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Riding high on the petroleum revolution

Nov 6, 2014 05:13 PM
Doing more offshore: Bravante IX is launched at Eastern Shipbuilding Group in Panama City, Fla.

Courtesy Eastern Shipbuilding Group

Doing more offshore: Bravante IX is launched at Eastern Shipbuilding Group in Panama City, Fla.

Propelled by surging domestic oil and gas production, the U.S. shipbuilding industry is in a position unthinkable during the doldrums of the recession. With order books brimming and liquefied natural gas ushering in a new age of shipping, whispers of overcapacity are being trumped by the sound of hulls hitting the water.

The newbuilds range from inland petroleum barges to the world’s first LNG-powered containership, under construction at the General Dynamics NASSCO yard in San Diego. In between is everything from Jones Act tankers to bigger and faster crew boats to shuttle oil and gas workers farther into the Gulf of Mexico.

“We’re in a really strong place delivering a lot of commercial vessels of all shapes and sizes, which is an important piece in understanding our industry,” said Matt Paxton, president of the Shipbuilders Council of America. “We’ve been doing this for a while now and we’ve had those years when it’s been ‘What’s the next market we’re going to be looking at?’ We’re not having those discussions right now.”

The chief reason is domestic petroleum. Production in the Gulf and in the shale fields of North Dakota and Texas has spiked demand for vessels to move the product and to service the fields. American shipbuilders have benefited, even where Jones Act provisions don’t apply.

For that, credit goes to innovation, Paxton said. He cited NASSCO’s Marlin-class newbuild for TOTE, which at 764 feet will be the largest LNG ship ever constructed, and specialization in the OSV market. Notable newbuilds in that sector include Harvey Energy, the first of six dual-fuel vessels for Harvey Gulf from the Gulf Coast Shipyard Group (see ASR’s profile).

“If you look inward, a fair amount of our shipyards are benchmarking themselves against Korean and other foreign yards,” Paxton said. “The fact of the matter is a lot of companies that work internationally in the (offshore) market didn’t need to build here. But they went around and looked and saw they could get a better vessel built here at a better price.”

Making headway with LNG 
TOTE’s announcement in 2012 that it had ordered two dual-fuel containerships was a watershed for the industry. It was followed by a flurry of moves by other operators to embrace LNG, either in conversions or newbuilds, for its environmental and economic benefits.

Bravante IX is the fifth PSV in a series from Eastern workers for Bravante Group of Brazil.

Brian Gauvin

“Based on the current forecasts, natural gas delivered for production of LNG in the U.S. is now more than 50 percent less expensive on an energy-equivalent basis than marine residual fuel and marine distillate fuel,” said William Doyle of the Federal Maritime Commission at the 2014 LNG Export & Infrastructure Conference. “It is projected that this relative price advantage will continue, and even increase, through 2035. This has opened up an opportunity for significant annual fuel cost savings when converting marine vessels that use petroleum fuel to natural gas operation.”

In February, NASSCO cut steel on the first of TOTE’s LNG containerships. The MAN-powered, 3,100-TEU carriers will service the Puerto Rico trade from their home port of Jacksonville, Fla. They are expected to begin service in late 2015 and early 2016.

TOTE is also converting its two Orca-class ro-ro vessels, Midnight Sun and North Star, to operate on LNG on their run between Tacoma, Wash., and Anchorage, Alaska. Wartsila is supplying the main engines, generators and integrated handling systems.

TOTE’s push for LNG was recognized in May by the Obama administration, which named company Chief Executive Anthony Chiarello as one of the transportation industry’s “Champions of Change.” Other U.S.-based operators putting LNG propulsion into practice include Crowley Maritime, Matson Navigation, Seabulk Tankers and American Petroleum Tankers, with BC Ferries and Societe des Traversiers du Quebec opting for dual-fuel passenger vessels in Canada (see the story on page 48).

In late 2013, Crowley ordered a pair of LNG-powered con-ro vessels — the world’s first — from VT Halter Marine. Wartsila and Jensen Maritime are working together on the design of the ships, which will service Puerto Rico from the U.S. mainland. For the Hawaii trade, Matson has contracted with Aker Philadelphia to build two dual-fuel 3,600-TEU containerships.

Crowley also announced a partnership with Aker Philadelphia to build up to eight Jones Act tankers designed to allow their conversion to LNG. The first four ships, with a contract price of $500 million, are scheduled for delivery in 2016 and 2017. In San Diego, NASSCO has contracts and options to build eight dual-fuel tankers for Seabulk and APT.

Not everyone in the maritime industry is bullish on LNG. Some say a lack of infrastructure for bunkering will stall the widespread construction of dual-fuel ships, at least for the foreseeable future. Without the ships, they say fuel companies will be reluctant to invest in the infrastructure — the classic “chicken or the egg” scenario.

Operators who are betting on LNG, however, are taking steps to facilitate the transition. In February, TOTE announced an agreement with Pivotal LNG and WesPac Midstream to develop a new LNG fueling facility in Jacksonville, Fla. During the same month, Harvey Gulf broke ground on a $25 million LNG depot in Port Fourchon, La., that will have 540,000 gallons of storage capacity. Waller Marine of Houston is also planning to build an LNG facility in the Port of Greater Baton Rouge.

The 427-foot Cecon Pride, delivered by Quebec’s Davie Shipyard in August 2014, is the largest ship built in Canada in 25 years. The subsea construction vessel is the first of three for Norway’s Cecon ASA.

Courtesy Chantier Davie Canada

While Harvey Gulf is taking the lead on LNG-powered OSVs in North America, others in the sector are taking a wait-and-see approach. Shipyard officials along the Gulf Coast cite the need to sacrifice space — and thus cargo — when installing a dual-fuel system, something that many offshore operators are unwilling to do.

