June 24, 2012
The Wall Street Journal
By Rebecca Smith
Ferryboat systems in the U.S. and Canada are considering a shift to natural gas from diesel fuel, another example of how the boom in gas from shale-rock formations is reshaping fuel markets.
Hoping to limit fare increases, a British Columbia regulator, ferry system Commissioner Gord Macatee, is recommending that ferries be converted to natural gas "as soon as reasonably possible." Other ferry systems, from Staten Island, N.Y., to Washington state, are exploring similar changes as a way to reduce costs.
The North American ferry operators are following the example of Norway, where ferries have been using local liquefied natural gas, known as LNG, for more than a decade.
They are also hoping to capitalize on the enormous discoveries of natural gas in shale-rock formations throughout North America, which have pushed natural-gas prices down at a time when diesel costs have soared due to higher world petroleum prices.
The average price of natural gas at Louisiana's Henry Hub distribution area, a traditional benchmark for prices, was $1.95 per million British thermal units in April, the lowest average monthly price since 1999. Liquefied natural gas also is appealing because, unlike diesel, which forms an oily slick if spilled, it evaporates and does not catch fire as easily.
B.C. Ferry Services Inc. was facing fare increases of as much as 80%--on top of rises in the past nine years of 47% to 80%, depending on the route--when Macatee intervened earlier this year. Runaway fare increases were "unacceptable," he said in an interview, "and so we dove in to understand why it was happening and what could be done."
He concluded that a shift to LNG, though initially costly, could eventually lower the 38-vessel system's fuel bill by $28 million a year, providing some relief from diesel costs that jumped 140% from 2004 to 2011, when the annual bill hit $120 million.
B.C. Ferry spokeswoman Deborah Marshall said the company is developing a business plan to convert some boats beginning in 2014 or 2015, at an estimated cost of $10 million to $30 million per vessel.
"We consume 121 million liters of diesel a year so any savings we can get are huge," she said. "We definitely believe in LNG as an alternative."
Other ferry operators are having similar thoughts, though they acknowledge there are barriers. Though natural-gas pipelines may be nearby, there typically aren't nearby facilities to convert the gas to liquid form, which allows 600 times as much to be held in a tank. For that to happen, it must be chilled to minus 260 degrees Fahrenheit.
Still, ferry-system officials argue that the obstacles are surmountable. For the Washington State Ferries, diesel fuel now consumes 29% of the operating budget, up from 12% in 2000, providing incentive to try something new.
Ferry managers have been studying natural-gas conversion for several years and "the conclusion we've reached is it's technically feasible and economically feasible," said David Moseley, assistant secretary for the Washington Department of Transportation.
Washington ferries now are working on a plan to build a few new vessels designed to run on natural gas as well as convert six of its most-used ferries to LNG. Those vessels look easiest to convert because they have large top decks that already are off limits to passengers, where the LNG tanks could be added.
Mr. Moseley said Washington ferries could save $7.6 million a year, out of a $67 million annual fuel budget, if even that handful of boats migrated to LNG.
Like B.C. ferries, Washington ferries are fighting a problem of underutilized boats because ridership peaked more than a decade ago, before a recent round of fare increases. Washington's ferries still move more cars--at 10 million a year--than any other ferry system in the world, as well as 23 million passengers.
New Yorkers may soon have their first experience with LNG ferries. The Staten Island Ferry system, which carries 21 million passengers a year to Manhattan, recently got $3 million in grants to convert one of its bright orange ferries to LNG. Ferry officials said it would cut fuel costs for that vessel by half.
The ferry managers said they look to Norway for inspiration. Ferry operators there have been using LNG for more than a decade and more new boats are on the way. Rolls-Royce Holdings RR.LN -2.09% PLC is furnishing natural-gas engines for four new ferries being built for Norway's Torghatten Nord AS that will serve routes noted for their harsh conditions.
They will join more than a dozen LNG ferries already plying Norwegian waters. Ferry operators switched to natural gas following large discoveries of the fuel in western Norway in 1997.