Proposed legislation seeks to piggyback U.S. maritime industry to gas export boom, but bill lacks loan guarantees behind the ‘70s heyday.
The United States’ growing role as an exporter of natural gas is one of the most remarkable turnaround stories for the domestic economy of the last decade. In 2017, the U.S. crossed over from being a net importer of natural gas to a net exporter thanks to the growing reserves of shale gas tapped through hydraulic fracturing. Concerns about shortages of U.S. natural gas reserves led to the construction of 12 import facilities for liquefied natural gas (LNG). Now four of those sites are in various stages of building export facilities, while another seven facilities have been approved for export LNG, according to the U.S. Energy Information Administration. Those new facilities are expected to make the U.S. the second largest exporter of LNG in the world, just behind Qatar, according to the International Energy Agency.
Alongside the LNG story, the U.S. maritime industry sees an opportunity to revivify its fortunes. As FreightWaves’ John Gallagher reports, U.S. Representative John Garamendi (D-CA) plans to reintroduce a bill that would require a relatively small, but escalating, percentage of LNG and crude oil be shipped on U.S.-built ships with American mariners starting in 2023.
The bill, which was introduced last year as the “Energizing American Maritime Act,” could mean upwards of 50 oil and LNG tankers being built over the next 10 years. In advocating for the bill, Garamendi said the goal of using U.S.-built ships and U.S. crews for energy shipping “is precisely what China, India and now Russia are doing.”
But the reality is a bit more complicated. Russia, for example, is expected to be the fourth- largest LNG exporter by 2023 thanks to its Yamal LNG project, but the country is not going it alone when it comes to shipping. The 15 ice-breaking LNG tankers, which will traverse the Northern Sea Route, were built at the Daewoo Shipbuilding & Marine Engineering shipyard in South Korea. In addition to Russia’s Sovcomflot, the ships are owned and operated by Canada’s Teekay Shipping (NYSE: TK), Japan’s Mitsui O.S.K. Lines (Tokyo: 9104), and privately held Dynagas Ltd.
The U.S. did play a role in LNG shipping during the 1970s when the government provided loan guarantees for the construction of 16 LNG carriers at shipyards owned by General Dynamics (NYSE: GD), Newport News Shipbuilding and Avondale Shipyards. The U.S.-crewed ships ferried LNG from Indonesia to Japan, and the mariners onboard played a critical role in rescuing many Vietnamese refugees in the South China Sea. Although some of those early ships are still in service, the Avondale-built ships were considered a loss due to technical problems; the shipyard was shuttered in 2015.
At issue is the cost of building LNG carriers in the U.S. A 2015 report from the General Accounting Office found a U.S.-built and crewed LNG tanker “would cost about two to three times as much as similar carriers built in Korean shipyards and would be more expensive to operate.” When the General Dynamics’ vessels were built in 1976, they cost about $90 million to $94 million. That would be about $310 million in today’s dollars. An LNG carrier at Korea’s DSME might cost about $180 million. Those higher costs would have to be borne by importers of U.S. LNG, and making it less competitive on the global market.
Similar loan guarantees are not addressed in the proposed legislation, co-sponsored by Sen. Roger Wicker (R-MS) who received $32,000 in campaign and political action committee contributions in 2018 from the current owner of Newport News, Huntington Ingalls Industries (NYSE: HII). The LNG shipping bill comes as another bill is introduced to end U.S. cabotage laws, which Rep. Garamendi has steadfastly defended as vital to national security and helping the U.S. maritime industry. For his campaigns, Garamendi has received $60,500 in contributions from sea transport unions in the 2017-2018 election cycle.
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Port of Montreal sets out expansion plans
The Port of Montreal plans to expand its Viau terminal to handle an additional 250,000 containers.
The expansion at Canada’s second-largest port begins in September and will increase the total capacity of the Viau terminal to 600,000 twenty-foot equivalent units (TEUs) upon completion in December 2020. It marks the second phase of development of Viau, which was inaugurated in 2016.
“We are pleased to be able to complete the Viau terminal project, a sign of the steady growth of the container market in Montreal,” said Sylvie Vachon, CEO of the Montreal Port Authority, in a statement.
The Port of Montreal handled 1.7 million TEUs in 2018, the fifth consecutive year of record volumes. The Viau expansion will push it closer to its stated goal of being able to handle 2.1 million TEUs per year.
“With the completion of Viau Terminal and the major terminal project at Contrecoeur well underway, the Port of Montreal is actively working to accommodate the growth of the container market for years to come. By doing so, it is strengthening its strategic role at the heart of Montreal’s supply chain and continuing to act as an engine for economic development and job creation, benefitting Greater Montreal, Quebec and Canada,” Vachon said.
The added capacity will help the port handle increasing amounts of trade as part of the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union. The port has been a major beneficiary of the agreement, with an influx of food and steel coming from Europe.
The project includes the installation of piles, railway works and underground infrastructure.
Shipping giant MSC, a long-time partner of the port, welcomed the expansion. “The increase in terminal capacity is coming at the right time for us. We applaud this announcement as it ensures the future growth of our services in Montreal,” Sokat Shaikh, the CEO of MSC Canada, said in a statement.