Tuesday, November 6, 2012

Fidley Watch - Passing Gas

Even through the economic downturn of the past few years, the world has remained hungry for coal, oil and natural gas. At the same time, the recent oil and shale gas boom in the US has seen domestic natural gas production rise by 15 percent. As the increased supply of Liquefied Natural Gas (LNG) has lowered prices in the US, in other parts of the world, the increased demand has seen a commensurate increase in prices. At press time, the landed price in dollars per Thousand Cubic Feet ($US/MMBtu) averaged $3.24 in the US, $9.80 in Europe and $12.95 in Asia.

The disparities in supply, demand and value raise interesting issues for the maritime industry. In this issue, Singapore journalist Jaya Prakash details the efforts of Singapore and Malaysia to capitalize on the storage and transportation of LNG to ensure energy independence and in the hopes of creating an LNG spot trading market.

Meanwhile, the increase in LNG transportation, fueled by the lower environmental impact of LNG vs. oil or coal, has led some to predict an impending shortage of LNG carriers to meet market demand – especially in light of the announcement by Japan in September that the country would close down its nuclear power generation industry by 2030 – and in spite of an increase in orders for new carriers.

Finally, LNG terminals continue to be developed, including two in Oregon. One of these, Jordan Cove Energy, in Coos Bay, notified the Federal Energy Regulatory Commission in February of this year that, due to current market conditions, it no longer intended to construct and operate an import terminal. Instead, Jordan Cove is exploring the feasibility of a liquefecation export project to be built and operated at the same site, intending to liquefy 6 million metric tons per year for export.

Oregon LNG, in Warrenton, Oregon, followed suit in late March, changing its project from a proposed import terminal to a liquefecation and export facility.

While exports will surely make up a large portion of domestic LNG production, the promise of a lower-emission fuel has a local West Coast company making plans to convert part of its fleet to operate on LNG. In August, Totem Ocean Trailer Express (TOTE), based in Tacoma, Washington, announced plans to convert its two ORCA-class ro/ro ships to burn LNG. The company has received a permit from the US Coast Guard providing a conditional waiver from the Emissions Control Area (ECA) fuel sulfur content requirements, and expects the project to take up to five years and cost $84 million.

The groundbreaking project could open the door to other maritime uses of the fuel, while ensuring a local supply of LNG for use by other sectors of the transportation industry in the region.

The future looks rosy for natural gas, and the ability of the maritime industry to profit from its transportation as well as its environmental benefits makes the future of the maritime industry a bit rosier as well.

Chris Philips, Managing Editor