Markets: Stars In Alignment and Still CNG Team Can't Get a Break

Vessel costs have dived and interest is high but no one wants to be first

Could the time finally be right for the world's first marine compressed natural gas project to become a reality?

More than a decade since this alternative gas-shipping concept was first mooted and after numerous false starts there was cautious optimism in the air at a marine CNG conference in London this week.

The fact that steel prices have fallen and shipyards are hungry for work should be music to the ears of CNG proponents given that about three quarters of a project's costs relate to the vessels carrying the gas.

Low gas prices should also be working in favour of CNG players, and potential buyers, because of the bigger price differential relative to the high-priced fuels they would replace.

There is "unprecedented" interest in CNG, Graham Hartnell, manager of LNG and gas consulting at Poten & Partners, told attendees at the IBC Energy conference.

It is unclear, however, how long this perceived window of opportunity will last, some say maybe 12 to 24 months, and if there is any project that is sufficiently advanced to take advantage of the fair winds.

Potential developments are being worked on at a regional level in the Caribbean (Colombia to Jamaica) and Mediterranean (Egypt to Greece) basins as well as South-east Asia (Vietnam) although details are scant.

The key CNG technology proponents - EnerSea Transport, Sea NG, TransCNG International, Knutsen OAS Shipping, Trans Ocean Gas and Ce Tech - are ready to push ahead with construction of vessels because their containment systems have been substantially approved by the relevant classification societies.

So why do there continue to be delays if the technological challenge has been cracked and commodity, material and yard prices are low?

Hartnell said financing and commercial structures are now the two key issues that remain to be resolved.

Banks are working to stricter criteria and are lending less for bigger returns while the gas resources earmarked for CNG are usually controlled by smaller operators, not the supermajors or independents, which themselves have run into financial difficulties. Also, the CNG technology developer is stuck between the gas resource holder and gas purchaser, with little influence over either side, even though its profit margin will depend on the commercial deal eventually agreed between the two parties.

Until there is alignment between the gas buyers and sellers on the one hand and the CNG transporters on the other, projects will not go ahead.

Among other potential roadblocks, David Stenning, president and chief operating officer of Sea NG, highlighted geopolitical issues such as gas export restrictions when it comes to inter-country projects.

Hartnell also suggested possible competition could emerge from floating liquefaction schemes that may be downsized to target smaller fields that are a natural fit for CNG.

Many observers also commented that another reason marine CNG projects have moved so slowly is the inherently conservative cultures of both the shipping and offshore oil and gas sectors.

Few want to be the first to launch a marine CNG scheme, quipped one conference-goer, but "we've got a huge number of customers who want to be second".