propulsion, earning the icebreaking vessel designations as the Finland’s most powerful and the world’s greenest.

Big Power for the Prince of Wales

The U.K. Royal Navy’s Queen Elizabeth Class aircraft carriers presently under construction are due to become the centerpiece of the nation’s defense force. Upon entering operation, each ship will essentially serve as floating four-acre military base capable of travelling up to 500 miles per day.

Time called on era of ever-bigger container ships –March 9, 2016

The race to operate ever‐bigger container ships could be sail‐ ing towards the finishing flag after a consultancy said that pur‐ suing yet another big increase in size would not be cost‐ efficient.

Up to now, shipping lines have found that the larger the ship is, the cheaper it is to carry each container. The capacity of the biggest container ships afloat has risen sharply in the last five years and more than doubled since 2000.

High quality global journalism requires investment.

But Drewry Shipping Consultants said the next step‐up in size would impose such significant costs on ports that they would outweigh the advantages of moving cargo in ever‐larger ves‐ sels.

The research by Drewry comes after lines have poured billions of dollars since the financial crisis into new, bigger ships, which has contributed to the industry’s financial woes. Lines have not only had to find hundreds of millions of dollars per vessel to buy the ships but have suffered sharp earning declines as the new ships have created excess capacity, driving down fees per container shipped.

Denmark’s AP Møller‐Maersk, whose Maersk Line operates the world’s biggest container ship fleet, warned in February that the combination of factors was producing market conditions “significantly worse” than during the 2008‐09 financial crisis.

The highest‐capacity ships currently afloat — Mediterranean Shipping Company’s Oscar class, introduced last year — are 395m long, 59m wide and can carry 19,224, 20ft􏰁 equivalent units (TEUs) of containers. A 40ft container — the most commonly used size — is around two TEUs. Fifteen years ago, the biggest vessels carried only around 8,000 TEUs.

Tim Power, Drewry’s managing director, said the consultancy had modelled the overall costs of moving containers on a se‐ ries of ship sizes and had found efficiency savings on the big‐ gest ships currently afloat.

But the company then ran a simulation on a still‐larger behe‐ moth that carried 24,000 TEUs and might exceed the 400m length and 60m breadth that is the current maximum for to‐ day’s ships.

Chevron plans more capital spending cuts– March 9, 2016

MELBOURNE, Australia—Six years ago, Big Oil was so confident in the outlook for global energy demand that it bet tens of billions of dollars to turn part of a remote Australian island known for its breeding grounds of rare sea turtles into a vast gas‐export hub.

Now, the Chevron Corp.‐led Gorgon plant has become emblematic of how quickly the assumpotions that underpinned giant energy bets world‐wide have been shaken by falling energy prices.

On Tuesday, Chevron said it had started producing liquefied natural gas—natural gas cooled to a liquid form so it can be transported by ship—from the Gorgon project and the company expects to send its first cargo to customers in Asia next week. However, the plant is becoming operational at a time when investors are more skittish about the health of China’s economy, amid an oversupply of major commodities.

Last month, Chevron, which owns nearly 50% of Gorgon, was among 10 U.S. oil companies whose credit ratings were cut by Standard & Poor’s due to the oil‐price rout. Another of Gorgon’s big investors— Exxon Mobil Corp.—had its triple‐A corporate rating placed on watch by S&P for a possible downgrade.

Many experts say Gorgon, now estimated to cost $54 billion to build versus an original budget of $37 billion as site construction progresses, offers a scant return on the huge investment with energy prices at current levels.
Oil prices were at around $60 a barrel—and rising—in September 2009, when Chevron, Exxon and Royal Dutch Shell PLC signed off on the project’s construction. That is roughly 60% above where oil prices sit now.

Gas sales from LNG projects in the Asia‐Pacific region such as Gorgon are linked to swings in oil prices, meaning returns on investment are more vulnerable to volatility in commodity markets than export‐ oriented facilities in the U.S. In 2015, LNG prices in Asia roughly halved.

Energy companies say shareholders will benefit from a guaranteed revenue stream from Australia, backed up by a stable regulatory regime. Chevron estimates gas output from Gorgon will last at least 40 years. Also, Chevron and its partners have locked Asian customers including China into deals linked to oil prices that last up to 20 years, meaning they must pay for natural gas supply whether they need it or not.“We expect legacy assets such as Gorgon will drive long‐term growth and create shareholder value for decades to come,” John Watson,Chevron’s chief executive, said. Spokespeople for Exxon and Shell, which own about 25% of Gorgon each, declined to comment.

Last year, China’s LNG imports fell 1% as the econo‐my cooled. At the same time, rapid growth in North American shale‐gas production sparked fears of a global energy glut that is likely to take years to clear.

“We’re looking at a world of significantly lower returns compared to the old days of the LNG industry,” said Michelle Neo, a Singapore‐based analyst at energy consultancy FGE.

Gorgon is Chevron’s biggest global bet on LNG and it will produce up to 15.6 million metric tons of LNG a year, plus enough gas to generate electricity for 2.5 million Australian homes.

Gorgon, along with seven other gas‐export facilities in Australia and neighboring Papua New Guinea, promised to help redraw the energy map by moving the epicenter of the global gas trade away from the politically volatile Middle East. About $180 billion was committed by companies including Chevron,ConocoPhillips and France’s Total SA to Australia’s gas‐export industry between 2009 and 2012.

As well as concerns raised by the impact of falling prices on margins, onshore LNG projects are costly because they require refrigeration tanks and a network of transportation pipelines, while in many cases sea channels need to be created for LNG tankers to arrive at ports and load up.

In addition, Gorgon’s checkered record since stating construction has undermined confidence in its returns.

The project “is the poster child of rampant cost inflation gone wrong in the Australian LNG industry,” said Neil Beveridge, a Hong Kong‐based senior analyst at Sanford C. Bernstein. He estimated that the project’s overall cost could come in at close to $60 billion, or roughly $4,000 a ton of capacity—about twice the current break‐even estimate based on current prices.

Gorgon’s construction on isolated scrubland off Australia’s northwestern coastline coincided with a parallel investment boom in other resources such as iron ore and gold.

The result was that Chevron had to pay more to hire people—from pipe fitters to welders—while the construction frenzy helped to drive up the cost of raw material imports such as steel. A strengthening Australian currency inflicted more pain for Chevron, which had calculated its costs in U.S. dollars.

Barrow Island’s status as a government‐protected nature reserve since 1910 also brought complicatuons. Chevron and its partners had to comply with strict environmental conditions, ranging from shrouded lights to avoid disturbing the nighttime mating of marine turtles to some of the world’s toughest quarantine procedures to cut the risk of invasive species being brought in by workers.

Chevron expects the project to add a little more than 200,000 barrels a day to its production when fully operational. That compares with the company’s output of 2.67 million barrels a day in the final three months of 2015. Gorgon and another Australian LNG project, known as Wheatstone, together accounted for nearly half the US$15.4 billion that Chevron invested in oil and gas in 2014.

However, such LNG projects will welcome long‐term cargo revenue and analysts recognize their future potential, despite current price concerns.

