Sunday, August 12, 2012

TOTE will convert to LNG in deal with EPA on emissions

Tim Bradner
Alaska Journal of Commerce

The M/V Midnight Sun serving Anchorage and owned by Totem Ocean Trailer Express is seen at the Port of Tacoma. TOTE will be filling its ships with LNG in Tacoma within four years under a deal signed with the EPA.

Totem Ocean Trailer Express Inc., or TOTE, will convert its two large ocean cargo vessels to use liquefied natural instead of conventional bunker fuel, the first such conversion for large general cargo vessels in the U.S. maritime industry.

Liquefied natural gas tankers, such as those that call at ConocoPhillips’ LNG plant at Kenai, have used LNG as fuel for years but general cargo and other marine vessels have been fueled by conventional bunker fuel and diesel.

TOTE’s decision is part of an agreement with the U.S. Environmental Protection Agency on a waiver for TOTE from new emissions requirements that went into effect Aug. 1.

The waiver will exempt TOTE from the requirements until September 2016, to allow the conversion of the company’s two Orca-class cargo vessels, TOTE president John Parrott said Aug. 6.

TOTE operates the vessels on scheduled service from Tacoma, Wash., to Anchorage, a distance of 1,400 miles each way and 2,800 miles round-trip. They are both 840 feet in length. The ships will be able to carry enough LNG in on-board tanks to make a round-trip from Tacoma, Parrott said.

“Our two vessels are already the ‘greenest’ ships in the U.S. domestic fleet,” Parrott said in separate statement. “When they were delivered in 2003 they were purpose-built to serve the Alaska market and exceeded all regulatory and environmental standards. Post-LNG conversion, the Orca vessels will again set a new standard for environmental responsibility.”

EPA imposed the new rules requiring use of low-sulfur fuels effective Aug. 1 on ocean shippers and cruise ships in an Emissions Control Area that extends from the U.S. west coast to Alaska and 200 miles offshore. The requirement is for vessels to use fuel with no more than 1 percent sulfur as of Aug. 1, and 0.1 percent sulfur after 2015.

Parrott said the estimated capital cost of for conversion of both vessels is $80 million. Each vessel has six engines, four main engines and two auxiliary engines.

TOTE has signed a preliminary agreement with an LNG supplier but Parrott said he could not identify the firm at this time. The plan calls for a small gas liquefaction plant at the Tacoma port, and for the LNG to be delivered to the ships by barge.

“The shoreside LNG infrastructure planned to support the new fuel systems will help other transportation industries in Puget Sound follow TOTE in converting to LNG. This could result in a significant increase in air quality throughout the Puget Sound region,” Parrott said.

Parrott said the use of LNG as fuel will not affect the operations of the ships, including their speed and schedules to and from Alaska. The vessels are rated to cruise at a 24-knot speed but typically operate at about 22 knots on average.

TOTE currently uses a heavy high-sulfur fuel in its two vessels. Prior to the LNG agreement the company had planned to use a blend of its heavy oil with ultra-low sulfur diesel made by refiners for trucks and heavy equipment onshore to meet the requirements.

The blending would have required special handling by fuel suppliers and would have added about 25 percent to fuel costs, Parrott said in a previous interview. That would have translated to about an 8 percent increase in general freight rates.

Parrott could not estimate how the capital cost of the LNG conversions could affect rates because capital costs are handled differently than operating cost increases, such as those for the higher fuel costs had the special fuels been required.

It cannot be assumed that a capital cost will increase rates, Parrott said. As an example, when TOTE made the $320 million investment in the two new ships there was no significant change in rates, he said.

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