Shipping, meet global gas politics

Stability-loving shipping may bite off more volatility than it can chew, with gas.

By Ryan Skinner (email)

Norwegians love gas. I mean, they really, really love gas. Norway invested around 6 billion euro to develop its Snøhvit field in the Barents Sea, and another 8+ billion euro for Troll. Feel that love.

But, that wasn't enough. Norwegians also trekked over to America to help the Yanks extract gas from shale. As a result, America, which was going all soft on Putin to get cheap Russian gas, will probably be a net gas exporter in ten years.

The phenomenon of shale gas extraction has led more than one energy expert to exclaim "this will change the geopolitics of natural gas."

Into this turmoil comes shipping, which - according to a recent Lloyd's List poll - believes gas to be the biggest game-changer looking ten years ahead.

This year's SMM was positively enamored with the concept - a charm that certainly rubbed off on the poll. Norwegian officials have certainly been pushing gas hard. And a gaggle of Master's students spent their summer at DNV confirming the viability of LNG as a fuel for shipping (was there really ever any doubt regarding the outcome of THAT study?).

But it's not just Norwegians who are hip to gas. Engine-makers, classification societies, shipyards and shipping correspondents have also flocked to it.

Before we get too excited about gas, however, we should consider a few things:

1) LNG isn't volatile, but natural gas prices are. Comparing variations in bunker prices to variations in natural gas prices should dampen many ship buyers' enthusiasm.

2) Shipping's cyclical; LNG delivery isn't. LNG is produced and delivered on multi-decade contracts to big market buyers. Shipping's bouncy needs are not going to command attention from this industry.

3) LNG operations are going to put a fat addition on newbuilding tabs. Gas as a fuel isn't the innovation in shipping; the real innovation must come from ways to make gas-fuelled shipping more profitable.

4) Gas prices and delivery are linked to global politics in a way that bunker fuel really isn't. Even with shale extraction and big Norwegian projects, the biggest gas producers will likely remain countries like Russia, Iran and Kazakhstan - not the most reliable of bedfellows.

I seldom scorn new development - any kind of development - in shipping. But I fear shipping will spend too much time clapping itself on the shoulder for a non-innovation, instead of focusing on real game-changers.

All this, even when I would love the sight of a captain turning to his first-mate to ask: Got gas?

Comments

[Calvin Holt]

Gas is beyond a doubt the replacement to replace oil for transportation. Gas to Liquids technology has a ways to go, but as a believer in Peak Oil Theories, gas will our salvation. LNG, GTL, CNG etc will all improve their cost benefit ratios way beyond any other alternative renewable. And its price will be more stable then oil.

The US now has the largest gas reserves (undeveloped) in the world and will last well into next century. If they can transit from oil based to gas based, many of the world's problems will dissipate.

Don't discount Australia, Canada and UAE for gas supplies. The days of big bad old dictators/regimes leveraging their oil for their own nefarious purposes are drawing to a close - good news for the next generations.

ps: Love the new name! ShipCrunch..something to masticate on :)

[Bob Kamb]

Interesting contrarian view on natural gas as fuel changing the shipping game-- a few points to consider:
Natural gas prices and bunker prices are equally volatile, but with one important difference-- the trend for gas is decidedly downward, and quite likely to stay that way as a result of increasing supply to world markets. More importantly, natural gas environmental benefits, particularly in light of the coming fuel oil sulfur requirements and operating restrictions imposed by the implementation of ECA's in the US and elsewhere reduce the attractiveness and increase the cost of traditional bunker fuels.
The era of long term contracts for LNG projects is ending; significant volumes now move on short term and spot charters and many projects include cargo diversion clauses.
It’s likely that environmental compliance costs and the desire to be "green" will compel shippers to require that their goods be shipped on environmentally friendly bottoms, which combined with falling prices and shortened pay-back periods will help pay that newbuild or conversion tab. Innovations in shipping tend to come slowly, which is the beauty of natural gas as fuel-- same engines, same systems, just a different fuel.
Finally, it’s a stretch to suggest that because some of the biggest gas producers are politically unstable, it represents a threat to world supply-- we are currently drowning in Australian and Qatari gas, and wait until US exports ramp up.
Don't scorn incremental change-- you know, all that stuff about hell hath no fury...Natural gas as bunker fuel is coming-- it’s too easy, too cheap, too plentiful and too logical to ignore.

[craig]

Some good points, but as Bob Kamb suggests gas is a replacement for something else and as such the fact you see it as a non-innovation is true. Gas powered ships are not new. But the idea is simply being seen as an obvious step and a way to meet changing rules, commercial pressures and market prices. The class societies are only just getting in on the game, and I have heard some criticism that they are not as yet as up on the technologies needed as they seem, but getting there. The fact the Norwegians are pushing the wagon so hard is simply because they have got tonnes of it to sell (while they focus on green power sources), and the country's technology companies may well have to focus on gas when the oil runs out. As for the fat addition to newbuilding prices, probably not as fat as you think, especially if the systems take off and beocme more common place. there's also the lack of technology and space needed in the engineroom to heat, clean or filter the oil a diesel engine may need.