Charterparty Conditions For The Use Of Boil-Off Gas By LNG Ships As Propulsive Fuel
The LNG cargoes are transported by ships at the temperature of – 163ºC, below the boiling point of LNG`s main component, methane (– 161.5ºC).
The cargo tanks of the LNG carriers are thermally insulated to minimize the heat input from the outside. Despite the cargo tanks` insulation, a small amount of LNG evaporates or boils off during the transportation by sea due to the slight heat input from the atmospheric environment. The LNG that evaporates or boils off during the transportation by sea is referred to as "boil-off gas".
The amount of LNG that evaporates per day is referred to as the "daily boil-off rate" and is stated as a percentage of the gross cargo capacity of the vessel`s cargo tanks. The daily boil-off rate depends on the effectiveness of the cargo tanks` insulation and the weather conditions encountered by the vessel during the voyage.
The steam turbine LNG Carriers with Moss-type tanks have a daily boil-off rate of 0.15%.
The LNG Carriers with dual-fuel or tri-fuel diesel electric engines and Membrane Containment System have a daily boil-off rate in the range of 0.10 and 0.125%.
The modern LNG carrier newbuilds have full or partial re-liquefaction systems or subcooling systems to re-liquefy the boil-off gas and thus, reduce the LNG cargo loss through boil-off. Their daily boil-off rate is in the range of 0.035% and 0.085%.
The boil-off gas generated by the evaporation of the LNG has to be removed from the cargo tanks in order to maintain the pressure and temperature constant and depending on the type of vessel`s propulsion system, it can be used either as fuel or it has to be re-liquefied and returned as LNG to the cargo tanks.
Except for the Q-Max and Q-Flex LNG carriers which are equipped with slow-speed diesel engines running on heavy fuel oil1, the other types of LNG carriers, i.e. the steam turbine vessels, the vessels with dual-fuel diesel electric four-stroke engines, the vessels with dual-fuel two-stroke engines, can operate with both the boil-off gas and fuel oil.
In LNG time charterparties, the charterers will decide the type of fuel to be used and in which quantities since they provide and pay for both the LNG and fuel oil. In a laden voyage, the choice of fuel to be used will depend on the prices of LNG and fuel oil/marine diesel oil and the time available to reach the receiving terminal at the scheduled date and time for berthing.
In LNG time charterparties, the fuel consumption is calculated taking into consideration not only the fuel oil and marine diesel oil consumption but also the LNG cargo loss through boil-off.
ShellLNGTime 1 (Shell LNG Time Charter Party form) provides that for the purpose of calculation of the fuel consumption for a voyage, the term "fuel" is used to refer to its two components, the fuel oil and boil-off gas, measured in metric tonnes of Fuel Oil Equivalent.
The Clause 6(a) of Appendix C of ShellLNGTime 1 has the following provisions:
"The actual fuel consumption on a Voyage shall [...] be the sum of,
(i) the fuel oil consumed during the Voyage (expressed in tonnes) [...]; and
(ii) the fuel equivalent of the total volume of cargo lost as Boil-Off during the Voyage (expressed in tonnes of Fuel Oil Equivalent) […]."
This is the reason why the shipowner`s warranties relating to the fuel consumption are not limited to the fuel oil component but it would also cover the boil-off gas used as fuel.
ShellLNGTime 1 provides that the shipowners may use the boil-off gas as propulsive fuel free of charge subject to the compliance with the maximum limits stipulated in the charterparty:
- Maximum Laden Boil-Off Rate, i.e. the daily guaranteed maximum Boil-Off for fully laden sea passages, stated as a percentage of the gross cargo capacity of the vessel`s tanks. The daily natural boil-off of the LNG cargo must not exceed the warranted boil-off daily rate stated in the charter party.
- Guaranteed Maximum Boil-Off For The Sea Passage, calculated as the product of the daily guaranteed maximum Boil-Off and the number of days between the gaugings at the loading port and discharge port (i.e. the expected duration of the transportation of LNG cargo by sea)2.
The actual amount of Boil-Off used by the LNG vessel during a voyage (sea passage) is calculated after the completion of voyage as a difference between the LNG cargo volume measured after loading (before the sea passage) and the LNG cargo volume measured before discharge (after the sea passage). The actual amount of Boil-Off is then compared with the Guaranteed Maximum Boil-Off For The Sea Passage to see if there was any amount used in excess or any saving3.
