Thursday, March 13, 2014

LNG as Marine Fuel – Opportunity for Partnership

By John E Graykowski

The recent conference in Seattle, co-sponsored by this publication and Sector Seattle, United States Coast Guard (USCG) entitled: "LNG as Fuel: Regulation, Policy and Technology: Next Steps" provided a glimpse of the bright future ahead for LNG. But it also conveyed some cautionary notes about the challenges that must be resolved if LNG is to achieve its full potential as a "game changer" for our industry.

Perhaps most telling was the fact that more than 200 people attended the conference, with others turned away due to a lack of space. The attendees spanned the entire breadth of the maritime industry and included operators, suppliers, ports, regulators and others with a direct interest in LNG as a marine fuel. Unlike many of these events, people stayed for the entire day, which is a testament to the range of topics, the quality of the panelists and the substance that was discussed. If one can extrapolate from this single event to the entire country, which I suspect is the case, then the concept of LNG has been transformed from an interesting possibility to a concrete reality in people's thinking about how to capitalize on the incredible opportunity that the shale gas revolution has provided.

On the positive side, a consensus exists among federal, state, and local regulators that the development of LNG as a transportation fuel should be encouraged; and this is a very positive sign. It is also apparent that agencies, most notably the USCG, are working diligently to keep pace with LNG developments in the industry. Vessel classification societies have moved quickly to gain knowledge on all aspects of LNG as a marine fuel and are assembling a large body of data that will be extremely valuable to all stakeholders. In 2014, we will see the introduction of the first LNG-fueled vessels in the United States and the establishment of LNG fuel infrastructure to support them, and by the end of 2016, ocean going vessels will be in operation with more to follow. So all of this is positive, and undercuts any argument that LNG may simply be a passing "fad" since hundreds of millions of dollars are now committed to its introduction and use in the industry.

It bears noting how fast this has transpired, since LNG has been a serious topic of discussion in the marine industry for only about two years and only about seven years ago most of the talk about LNG related to imports and the creation of the infrastructure to receive gas from foreign sources to supply US power needs. The accelerated pace of LNG adoption, however, is a major source of the challenges that may constrain the widespread deployment of LNG throughout the country.

The conference also conveyed a clear message that regulatory development is lagging behind the moves to build or convert vessels to LNG. This is a circumstance where the technology to produce and operate on LNG is well known and available, but it has never been used in the ways that we now contemplate for the marine industry.

There are no comprehensive, uniform, and clear regulations at any level of government that pertain specifically to LNG as a marine fuel. What federal regulations exist, for example USCG or Pipeline and Hazardous Materials Administration (PHMSA), are largely directed at large scale import and export facilities, which have entirely different risk profiles than small marine terminals. In addition, marine terminals and other small-to-medium scale LNG facilities will likely be required to undergo state and local permitting actions, largely separate from the federal actions. Without greater coordination among the various levels of government, there is a risk of delay, increase in cost and the imposition of regulatory burdens on LNG suppliers and users that will have a direct impact on acceptance and availability of LNG as a fuel.

The message that came from each of the regulators was "we need your help" in creating the regulatory structures that will govern LNG development. Industry needs regulatory certainty and uniformity to reduce costs and attract the large capital commitments necessary to construct the infrastructure. Think about it: Regulators are actually reaching out to the industry to solicit its views in designing LNG regulations. This is an incredible opportunity to form a genuine partnership with regulators and help to design a regulatory structure that works for everyone. There are no legacy regulations or practices that must be incorporated into marine LNG regulations, which makes this opportunity unique as well. In a real sense, we have a blank regulatory canvas and the industry is being handed the brushes to create the picture of the world that meets the goals of safety, security, and practicality. It seems that if we do not avail ourselves of this opportunity, then the ability for any of us to complain or object to the rules that are issued will be severely compromised.

I've been writing and speaking for some time that LNG's potential impact on our country is larger than any one industry and we are at a moment in our history where our actions can shape the future of the country. I believe strongly that LNG has the potential to transform the country in ways as significant as moving from coal to oil in the 19th Century. As such, I see a need for a national commitment by the Congress and this Administration to promote the rapid transition to LNG for all modes of transportation. The policy foundations for this are clear: energy security; economic benefits; environmental enhancement.

The way to do this is first by forming a genuine working partnership with regulators to create the necessary structures and second by engaging in a larger public outreach and effort as the marine industry, suppliers, ports and others to gain the attention of the Congress, the President and the public that LNG for transportation in general and the marine industry in particular is in the national interest.

So, the conference left me with a healthy dose of cautious optimism about the future of LNG for our industry. We see so many positive signs that it is taking root, but still wonder whether the growth is sustainable and will bear the enormous benefits that we all know are possible with this fuel.