OSG Contracts MAN for Life Extension Engine Upgrades on Alaska Tanker Fleet
Overseas Shipholding Group (OSG) announced plans to make a significant financial investment for a life-extension upgrade to its four Jones Act tankers that operate transporting Alaskan oil. The company cites the anticipated continuing strong demand for Alaskan oil. It is a unique market projected by U.S. regulations requiring American flag tankers to carry Alaskan oil and the U.S. Jones Act.
The company previously announced plans to start the investment program with the acquisition of the fourth ship of the class, the Alaskan Frontier, which has been laid up for the past four years. OSG announced in October it would acquire the ship from BP Oil Shipping Company, USA, and rehabilitate it for a return to service in the fourth quarter of 2024.
The four tankers, each with a capacity to transport approximately 1.3 million barrels of oil, were built by General Dynamics NASSCO and delivered between 2004 and 2006 to the Alaska Tanker Company (ATC). The vessels are each 193,000 dwt with a length of approximately 942 feet (287 meters) and operate under the U.S. flag on charter to BP.
The engine upgrade project is considered a lifecycle upgrade, which will be completed by MAN Energy Solutions SE. The comprehensive modernization of each of the four 48/60 type engines onboard each vessel will improve performance and fuel efficiency and also prepare the engines for possible methanol fuel. OSG says the project will include newer, more fuel-efficient components along with the installation of advanced control systems. It is expected that the fuel efficiency gain will result in 15 to 20 percent fuel savings as compared to the vessel’s current consumption and maintain compliance with the current Carbon Intensity Index (CII) regulations through at least 2035.
“We expect improvements in fuel oil consumption, which will result not only in substantial cost savings, but as importantly in an estimated annual reduction of over 20,000 metric tons of greenhouse gas emissions based on historical trading patterns for each of these vessels,” said Sam Norton, President and CEO of OSG.
The company highlights that the vessels were designed with a projected 40-year lifespan. The significant capital investment being made will permit it to operate the vessels for a longer period of time and with fewer maintenance costs for each ship’s remaining life. For the American Frontier, OSG reported the total capital commitment for the project, including the purchase price of the vessel, will be approximately $50 million. The total investment in the four vessels over the next three years will be nearly $100 million.
The project will begin in early 2024 with the effort to reactivate the Alaskan Frontier. The Alaskan Explorer, Alaskan Legend, and Alaskan Navigator will undergo the modernization coordinated to their scheduled dry dock periods between 2024 and 2026.
OSG expects Alaskan crude oil production to increase by as much as 250,000 barrels per day by the end of this decade. The purchase and reactivation of the Alaskan Frontier along with the upgrades to the other three vessels is critical to maintaining capacity for the operation.
Alaska Tanker Company was created in 1999 by BP Oil Shipping Company USA, OSG America Operating Company, and Keystone Shipping Company to consolidate all of BP’s Alaskan crude oil shipping requirements into one operating company. OSG bought out its other two partners in the ATC in 2020 and acquired ownership of the three vessels. At the time, they reported the vessels were under charter to BP for periods lasting till 2022 to 2026 with each charter providing for five one-year extension options. Concurrent with entering into the new upgrade contracts with MAN, OSG also agreed to amend existing charterparties for the Alaskan Navigator and Alaskan Legend. The amendments modify the terms of the charterer’s existing extension options and provide for five additional one-year extension options for each vessel at agreed rates through 2035.