7 Logistical challenges and barriers

Natural gas is brought to the market in pipelines or in LNG tankers. There is considerable experience with distribution of piped gas in Denmark. The use of CNG or LNG is very limited in Denmark and no large scale or commercial use of the compression steps needed to produce CNG or the liquefaction process of LNG is in place. There are a few LNG production plants in the countries around Denmark liquefying gas from the North Sea, but most LNG arrive in LNG carriers^[34]. CNG is generally not transported as such although schemes exist^[35], but is produced close to the site of usage.

The experiences made regarding the distribution of natural gas for use in shipping are still few. The primary experiences with LNG for shipping come from Norway where LNG is delivered to local storage facilities or directly to the users by tanker or truck. In some cases a small shuttle tanker delivers LNG to a local storage facility in the port and the vessel is bunkered from the storage via a short pipeline or directly from a truck. There are two lesser LNG tankers in operation in Norway: Pioneer Knutsen (1000 m³) and Coral Methane (7500 m³), and more small tankers are expected to follow in 2010 and on.

Figure 71 The gas fuelled ferries Bergensfjord, Fanafjord and Raunafjord operating between Halhjem and Sandvikvåg have two LNG tanks onboard of 125 m³ each. For bunkering, two LNG tanks of 500 m³ each are located on the quay at Halhjem (right). These tanks are refilled by a LNG carrier or trucks (Photo courtesy of DNV)
Figure 7‑1 The gas fuelled ferries Bergensfjord, Fanafjord and Raunafjord operating between Halhjem and Sandvikvåg have two LNG tanks onboard of 125 m³ each. For bunkering, two LNG tanks of 500 m³ each are located on the quay at Halhjem (right). These tanks are refilled by a LNG carrier or trucks (Photo courtesy of DNV)

The ships operating on LNG are typically refuelled once or twice a week from a dedicated truck or the storage facility is serviced by trucks. Refuelling time is about one hour for a truckload of 40 m³ of LNG. When delivering directly to the vessels the truck connects to the filling station through a hatch at the shipside. The refuelling takes place when the ferry is docked for the night and no passengers are onboard.^[36]

7.2 Security of supply of natural gas compared to crude oil

The production of natural gas in the North Sea is decreasing and Denmark will be a net importer of gas in the near future. Natural gas is a traded commodity and its long term availability depends ultimately on global gas reserves. The global resource situation for natural gas is better than for oil in terms of reserves-to-production ratio and geographical spread. According to BP’s Statistical Review of World Energy (quoted in MAGALOG 2008), the world’s proven gas reserves stood at 177 trillion (10¹⁸) Sm³ at the end of 2007. This is 60 times the world’s gas production during 2007 and oil reserves were only 42 times the world’s oil production.

Figure 7‑2 Historical and projected Danish natural gas production (coloured area) and consumption (solid line).

In the Danish Ministry of Climate and Energy’s report on Energy Security in Denmark (“Energiforsyningssikkerhed i Danmark”)^[37] data regarding the Danish consumption of natural gas is given until 2020 (table 7-1).

The use of natural gas as a fuel in shipping would comprise a significant part of the total consumption of natural gas in Denmark. The roughly 400.000 t natural gas (equal to 22 PJ) consumed annually by shipping in our scenarios would correspond to approximately 15% of the annual total natural gas consumption in Denmark. However, this would only apply in the hypothetical situation where Denmark chooses to produce LNG or CNG bunker fuel from piped natural gas. Contracts on supply via the Nordstream pipeline and other sources are already in effect and the security of supply of natural gas to Danish consumers appears not to be challenged by adding ships fuel consumption.

Also, the import of LNG to Europe is more than 55 billion cubic meters annually corresponding to 40 million tonnes LNG and the Danish consumption in shipping would amount to approx. 1%.