US will be a gas supplier to the world by tomorrow– January 10, 2016

The Energy Atlantic, a 290-metre tanker steaming slowly through the Gulf of Mexico, is about to make history. It is scheduled to arrive on Tuesday at Cheniere Energy’s Sabine Pass liquefied natural gas plant on the coast of Louisiana, to be loaded with the first cargo of LNG to be exported from the “lower 48” contiguous states of the US.

The shipment is a momentous event for energy markets, marking the arrival of the US as a gas supplier to the world.

The plunge in oil prices since the summer of 2014 has dragged down the value of LNG, which is often sold on crudelinked contracts, and damped the excitement over US exports.The economics of shipping gas from the US were compelling two years ago, but are now marginal.Deteriorating market conditions have put the brake on any new investments in US LNG.

Even so, US LNG exports are likely to have a significant impact, holding down energy costs for consumers in Europe, Latin America and Asia. They will also provide tough competition for anyone hoping to build rival LNG plants, such as the proposed projects in east Africa, the west of Canada, or Russia. By the end of the decade, the US is likely to be the world’s third-largest exporter of LNG, after Qatar and Australia.

Combined with the new supplies from Chevron’s huge Gorgon and Wheatstone projects in Australia, which are scheduled to come on stream this year, exports from the US are making it a buyers’ market for LNG.

“There is an awful lot of LNG sloshing around the world at the moment, with even more to come,” says Frank Harris of Wood Mackenzie, a consultancy. “And that is putting downward pressure on prices.”

A decade ago, this prospect seemed wildly unlikely. US gas production was in decline and by the 2010s the country was expected to be a large importer of LNG, not an exporter.

The shale revolution, the result of advances in production techniques that made it possible to extract gas at commercially viable rates from previously unyielding rocks, meant that US production started rising again in 2006, and since 2011 it has been breaking new records every year.

Charif Souki, Cheniere’s visionary founder who was ejected from the company at the end of last year, was one of the first to see the potential for LNG exports from the US. In 2010, he submitted the first application to regulators to convert the LNG import terminal that Cheniere had built at Sabine Pass, which was being barely used because US domestic gas production was so strong, into a liquefaction plant.

Many in the industry were skeptical that the project could be made to work but the plan took a decisive step forward in October 2011 when Britain’s BG Group signed a 20-year contract to buy most of the production from Sabine Pass’s first “train”, as LNG production units are known. After that contract was signed, the trickle of proposals for similar projects turned into a flood.

The US Department of Energy has received applications to export LNG for 54 projects. If they all went ahead, they would have the capacity to liquefy about 60 per cent of the entire gas production of the US.

So far, however, just five plants have started construction: Cheniere’s Sabine Pass and its Corpus Christi project in Texas; Freeport LNG, also in Texas; Cameron LNG in Louisiana; and Cove Point LNG, on the east coast in Maryland.

Those projects have been able to make progress because they were fast enough at signing up customers on long-term contracts that guarantee their revenues. Since the end of 2014 those customers, mostly utilities in Europe and Asia, have been reluctant to make any further commitments.

The price of LNG delivered in northeast Asia, including Japan and South Korea, the world’s two largest markets, has fallen along with oil. It has dropped to about $6.65 per million British thermal units, just a third of its price of almost $19 per mBTU two years ago, according to Argus, the information service.

At that price, with benchmark US gas at about $2.40 per mBTU, plus liquefaction costs of $3 to $3.50 per mBTU, plus transport at about $2 per mBTU, LNG from Louisiana or Texas does not look commercially attractive.

Similar calculations apply in Europe. Benchmark UK National Balancing Point gas has dropped by almost a half since 2013 to about $5.20 per mBTU, meaning that LNG exports from the US to Britain are unlikely to cover all of their costs.

Since 2013, most of the new LNG projects launched worldwide have been in the US. However, the deteriorating economics make it unlikely that any new plants will be approved for a while.

The plants that have already started construction, though, are highly unlikely to be stopped. This is because the companies buying LNG from one of these plants have typically made firm commitments for 20 years under which they have to pay the charges they have promised, even if they do not use the capacity.

The US LNG projects will add to global oversupply. Bernstein Research has estimated that the world’s liquefaction capacity will in

Continued—US will be a gas supplier to the world by tomorrow-January 10, 2016

the next three years rise by 90m tonnes per annum, which is about 35 per cent of present demand.

Nikos Tsafos of Enalytica, a research company, says US LNG should help hold gas prices down for a few years at least.

When the global oversupply is finally absorbed by rising demand, the next wave of plants in the US, including projects backed by ExxonMobil and Kinder Morgan, will be poised to benefit.

There are other promising potential new sources of LNG in the world, including the

US LNG Projects
LNG Plants
Ceniere Energy Ceniere Energy Dominion Freeport LNG Cameron LNG
Location
Sabine Pass,Louisiana Corpus Christi,Texas Cove Point,Maryland Quintana,Texas Hackberry,Louisiana
Investment (sbn)
10.9 7.1 3.8 12.5 10.0
Start Date
01.2016 Late 2018 Late 2017 Early 2018 Early 2018
Estimated Output (m tonnes per year)
22.5 9.0 5.3 15.0 13.5
Out-of-Bounds CO2 Elutes Talks—by Robert Wall and Costas Paris– December 2, 2015
For the shipping industry, the IMO has imposed an efficiency standard for ships built since 2013.

World leaders are hammering out ways to cut their countries’ carbon emissions in Paris.But what about all the carbon dioxide—from planes and ships—emitted outside any one coun- try’s borders?

Airlines and the global maritime indus- try count among the world’s biggest CO2-emitting industries.Unlike emis- sions from power plants or passenger cars, CO2 from planes and ships ply- ing international routes aren’t tabulat- ed as part of any one country’s total emissions. Those totals are the main subject of haggling in Paris this week and next, aimed at coming up with a concrete plan to limit man-made climate change.

That omission is ratcheting up pres- sure on negotiators in Paris to figure out how to handle that uncounted CO2, and whether to force the industries’ global watchdogs to come up with a credible, separate plan to rein in air and sea emissions.

One big challenge: It’s hard to peg just how much CO2 the two industries are emitting in the first place.

A recent European Parliament report estimated between 3% and 4% of global, man-made CO2 emissions came from inter-national commercial flights and ship- ping. Left unchecked amid efforts to reduce emissions elsewhere, that share could grow to as much as 40% of global emissions by 2040, the re- port warned.

The International Civil Aviation Organi- zation, a United Nations body, puts the current contribution from internation- al aviation to global C02 emissions at 1.3%. Its shipping counterpart, the International Maritime Organization, said in a report last year that from 2007 to 2012 such emissions reached an average 3.1% of the global output.

The issue hasn’t been at the top of the climate-change agenda among negoti- ators in the yearlong run up to the Paris talks. But the threat of a more forceful approach to reining in air and sea emission has long shadowed those industries. It is also flaring anew as an irritant for environmental groups, which say executives haven’t done enough to come up with a plan on their own.

