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LNG market expansion increases the pressure to perform

Posted: April 12, 2011

LNG market expansion increases the pressure to perform

Like so many other shipping sectors, the dynamics of the global LNG industry saw significant changes in the last year. In the past, LNG has typically been transported between the same production and importation terminals for the life of the supply contract, averaging 20 years. However, increasing quantities of LNG are now being supplied into the spot market on short-term contracts – often securing premiums above the typical market price. The tragic situation in Japan is an example of how the LNG spot market is able to instantly respond to an unexpected demand, where a large percentage of the lost power generation is being made up with significant increased importation of LNG.

In addition the market came under pressure to expand and with the DNV’s recent study which concluded that LNG was the most efficient and economical method for operators to meet the air emissions requirements in the North American ECA this pressure looks set to intensify this year in the run up to the ECA’s enforcement in August 2012.

DNV’s study shows that despite adding $3.6 million to the cost of a typical domestic cargo-ship, LNG as a marine fuel saves $12m over 20 years compared to the use of scrubbers or low-sulphur fuel. It is therefore no surprise that the LNG sector has continued to grow with new production plants coming online, terminals being built and vessels coming into service – belying market trends in other commodities. The LNG market is high cost but delivers high value and the hardware involved represents a significant asset.

For example, an exportation LNG terminal that costs $3bn to build, with a ship alongside valued at $250m discharging a cargo of LNG valued at $20million carries significant financial risk as well as the safety, security, environmental risks associated with the LNG product. The LNG market exemplifies the importance of effectively protecting a vessel when it arrives at a terminal and unloads its cargo.

It is those at the coalface that are relied upon to implement and facilitate the processes to the best of their ability, bearing in mind not only the safety of the operation itself but also regulations and codes such as the International Gas Carrier (IGC) Code, classification society rules and the security and profitability of the whole organisation. LNG is a relatively new sector that is growing swiftly and as new regulation comes into force and the industry it creates grows, so too does the requirement for professionally trained, qualified personnel.

Increasing both practical and commercial understanding will support the promotion of best practice, improve safety and security, and generate efficiencies. Liquefied Natural Gas Training is recommended. The intricacies of the gas, oil and chemical markets are complicated and often challenging to understand – LNG especially – yet it is vital that shore-side personnel and staff in ship management offices, as well as seafarers, are properly trained – they too have a key role to play in upholding procedures and maintaining standards.

And maintaining standards is vital, for nearly 50 years prior to the 9/11 terrorist attacks, all discussions of risk in LNG transport focused on how to account for human errors. The major security issue considered in LNG infrastructure approval was accidental leakage from LNG storage and processing facilities. Residents of densely populated regions where LNG plants were planned expressed fears that gas could escape, and possibly ignite.

The risk is greatly exaggerated – LNG isn’t flammable by itself, so LNG tankers are not actually ‘sailing bombs’, as sometimes labelled. There have been a number of shipping incidents due to operational mistakes, bad weather and collisions, and to date no major LNG leakage has ever occurred. Even so the idea that terrorists could attack an LNG tanker or LNG Terminal must and is taken into account when mitigating risk. LNG terminals and tankers present particularly attractive targets, as LNG fires typically do not stop until all the gas is consumed.

Despite these risks LNG tankers have booked over 100 million sailing miles without a major accident – an enviable safety record by anyone’s standards. And to protect this achievement, and to minimise safety, security, environmental and financial risks, specialist training for all those involved in the business is fundamental; more-so as the market expands, looks to cite further terminals to meet demand and LNG’s reputation comes under scrutiny.

LNG training Courses have to be specifically designed to empower and equip employees with the knowledge and confidence to provide safe and secure terminal and jetty operations, reducing the physical, environmental and financial risk synonymous with modern shipping and onshore services.

To address this need, GAC Training & Service Solutions (GTSS) – a partnership between GAC and the National Maritime College of Ireland – has created a two-day course blending practical and commercial skills to enable LNG professionals to better understand the drivers within the industry and ultimately improve their ability to perform their role in the value chain, both onshore and shipside.

Designed to offer insight into the mechanics of the LNG world, the course includes the buying and selling of LNG, operational safety issues, types of transportation agreements, world markets, shipping and trading. This course focuses on practical measures from logistical issues to return on investment, helping all involved to truly understanding their place in the LNG chain.

The short storage time of the LNG product and, in turn, the importance of ensuring the safe passage of LNGCs through restricted waters puts a real emphasis of effective communication meaning that the ship/shore interface at any terminal must operate at the highest standards. Thus the GTSS course ensures that each person fully understands their role in the LNG chain and the roles of their colleagues, breaking down the working silos and lubricating communication within the LNG chain.

For example, understanding the value of time is key for anyone aligned with jetty operations. Delays and interruptions of loading or discharge not only bear a price tag, but also have knock on effects. These potential risks are amplified at this point in the supply chain because people with different skill sets are required to collaborate for a common goal, but are often restricted by their understanding of factors outside of their own role. Those onboard the ship have first hand practical knowledge and expertise but usually very little commercial experience. For example, the ship’s officers may not fully understand the contractual importance of issuing a note of protest about a shore side delay or problem.

Equally, office personnel directing cargos from A to B, chartering ships, handling insurance claims and the like can lack the practical understanding of their sea-faring colleagues. The vessel controller located somewhere in an office may not understand the root cause of a breakdown that has rendered the Notice of Readiness invalid. Working in these operational silos compromises the smooth running of the overall process; it exposes weaknesses that at best diminish efficiency and at worst threaten security, both of which have serious implications for the bottom line and in extreme circumstances the industry as a whole. In any case knowledge of both the commercial and operational implications of various scenarios enables more effective management of the consequences.

An organisation relies upon its employees to do the best job that they are able; to make the right decisions and to take appropriate action on the company’s behalf. With this expectation comes a responsibility to empower them to do so. In this regard specialist training for all those involved in the business is fundamental to promoting best practice and efficiency whilst minimising threats to safety, security and revenue.

DNV’s glowing appraisal of the safety of LNG alongside its environmental and practical suitability for use within the North American ECA looks set to put further pressure for expansion on a market which is already growing year-on-year, heralding the approach of a new world order for shipping. But to navigate this new world with safety and profitability, training must be recognised as an investment with the ability to effectively bridge the gap between ship and shore and ultimately a pro-active measure to ensure safety, revenue and reputation of the LNG sector as well as individual organisations.

Howard Candelet worked for BG Group for forty seven years, his last two positions in BG was, 7 years as Vice President of operations of Atlantic LNG of Trinidad and Tobago and then 7 years as Vice President BG Global LNG operations based in Houston. He developed and designed the LNG courses offered by GAC Training & Service Solutions’ (GTSS). GTSS aims to provide innovative and cost saving training solutions for the LNG and tanker markets, as well as other commodity and maritime sectors. To find out more about the LNG course or the other specialist courses provided by GTSS visit www.gac.com/gtss or email nmci@gac.com

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