The Sub-Clause 8(d) from Appendix C of ShellLNGTime 1 stipulates that:
"At the conclusion of the charter period or annually (whichever occurs first) (the "Performance Period"), the quantities of excess Boil Off and the quantities of Boil-Off saved on all trips in the Performance Period shall each be added up. The total Boil-Off saved for any such period shall then be subtracted from the total excess Boil-Off in the same period and if the balance is positive Charterers may deduct from hire due under Clause 11 an amount calculated by multiplying the said balance by the LNG Price or, if more than one LNG Price is applicable during the Performance Period, the arithmetical average of such LNG Prices. If the balance is zero or negative, then Owners shall be deemed to have complied with this Clause for the Performance Period."
BIMCO GIIGNL LNGVOY (BIMCO and GIIGNL LNG Voyage Charter Party form) provides that the shipowners may use the boil-off gas as propulsive fuel free of charge subject to the compliance with the following warranties:
- Daily Boil-Off Cap Warranty, stated as a percentage of the gross cargo capacity of the vessel`s tanks. The daily natural boil-off of the LNG cargo must not exceed the warranted boil-off daily cap stated in the charter party.
- Boil-Off Cap Warranty For The Sea Passage, calculated as the product of the daily Boil-Off rate and the number of days between the gaugings at loading port and discharge port (i.e. the expected duration of the transportation of LNG cargo by sea).
The actual amount of Boil-Off used by the LNG ship during the voyage (sea passage) is calculated after the completion of voyage as a difference between the LNG cargo volume measured after loading and LNG cargo volume measured before discharge. The actual amount of Boil-Off is then compared with the Boil-Off Cap Warranty For The Sea Passage to see if there was any amount used in excess or any saving.
The quantity of LNG consumed by the vessel as boil-off gas in excess of the Boil-Off Cap shall be calculated using the LNG Conversion Factor (i.e. the rate used to convert the cubic meters to MMBTU) and must be paid by the shipowners to charterers at the LNG price.
The Daily Boil-Off Cap Warranty applies not only during the sea passage but also during the time spent by the LNG vessel at the discharge port following the service of NOR, i.e. the time between the service of NOR and the measurement of cargo volume before discharge. If after the vessel`s arrival at the Pilot Boarding Station the port authorities or consignees prohibit the LNG vessel from proceeding to the berth during the night time, the shipowners shall have to comply with the Daily Boil-Off Cap Warranty also during such night-time restrictions. However, if the LNG vessel is delayed in berthing due to port congestion, the boil-off gas consumed by the LNG vessel while waiting for berth at the discharge port shall not count towards the Boil-Off Cap Warranty For The Sea Passage because the shipowners are not liable for the boil-off caused by the charterers` breach of the charter party4.
In such case the charterers should recover the excess boil-off from the Ex Ship buyers. The amount payable by the Ex Ship buyers on account of the excess boil-off shall be the product of the price for the relevant LNG cargo and MMBTUs of the excess boil-off. The MMBTUs of the excess boil-off shall be calculated by multiplying the Nominal Quantity for the relevant LNG cargo by the deemed daily boil-off rate set forth in the Transaction Confirmation Notice by the number of days and pro rata for every hour of any partial day by which the Used Laytime exceeds the Allowed Laytime5.
by Vlad Cioarec, International Trade Consultant
This article has been published in Commoditylaw`s Gas Trade Review Edition No. 1.
Endnotes:
1. The engines of the LNGC Q-Max Rasheeda were retrofitted in 2015 with M-Type, Electronically Controlled – Gas Injection systems to use the boil-off gas as fuel and comply with NOx Tier III emission limits when transporting LNG cargoes through the North Sea and Baltic Sea emission control areas.
2. See ShellLNGTime 1, Appendix C – Clause 8.
3. See ShellLNGTime 1, Appendix C – Clause 8(a).
4. See Clause 23 of BIMCO GIIGNL LNGVOY.
5. See Sub-Clause 7.18 of BP Master Ex-Ship Sale And Purchase Agreement and Sub-Clause 6(12) of GIIGNL Master Ex-Ship Sales Agreement.