“Progress has been insufficient,” said Andrew Murphy, a representative for Transport & Environment, an envi- ronmental advocacy group. A preliminary paragraph in the draft of the Paris accord—a document global leaders hope will spell out a final, concrete plan—could require that countries work through the U.N. agencies to slice up emissions from such international trips by air and sea and apportion them to individual coun- tries.

The ICAO and IMO have taken leading roles in trying to broker the details of any agreement, and representatives of both are in Paris now. Countries with rapidly growing air- lines, or those heavily dependent on tourism, argue any moves to limit flight emissions will favor more ma- ture markets, such as those in the U.S. and Europe. The airline industry, meanwhile, has fought against what it worries would be a patchwork of national regulations and taxes that would govern its emissions.

The European Union has, for instance, threatened that the lack of a global agreement on international flight emissions could spur it to revive efforts to include them in its carbon cap-and-trade mechanism, something carriers so far successfully have fought.

“We are supportive of ICAO putting together a framework that gov- erns the entire planet,” said Mark Dunkerley, chief executive of Ha- waiian Airlines par-Carbon‐dioxide emission from ships don’t count toward national totals.

The Majority of Shipping Vessels are Set to Run on LNG within 10 years, with Conventional Vessels having very Limited Trading Options | Gas as a Marine Fuel
“LNG is one of the only fuel sources able to comply with these strict limits...”

Gas as a Marine Fuel | 3rd December 2015, Central London, UK

Register online to network with latest attendees in- cluding ExxonMobil: www.smi- online.co.uk/2015gasmari nefuel.asp Alternatively, contact Marn Hughes on tel +44 (0) 20 7827 6078 or email mhughes@smi‐ online.co.uk.

Environmental legislaon is the key factor currently impacing the marine segment. While ships were traditionally powered by Heavy Fuel Oil (HFO), which produces high levels of harmful pollutants, including sulphur dioxide (SOx), international law now states that shipping fuel can contain no more than 3.5% sulphur. Further, the limit in Emission Control Areas (ECAs) or Sulphur Emission Control Areas (SECAs), which currently include coastal areas such as the Baltic Sea, North Sea and the waters surrounding North America and the Carib‐ bean, is 0.1%.

LNG is one of the only fuel sources able to comply with these strict limits and, with the majority of vessels operating in coastal areas, the need for LNG‐compliant solutions is set to become a must for operators in the very near future. Ten years from now, the majority of vessels will run on LNG and conventional vessels will have very limited trading options. This supports the CapEx argument – while you may have to pay more for your LNG‐compliant solutions in the short term, there will be significantly more val‐ ue to be gained from it down the line.

Against this backdrop, SMi’s Gas as a Marine Fuel master‐ class will examine the grow‐ ing demand for LNG as a ma‐ rine fuel as a result of an in‐ creasing emphasis on envi‐ ronmental performance and how to best prepare for it by examining how this is being implemented world‐ wide, with focus on recent developments in Europe and the US. The full‐day pro‐ gramme will also explore the recent technical and regula‐ tory developments and how you can best adapt to these changes.

SMi’s presents its masterclass on...Gas as a Marine Fuel 3rd Dec 2015

The Baltic Sea / North Sea / English Channel Environmental Control Area came into force on January 1st 2015. All vessels travelling in these areas must now use low sulphur fuels. This master class will examine the issues around one of these “clean” fuels – LNG. Europe is not alone in requiring these improved environmental regimes and the master class will also touch on other areas, particularly North America who also received their first gas fuelled vessel late in 2014.

This master class will examine the growing demand for gas as a marine fuel resulting from increasing emphasis on environ‐ mental performance and how this is being implemented worldwide.

First LNG Containership Transits the Panama Canal

Tuesday, November 3, 2015

The world’s first LNG‐powered container vessel, TOTE Maritime’s Isla Bella, transited the Panama Canal October 30, marking a milestone not only for the maritime industry, but also for the Canal as it nears the completion of its expansion scheduled to open in 2016, the Panama Canal Authority (ACP) announced

The 3,100 TEU capacity, 764‐foot‐long American‐ flagged Isla Bella is the first of two Marlin Class containerships contracted by TOTE Maritime and built by General Dynamics NASSCO.Delivered last month the LNG‐powered vessel features increased fuel efficiency and reduces nitrogen oxide emissions by 98 percent, sulfur oxide emissions by 97 percent and carbon dioxide emissions by 76 percent.

“The Isla Bella is a true engineering feat,” said Panama Canal Administrator/CEO Jorge L. Quijano. “We are honored that this vessel, with its unique technology, transited the Canal.”

Isla Bella is scheduled to begin providing freight service in the fourth quarter of 2015 between Jacksonville, Fla. and San Juan, Puerto Rico.

Upon completion of the second Marlin Class containership, Perla del Caribe, launched in August 2015 and scheduled to enter service in the first quarter of 2016, the vessels will be the largest and most environmentally friendly LNG‐powered dry cargo ships in the world.

ABS Deems Crowley Product Tanker ‘LNG-Ready’- November 3, 2015

Posted by Eric Haun

Four-ship series built to ABS class is first to take advantage of LNG-Ready approval for potential conversion to LNG fuel in the future

ABS has issued the first LNG-Ready approval in accordance with its Guide for LNG Fuel Ready Vessels to a product tanker, granting LNG-Ready Level 1 approval and approval in principle for Crowley Maritime Cor- poration’s new Jones Act tank- er Ohio, the first in a series of four ships built by Aker Philadelphia Shipyard

By achieving compliance with the ABS Guide for LNG Fuel Ready Vessels, Crowley has the option to convert the product tankers to LNG propulsion at a later date having already been granted a conceptual review.

“ABS has played a fundamental role in supporting the ambitions of the maritime industry as it moves to embrace the opportunity of LNG as fuel,” said ABS Chairman, President and CEO Christopher J. Wiernicki. “This milestone builds upon our work to provide owners with the guidance and support they need to move ahead with shipbuilding projects that allow them the flexibility to respond to changes over the lifetime of their vessels.”

According to ABS, who published the Guide for LNG Fuel Ready Ves- sels in 2014, its LNG-Ready endorse- ments allow shipowners and yards the flexibility to limit initial investment while planning for the future conver- sion to dual fuel or gas-powered combustion engines.

Rob Grune, senior vice president and general manager petroleum services for Crowley, said, “As our business continues to shape itself to better meet the requirements of our custom- ers, these vessels that stand ready and able to operate on a cleaner, alterna- tive fuel source are our way of antici- pating future demands.”

Crowley will christen Ohio today at the Tampa Cruise Terminal. The 50,000 dwt, 330,000-barrel-capacity ship has already made two voyages to date carrying clean petroleum prod- ucts to Florida.

The three remaining product tankers are expected to be delivered through 2016.

Source: The Wall Street Journal | Wed. July 22, 2015
IGU World LNG Report – 2015 Edition
LNG Carriers

The LNG shipping market has evolved over the last decade, driven by growth in global liquefaction capacity and demand in the Pacific Basin. The order and delivery of LNG vessels is quite cyclical in nature and 2014 marked the start of the next oversupply in LNG shipping capacity. With growth on the trading of spot and short-term LNG cargoes, fluctuations in spot shipping charter rates have had an increasingly important impact on the pricing and flow of LNG.

