By Alex Binkley

The growing need for green marine fuels and Canada’s supply of clean burning LNG could provide Canadian shipyards and ports with vibrant future roles, says Andrew Kendrick, Vice-President of Operations with Vard Marine Inc.

“Canada is an extremely logical place to take the lead in marine LNG systems,” he told a shipbuilding technology forum in Ottawa organized by the Shipbuilding Association of Canada (SAC). “It could create a valuable niche for Canadian shipyards working as a hub for converting ships to LNG propulsion. That could also bring in a lot of repair work at the same time.”

Canadian shipyards aren’t currently internationally competitive in many kinds of shipbuilding, but LNG offers the opportunity for technological development, he added.

There are many business opportunities in the LNG supply chain, he continued. The way ahead involves getting all the stakeholders together to raise awareness of the fuel’s potential and the issues to deal with. “We are working with Transport Canada on the approval process for LNG transportation issues.” The fuel could also be used by the railways, truckers and motorists.

The theme of the conference was investing in emerging technologies to build Canada’s role in shipbuilding. SAC President Peter Cairns said the conference was organized to hopefully become an annual event that raises awareness of the new technologies that are available for shipbuilding and repair. “We want to see Canadian technology in ships and convince the government to support it. We should use the best Canadian technology we can find. We’re not a big industry in global terms but we can hold our own.” The federal National Ship Procurement Strategy is an opportunity to “show our equipment and technology to the world,” he added. “We make first class equipment and we should be able to sell it. Offshore oil and gas exploration is an area where Canada could be a player as Canadian companies already make components and parts for offshore rigs and vessels. “We need to keep a priority on Built in Canada and encouraging shipowners to buy Canadian-built ships.”

Public Works Minister Diane Finley told the conference that 2015 could be a banner year for shipbuilding. “Vancouver Shipyards is on track for full production of the Offshore Fisheries Science Vessels and steel will be cut in spring 2015. Irving Shipbuilding will begin construction of the Arctic Offshore Patrol Ships in fall 2015.”

Both Vancouver Shipyards and Irving Shipbuilding have made major upgrades to their facilities infrastructure by investing $170 million and $300 million respectively, she said.

Vancouver Shipyards has awarded $120 million in contracts to suppliers in Canada while Irving Shipbuilding has placed orders worth more than $310 million with Canadian companies. “More than 197 companies have already benefitted from these investments.”

She said the government would release a Value Proposition Guide in the near future outlining the leveraging of economic benefits from future defence procurements. Kendrick said coastal ports as well as those on the Great Lakes could become LNG refueling centers, a move which will gain added importance as new low sulphur rules for marine fuels come into effect next year. “This could give our ports a real competitive advantage.”

The U.S. Coast Guard and Environ­mental Protection Agency plan to begin enforcing rules that require ships to use 0.1 per cent sulphur fuel within 370 kilometers of American and Canadian shores, he added. Ship owners have several options for meeting this requirement including obtaining EPA waivers or installing scrubbers. Canadian natural gas is essentially sulphur free and low in nitrous oxide emissions, which makes it a natural alternative to the heavy bunkers many ships now use as fuel, Kendrick added. The U.S. rules will become one more incentive to switch to LNG.

“There is a high capital cost of installing an engine for LNG and its storage tanks require more space than those for conventional fuel,” he said. But the switchover quickly pays for itself in three to four years.

An LNG strategy would also encourage the development new technology in Canada. Two Canadian companies, Westport Innovations and Ferus Natural Gas Fuels Inc., have already taken the lead in creating breakthrough equipment, he pointed out.

While much of the industry isn’t familiar with LNG fuel, it has been used in enough ships and ferries in Canada and elsewhere to know that it works and is safe. The International Marine Organization is developing rules for its proper use “but their adoption is for some time in the future.” Ports would need to develop the infrastructure and hire personnel for handling the fuel, which would require a change in attitude on the part of government infrastructure programs, Kendrick pointed out. On the other hand, Canadian ports can gain approval for infrastructure projects faster than in the U.S.

VARD has done a risk analysis for shipowners on making the switch to LNG, he added. “We need an agreement on propulsion system designs as well as focusing on the equipment interface issues. As well, engine designers need to take into account the different levels of power a vessel needs while it is in operation.”

LNG has become a controversial issue in British Columbia where the provincial government has offered policies to encourage its development. Malaysian energy giant Petronas has dangled the prospect of a multibillion-dollar LNG export facility near Prince Rupert. However, first it wants to make sure that B.C.’s taxes and cost structure won’t make the plant financially unattractive.”

Ernst & Young has issued a special report on the potential of LNG development in Canada. Prepared by its experts Barry Munro and Gary Zed, it says Canada could be on the verge of “making an historic step toward a new export venture.” To get the development done right, “It is vital that leaders in B.C. and Ottawa find the right fiscal formula and create the globally competitive economic conditions so that the people of Canada and potential LNG investors are able to establish a new export sector and capture the substantial mutual benefits over the long term. Recent weakness in the market prices for natural gas and oil and other structural shifts in the global LNG market mean that a visionary and pragmatic approach that focuses on the long term is essential. “Canada has massive supplies of natural gas that can be safely unlocked using modern technologies,” the report continues. “More can be done to promote use of natural gas in Canada, but we have far more natural gas than Canadians could consume. Our people have a long and successful history of capitalizing on their world-class resource expertise. That economic development record has propelled our nation to stand tall among any list of the world’s leading traders. Now bold steps are again required to access global markets to ensure the value of our abundant natural gas is maximized for the benefit of all Canadians. The export of LNG represents an outstanding and momentous door to firmly placing Canada’s natural gas industry on the world stage.”

Asia is the main market for LNG because “economies are expanding quickly and countries are looking to replace more carbon intensive forms of energy, such as coal, with cleaner burning fuels,” it added. “But just as Canada wants to serve Asian customers, so too do our direct competitors in the U.S. and Australia. Winning the race to supply these markets is no sure thing. Competition is fierce. A recent International Energy Agency study pegged the expected price of Canadian LNG supplies significantly higher than quickly emerging supplies from the U.S. As Canadian project proponents consider their investments and hunt to secure long-term sales contracts around the Pacific Rim, two key factors – taxes and time – will weigh on their capacity to compete globally on price and, therefore, their decision to invest.”

The industry would be an economic boon for Canada, the report continues. “In our modelling, a $100-billion investment into a Canadian LNG industry would generate, by 2025, a 3.7 per cent jump in our GDP. More than 200,000 new jobs would be created across all sectors of the economy. Federal and provincial governments would see an additional $455 billion in revenues over the years 2015-2035.” Each large LNG project that does proceed could create more than 4,500 direct jobs in construction as well as 300-plus long-term, full-time, well-paying jobs in ongoing operations of LNG facilities.

The U.S. is currently Canada’s main natural gas customer but it will soon reach self-sufficiency, and will then export gas in competition with Canada. The report says that “Canadian approval processes need to be appropriately thorough, but not stretch beyond the time required. And, we need to ensure we create an industry that operates within the highest environmental standards.” To get there, Canada needs more leadership from “both the LNG proponents and the B.C. and federal governments. It appears the time for leadership in creating a Canadian LNG industry is here.”