“Customers are looking for capacity, and they’re going to lose capacity (with LNG propulsion),” said Robert Socha, executive vice president of marketing and sales for Bollinger Shipyards in Amelia, La. “It’s still developing.”

“LNG drives the cost up and you have to make the boat bigger to handle the cargo,” said Walter Thomassie, managing director at Thoma-Sea Marine Constructors in Lockport, La. “There just hasn’t been a huge push in our sector to chase it hard. It’s a great idea regarding emissions, but who pays for it?”

The elephant in the room 
A tour of Gulf Coast shipyards last summer provided firsthand proof that the domestic energy sector is floating a lot of new boats. Most yards are working with contracts in hand and not on speculation, a difference from years past when lean times drove some builders to take risks that didn’t pay off. For Paxton of the SCA, it shows that lessons have been learned.

“People are very focused on what the market needs and a lot of these guys are building with fixed contracts for multiple years, building for (operators) who are going to put these boats to work,” he said. “On the Gulf Coast there’s a lot of work, close to 3,800 offshore platforms. That’s a market that people understand fairly well. If you want to start talking about inland barges, I would say the same goes there too because they’re meeting the demands of the new energy sector. What we’re building for is what the market curve is telling us is needed.”

What happens beyond the next two or three years — when many of the current order books run their course — is open to debate. Will overcapacity, the elephant in the room, rear its head again?

Tim Clerc, manager of engineering for Houston-based Seacor Marine, raised the possibility during a June visit to Master Boat Builders in Bayou La Batre, Ala. Seacor currently has an order for six 201-foot OSVs from the yard, three of which had been delivered by July.

“(The offshore sector) is rapidly becoming overbuilt,” Clerc said. “I think most people are worried about overcapacity. A lot of vessels are being delivered here in the U.S. and overseas as well. We’re not scrapping enough — that’s always been the case offshore. We’re seeing a lot of rigs being built, a lot of jack-ups. Whether they have homes to go to remains to be seen. I don’t think they all have homes.”

Thomassie said while there was some concern among shipbuilders about overcapacity — “straight OSVs have obviously cooled some” — he didn’t think it was going to happen.

Marjorie C, a 692-foot con-ro built for Pasha Hawaii, is launched in August at VT Halter Marine in Pascagoula, Miss. At more than 25,000 metric tons, it is the largest ship ever produced by the yard.

Courtesy VT Halter Marine

“Everybody knows what everybody is delivering, so there is caution and I think there will be a little cool-down,” he said. “But right now every boat that is going out is going straight to a job.”

Working in favor of U.S. shipbuilders is the fact that Petroleos Mexicanos (Pemex), Mexico’s state-owned petroleum company, is opening the country’s offshore oil fields to private investment. Bloomberg News reported in August that Pemex Chief Executive Emilio Lozoya is seeking to establish 10 joint ventures in mature, onshore and offshore areas by December 2015.

“The (oil) majors are interested mostly in investing in the deep waters in the Gulf of Mexico,” Lozoya said. “We do not necessarily have the expertise to develop those projects and bring them into production in a relatively quick period of time.”

The result could be more business for American shipyards that already have experience in the Gulf. “We’re building those vessels and we just know how to do it,” Paxton said.

Finding a niche
As the energy sector continues to evolve, so must the boats that service it. With offshore operations growing more complex, opportunities are being created for shipbuilders that can adapt to the changes through specialization.

At Bordelon Marine Shipbuilders in Houma, La., that means building more multipurpose supply vessels (MPSVs) like the 257-foot Connor Bordelon, ASR’s Ship of the Year in 2014. Connor, serving as a well-stimulation vessel for Baker Hughes, will be followed out of the Houma yard by Shelia Bordelon and Brandon Bordelon.

“Traditional subsea work has been done by larger vessels,” said Wes Bordelon, president of Bordelon Marine. “We think that with the development of subsea infrastructure there is going to be more room for smaller vessels for specific jobs — using the right tool for the job instead of a hammer. It’s more efficient and cost-effective.”

The demand for more precision offshore has also led a new generation of supply boats classed DP-2 or even DP-3, with DP-1 “really a thinking man’s autopilot now,” said Clerc of Seacor Marine. When it comes to safety, FiFi-1 has become a big selling point in the wake of the Deepwater Horizon disaster in 2010.

Gemi, shown at Bollinger Marine Fabricators in Amelia, La., is one of seven OSVs in the Bee Mar fleet acquired by Edison Chouest Offshore.

Brian Gauvin

To stay ahead of the boom-and-bust cycles in the oil and gas industry, many yards have found it wise to specialize in diversification. Among those casting a wide net last year was Eastern Shipbuilding Group of Panama City, Fla., which launched vessels ranging from OSVs (the Bravante series and HOSMAX boats for Hornbeck Offshore Services) to towboats (for Florida Marine Transporters) to a replica fishing schooner (the 141-foot Columbia). In February, Eastern was named a Phase I finalist to design the U.S. Coast Guard’s new offshore patrol cutter (OPC).

Diversification is also keeping many smaller shipbuilders busy. In June, Geo Shipyard in New Iberia, La., was working on a pair of research catamarans, but it has also produced pilot boats, passenger boats and even a towboat over the years.

“We have a niche in research vessels, but the next guy who calls me for a big passenger boat, I’ll build it,” said Geo Vice President David LeCompte. “We’re survivalists.”

Reflecting the U.S. shipbuilding industry as a whole, the torches are hot at Geo and the outlook is favorable.

“The future seems good,” LeCompte said. “We’re getting a lot of phone calls.”

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