Estimated average monthly spot charter rates fell as low as ~ $40,000/day in the third quarter of 2014 as demand for Atlantic volumes in the Pacific Basin weakened. The continuous wave of newbuilds hitting the market in 2015 will further push the LNG shipping market deeper unto a period of oversupply, putting more downward pressure on spot charter rates in the near term. Additionally, the spot charter market has evolved into a multiple tier market, with older steam vessels competing with more efficient newbuilds to find fixtures. However, with the deflation of oil prices in late 2014 and into 2015, the cost spread between the propulsion systems narrowed, improving the competitive advantage of the more fuel-efficient vessels. The capacity surplus will likely continue until at least 2017 when new Australian and US export projects increase LNG supply and thus demand for shipping tonnage.

The wave of ordered LNG newbuilds began to flood the shipping market in 2014, with 28 conventional carriers delivered by the end of the year. In total, the active global fleet comprised 373 vessels – excluding vessels equal to or less than 30,000cm in capacity – for a combined capacity of 55mmcm.

5.1 OVERVIEW
Figure 5.1: Global LNG Fleet by Year of delivery versus Average Vessel Size.

Source: HIS

Appetite for larger, more efficient LNG carriers in recent years has seen the average capacity of delivered newbuild vessels increase. In 2014, the average size of delivered vessels was 161,000 cm, an increase of 12,200 cm from 2012. Looking ahead the average vessel capacity is set to be around 170,000 cm.

These larger conventional carriers have become the new standards for LNG vessel capacity in the orderbook. Out of the 68 vessels ordered in 2014, approximately 80% have a specified capacity between 170,000 and 174,000 cm. With the expansion of the Panama Canal in 2016, which will accommodate vessels of up to 180,0000 cm, Post Panamax vessels ( 170,000-180,000 cm) will likely become the standard for newbuilds.

A new wave of newbuild ordering began in late 2012 and 2013. Unlike LNG demand factors that drove orders in past years, LNG supply factors led to the current cycle, with newbuild orders primarily tied to the projects in Australia and the US. Potential delays in the start-up of these liquefaction plants could extend the current period of looseness in the shipping market similar to the timing mismatch that occurred last decade.

Figure 5.2: Estimated Future Conventional Vessel Deliveries, 2015-2018

Note: Available = currently open for charter

Source: HIS

The growing availability of LNG vessels continues to put pressure on spot market charter rated. Approximately 80% of cessels in the orderbook are associated with charters that extend beyond a year. Out of the speculative vessels, 11 are scheduled for delivery in 2015. With the majority of upcoming Australian LNG offtake already associated with charters for newbuild vessels in the orderbook, shipowners who are long on vessels are increasingly pinning their hopes on vessel retirements from the existing fleet. Moreover, the shipping need of US LNG associated with LNG traders, international oil companies, or European utilities could provide some upside to a weaker market, though not until late 2015 at the earliest.

5.2 VESSEL CHARACTERISTICS

Propulsion Systems. LNG carriers have undergone a few major step changes in design since the first vessel came into service fifty years ago. Until the early 2000s, every LNG vessel was built with a reliable, yet not very efficient, stream turbine propulsion system, as boilers were the only means of consuming boil-off gas ( BOG). However, in the last 15 years, LNG carriers have undergone major innovations and enhancements with regard to propulsion systems.

After almost forty years of the LNG fleet consisting entirely of steam turbine propulsion systems, GDF SUEZ ordered the first two LNG carriers – GDF SUEZ Global Energy and Provalys – to be powered by dual-fuel diesel-electric propulsion (DFDE) systems in 2001. DFDE systems are able to burn both diesel oil and BOG improving vessel efficiency by around 25-30% over the traditional steam-turbines.

Figure 5.3: Existing and On Order LNG Fleet by Propulsion Type, end -2014
Source: HIS

Shortly after the adoption of DFDE systems, trifle diesel electric (TFDE) vessels-those able to burn heavy fuel oil,diesel oil and gas - offered a further improvement to operating flexibility with the ability to optimise efficiency at various speeds. While the existing LNG fleet is still dominated by the legacy steam propulsion system, almost 25% of active vessels are equipped with either DFDE or TFDE propulsion systems.

Figure 5.4: Existing Fleet by Containment Type, end- 2014

Source: HIS

However, the orderbook looks quite different with over 40% of the vessels specified with a TFDE propulsion system. Moreover, around 30% pf ordered vessels are designated to adopt the newest innovation in LNG carrier engine design: M-type, Electronically Controlled, Gas Injection ( ME-GI) engines, which utilize high pressure slow- speed gas-injection engines. Unlike the Qatari Q-Class vessels equipped with slow speed diesel (SSD) propulsion systems- which utilize on board reliquefaction units to handle BOG – ME-GI engines optimize the capability of slow speed engines by running directly off BOG (removing the need to reliquefy the gas) or utilizing fuel oil. This flexibility allows for better economic optimization at any point in time.

A 170,000 cm, ME-GI LNG carrier – operating at design speed and fully laden in gas mode – will consume around 15-20% less fuel than the same vessel with a TFDE propulsion system. While there is an improvement in fuel consumption, the reliability and extent of operational flexibility is still to be determined as no conventional-sized ME-GI vessel is in the existing fleet.

In order to improve the performance of a traditional steam-turbine propulsion system, the Steam Reheat engine design has been introduce, which ultimately reduces the boil-off rate (BOR) of the LNG on-board. The design is based on a reheat cycle, where the steam used in the turbine is re-heated to improve its efficiency. This improvement in the steam adaptation maintained the benefits of the simple steam-turbine while improving overall engine efficiency.

The Azimutal Thruster system – where the electric motor is mounted inside the propulsion unit and the propeller is connected directly to the motor shaft – has been adopted by the 15 Yamal LNG project-specific vessels. These powerful units ( 3 units of 15MW each) allow the vessels to navigate rge Arctic conditions along the Northern Sea Route (NSR) with greater hydrodynamic and mechanical efficiency.

Containment Systems. The containment system for a conventional LNG carrier is either Moss-type or Membrane-type. By the end of 2014, 75% of the active fleet had a Membrane-type containment system, which continues to lead the orderbook as the preferred containment option. To create value from the Moss-type vessels, ships considered for retirement are often converted to FSRUs. Additionally, companies are exploring the value of converting Moss-type steam designs- typically chartered at a discount relative to the more efficient Membrane- type – into FLNG units for smaller (0.5-1.5 MTPA) export projects.

Vessel Size. LNG carriers range significantly in size, though more recent additions to the fleet demonstrate a bias toward vessels with larger capacities. Prior to the introduction of the Q-class in 2008-2010, the standard capacity of the fleet was between 125,000 cm and 150,000 cm. As of end -2014, 58% of active LNG carriers had a capacity within this range, making it the most common vessel size in the fleet.

