Green financing and technology improvements are making LNG conversions more attractive, particularly for small container ships
LNG-fuelled ships can be made entirely carbon neutral if they are fitted with ship-based carbon-capture technology, says a leading Dutch ship designer.
Pointing out that the science of carbon capture has been a proven technology on land for 30 years, Conoship International director of development Guus van der Bles explained that his company has already conducted feasibility studies for several types of LNG-powered ships, including river and offshore vessels.
Speaking at the Riviera Maritime Media Converting vessels to run on LNG as a marine fuel webinar, held in March as part of Marine Propulsion’s Marine Fuels Webinar Week, Mr van der Bles said LNG-fuelled vessels can be made entirely CO2-neutral because of ship-based carbon capture. One of the challenges, he said, in ship-based carbon-capture systems, is correctly calculating the size and weight of the onboard plant in order to assess the effect of onboard roll and pitch.
With 2,000 ship designs and 60 years of experience, Conoship International focuses on “practicable and applicable innovations” including the conversion of emissions into feedstock for e-fuels.
As the science progresses, he said, a closed-carbon loop is achievable. Among other developments, already CO2 can be easily unloaded and stored for future use in empty offshore gas fields or bunkered where it is needed. “Therefore, less CO2 has to be stored onboard,” he explained.
LNG as a fuel reduces CO2 emissions per unit of energy by 20% relative to diesel, making it an attractive option for shipowners to meet IMO 2020 0.5% sulphur cap regulations, and transition to lower carbon and carbon-neutral fuels when they become widely available. Ship-based carbon-capture technology would be a game changer for LNG-fuelled ships.
Financing improves for retrofits
To retrofit ships to burn LNG as a fuel – even if they are built ‘LNG ready’ – is not cheap. Joining Mr van der Bles on the panel, KfW Ipex Bank vice-president for maritime industries Stephan Vetter said financing LNG retrofits may cost up to €20M to €30M (US$24M to US$35M) for oceangoing vessels. Although “financing can be expensive and hard to get,” he warned, there are several available and affordable routes. His bank was one of the pioneers of LNG as a fuel, financing CMA CGM among other industry giants.
“You can start with LNG now and whenever feasible capture your CO2”
Advising against unsecured financing, which was more suitable for bigger shipowners, he said it was better to seek a bigger loan from an existing financier. Although existing lenders were once reluctant to support LNG conversions because of the resulting, increased loan-to-value (LTV), it is now recognised that retrofits increase the value of vessel, meaning that the LTV remains stable.
Shipowners with 50 to 80 vessels should look for financially unencumbered vessels in their fleets because they can be used as security in a financing. Still a further source of debt was that provided by governments with Emission Control Areas. “The equipment can be ordered from Germany or other EU countries with ECAs,” he said. “These loans can be well structured.” Overall, Mr Vetter stressed that the perceived financing risk on LNG conversions has become lower because the technology is now accepted as tried and tested.
Panellist TGE Marine Gas Engineering head of business development Björn Munko, said the German government had just extended to the end of 2021 a facility that finances up to 60% of the cost of an LNG conversion.
Backed by 40 years of experience with liquefied gas, TGE Marine produces fuel gas and cargo-handling systems and tanks. TGE Marine has supported several conversion projects, amongst which are a 6,500-m3 LEG/LNG carrier to LNG fuel for Anthony Veder, and a Q-Max LNG carrier to two-stroke, dual-fuel LNG propulsion for Nakilat.
A fast-growing sector is small container vessels like Wes Amelie, a Wessels Reederei-owned 1,036-TEU feeder that in 2017 was retrofitted to LNG. The 500-m3 fuel storage tank was designed into the ship’s forecastle in a project that attracted a lot of publicity. “There is a lot of interest in conversions of small container vessels,” Mr Munko said, adding that one of the challenges is to find the right place for the installation because of the widely varying designs of the ships.
Responding to question about how long an LNG conversion can take, he estimated about two months “provided there is good preparation.” Also, the amount of cargo space lost in a retrofit varied because of the difference in ship designs – “but we are looking to standardise as much possible,” he added.
Similarly, responding to a question about the cost of installing carbon-capture systems, Mr van der Bles said that feasibility studies in complex vessels present “interesting challenges” while noting the technology remained a genuine option compared to other CO2-reducing alternatives. “Depending on the size of the system, we believe it will be very cost-efficient in future,” he reiterated. Currently Conoship International is working on a pilot installation with other partners in the DerisCO2 project.
“Retrofits increase the value of vessel, so the LTV remains stable”
Asked about the most appropriate age for a vessel before it was retrofitted to LNG, there was general agreement that 10 years was the upper limit. As Mr Vetter explained, the crucial element is the amortisation time for the conversion. However, in a bonus for LNG conversions, it is possible, Mr van der Bles pointed out, that the components can be standardised so that can be removed and redeployed on a newer vessel.
Wrapping up the discussions, Mr Vetter emphasised there was mounting interest in conversions to LNG as the solutions became more innovative and reliable. It was crucial though that shipowners organise the funding as early as possible. And as a banker, he highlighted the importance of collaboration and communication with all parties in the pursuit of more efficient and sustainable solutions.
And on the practicality of carbon capture, Mr van der Bles suggested shipowners should think about integrating the technology in both LNG newbuilds and retrofits. “CO2 capturing for LNG installations enables CO2-neutral shipping. You can start with LNG now and whenever feasible capture your CO2,” he said.
Finally, Mr Munko said that conversions to LNG will become an integral element in the race to more sustainable shipping in a partnership between financiers, engineers and designers. “The solutions are there,” he said. “Without technology, there is nothing to finance. These things go hand-in-hand.”
He concluded by noting shipowners’ clients will force the pace because many of these companies have adopted zero-carbon goals and will insist that the industry follows suit.