Advanced technology breeds advanced profits

-- FROM THE FULL PICTURE MAGAZINE -- After heading into administration as a result of the 1970s tanker crisis, Knutsen OAS Shipping has risen up through the guidance of Trygve Seglem to become the world's second-largest shuttle tanker operator. What got them here was sheer determination and their steadfast focus on innovative shipping solutions.

With an enchanting view of the sea from the company's Haugesund headquarters on Norway's west coast, Knutsen OAS Shipping is clear over what charterers are looking for – advanced newbuild ships able to perform sophisticated operations. This has been the strategy for the company since 1984, when chairman Jens Ulltveit-Moe and Trygve Seglem, the company's managing director, became main owners of the firm and reorganised activities.

Knutsen OAS had a proud history and many decades of experience as tanker operators, but financial problems meant that the company was more or less starting from scratch on the shipowning side. In fact, when the new organisation got its first offshore loading contract with Statoil for two shuttle tankers in 1984, Knutsen OAS only owned 0.40% of the ships.The two newbuilds – the Anna Knutsen and Ragnhild Knutsen – were built in China and delivered in 1987, and are great examples of the success to come for the company. The Anna Knutsen was in consecutive trade for one charterer – Statfjord Transport (with Statoil the majority owner) – for twenty years, whereas the Ragnhild Knutsen, which was sold in late 2007, is believed to have taken more cargoes of crude oil ashore than any other shuttle tanker in the North Sea.

Common for the two pioneer ships and all of the other offshore shuttle tankers that Knutsen OAS has owned and operated over the years (the company currently owns 18, and has three more on order) is dynamic positioning systems from Kongsberg. Seglem stresses the importance of DP systems for handling advanced offshore loading – something he became familiar with early in his career. After graduating from Newcastle University with a Marine Engineering degree in 1974, he began work at Statoil. These were early days for the oil and gas giant, which is made clear by the fact that Seglem was one of the two staffers in the entire organisation hired for offshore loading operations.

During Seglem's seven years at Statoil, he had a good deal of contact with Kongsberg – including taking part in a simulation study with the two companies and the Christian Michelsen Institute to find out more about the possibilities of DP in the area of offshore loading. "Not only is Kongsberg very strong technologically, but also extremely professional in all of its client dealings," says Seglem. Kongsberg also provides Knutsen's shuttle tankers with automation equipment.

Shuttle tankers just the beginning

While offshore loading vessels still make up the largest portion of the Knutsen OAS fleet, the company also has large investments in product/chemical carriers (12 ships, with four on order), and a true area of growth in recent years and the near future will be LNG carriers. Knutsen currently has six LNG carriers, with an additional four on order at DSME (Daewoo) in South Korea scheduled for 2010 delivery.

The LNG market has accelerated rapidly of late – a point well illustrated by the proliferation of carriers. According to Seglem, the world LNG carrier fleet has gone from approximately 100 to 300 ships over the past four years, and should increase to about 400 carriers by 2011.

Knutsen placed its first orders for LNG carriers in 1999/2000, with the first three delivered in 2004, and others arriving in 2006 and 2007. Kongsberg has delivered integrated automation systems and integrated gas management solutions to the three Knutsen LNG carriers built in Spain – Cadiz Knutsen, Bilbao Knutsen and the recently delivered Sestao Knutsen. All three are shipping LNG to Spain on long-term charters.The four LNG tankers newbuilds Knutsen OAS has on order at Daewoo represent operational and technical advances from the previous generation. Carrying capacities will increase from 138,000 m³ to 173,400 m³ of LNG – which will make them among the largest LNG ships afloat – and all are equipped with Wartsila dual combustion diesel-electric engines.

"It costs more to build ships with dual combustion engines, but the advantages outweigh this," says Seglem. The benefits of the innovative design include greater propulsion efficiency and a significant reduction in fuel consumption compared to the gas turbines used previously.

At least two of these vessels will be on 20-year time charters with Repsol YPF as a part of a Peru LNG project scheduled for a 2010 kick-off – with the deal representing Knutsen's largest-ever LNG contract.

When online in 2010/2011, Repsol will export 4.2 million tonnes of spot LNG cargoes per year for 18 years from the Peru LNG plant. Sixty percent of the gas volumes are earmarked for the Mexican market, with the rest to go to Asian markets.