Propulsion Type Boil-off Rate (%) Fuel Consumption (tonnes/day) Average Vessel Capacity Typical Age
Steam 0.15 175 <150.000 >10
DFDE/TFDE 0.11 130 150,000-180,000 <10
ME-GI 0.11 110 150,000-180,000* Not Active
Steam Reheat 0.08 140 150,000-180,000 Not Active
Table 5.1: Propulsion Type and Associated Characteristics

*A Q-class tanker is also undergoing propulsion conversion to ME-GI

Source: HIS

Conversely, the Q-Flex (210,000-217,000 cm) and Q-Max (261,700-266,000 cm) LNG carriers that make up the Qatari Q –Class offer the largest available capacities. Due to the size of LNG exports from Qatar, the Q- Class ( 45 vessels in total) accounted for 12% of the active fleet at the end of 2014.

Vessels greater than 150,000- yet still smaller than the Q-Class tankers- have been most prominent amongst the recent new builds entering the market. This is partly related to the upcoming expansion of the Panama Canal, which will accommodate vessels of up to 180,000 cm and redefine the Panamax vessel class.By the end of 2014,27% of the active global fleet was in the 150,000 to 180,000 cm range. This share will grow rapidly in the years ahead with the average capacity in the order book standing at approximately 170,000 cm at the end of 2014.

Figure 5.5: Active Global LNG Fleet by Capacity and Age, end -2014
Source: HIS

Vessel Age. At the end of 2014, 66% of the fleet was under 10 years of age, a reflection of the newbuild order boom that accompanied liquefaction capacity growth in the mid-2000s. Generally, safety and operating economics dictate if a shipowner considers retiring a vessel after it reaches the age of 30, although many vessels have operated for approximately 40 years.

As the recent wave of newbuilds continues to flood the market, vessel owners have been turning to conversion options to lengthen the operational ability of a vessel if it is no longer able to complete in the charter market. Around 7% of active LNG carriers were over 30 years of age in 2014: these carriers will likely be pushed out of the market as the younger, larger and more efficient vessels continue to be added to the existing fleet.

Typically, as a shipowner considers for older vessels – either conversion or scrappage – the LNG carrier is laid-up. However the vessel can re-enter the market. At the end of 2014, 12 vessels (all Moss-type steam tankers with a capacity of under 150,000 cm) were laid-up. Ten of these vessels were over 30 years old.

5.3. CHARTER MARKET

The LNG charter market in 2014 started off quite strong propped up by firm LNG demand coming from Asia, Asia Pacific and Latin America. Spot LNG prices for delivery into these markets averaged $17.50/mmBtu in the first quarter of 2014, keeping traders and thus the LNG fleet occupied in the short-term. However, as speculative newbuilds entered the market, spot charter rates trended downward. There were momentary increases in spot charter rates as a result of inherent regional shipping implances, though it was not enough to stave by a fundamental oversupply of shipping capacity. Rate softening was accelerated by the shut-down of Angola LNG in early 2014, which released an additional seven vessels into the charter market as sublets.

Figure 5.6.: Average LNG Spot Charter Rates versus Vessel deliveries, 2012 – February 2015

Source: HIS

A total of 28 conventional LNG tankers and 5 FSRUs (temporarily open for charter) were delivered from the yard in 2014, yet 18 tankers were laid-up or scrapped. However, only two liquefaction projects supported additional demand for shipping tonnage during the year – the PNG LNG and Arzew GL3Z plants. However, these projects required minimal tonnage from the spot charter market since the majority of vessels used to deliver the additional volumes were already ordered and chartered on a long-term basis.

With ample tonnage open for charter, spot rates for modern steam tankers steadily decreased throughout the year, dropping from $93,000/day to low of $41,250/day in the third quarter. Similarly, the charter rates for the more fuel efficient DFDE/TFDE tankers, which began the year at around $100,000/day, dropped to low of $57,75./day in the third quarter. Many shipowners who had hoped to secure premium rates for theit newer and more fuel efficient tankers found it difficult to charter theit respective carriers in a ‘warm’ state. Instead, the vessels were forced to load cool-down volumes and accept rates below the already weak market day-rate. The oversupplied carrier market provided traders additional flexibility to bid on short-term. Free on Board (FOB) supply tenders. In contrast, during periods of shipping shortages, LNG suppliers typically require the buyer to nominate a tanker before being able to bid on an FOB cargo. With plenty of shipping tonnage available for short-term chartering, traders were able to bid tenders without specified shipping capacity.

Speculative newbuilds expected to hit the market in the first half of 2015 will further push the LNG shipping market into oversupply. Early 2015 will see minimal growth in LNG production to absorb the new vessels. The capacity surplus is likely to continue until at least 2017 when Australian and US volumes ramp up, supporting additional demand for tonnage.

5.4. FLEET VOYAGES AND VESSEL UTILISATION

A total of 4,072 voyages were completed during 2014, a slight increase of 1.2% compared to 2013.

The rapid expansion in LNG trade over the past decade has been accompanied by an increasing diversification of trade routes. Trade was traditionally conducted on a regional basis along fixed routes serving long-term point-to-point contracts. However, the entry of new importers and exporters combined with growing destination flexibility in LNG supply contracts and greater spot market trade has prompted shipping routes to multiply.

Further, growing demand in the Pacific basin has increased the average distance of LNG deliveries, with Atlantic Basin volume being redirected East of Suez. In 2014, the longest voyage – from Trinidad to Japan around the Cape of Good Hope – was taken by three separate vessels. Conversely, the shortest voyage – a more traditional route from Algeria to the Cartagena terminal in Spain – occurred 14 times in 2014. The most common voyage was from Australia to japan, with over 290 trips completed during the year.

Figure 5.8: Atlantic-Pacific Trade versus Fleet Utilisation, 2011-2014

Note: Fleet utilization was calculated comparing active shipping tonnage (excluding dry docked and/or laid-up vessels) and traded LNG volumes on a monthly basis.

Sources: IHS

In 2014, the number of voyages completed on a per tanker basis dropped as many newbuilds sat idle in Asia Pacific and owners struggled to fix then beyond spot voyages. In contrast, vessel utilization was at its highest in 2011 following Japan’s Fukushima disaster, which required significant incremental LNG volumes sourced from the Atlantic Basin. This demand shock in the Pacific Basin strained the global LNG tanker fleet. Strong Atlantic to Pacific trade continued on the arbitrage opportunity between basins.

Figure 5.9: Estimated Long-term and Spot Charter Rates versus Newbuild Orders, end -2014

Sources: IHS

IGU World LNG Report – 2015 Edition
Figure 5.10: Firm Conventional Newbuild Orders by Quarter

Sources: IHS, Shipyard Reports

With the influx of unchartered LNG carriers in 2014, a number of shippers repositioned their available tankers in the Atlantic basin in an attempt to charter them for a spot voyage to Asia pacific. However, aside from December, the weakness in Northeast Asian spot purchasing in the second half of 2014 reduced demand for the long-haul cross-regional voyages, softening vessel utilisation rates.

5.5. FLEET AND NEWBUILD ORDERS

At the end of 2014, 155 conventional vessels were on order. Around 75% of vessels in the orderbook were associated with charters that extend beyond a year. By contrast, 31 vessels were covered by either a short-term charter (i.e. under one year) or open for employment.

