Expected to be published early next year, BIMCO’s LNG contract will seek to standardise bunkering terms and conditions
As the infrastructure for LNG bunkering builds up, the need for standardised bunkering contracts is being felt across the shipping industry. The BIMCO LNG Bunkering Contract that is expected to be published in about a year is intended to address that need.
Current approaches to LNG bunker contracts vary from place to place and harmonising them will be a challenge, according to BIMCO head of contracts and clauses Grant Hunter. “We will learn from the commercial agreements currently being signed and use that knowledge and experience to develop an industry standard,” he says.
Oil bunkering is a well established process. Contracts are often well laid out, though disputes are common, too. Suppliers as well as buyers are familiar with the terms and conditions. LNG bunkering contracts may well have to use terms and conditions similar to heavy fuel oil (HFO) bunkering. But there will be differences, for instance in terms of sampling procedures and pricing metrics. “LNG is a pure form of energy and we do not expect contamination or ‘off spec’ issues as we see with conventional fuel oils,” says Mr Hunter. “Information from gas chromatographs on board the bunker barge may well have to be accepted at evidence of the quality of LNG bunkers provided – the focus may be on energy content, with possible contractual mechanisms to adjust prices to reflect lower-than-expected energy levels,” he says.
The LNG carrier segment has established procedures on pricing and the amount of fuel delivered. For instance, LNG cargo transfer follows a principle called ‘custodial transfer measurement’. The energy content and mass are measured to determine price. Mr Hunter believes LNG bunker pricing will also be energy content-based, as opposed to the price-per-metric-tonne method used with fuel oils.
Standardisation of the bunker delivery note (BDN) is another industry need. Until recently, LNG carriers were part of LNG trains that were specific to a project. The LNG carrier was just one element in the transportation of natural gas from the supplier to the consumer and LNG carriers had dedicated terminals. This scenario is now changing and a spot market has developed that LNG carriers are serving. In the near future, LNG bunkering may also see a spot market, if not to the extent of that which has emerged for the HFO delivery market. “There are IMO regulations stating the minimum information to be contained on an LNG BDN, but there is no single standard form that can be used everywhere,” says Mr Hunter.
LNG bunkering involves enhanced safety measures over fires and spills. The risks are higher than in HFO bunkering. Various operations, such as inerting and purging, need to be performed during bunkering. The BIMCO contract will address these safety and operational issues in terms of standard practices. “We hope that by introducing a standard set of terms and conditions at an early stage in the development of LNG bunkering we will be able to gain a solid foothold fairly quickly as the market develops,” says Mr Hunter. “But we can’t say how long it will take for that contract to be widely accepted by suppliers and buyers,” he adds.
Port states, too, will need to be involved, says Mr Hunter. “Just as they regulate suppliers of conventional marine fuel oil under Marpol, they should also regulate LNG suppliers,” he says.