Partners aim to solve LNG “chicken or egg” dilemma

OCTOBER 6, 2014—There are now more than $3 billion worth of orders at North American shipyards to build new vessels that will burn Liquefied Natural Gas or be readily convertible to do so. But the real money may well in the countless number of vessels that could potentially be converted to burn Liquefied Natural Gas (LNG) as a marine fuel.

The switch from marine diesel oil or residual fuel to LNG has been fueled by stricter emission regulations in North America and the availability of cheap, plenty natural gas. What’s hindering an even higher rate of adoption has been the lack of LNG bunkering infrastructure.

Now a new partnership between an energy infrastructure provider and an LNG conversion financing investor is taking dead aim at this “chicken and the egg” dilemma.

“The first question every shipowner asks is, ‘Where will I get the LNG?’ because if they cannot ensure the future delivery of LNG then they will not see the investment payback,” says Pace Ralli, CEO and Co-Founder of Clean Marine Energy (CME). Ralli’s company recently struck a deal with WesPac Midstream LLC (WesPac), Irvine, CA, to ensure the supply and delivery of LNG to shipowners using CME’s Emissions Compliance Service Agreement (ECSA) to convert to cleaner fueling.

CME’s partnership with WesPac provides the answer to this question and greatly simplifies the decision to convert to clean, lower-cost LNG fuel,” says Ralli.

The partnership between WesPac/CME will be able to provide both the funding required to convert a vessel to burn LNG, as well as the infrastructure for LNG supply and delivery. Conversion to LNG while financing the up-front investment provides the economic benefit of LNG fueling to shipowners without capital deployment, and ensures compliance with Emissions Control Area (ECA) regulations taking effect on January 1, 2015.

Funds managed by Oaktree Capital Management, L.P., Los Angeles, CA, a leading global investment manager, will support both WesPac’s LNG infrastructure projects and CME’s ship conversion projects.