7.3 Information on risks associated with LNG and CNG

This section applies a general approach to the evaluation of the risks associated with LNG/CNG installations and the specific issues related to the use of natural gas for maritime vessels (based on the Ramboll Oil and Gas memo in Appendix 4).

Natural gas activities will always have the potential of causing accidents as the gas is flammable under certain conditions. The (technical) objective definition of a risk is:

An individual’s perception of risk is a subjective interpretation and will depend on various social elements, the level of information/knowledge, previous experience, necessity of the application, external inputs, etc. which is not covered here. However, it is generally accepted that risk aversion increases exponentially with the scale of potential accidents. Since accidents with natural gas on rare occasions may have large scale effects an information campaign may be warranted.

Whenever an activity has associated risks the decision-maker is to compare these risks with the benefit of the activity through the use of risk acceptance criteria, e.g. cost-benefit analyses or industry common practice levels for individual risk and societal risk, and demonstrate that the risk is as low as reasonably practicable (ALARP). The ALARP principle is often closely related to cost-benefit analyses and favours that inexpensive risk reducing measures (“low hanging fruits”) are implemented even though the risk acceptance criteria is already met.

7.3.1 Risk assessment

From a risk perspective LNG and CNG as well as the respective installations required are of similar nature. The installations considered at Danish harbours may be categorised as simpler installations as they are not to be production plants.

Natural gas is a fuel and a combustible substance. To ensure safe and reliable operation, particular measures are taken in the design, construction, installation, commissioning and operation of LNG/CNG facilities.

In high concentrations (and liquid state for LNG) natural gas is not explosive and cannot burn. For natural gas to burn, it must first mix with air in the proper proportions (the flammable range is 5% to 15%) and then be ignited.

The design, construction, installation, commissioning and operation of LNG/CNG facilities are all subject to risk assessments according to the regulation. Various topics are to be considered in these assessments, hereunder:

The appendix includes a description of the consequences for fire, explosion, software and procedural risks, which are inherent generic risks in the following.

7.3.1.1 Risks originating from the storage facility

The main consequences related to health and safety risks at natural gas installations are fire and explosion^[38].

Fires will be of similar nature (jet fire or flash fire) as the composition of LNG and CNG is identical and the magnitude of a fire related more to the size of the storage facility.

The chemical explosions are similar for LNG and CNG. The physical explosions are different from a technical point of view (compressed gas expansion vs. rapid phase transition) but the resulting expansion pressure is expected to be of similar nature.

The utility systems of both LNG and CNG are similar to those of other natural gas installations and are not considered to impose extraordinary risks.

7.3.1.2 Risks related to supply activities

For the risk associated to the increased ship traffic it is not considered to be significant as the supply of LNG will be rare compared to the overall ship traffic in the respective harbours.

7.3.1.3 Risks associated to fuelling activities

The risks associated to the fuelling activities are of similar nature as the description for storage facilities. Although the risk is considered to be slightly higher than that of conventional vessels due to the potential ignition in case of rupture it is not assessed to have a significant impact on the overall risk picture.

The number of fuelling operations may have an impact if either LNG or CNG operated vessels require significantly larger number of operations. However, in practice this is not considered to be a determining issue in the selection process between the two options.

7.3.1.4 Risks associated to external impact on the storage facility

The risks caused by external impact do not differ from other natural gas installations and is as such not assessed to cause significant risks.

7.3.1.5 Risks related to collision involving a LNG/CNG fuelled vessels

It is not expected that the consequences of ship collision will impact the overall risk picture as it is assumed that the LNG/CNG fuelled vessels can be designed in such a way that the LNG/CNG tank is not damaged during collision. This is considered a technological design issue.

7.3.2 Previous accidents – lessons learned

There are only few accidents with LNG/CNG on record of which some are only of minor relevance today as they date back 30-70 years, hence the technological development make them obsolete.

The accidents on record are not of comparable installations as they have been on production plants.

During the research it has not been possible to identify advantages of the LNG or CNG option based on accident records.

