How to beat chicken and egg in LNG bunkering

Just imagine it’s Christmas but nobody is there. That’s a bit of what LNG for bunkering feels like. It has it all: LNG is cleaner than anything else cutting some cheese with the environmentalists, it’s cheaper than diesel which must make sense to the shippers, and when you put the cost of scrubbing in it even beats Heavy fuels hands down. It’s cool and hip and a safe, tried and tested solution for propelling ships.

And yet it is not the party you might want to think it becomes. Why is that?

For a start – shipping companies can hardly be described as an innovative and risk-happy bunch. They usually are found on the very conservative side of life so their readiness for anything new is paper thin at the very best. So, it all comes down to the personal attitudes of the players you might be tempted to say.

Not so quick. No matter how risk-happy you are – will you happily jump for a new fuel while you are not even sure that your vessels will be able to fuel up always, and reliably so. OK, we get closer. My vessel is here and here I can fuel because yadda, yadda but tomorrow my vessel will be there and how shall I fuel there because yadda, yadda?

That’s what we call the chicken and egg dilemma. Who will be first – the chicken – in our case the fuelling infrastructure AKA bunker stations and logistics? Or shall it be the customers who convert their vessel first to provide a nice, chummy market the infrastructure operators can feast on?

Depending on who bites the bullet, he carries a huge risk. Imagine you invest in infrastructure and then the market does not follow suit. You will have spent yourself out of this world and now everything goes mush. Same thing on the other side as you have bought a lot of expensive new vehicles or vessels and now you cannot use them as fuelling is not available.

OK, now we understand the problem. How do we solve it?

Baby step by little baby step as mobster Paul Viti was told when he submitted to a shrinks service. Sounds simple, isn’t it?

Big bangs don’t work (at least in the economy) so there simply won’t be fuelling infrastructure for everyone from day one. One always needs to start with those who have at least part of their fleet on a very tight leash.

What does this mean now? We talk about vessels that have a pre-determined chore to accomplish for their entire lifetime. Hence, you know exactly when the vessel is going to be where on the globe doing what at the moment when you decide to buy it.

Plenty of RoPAX and RoRo ferries, as well as container feeders, meet these criteria. They often serve one single route only and steer away from it only for maintenance. If you have LNG bunkering infrastructure in place at each end of the route, the problem is solved for this particular vessel. But those two points are usually called by a lot of service vessels that essentially either never leave port or stay very close to it such as tugs, power barges, or police boats.

They can tie into the now-existing LNG hotspot (just thought that to be a cool name) and get their fill if they buy new vessels running on LNG. See how it works? And that’s exactly what comes to happen in those places that do develop LNG fueling infrastructure now.

In some places, it feels safe to start going without safe eggs in place. Rotterdam is just such a place as there is a big LNG terminal (that has been paid for by other businesses) and a lot of shipping traffic ready to convert a small portion of it to LNG. A small portion of Rotterdam’s traffic is still an enticing business plan for entrepreneurs. And the investment needed is limited.

In the end, all you need is a little jetty for bunkering and possibly a bunkering vessel but I would count that as a luxury in the beginning. Imagine a ferry service that runs between a city like Rotterdam and some other place in the region. It would just have to make sure that the vessel has enough fuel on board to make the trip from Rotterdam to its destination and back and something on top for safety. As you know there will always be fuel in Rotterdam and as the vessel does not stray from its plow line, you are safe. Even if no other place on earth offered LNG as a fuel for vessels, you would be good.

OK, it’s not that simple. You need also a supplier who is willing and able to give you assurances that you will get the LNG every time you show up and you also need price security but that can be dealt with. Even if the terminal runs at low capacity, vessels usually don’t need tens of thousands of tons of LNG at every refueling, especially not those smaller ones. It’s a very small volume that is needed at any given time which could even be served out of the heel of the terminal in case of extreme emergency. And mechanisms for dealing with commercial uncertainty can sure be dreamt up – I will probably step forward with a post on my blog on this very topic sometime. It’s on my list now – you have been warned.

Something else before I forget – I just picked Rotterdam as an example. This would be equally true for any other place with a harbor and a base load terminal in place.

When in the Seventies, diesel was introduced as a fuel for heavy vehicles in Austria, it also started with those vehicles running on predictable routes and then slowly moved into all other areas of transport.

A few points with heavy traffic would already suffice to kick start LNG as fuel for those who don’t stray from the beaten path. Then it’s in place and others can take their chances. Slowly, a network starts to spring up. Bunker vessels will bring the fuel to places nearby for those who are not able to come to the jetty and also to use scarce jetty space a little better for bigger lumps of LNG. Satellite terminals would emerge and spread the network further, gradually extending the reach of the infrastructure. That’s how a region slowly goes LNG but just imagine two or three regions on Earth doing the same thing at a time.

Just imagine it happened in North Western Europe with Rotterdam as the seed, in North Eastern US with Boston as the seed, and on the Yellow Sea with one of the terminals there acting as the seeder. Throw in something at the US West Coast and all of a sudden, a global LNG fuelling network springs up. I’m sure it’s going to happen in other places as well and it will be financed all from catering to local plow runs. Then it’s just there and long-distance shipping could slowly start making the transition. I am sure that some long-distance operators have pretty inflexible routes for some of their vessels. They could take a chance which would not feel so scary to them anymore – did I tell you that the shipping folks are pretty conservative? Oh, I did.

No Master plan is needed, and no colossal upfront investment is needed. It’s enough to use much of the existing stuff and pimp it up. We are talking about millions to kick it off, not billions.  Earth-shaking changes don’t happen in a rush and they cannot be forced. The time for LNG as a fuel in shipping is here. Some smart regulations and a couple of entrepreneurs willing to take very limited risks will be all it takes. There are no two ways about it.

Let’s scrap all those big plans and get some small stuff working on some limited routes. Regulation like the new ECA and SECA reinforced rules coming into force in NW-Europe will just put water on the mill and might also provide the spark jumpstarting it all but it’s always from little, limited baby steps to build momentum.

When the time has come, the wave will swell out of control and suddenly there is a market which some will build their entire business line around. When it comes – it comes real thick.