In 2014, newbuild vessel orders increased two-fold compared to 2013. This upward swing in LNG carrier orders is chiefly linked to the upcoming US LNG build-out, though 15 Ice Classed Arc vessels were associated with the under construction Yamal LNG project in Russia. The majority of orders in 2014 are slated for delivery by early 2018. Out of the 68 vessels ordered in 2014, 85% will have a capacity greater than or equal to 170,000 cm. As these larger, more efficient newbuilds hit the water, some older vessels with less capacity will likely be retired.

IGU World LNG Report – 2015 Edition
Figure 5.11: LNG Fleet by Respective Company Interests

Sources: IHS

Many independent shipping companies made moves to dramatically grow their fleet sizes in the aftermath of the Fukushima nuclear crisis. While Golar ordered newbuilds primarily on a speculative basis, competitors such as Maran Gas Maritime and GasLog LNG chiefly placed orders based on term charter agreements with international oil companies.

In recent years, some international oil companies have chosen to move shipping off balance sheet to concentrate capital on their core business. BG has been the most notable example of this trend, renewing its fleet by chartering newbuild orders with independent shipping companies and selling off existing equity vessels to Gaslog in 2014. In contrast, BP has acted against the trend, ordering six fully-owned ME-GI newbuilds in December 2014.

5.6. VESSEL COSTS AND DELIVERY SCHEDULE

Over the past decade, LNG carrier costs have remained constant once controlled for capacity. However, the rapid growth in demand for newbuild TFDE vessels in 2014 pushed average TFDE vessels costs to rise from $1,305/cm in 2015 to $1,555/cm in 2014.

With the exception of the Grace Dahlia – which was delivered in September 2013, 68 months after the order was first placed – vessels have historically been delivered between 30 and 50 months after the order is placed. However, the delivery timeline has varied depending on the type of propulsion system. For instance, when DFDE vessels were first ordered in the early 2000s, the time to delivery was expanded as shipyards had to adapt to the new ship specifications. DFDE tankers delivered in 2006 saw an average time of 60 months between order and delivery.

5.7. NEAR-TERM SHIPPING DEVELOPMENTS

With the growing adaptation of ME-GI propulsion in newbuild vessels, shipowners may increasingly convert their previous orders to include the new propulsion system. The flexibility to burn gas or fuel oil depending on market conditions could offer ME-GI propulsion vessels a distinct competitive advantage in the market. In early 2015, Flex LNG notably opted to convert its DFDE propulsion for two newbuilds to ME-GI types. Additionally, one Q-Max vessel has been scheduled for a retrofit conversion to ME-GI propulsion in 2015 during a dry dock. If the retrofit proves economical and reliable during the pilot period, all the Q-Class could be converted to ME-GI.

In 2015, Suez Canal transit tolls for LNG carriers were increased, as the 35% discount was reduced to 25%. The Previous discount rate has been in place since 1994. LNG carriers going through the Suez Canal pay tolls based upon gross tonnage, which caused the Moss-type to pay higher fees than the Membrane-type when comparing on the same cubic meter carrying capacity.

Suez Canal: LNG vessel toll structure (without discount)
Suez Canal Net Tonnage (SCNT) Laden Ballast
First 5, 000 7.88 6.70
Next 5, 000 6.13 5.21
Next 10, 000 5.30 4.51
Next 20, 000 4.10 3.49
Next 30, 000 3.80 3.23
Next 50, 000 3.63 3.09
Remaining tonnage 3.53 3.00
Table 5.2: Tariff Structure for LNG Vessels Travelling via the Suez Canal

Note: A vessel is considered to be in a ballast voyage if it has LNG from its previous cargo equal to no more than 2% of the ship’s Summer Deadweight (different from SCNT). Prices are reported in Special Drawing Rights ( SDRs), not US Dollars (SDRs per currency unit are published by the International Monetary Fund). Tug fees must be added for an LNG vessel that does not provide Gas Free Certificate.

Source: IHS, Suez Canal

The expansion of the Panama Canal – which will allow around 90% of the existing LNG fleet to transit the canal – is set to commence operations in January 2016. Although the start-up will come a year behind the initial schedule, the 48-mile artery of the Panama Canal connecting the Atlantic and Pacific oceans will become the primary inter-basin route for US LNG exports. For shipowners from Gulf Coast LNG projects, the attractiveness of the canal is clear. The trip from the US Gulf Coast to Japan and back through panama wil take 43 days, saving almost 20 days off the roundtrip voyage compared to going through the Suez Canal.

In January 2015, the Panama Canal Authority (PCA) officially released the proposed LNG vessel tariff structure.

Unlike the Suez Canal, charges will be by volume and not tonnage. This different structure removed any transit pricing differential between Moss-type and membrane-type vessels.

Based on those announcements, the fee charged to a laden 173,000 cm LNG vessel will equal $380,480. This is a very competitive tariff. Additionally, the PCA outlined its proposal to reward vessels that use the Panama Canal for round trips, by charging around $34,000 less than the standard ballast fee for a 173,000 cm vessel. Importantly, a vessel will be considered to be in ballast unless it has in excess of 10% of its cargo carrying capacity as heel.

Panama Canal: Proposed LNG vessel toll structure
Bands in cm Laden Ballast Ballast (roundtrip)
First 60, 000 $ 2.50 $ 2.23 $ 2.00
Next 30, 000 $ 2.15 $ 1.88 $ 1.75
Next 30, 000 $ 2.07 $ 1.80 $ 1.60
Remaining Volume $ 1.96 $ 1.71 $ 1.50
Table 5.3: Announced Tariff Structure for LNG Vessels Travelling via the Panama Canal

Note: A vessel is considered to be in ballast unless it has an excess of 10% its cargo carrying capacity as heel. To be considered a roundtrip voyage, vessels must transit on ballast passage within 60 days of completion of the laden passage. There could be other additional costs not factored in like security, tugboats, and reservation fees.

Sources: IHS, Panama Canal Authority

In the US, the new law S. 2444, the Howard Coble Coast Guard and Maritime Transportation Act of 2014, was signed by the government in January 2015. The Act encourages the use of US-built, US-flagged and US-manned vessels for LNG exports from the US. While the act merely highlights the benefits for shipyards and employment opportunities within the US, it is unclear how the act will be implemented and enforced. By the end of 2015, the US Congress is slated to have outlined more concrete parameters in regards to the LNG-related issues in the Act.

IGU World LNG Report – 2015 Edition

How quickly will a more pronounced three-tier market for LNG vessel charters emerge?

With the growing number of speculatively-ordered fuel-efficient TFDE and ME-GI tankers being delivered from the shipyards, a multi-tiered charter rate system could become more of a prominent fixture in the shipping market. In 2014, rated were quoted for 2nd generation steam and DFDE/TFDE tankers. However, as the global fleet becomes more diverse in propulsion systems and other key characteristics, rated may break out further to include 1st generation steam, ME-Gi, and Steam Reheat carriers. The varying degrees of propulsion system efficiency in the global fleet – which provides potential characters with more operational flexibility – will likely drive a more rigid segmentation of the LNG charter market over the coming years.

