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LNG trans-ocean export outlook may provide boost to U.S. shipyards

Jul 30, 2015 12:32 PM

The revolution in U.S. energy production has led to congressional action to speed the approval of export facilities for liquefied natural gas (LNG), pointing the way to potential gains for a downstream sector: American shipbuilding.

The shale fracking boom has the United States on track to become a net exporter of natural gas by 2018, according to the U.S. Energy Information Administration (EIA). The nation is projected to become the world’s third-largest exporter of LNG by 2020, behind global leader Australia and Qatar. 

According to EIA data, the U.S. currently exports LNG by ship only to Japan. A much smaller amount is re-exported to Brazil — the LNG is imported to the U.S., offloaded into above-ground storage tanks, and then reloaded onto tankers for delivery. Small amounts are exported by truck to Canada and Mexico.

To export domestically produced LNG to countries that do not have a free-trade agreement with the United States, project applications must be approved by the Department of Energy (DOE). As of May 13, the department had approved 10 of the 43 applications it has received in the past five years. 

The pace has proven to be too slow for many lawmakers, prompting the U.S. House to pass a bill in January to expedite the process. The LNG Permitting Certainty and Transparency Act, now being considered by the Senate, would require a DOE decision on an application within 45 days of the completion of the environmental review of a project. The process also would be streamlined under the Trans-Pacific Partnership, an extensive trade agreement being negotiated by the U.S. and 11 other nations.

With the prospect of more domestic LNG flowing soon for export, supporters of American shipbuilding see an opportunity to make sure it happens aboard U.S.-built, U.S.-flagged vessels. One of the most vocal proponents has been Rep. John Garamendi, D-Calif., ranking member of the House Committee on Transportation and Infrastructure’s Subcommittee on the Coast Guard and Maritime Transportation.

Garamendi foresees U.S. shipbuilders benefiting from both the coastwise and trans-ocean trade of domestic LNG as the export market expands. Despite the stance by Sen. John McCain, R-Ariz., and other lawmakers who would like to see the Jones Act abolished, Garamendi says progress is being made in the Senate toward provisions that could ultimately boost American shipyards.

“It will take a little support, a little prodding and pushing, but there is going to be LNG shipping within the Jones Act domain — the Caribbean, Virgin Islands, Puerto Rico, to Hawaii on the West Coast and quite possibly even up the East Coast,” Garamendi told Professional Mariner. “It will probably be done first on smaller ships or by barge. Some of it is already taking place in barge containers. That will probably open the door and from there we’ll move into trans-ocean shipping.”

Garamendi said the push to require trans-ocean LNG to move on U.S.-built vessels would be based solely on national security interests.

“We’ll keep the Jones Act separate,” he said. “I want to be very clear about that. We don’t want to jeopardize the Jones Act. We want two very separate (legislative) processes, one Jones Act and one trans-ocean.”

The stakes are high for U.S. shipbuilders. Garamendi said officials from Texas-based Cheniere, which received federal approval on May 13 to export LNG from its plant in Corpus Christi, recently told him they would need a minimum of 100 ships when the facility is at full capacity. 

“Now it will be four or five years before they get to full capacity, but that’s 100 ships right there for that one facility,” he said. “There are five, possibly six other facilities that are being permitted, clearly not as far along as Cheniere and smaller, but in total they would be bigger — much bigger. So we’re talking well over 200 tankers that will be needed in the next 10 to 20 years.”

If and when the demand comes, U.S. shipyards will be able to handle it despite the fact that they haven’t built an LNG carrier in decades, said Matt Paxton, president of the Shipbuilders Council of America. In the interim, there are three U.S.-built LNG carriers operating under foreign flag that could be waived back into Jones Act compliance.

“We built those in the 1980s, which I think is the last time we delivered one, when there was an LNG market we were building for,” Paxton said. “Obviously that hasn’t been the case for a great deal of time now, but commercial shipyards in the United States build for the markets that are there. We meet the demands. We’re meeting demands in this energy renaissance and building new (oil) tanker tonnage for that market.”

Paxton said any proposal requiring LNG exports to move on U.S.-built ships would face legislative and political challenges. If those are overcome, American shipyards will face technical challenges constructing new LNG carriers, “but we could do it and I know we could do it effectively,” he said.

“As a trade association, we want to be able to provide the technical answers on how we can do it, is there capacity to do it, and I think we’ve always answered in the affirmative that our shipyards can reconfigure and realign,” Paxton said.

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