7.3.3 General risk reducing measures

The implementation of LNG/CNG facilities will be subject to various general risk reducing measures as appropriate:

7.3.4 Conclusions on Risk Assessment

The risk pictures of the LNG and CNG options do not provide argumentation for either option having safety related advantages. The technology to be applied is well known and the operational experience from other countries indicates that safety standards can be met.

It is assessed that the required installations can be implemented in accordance with the regulatory requirements and common practice for safety levels. Detailed risk assessments and ALARP demonstration are of course required during concept maturation in order to provide for the necessary demonstration of safety.

Depending on the decided size of the installations, subject to the technological requirements, considerations regarding the regulatory framework are recommended in order to evaluate the relationship to the Danish statutory order on risk (“Risikobekendtgørelsen”) and related regulation. To the operators and investors it is assumed to be important to clarify the requirements for safety management systems, risk assessments and quantitative risk analysis due to the administrative activities and resources needed.

7.4 Barriers to the use of natural gas

When introducing a “new” technology in society the obstacles may be many. In the case of natural gas the technology is not entirely new and experiences are available from the use of both CNG and LNG in the transport sector, albeit the usage for propulsion in the shipping sector is still under development. It appears that the development of technology and demonstration projects on CNG in shipping has been slow since the mid 1990’s. In contrast, LNG has gained considerable momentum in shipping during the last decade. It should be mentioned that the Danish Maritime Authority is currently heading an international effort seeking to further promote the use of LNG in shipping by conducting a feasibility study on LNG infrastructure for short sea shipping^[39].

Obviously, most barriers may be removed by spending enough money and may be said to be of economic nature, but here only the barriers related to cost proportions are mentioned, Economic issues related to the conversion to natural gas on the wider scale are dealt with briefly here and are elaborated on in the following chapter.

7.4.1 Technical challenges

There are technical challenges associated with installations designed to operate a ship on natural gas, particularly on existing vessels, and since this is still a new, albeit expanding area, the extent of experience is still limited in the industry. However, considering the information provided on the technical issues here there are no “show stopping” technical barriers to the use of natural gas for propulsion in shipping.

When it comes to the choice of LNG or CNG, the former is the choice of nearly all the shipowners engaged in the conversion to natural gas. This is a consequence of the advancement of the LNG technology over the last decade partly spurred by the Norwegian incentives and the investments generated by the NO_x tax in Norway. Most of the experiences with CNG propulsed vessels are from conversions between ten and twenty years ago now and almost exclusively on very small vessels.

Natural gas cannot utilise existing fuel tanks and both LNG and CNG have more demanding footprint onboard for storage tanks. This is a significant barrier encountered in particular with CNG as the spacial requirement is twice that of LNG for the same energy content. Both systems require significant structural enhancement to accommodate the tanks when refitting vessels.

7.4.2 Supply chain and bunkering

There are a number of possible ways to supply the Danish market with LNG. It is possible to construct a liquefaction plant with gas feed via pipeline or LNG can be imported by LNG carrier directly from Middle East suppliers, but in both cases a main Danish terminal is needed and LNG will need to be further distributed to local storage at consumers or via bunkering companies. Since this will require smaller LNG supply vessels or large LNG trucks it appears that these may equally well load LNG from existing facilities in Europe and supply the Danish market without a costly Danish hub.

The experiences in Norway, where LNG for use as fuel is liquefied in small scale plants show that the price is about 3 times the natural gas spot price.

The supply of natural gas in the form of LNG is therefore anticipated as an import to Denmark from LNG terminals or other suitable suppliers in Europe, presumably by shuttle tankers that may supply storage tanks in existing bunkering facilities, local storage facilities with the consumer or allow direct bunkering.

Regarding CNG it is usually created by a stepwise compression from the network natural gas locally directly to a filling station or trucked over shorter distances from central storage. Due to the larger volume requirement of CNG compared to LNG a storage facility may be required for bunkering of larger vessels.