When will the spot charter market recover?

Charter rates are expected to struggle over the next three years as more than 125 tankers are set to enter the market during this period. Many of the Australian projects are expected to come online during this period; however, the bulk of the volumes are contracted to Asian buyers, which results in a relatively short voyage distance. With more production and vessels positioned in the Pacific Basin, the number of LNG carriers required for the transport of the volumes is limited. During this period of weakness, older vessels will increasingly be retired, either through scrapping or conversion to floating regasification or liquefaction units. This may provide support for the charter rated to start recovering by 2017. However, with the oil price environment casting a negative light on sanctioning new LNG supply, the recovery in the shipping market may be pushed back until the beginning of next decade.

Do non-traditional players in the LNG market have more opportunity to participate in supplying volumes?

With the increasing number of uncontracted volumes expected to come online over the next five years, there will likely be a larger role played by pure traders. Historically, the LNG trade had high barriers to entry, with all aspects tied to long-term contacts. Now, with the LNG carrier market saturated with speculatively ordered tonnage, a healthy supply of LNG and buyers looking for shooter contract durations, the environment is set for traders to capitalize conditions.

Will the Arctic become the new frontier for LNG from year 2017 on, when Yamal LNG is scheduled to bring online its first liquefaction train?

Already two ice-classed LNG vessels have sailed the Northern Sea Route (NSR) during the open water navigation window in years 2012 and 2013, assisted by Russian nuclear ice-breakers and benefitting from the shorter route from Europe to Asia. The fleet of 15 Arc7 ice-breaking LNG vessels dedicated to the project may be a breakthrough for maritime logistics and boost the traffic along the NSR is not navigable, the ice breakers will be used to shuttle cargoes from Yamal to Belgium for re-loading purposes.

6. LNG Receiving Terminals

The global regasification market continues to expand at a steady pace, with capacity growth coming from new and existing importers alike. Particularly the advancement of floating regasification technology has enabled new countries to secure access to the global LNG market, while existing importers have often focused on bringing online larger terminals with increased send-out, berthing and storage capacity.

Global LNG receiving capacity increased to 714 MTPA as of end-2014 in a total of 30 import markets. Over the past five years alone eight new countries have joined the ranks of existing importers, with an additional four countries expected to commission their first import terminal in 2015. With several new liquefaction plants ready to start operations in the coming years, import markets worldwide are expected to benefit from a looser supply environment and potentially lower prices, thus increasingly relying on LNG to meet their rising energy needs end replace completing fuels.

6.1. OVERVIEW

In 2014, global LNG receiving capacity increased by 31 MTPA (+4% YOY) to a total of 724 MTPA. Three of the world’s largest importers in Asia led the capacity push, with Japan, South Korea and China all completing new large-scale import terminals. New terminals also came online in Brazil, Indonesia and Lithuania, while Chile, Kuwait, Singapore, and again Brazil finalized expansions at existing LNG import facilities. The total number of active regasification terminals as of end-2014 increased to 101. In the first quarter of 2015, Indonesia further completed the conversion of the Arun liquefaction plant into a 3 MTPA regasification terminal.

Just before the end of the year, Lithuania became the only new LNG importing country of 2014, bringing the total number of countries with LNG import capacity up to 30.*

Figure 6.1: LNG Receiving capacity by status and region, as of q1 2015

Sources: IHS, Company Announcements

This count, along with all other totals within this section, only includes countries with large-scale LNG import capacity (1 MTPA and above). Refer to Chapter 12 for a description of the categorization of small-scale versus large-scale LNG.

6.2. RECEIVING TERMINAL CAPACITY AND UTILISATION GLOBALLY

Since 2000, the number of LNG importing countries has tripled and regasification capacity has more than doubled. A wider range of LNG supply options, flexible shipping strategies, the growth of the spot market and floating regasification technology have allowed new countries to become LNG importers. This includes traditionally export-oriented regions (such as the Middle East), emerging economics with growing energy needs (in Asia, Asia pacific and Latin America), and countries seeking greater enerhy security and diversification (mainly in Europe).

Figure 6.2: Global Receiving Terminal Capacity, 2000-2020

Note: the above forecast only includes projects sanctioned as of end-2014. As indicated by the diagonal bars, additional projects that have not yet been sanctioned could come online after 2016.

Sources: IHS, IGU, Company Announcements

In total, seven new regasification terminals were completed over course of 2014. Four of these were added in the world’s three largest LNG import markets: Japan (Hibiki), South Korea (Samcheok) and China (Hainan and Shandong). The remaining three – all floating regasification terminals – came online in Indonesia (Lampung), Brazil (Bahia/TRBA) and Lithuania (Klaipeda).

Figure 6.3: Starts -Ups of LNG Receiving Terminals, 1980-2020

Sources: IHS, Company Announcements

Additionally, three capacity expansion projects were finalised in 2004. Singapore finalised the second phase of Jurong Island terminal. In Kuwait (Mina Al- Ahmadi ) and Brazil ( Guanabara ), two larger FSRUs replaced smaller vessels. Finally, the FSRU moored at Mejilloned in Chile was replaced by a permanent onshore terminal.

Through 2020, global LNG receiving capacity will continue to grow and reach new markets. Out of the 17 terminals under construction as of early 2015 (not including terminal expansion phases), five were located in countries that will newly join the ranks of LNG importers: Egypt, Jordan, Pakistan, Poland and Uruguay. Still, the majority of under construction capacity – about 63% of the 74 MTPA total (including expansion phases) – will come from existing importers in Asia and Asia Pacific, primarily China, India and Japan.

Figure 6.4: Annual Send- out Capacity of LNG Terminals in 2014 and 2020

Sources: IHS, Company Announcements

In 2014, the average utilisation rate of global LNG receiving capacity was 33%, about 1% less than in 2013. While 31 MTPA of new receiving capacity came online over the course of the year, LNG supply saw more modest gains, thus leading to lower overall utilisation. Not including the US, glocal utilisation was 41%. While the US has the second largest import capacity globally at 132 MTPA, it saw terminal utilisation fall under 1% in 2014 due to the continued boom in domestic shale gas production. Historically, the average global utilisation of LNG import terminals has remained below 50%, a result of the seasonal demand patterns in many gas markets.

The average maximum send-out capacity of regasification terminals has declined in recent years and amounted to 9.9 bcm/yr (7.2 MTPA) in 2014, down from 10.5 bcm/yr ( 7.6 MTPA) in 2012. This is largely a result of small to medium-sized terminals coming online in smaller markets. The growing use of floating terminals, whose capacity is generally below 6 MTPA, has also contributed to this.

6.3 RECEIVING TERMINAL CAPACITY AND UTILISATION BY COUNTRY

Japan remains the world's largest LNG import market, bth by capacity as well as actual imports. Following the commercial start-up of the Hibiki LNG terminal in October 2014, the country's overall LNG receiving capacity increased to 190 MTPA, euivalent to 26% of the world's total. Three additional large-scale terminals or terminal expansion phases with a combined capacity of 3.5 MTPA were under construction as of the first quarter of 2015. Japan's dominant import position is not expected to change. Capacity utilisation stood at 47% in 2014, a minor decrease from 48% in 2013. Utilisation rates in Japan have typically averaged around 50% due to import seasonality.

