Practical impediments to Woodside Energy's interest in chartering an LNG-fuelled fleet could be an opportunity for savvy shipowners, says John Snyder
Woodside Energy, the largest supplier of LNG in Western Australia, has had the dual-fuel platform supply vessel Siem Thiima under charter from Norway’s Siem Offshore since 2017. At the time of the vessel's delivery, former Woodside Energy chief operating officer Mike Utsler said it would demonstrate that LNG as a marine fuel was viable and competitive with conventional marine fuels for use in the sector. The hope was that all of the OSVs chartered by Woodside Energy would be converted to burn LNG as a fuel by 2022 “where practical.”
While the idea is laudable, in reality it would be impractical.
LNG has clearly proven its viability as a marine fuel and its environmental credentials. There are no questions about that. The real sticking point is converting the chartered OSV fleet to burn LNG. Converting an existing OSV to burn LNG as a marine fuel is a complex and costly undertaking. Compounding the conversion is that, unlike an oceangoing vessel, the space on an OSV is limited.
When it was built in Poland in 2016, Siem Thiima was constructed to comply with the International Code of Safety for ships using gases or other low-flashpoint fuels. The platform supply vessel is equipped with four medium-speed dual-fuel engines, a single 230-m3 cylindrical Type C LNG bunker tank, double-walled piping, cold box, gas value unit and bunkering station. Fitting all that equipment into an existing hull would require major modifications and pose some difficult engineering challenges.
Another practical consideration limiting the scope of Woodside's ambition is the fact there are only 24 OSVs built or under construction that can burn marine gas oil and LNG – not nearly enough to meet Woodside Energy’s needs.
These practical impediments to Woodside's goals might, however, present an opportunity for an OSV owner or consortium of owners to undertake a cleverly financed newbuilding programme in partnership with Woodside Energy.
And we do not have to look outside the industry for a model. Dubai-based Topaz Energy & Marine, for instance, took a bold approach when it built a series of tailor-made module carriers specially developed to navigate Russia's shallow river systems and transport modules to oilfields in Kazakhstan. Topaz operates the vessels through a consortium led by Blue Water Shipping for the end-client Tengizchevroil.
Topaz chief executive René Kofod-Olsen told delegates at our Annual Offshore Support Journal Conference in London that the client had originally suggested using a fleet of tugs and barges to move the modules. Proposing the new design vessels, said Mr Kofod-Olsen, gave the company the chance to build on its reputation for innovation and deepen its relationship with the client.
The opportunity was not without risk. In a challenging market facing the headwinds of over-supply, Topaz Energy had to refinance its bonds and institute strict cost control measures, focusing on efficiency. The 20 module carriers have all been delivered by the shipyard and contributed to a profitable fiscal year 2018 for Topaz.
US-based Harvey Gulf International Marine (HGIM) took a similar approach with its client Shell prior to the oil price crash. HGIM constructed six dual-fuel PSVs to charter to Shell for use in the Gulf of Mexico. HGIM has since deepened its partnership with Shell through the marine transportation company Q-LNG. Shell Trading has signed a long-term contract with Q-LNG, which is 70% owned by HGIM chief executive Shane Guidry and 30% by HGIM, to carry LNG as a fuel to Florida and Caribbean ports. Q-LNG is now building an innovative articulated tug barge unit to support that venture.
Woodside Energy's interest is real. It has built LNG fuelling infrastructure for trucks and is adding an LNG bunker vessel. While the OSV market is still oversupplied, there is not an abundance of LNG-fuelled OSVs available. With LNG bunkering infrastructure growing and emissions regulations tightening worldwide, dual-fuel vessels will be a valuable asset in the long term, whether under charter to Woodside Energy or another forward-leaning energy company.