Although national regulations and IMO guidance regarding these activities may still be developed to suit the future conditions it is not anticipated that regulations will not allow LNG or CNG bunkering in a manner consistent with the commercial operation of vessels. This regards in particular whether bunkering of gas can only take place when passengers have disembarked. A Swedish company has recently presented their system under development that according to the company would allow LNG bunkering ship to ship for RoPax end costumers^[40].

The bunkering companies follow the developments regarding the gas propulsion closely, since this will potentially substitute bunker volume from their business. However, with the volumes currently involved and the projections over the coming few years this market does not yet allow for investments in advanced technology^[41].

7.4.3 Political-administrative barriers

During a workshop on “Tomorrow’s Fuels – Challenges and Possibilities” held 31^st May 2010^[42] several representatives from the ferry industry mentioned the following barriers of political-administrative nature:

Another barrier for both LNG and CNG is that the rules and regulations for classifications of ships have not yet been developed, and that the IMO is still in the process of adapting such rules. This generates obvious uneasiness regarding the long term viability of multi million euro investments in vessels, ports and supply facilities. E.g. the current fleet operate under a SOLAS deviation permit (regarding flammability) and the lack of clarity regarding a future accept of bunkering while passengers are onboard does restrict the inclination to invest in passenger ships operating on natural gas.

7.4.4 Economic barriers

Although a topic of the following chapter a brief mentioning of the costs as a barrier is worth considering when the overall picture of converting to gas is painted. From experience achieved through the NO_x-fund the typical additional investment cost of choosing LNG over traditional oil fuels is estimated to be less than 20%. The cost for newbuilds is lower than costs for retrofitting existing vessels.

The LNG tanks with required gas systems have so far cost typically 10-15 mNOK (1.2-1.9 mEUR) and the gas engines have been 5-10 mNOK (0.6-1.2 mEUR) more expensive than corresponding diesel engines. In addition, some hull reinforcement etc is expected. These costs are however representative for the “pioneer work” till now, and should be expected to drop in the future as volume picks up and the technology proves to be capable.

Barriers to the introduction of natural gas appear to be less technical than they are associated with supply chain issues and obviously economic issues. A key issue is also that the LNG cannot be stored in the existing fuel tanks, but new storage tanks must be installed onboard and they often will take up “commercial” space. E.g. in a design for a container vessel approx. 3% of the TEU capacity was blocked by the LNG tanks^[43].

The introduction of LNG in shipping has already taken place in Norway and many technical and logistical challenges have been addressed. Although, the potential for CNG is also considerable the technology for larger vessels is less mature.

7.4.5 Summary of barriers

Several manufacturers have addressed the technical barriers regarding engines/turbines and most of the prominent remaining issues appear to be associated with the filling stations and the storage onboard. This is also an area where updated rules and regulations may provide much sought after clarity and that will reportedly assist in promoting natural gas.

[34] Reference to previous chapters. For the purpose of this section on logistics it is assumed that LNG will be imported by tanker as opposed to produced in Denmark.

[36] Scandlines current fuelling procedure for low sulphur heavy fuel oil on the Gedser Rostock routes takes two hours and is performed when the ship is in port for the night.

[39] Invitation from Danish Maritime Authority to initiate an application under the EU strategy for the Baltic Seas region for funds to “Conduct a feasibility study on LNG infrastructure for short sea shipping” dated 29 april 2010.

[40] LNG bunkering ship to ship. Magnus Wikander, FKAB Marin Design, Stora Marin Dagen 27 April 2010.

[42] Tomorrow’s Fuels – Challenges and Possibilities”. 1-day workshop 31st May arranged by Partnerskab for Renere Skibsfart and Transportens Innovationsnetværk.

[43] Gas as Ship Fuel, Presentation by Dr. Gerd Würsig, Stora Marin Dagen 27 April 2010.

7.1 Experiences