IGU World LNG Report – 2015 Edition
Figure 6.5: LNG Regasification Capacity by Country (MTPA) and Utilisation, 2014

Note: “Smaller Markets” included the Dominican Republic, Greece, Israel, Lithuania, Malaysia, Puerto Rico and the UAE. Each of these markets has less than 4 MTPA of capacity.

Sources: IHS, IGU

China is the fastest growing LNG market and was the only country to bring online two new terminals (Hainan and Shandong LNG) in 2014. Its LNG imports as well as receiving capacity have increased significantly in recent years. China became the world's fifth largest regasification market by capacity in 2014 ( 39.5 MTPA, up from 6 MTPA in 2008) and remained the third largest importer by volume. Furthermore, seven new receiving terminals and two expansion phases with a total capacity of 28 MTPA were under construction as of early 2015. However, LNG demand growth remained below expectations in 2014. While China had an average terminal utilisation rate of 59% in 2013, this dropped to 51% in 2014.

Average terminal utilisation was highest in Taiwan (105%) and Puerto Rico (111%) in 2014. In contrast, Canada and the US – due to soaring domestic production – barely utilised their import infrastructure. Utilisation rates in most European countries also remained low (between 4% and 50%), although this will likely improve in 2005 in a looser LNG supply and lower price environment.

6.4. RECEIVING TERMINALS BY REGION

Capacity growth in both rising (China, India) and established ( Japan, South Korea) markets in Asia and Asia Pacific has recently re-affirmed the continent's dominance in global regasification capacity. At 8% and 44%, respectively, more than half of global import capacity was located in these two regions as of end -2014. Combined, these regions also account for nearly 50% of the new capacity that came online in 2014, as well as 63% of under construction receiving capacity as of early 2015

DSME Launches LNG Carrier for Turkey—June 10, 2015

Special points of interest:

The two-stroke engine technology provided by MAN Diesel, the MEGI propulsion system, is driving a step change in global LNG vessel efficiency.

Posted by Eric Haun Teekay’s fi rst M‐ type, Electronically Controlled, Gas Injection on (MEGI)‐ powered LNG vessel, Creole Spirit, was fl oated out at the Daewoo Shipbuilding & Marine Engineering (DSME) shipyard in South Korea on May 29. The vessel is on charter contract with Cheniere and is expected to enter service early 2016, making it the most effi cient LNG ship on the water with the lowest unit freight cost in the world fl eet.

The two‐ stroke engine technology provided by MAN Diesel, the MEGI propulsion system, is driving a step change in global LNG vessel efficiency. While the most effi cient Dual Fuel Diesel Electric (DFDE) propulsion systems have daily consumptions in the region of 125‐ 130 metric tons including sea margin, the MEGI vessels have a consumption of 100 metric tons. That being said, it is not just the fuel consumption that makes the two ‐ stroke story so compelling. The reduction in the number of cylinders requiring overhaul, the reduction in the size of the complex electrical systems and the introduction of a passive partial reliquefaction system add to these LNG vessels’ effi ciency and further help to reduce the unit freight cost.

Over the next 8 months DSME will install the cargo containment system capable of transporting 174,000 m3 o LNG and put the ship and its equipment through the required tests and trials.

MAN Hosts Final Phase of EU LNG Initiative– November 27, 2013

MAN Diesel & Turbo has marked the final phase of the EUfunded Helios project by hosting an industry conference at its PrimeServ Academy in Copenhagen.

The Motorship attended the event, at which the results of the Helios project, aiming to develop a research platform for an LNGfuelled two-stroke marine Diesel engine. Helios is part of the EU 7th framework programme, and MAN as lead organisation was partnered by Germanischer Lloyd, Kistler Instruments, Sandvik Powdermet, TGE Marine Gas Engineering and four universities - Uppsala, Erlangen, Jonkoping and Lund. (continued on 3 of 17)

Continued—MAN Hosts Final Phase of EU LNG Initiative– November 27, 2013

The project centred around MAN's ME-GI research engine and it was enlightening to see the two different approaches to gasfuelled two-stroke developments following our visit to Wartsila in Trieste two weeks ago. MAN's high pressure gas system is undoubtedly more complex than the competing low-pressure technology, burns a higher percentage of pilot fuel, and will need EGR or SCR in order to meet IMO Tier III emissions limits. However, it appears to be engineered with an even more highly fail-safe approach to problems with the gas system and a simpler retrofit possibility. In addition, the company says that it offers shipowners the most flexible choice of fuel possible, and although NOx emissions are currently above Tier III limits, methane slip is very low, so carbon emissions - and hence EEDI - implications are highly positive, the engine is tolerant to variations in gas quality, and it can run on gas at loads of 10% or lower. MAN is confident that with further development the pilot fuel percentage can reduce further, and NOx emissions can be cut.

The Helios project has explored wider aspects of LNG as fuel in Europe, including availability, pricing and infrastructure, as well as lubrication and wear issues resulting from using ultra-low sulphur fuels.

The ME-GI engine has already attracted orders, the first being for TOTE container ships, which was not expected by MAN, as well as Teekay LNG tankers and for two larger container ships for US company Matson. No doubt the low price of LNG in North America has influenced these orders.

Number of ships in the world merchant fleet- Jan. 1, 2015

This statistic represents the world's merchant fleet as of January 1, 2015, with a breakdown by type. Of the around 50,420 merchant ships trading internationally, some 16,900 ships were bulk carriers.

Bulk carriers account for about one third of the global merchant fleet

How many ships are there in the world? The number of ships in the world exceeds 50,000: as of January 2015, there were 50,420 ships in the world's merchant fleets. Bulk carriers – ships designed to carry solid bulks such as coal and grains – are ranked as the most common type of ship in the global merchant fleet, accounting for about a third of the fleet: there were almost 17,000 such ships in the merchant fleet as of the begin- ning of 2015. The willingness to embrace larger ships with increasing capacities remains high in the industry. Bulk carriers have a combined capacity of around 705 million tons deadweight in 2014, more than twice the volume of container ships’ combined capacity, which came to around 216 million tons deadweight. The growing pressure to reduce greenhouse gas emissions in the industry asks for bulk carrier manufacturers’ response. With that in mind, new builds of bulk carriers are forecast to produce an average of 15 percent less carbon dioxide emissions in 2015, and 40 percent less carbon dioxide by 2040.

As the name suggests, general cargo ships are multi-purpose vessels, and carry a range of products and goods. General cargo ships are ranked as the second most common type of ship in the world, accounting for over 20 percent of the global merchant fleet. As of January 2015, the number of cargo ships stood at around 11,000. Crude oil tanks and container ships are the third and fourth most common types, with nearly 14 and about 10 percent of the share, respectively. The number of crude oil tankers rounded up to nearly 7,000 units, while the number of cargo container ships in the world was at about 5,000 units in the beginning of 2015.