As part of preparations for the opening of its new enlarged lock system in early 2015, the Panama Canal Authority (PCA) has become very interested in a class of ship that has not as yet figured in the waterway’s traffic figures. These are the large gas carriers – LNG ships – and the very large gas carrier (VLGC) segment of the LPG fleet.
The 32-metre limit on the breadth of ships that can transit the existing Panama locks has precluded passage to virtually the entire LNGC and VLGC fleets. All but a handful of vessels in the 375-strong LNG carrier fleet have capacities in excess of 125,000 m3 and beams greater than 32 metres. The exceptions are some coastal tankers serving regional markets and a few 75,000 m3 ships designed for Mediterranean trading.
VLGCs are LPG carriers of 75,000-85,000 m3 in size and there are currently approximately 150 such vessels in service. Theoretically, some of the smaller ships in this segment could squeeze through the existing locks but under the global trade patterns that have prevailed until recently VLGCs have had little need to make a Canal transit.
The opening of the larger and more efficient locks coincides with developments to exploit the shale gas resources of the US. Shale gas has intensified the PCA focus on gas carriers because shale gas is poised to give rise to a surge in gas carrier traffic. Asian buyers are keen to purchase the volumes of LNG and LPG about to be processed for export at plants along the US Gulf Coast and large gas carriers directed through the Canal will enable them to realise the benefits of economies of scale and reduced voyage lengths.
Panama decided to launch the construction of its enlarged lock system in 2006. Shortly afterwards it became apparent that the US was not going to need the large number of Worldscale LNG import terminals being built on the Texas and Louisiana coasts. So great was the success being achieved with the new hydraulic fracturing (fracking) technique in releasing gas and oil from shale formations that the US energy industry needed to adopt a new mind-set. Not only was the previous dependency on imports going to be obliterated, but also production was set to be robust enough to allow significant export volumes.
Owners of idle US LNG import terminals came up with the idea of constructing liquefaction plants at their facilities to give them a bi-directional capability. Over 20 US LNG export projects have now been proposed. One of the major hurdles standing in the way of project success is gaining approval for exports to the global marketplace. To date, four of the schemes have cleared this obstacle, having been given permission by the Department of Energy to export LNG to those countries with which the US does not have a free trade agreement.
These four projects alone, if realised to the full extent proposed, would enable the US to be exporting LNG at the rate of 50 million tonnes per annum (mta) later in the decade. At the moment only one country exports that much LNG, and that is Qatar with 77 mta. Malaysia, the second largest exporter, only manages 24 mta.
There has been no shortage of buyers interested in the US potential. Much of the planned output from the four approved US export projects has already been booked through sale and purchase agreements. The remainder has been provisionally secured through memorandums of understanding. Virtually all the output has been lined up for sale to utilities and energy companies in Asia, including India.
US shale oil and gas is rich in natural gas liquids (NGLs) and this is giving rise to a surfeit of LPG in the Gulf region. Once the ethane fraction has been stripped out of the NGLs for use as a petrochemical feedstock, there is not much that can be done with the remaining propane other than export it. This is where the VLGCs come in.
Shipments of US LPG to overseas destinations have been rising dramatically over the past two years. The surge quickly wiped out a deficit and the country became a net exporter in 2011 for the first time in a decade. To date most of the cargoes have been sold in Latin America and, to a lesser extent, Europe. US LPG export volumes reached the 6 mta level in 2012 and are expected to climb to 14 mta in 2015.
Chinese petrochemical manufacturers have set their sights on growing US LPG production, announcing their intention of purchasing VLGC cargoes of propane as feedstock for the many Worldscale propane dehydrogenation (PDH) plants they are building at home. The PDH facilities will transform the propane into propylene for use in manufacture of plastics.
The opening of the enlarged Panama Canal has come at just the right time for Chinese chemical companies, as it has for the Asian buyers of the LNG due to start flowing from the new US liquefaction plants over the next few years.
Bearing in mind the expected use of the waterway by large gas carriers in the years ahead, and the fact that experience of such vessel transits is non-existent, the PCA has been reviewing its gas shipping rulebook. In a collaborative effort, the gas shipping industry itself, through the Society of Gas Tanker and Terminal Operators (SIGTTO), is assessing all existing PCA regulations and industry guidelines that may be relevant to clarify their applicability to gas carriers.
The new maximum ship beam that can be accommodated in the enlarged locks is 49 metres. All VLGCs and about 80% of LNG ships have smaller breadths. The only LNG carriers that have been identified as unable to transit the new locks due to their size are the 31 Q-flex ships of 216,000 m3 and the 14 Q-max ships of 266,000 m3.
In fact the Q-flex beam is close to the threshold value and there is a chance that, following a review of the new locks in their early months of operation, some of the Q-flex ships may be allowed trial transits to assess the viability of their safe passage. In the meantime a popular size amongst the raft of new LNG carrier orders placed this year is the Pacificmax option of 170-182,000 m3, able to transit the Canal and maximise trans-Pacific loadings.
A review of the Canal rules applicable to gas tankers by both PCA and SIGTTO is also timely due to the fact that a number of new ship design features have been introduced in recent years, particularly for LNG ships. Compared to the previous generation of conventional LNG carriers, the new breed comes in a wide variety of propulsion system options while cargo and fuel-handling systems are more sophisticated, not least to accommodate the reduced cargo boil-off gas and fuel consumption rates achieved by the new ships.
Even the old steam turbine-powered LNG carriers constitute a new customer group for the Canal. As pilots will tell you, the manoeuvring of steam turbine vessels requires a particular understanding of their seakeeping and propulsion system behaviours. The full mission simulator that PCA maintains to assist in the training of pilots in Canal transits will be of assistance in learning how best to handle LNG carriers of differing propulsion system types.
SIGTTO is developing a new publication for its members as a result of its review of the Panama Canal rules and its collaboration with PCA. The document will include sample transit plans, explanations of the critical and abort points and data on pilotage, tugs and visibility requirements. This information, which SIGTTO hopes to publish in mid-2014, will help operators of LNG carriers draw up transit plans and carry out risk assessments prior to a passage through the waterway.
Exciting times lay ahead for both the Panama Canal and operators of large gas carriers. Their paths are about to intersect for the first time and the relationship is poised to develop into one that is sturdy and long-lasting. The ability to shave 7,000 miles off a 16,000-mile journey in the delivery of competitively priced fuel and petrochemical feedstock will be a key driver in forging a strong relationship.
Editor's Note: Mike Corkhill is a technical journalist and consultant specialising in oil, gas and chemical transport, including tanker shipping and chemical logistics. A qualified Naval Architect, he has written books on LNG, LPG, chemical and product tankers and is currently the Editor of LNG World Shipping.
Source: BIMCO