We may soon be able to retire the tiresome “chicken and egg”
cliché to describe LNG development, since there has been movement in the last
year in Europe and the United States that indicates the circle may be breaking;
but it’s too soon to tell whether the movement is temporary or permanent. What
is apparent, however, it that Europe has moved forward in a more focused and
strategic way, to create LNG infrastructure and markets, which is yielding
results. By 2016, permanent LNG bunkering facilities will be in operation in
Rotterdam and Antwerp – both among the largest ports in the world – thereby
signaling that the supply uncertainties have been resolved. It bears asking,
therefore, how Europe has done this, and whether we should consider similar
measures here if the goal is to expand LNG as a marine and transportation fuel
throughout the United States.
In 2008, Norway effectively made LNG the preferred fuel
choice for marine operators through a combination of regulatory mandates
relating to Nitrogen Oxide (NOx) and financial incentives covering up to 80
percent of the capital cost of the LNG-related components. Following these
actions, the number of Norwegian vessels using LNG as a primary fuel went from
3 to 12 vessels in five years, with more than 50 vessels of various types now
under construction along with the supporting LNG infrastructure. Concurrent
with this, Norway is addressing the regulatory and operational issues, and is
now seen as a leader in marine LNG development.
The European Union (EU) is also pursuing a comprehensive
effort to increase LNG as a marine fuel with the goal of developing LNG
infrastructure in every major seaport by 2020, and every inland terminal by
2025; a total of 139 ports across Europe. This goal coincides with estimates
that by 2020, 1,700 dual fuel vessels will be built or converted worldwide,
with many of these operating in, or calling on, the EU.
By 2020, the United Arab Shipping Corporation (USAC) dual
fuel container vessels will be operating between the Far East and Europe. This
activity will spawn additional interest and movement in Europe and among its
global trading partners leading to a rapid transition from diesel to LNG as a
major transportation fuel.
The EU is employing a “carrot and stick” approach combining
financial support for the conversion and construction of vessels and
infrastructure with increased regulation. Projects such as the
Trans-European Network for Transport (Ten-T) and
the Rhine-Main-Danube initiatives have produced significant results. $139
million has already been allocated to 7 Ten-T projects to support vessel
conversion and LNG infrastructure development, with more funding promised.
Support of up to 50 percent of project costs is available for vessel
conversion, construction and infrastructure, and just recently the first inland
dual fuel barge was delivered and will shortly begin operations.
The EU adopted an approach that combines: (1) clear and
defined goals that LNG will displace traditional marine fuels; (2) increased
environmental regulations; (3) financial incentives to spur the initial
transition; and (4) coordination among ports, governments; regulatory agencies
and stakeholders to create uniform regulatory structures. Given the intrinsic
advantages of LNG, there is recognition that the market would likely drive
toward greater adoption of LNG without assistance. However, many vessel owners
and gas suppliers are reluctant to be the first to make the investments in LNG
vessels and infrastructure regardless of the advantages. The EU has determined
that these measures are necessary in order to reduce perceived risks,
accelerate market decisions, and attain the stated goals for LNG deployment.
In contrast, the United States does not have a national
policy to support LNG as a marine and transportation fuel. Instead, our LNG
market is developing project-by-project, driven by first-adopters such as
Harvey Gulf, Tote, Matson, and Crowley with no federal support or strategy;
despite the tremendous benefits LNG offers to the country. While we have seen some
movement in disparate locations, there is not so much as a policy statement
that commits this country to the development of LNG as a transportation fuel;
and there are certainly no programs to support the construction of vessels and
infrastructure to make this possible nor to address regulatory uncertainties
and enhance public acceptance of LNG.
The challenges and obstacles that exist here are no different
from those in Europe, and LNG is new to everyone. It appears, however, that the
EU has tackled this question in a more coherent, direct, and proactive way that
is rapidly producing results. To be sure, there are major differences between
the US and the EU in terms of governmental structures and processes. The EU can
promulgate Europe-wide regulations and implement promotional programs, and has
a history of doing so. Here, that role would be shared between Congress and the
Executive Branch, and that is yet another challenge given the continuing
dysfunction between both branches of government.
A policy declaring that LNG as a transportation fuel is in
the national interest, and committing to the support, promotion and
encouragement of its development would have several immediate effects:
- It would be a clear signal to all potential stakeholders that LNG is “real” and has the backing of Congress and Administration;
- It would put federal agencies on notice – and could require them– to collaborate with industry on practical and uniform regulation, reduced delays and greater certainty; and
- It could include limited and temporary financial incentives such as loan guarantees or tax incentives to accelerate LNG conversion, because early adopters should be encouraged in order to build a sustaining market that benefits the entire country.
Federal resources are constrained, but without a national
commitment, LNG may not gain the critical mass and momentum to create a
long-term viable market. Regulatory direction is important, and does not
involve direct costs, but if combined with properly structured and managed loan
guarantees or tax incentives they would have a greater likelihood of
jumpstarting this industry at low risk and large benefit to the whole nation in
emissions reductions, energy independence, economic activity in shipyards and
elsewhere. The promise of LNG is so great it deserves this sort of recognition,
attention, and effort. Clearly the EU sees it that way, and we should as well
and the risk if we don’t address it in this way is diminished potential for LNG
to transform this country and the lost opportunity to lead the world in LNG
development and utilization.
John Graykowski is the former Deputy and Acting Maritime
Administrator and is now a Principal of Maritime Industry Consultants,
http://www.maritimeconsults.com, most recently working with marine operators on regulatory issues associated
with use of LNG as a marine fuel.