The importance of integration

Kongsberg has contracts for the integrated automation systems for the Daewoo LNG newbuilds, along with the gas management systems. These management systems are more advanced in nature due to the dual combustion engines.

While the Kongsberg systems become more complex and incorporated with one another as a result of more intricate technologies at work, the company's product usability and customer service remain as good as ever.

Kongsberg product integration is seen as an advantage by Knutsen OAS project manager Tom Knutsen. He's working with the company on behalf of the LNG newbuilds. "Projects have become so complex that one can't operate with stand-alone systems. Integration is extremely important today," he says, adding that Kongsberg's contracts with a number of sub-suppliers makes it much easier – and more profitable – to work with them.

Knutsen OAS Technical Director Hans Tveitaskog has had a good deal of contact with Kongsberg over the years, and feels that the company greatly engages themselves with their clients. "We expect that, if we have a problem, the supplier has a problem, too. Kongsberg is a firm believer in this concept. Kongsberg gives us their full attention when we get in contact."

Ice class on order

Knutsen OAS' areas of operation have expanded a great deal of late. While there's still a large focus on the North Sea and Northern Europe, Knutsen OAS currently carries out offshore loading in such distant areas as Newfoundland and Labrador on the Canadian shelf, Brazil, Venezuela and West Africa.

With oil and gas opportunities proliferating in colder regions of the globe, Knutsen OAS is living up to its reputation as an innovative, advanced shipping solutions provider. The company recently received the ice-class Suezmax tanker Windsor Knutsen, and has an additional ice-class tanker and LNG carrier on order with Daewoo. The two newbuilds are scheduled for 2010 delivery.All three are ice-class 1A, making them able to operate in temperatures as low as -30º C. The newbuilds are initially slated for the Baltic region and Canada, though deliveries from the giant Shtokman field aren't ruled out as a future possibility.

Determination and innovation at work

Advanced solutions are not only an important aspect of Knutsen OAS's current areas of focus, but also in the realm of two projects that may take longer to bring about dividends, but have strong long-range prospects: the shipping of pressurized natural gas (PNG) and the company's own KVOC technology.


Knutsen, along with partners Europipe GMBH and Det Norske Veritas, was first out of the gate with the PNG concept, but had problems getting it off of the ground due to previous "pipeline class" regulations. When new regulations came about in 2003, they got the go-ahead they needed. The trio has developed a ship that is approved for PNG transportation.

Though PNG doesn't compress as much as LNG, the gas treatment required is minimal. This provides PNG a flexibility that makes it both a means for direct natural gas transport and a local solution for bringing stranded gas to market. With cost savings in the areas of liquefaction, storage and regasification facilities, PNG requires but a fraction of the equipment investment needed for LNG. And the reduced energy resources needed to compress the gas make PNG a more environment-friendly solution than LNG.

Knutsen's goal with PNG is to set the pace in the direct offshore loading of natural gas, utilizing technology similar to that currently in use for crude oil offshore loading. This fits with the company's vision of offering tailor-made transportation solutions for leading energy companies. Knutsen is currently considering a number of possible plans and hopes to decide on the first PNG commercial project shortly.

Knutsen VOC Technology (KVOC)

In line with the Kyoto Convention, many national authorities have implemented stringent VOC (volatile organic compounds) emission reduction regulations for offshore loading.

Knutsen's KVOC method passively reduces VOC emissions during the loading and transport of crude oil. KVOC installation on eight Knutsen ships has proven significant emission reductions, along with reduction in H2S release from cargo. The system is available for purchase by other operators, and has been bought by four non-Knutsen vessels so far.

The development of the KVOC method, which has cost Knutsen approximately $10 million, is something managing director Trygve Seglem is quite proud of. "We have great belief in the project," he says. "KVOC is easy to install and take care of, inexpensive to purchase, costs nothing to run, and saves oil transporters a great deal of energy and money." Indeed, shipowners typically make their money back on the system after only five or six offshore loadings, and many competing VOC systems cost as much as ten times the price of KVOC.

KVOC was a recent runner-up in the "Protection of the Marine and Atmospheric Environment" category at the Seatrade 2007 Awards.