BC Ferries weighs costs of LNG ship fuel option

From Business in Vancouver

In the burgeoning field of LNG-fuelled marine vessels, the Norwegians are global leaders. The Americans are a close second.

But in B.C., vessel operators such as BC Ferries and other firms involved in the marine industry are opting to take a wait-and-see approach before embracing LNG’s significant cost-savings.

That was the sentiment from the final day of the recent Green Marine Conference held in Vancouver.

The conference’s concluding discussion – dubbed “LNG in the marine industry: From project to reality” – featured a four-man panel of experts representing companies such as nautical safety firm Lloyd’s Register and BC Ferries.

Greg Peterson, director of engineering services with BC Ferries, told attendees that although his company is obligated to explore all potential cost-saving avenues, the ferry operator would continue to rely on diesel fuel for the foreseeable future.

Estimates from the conference pegged LNG as being half the cost of diesel. In the case of BC Ferries’ largest vessels, which hold about 50,000 litres of diesel and are filled five nights per week, the savings would be substantial.

Last year, BC Ferries investigated the potential savings of converting to LNG. In the case of one vessel, Queen of Capilano, that conversion would yield estimated annual fuel cost savings of $1.9 million. In converting 12 vessels, BC Ferries estimates it could save nearly $29 million per year.

At $120 million annually, fuel represents the second largest expenditure at BC Ferries behind employee wages.

The cost to retrofit a vessel to use LNG, according to BC Ferries, can vary between $10 million and $50 million, depending on the size of the ship. To build a new LNG-fuelled vessel, costs range between $60 million and $150 million.

Peterson said that while the cost reduction is attractive, the challenge for BC Ferries would be co-ordinating a conversion schedule that wouldn’t significantly disrupt service. BC Ferries currently operates 35 vessels on 25 routes with about 500 sailings per day.

Developing the infrastructure to store LNG onboard a vessel is another barrier to investment.

Paul Blomerus, senior director of high horsepower at Westport Innovations (TSX:WPT), a Richmond-based company that designs and builds natural gas engines, told Business in Vancouver that LNG needs to be kept in large cylindrical tanks, which take more room onboard a ship than a traditional diesel reservoir.

To investigate such design problems – and other potential hurdles to using LNG as a marine fuel – more than a dozen companies, post-secondary institutions and government organizations have undertaken a sweeping West Coast Marine LNG Supply Chain Project initiative. Westport and BC Ferries are both participants.

“Ferries are the focus now, but the marine market is more diverse than that,” said Blomerus, noting that vessels such as tugboats, workboats, ferries and oil tankers would all require unique designs for LNG engines and tanks.

Impending changes to environmental regulations are also driving the research. Beginning in 2015, all vessels on Canadian waters will be required to reduce sulphur emissions. According to research published by the Supply Chain and Logistics Association of Canada, LNG-fuelled ships could achieve sulphur emissions reductions of up to 90%.

“Marine fuel consumption is significant in North America and the world. This represents a significant economic opportunity to switch,” said Blomerus.

“But there is also the environmental benefit of using cleaner burning fuel. There is definitely a greenhouse gas reduction benefit.”

A report from the West Coast Marine LNG Supply Chain Project is expected in November.

Denmark has more than 20 LNG-fuelled passenger vessels in service, including 11 ferries, three coast guard boats and one cruise ship. Globally, more than US$1 billion has been committed to LNG-fuelled vessels.

The only confirmed Canadian projects are three ferries ordered by the Société des traversiers du Québec, Quebec’s ferry service.

By Sean Kolenko