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Canada Marine LNG Seen as Cure for Languishing Mega-Projects

Canadian producers can break into liquefied natural gas (LNG) without waiting for stalled multibillion-dollar overseas export projects by fueling vessels instead of filling tankers, according to government- and industry-sponsored research.

Potential marine engine demand for up to 2.4 million metric tons/year (mmty) or 122 Bcf, of LNG as of 2025 has been identified by two studies of ships on Canada’s Atlantic and Pacific coasts and the Great Lakes. The research includes 33 agencies and companies, led by the federal transport department and the Ottawa-based Canadian Natural Gas Vehicle Alliance.

The team’s practical “medium” estimates of most likely Canadian LNG ship fuel demand foresee 298 vessels burning 1.35 mmty, or 67 Bcf: 783,000 tons (39 Bcf) in the Atlantic and Great Lakes, and 570,000 tons (28 Bcf) on the British Columbia coast.

“Realistic adoption rate scenarios indicate that marine use of LNG could lead to significant demand creation,” according to the report, “Liquefied Natural Gas: A Marine Fuel for the Great Lakes and Canada’s East Coast,” which was circulated this week. West coast results of the four-year research effort were released earlier.

The marine shipping industry increasingly has gained supporters to use LNG to fuel oceangoing vessels worldwide as technology gets better. Smaller-scale LNG projects have grown in popularity across Canada as mega-projects are sidelined.

“The early demand for LNG will come from ferries and other coastal traffic, but this will build quite rapidly to encompass other vessel types and a significant demand volume,” Canadian researchers said.

“Natural gas use as a marine fuel will provide significant economic benefits to the owners and operators of vessels, especially coastal vessels. Of nine case study vessels, five had a payback on initial investment of approximately four years or less. The high end of the spectrum had paybacks in the nine- to 12-year range.”

In Canadian waters, carbon and particle emissions regulation and taxation stand out as drivers of ship fuel conversions.

“Natural gas is a clean energy option that offers a means of reducing emissions to meet current and pending environmental regulations and this is potentially a major factor,” said the research team.

“The price for natural gas in Canada is one of the lowest in the world. By comparison, the price for marine fuel oil is one of the highest globally. The low pricing for natural gas applies even when the additional costs of natural gas liquefaction, compression and distribution to generate LNG are taken into account.”

On current markets the estimated before-tax cost of LNG marine fuel, C$10.35/gigajoule (GJ) or $8.15/MMBtu, exceeds fuel oil at C$9.33/GJ ($7.35/MMBtu). But LNG is a bargain compared to C$18.39/GJ ($14.48/MMBtu) for ultralow-sulphur diesel that has been required since 2012 for small- and medium-sized vessels in Canadian waters.

Natural gas marine fuel cures multiple environmental headaches, the Canadian study team reported. The research said LNG made by plants using hydroelectric power for freezer processes cuts emissions of greenhouse by 22-32%. The substitute for oil fuel products also cuts emissions of sulphur oxides by 99%, nitrogen oxides by 23% or more and particulate matter by at least 86%.

As an added bonus LNG largely eliminates the highest profile black eyes and liabilities of marine transportation.

“LNG spills are more environmentally benign” than heavy fuel oil or diesel oil spills, said the report. “LNG vaporizes after release, becomes lighter than air and thus disperses rapidly. As a result, spills do not require cleanup.”

The study results include an array of recommendations for encouraging marine vessel conversions, from clarified fuel handling rules to crew training. After participating in the research, federal and provincial authorities continue to work on regulatory standards.

“The biggest barriers for the use of natural gas as a marine fuel are its unfamiliarity and the need to create some or all aspects of the fuel supply chain on Canada’s Great Lakes and East Coast as well as in other areas of the world,” said researchers.

Beginnings of LNG marine conversions are underway in Canadian waters.

In the east, distributor Gaz Metropolitain and provincial government agency Investissement Quebec this spring completed a C$120 million ($90 million) project that tripled Port of Montreal LNG fuel supplies to about 9 Bcf/year. Merchant marine conglomerate Groupe Desgagnés launched an LNG-fueled, 135-meter (440-foot) oil, asphalt and chemical tanker, the Damia Desgagnés.

In the west, distributor FortisBC plans to start operating this summer a C$400 million ($300 million), seven-fold capacity increase at its Vancouver-area Tilbury LNG terminal to 37 MMcf/d, supported by nearly tripled storage for 1.6 Bcf.

B.C. Ferries, a provincial commuter and tourism mainstay service, is acquiring a new class of dual-fuel vessels capable of using natural gas or ultra-low sulphur diesel. California-based Wespac Midstream is proposing facilities that would expand the FortisBC site into a regional marine bunkering hub.

“Clean” fuel conversions for water transport have potential to spawn growth markets for natural gas on land, the study group predicted. The research report described marine uses as a gateway to “establishment of an LNG supply chain that can be used in other applications such as trucking, rail and off-grid power generation.”

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