Accessible Version

MARITIME 

TRANSPORTATION

Implications of Using 

U.S. LiquefiedNatural-Gas Carriers 

for Exports

Report to Congressional Committees

December 2015

GAO-16-104

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-16-104, a report to 

congressional committees

December 2015

MARITIME TRANSPORTATION

Implications of Using U.S. Liquefied-Natural-Gas 

Carriers for Exports

Why GAO Did This Study

More than 30 companies have 

received approval from DOE for largescale exports of U.S. LNG—natural 

gas cooled for transportation—

beginning in 2015 or 2016 via 

specialized LNG carriers. 

Congress is considering whether to 

propose legislative language that 

would require U.S. LNG be exported 

via U.S.-built-and-flagged carriers with 

the goal of supporting U.S. 

shipbuilders and mariners. Congress 

included a provision in statute for GAO 

to review the number of vesselconstruction and operating jobs that 

would be created in the U. S. maritime 

industry each year in 2015 through 

2025 if exported LNG were required to 

be carried (1) before December 31, 

2018, on vessels documented under 

the laws of the United States and (2) 

after such date, on vessels 

documented under the laws of and 

constructed in the United States. This 

report discusses (1) DOE and industry 

expectations for the market for U.S. 

LNG exports and (2) how the proposed 

requirement could affect jobs in the 

U.S. maritime industry and the broader 

U.S. economy.

GAO reviewed and analyzed economic 

forecasts of the LNG market and 

interviewed relevant stakeholders 

including officials from DOD, DOE, the 

Department of Transportation, Coast 

Guard, and the U.S. Trade 

Representative; representatives of 

mariner groups, three U.S. shipyards 

that expressed interest in this market, 

the five U.S. liquefaction facilities that 

are under construction, and economicresearch firms that have studied the 

LNG market. 

What GAO Found

According to Department of Energy (DOE) and industry expectations, in the next 

few years the United States is expected to change from a net importer of natural 

gas to a net exporter, with those exports destined for different regions of the 

world, especially Asia. Five large-scale U.S. liquefaction facilities—necessary for 

conversion of natural gas to liquefied natural gas (LNG) (see fig. below)—are 

under construction with a projected capacity to export more than 12 percent of 

U.S. natural gas production in 2020. According to representatives from these five 

facilities, their liquefaction capacity has already been sold mainly through 20-year 

contracts and their customers are responsible for transporting the LNG to export 

markets. Based on estimates from these liquefaction facilities, transport of the full 

capacity of these liquefaction facilities will require about 100 or more LNG 

carriers. Currently operating LNG carriers are nearly all foreign built and 

operated. LNG carriers have not been built in the United States since before 

1980, and no LNG carriers are currently registered under the U.S. flag.

Obtaining and Processing Liquefied Natural Gas for Transport

The proposed requirement to transport exports of LNG via U.S.-built-and-flagged 

carriers could expand employment for U.S. mariners and shipbuilders if it does 

not reduce the expected demand for U.S. LNG. According to representatives of 

U.S. mariner groups, between 4,000 and 5,200 mariners would be needed to 

operate the estimated 100 LNG carriers needed to transport the five U.S. 

facilities’ full capacity of LNG once the five are fully operational. Based on the 

current capacity of U.S. shipyards we spoke with, building 100 carriers would 

likely take over 30 years, with employment in U.S. shipyards increasing 

somewhat or becoming more stable, according to shipyard representatives. 

Department of Defense (DOD) officials also indicated that any policy or 

requirement that increases and stabilizes jobs in the U.S. maritime industry could 

support military readiness. However, according to industry representatives, U.S. 

carriers would cost about two to three times as much as similar carriers built in 

Korean shipyards and would be more expensive to operate. Based on GAO 

analysis, these costs would increase the cost of transporting LNG from the 

United States, decrease the competitiveness of U.S. LNG in the world market, 

and may, in turn, reduce demand for U.S. LNG. The extent of these effects 

depends on customers’ circumstances and business decisions. For example, 

several stakeholders told us implementing the proposed requirement may prompt 

customers to attempt to modify, renegotiate, or terminate their existing contracts 

for liquefaction. Additionally, limited availability of U.S. carriers in the early years 

of construction may decrease the amount of LNG that could be exported from the 

United States for a period of time, leading customers to seek alternate sources. 

Further, a reduction in the level of expected U.S. LNG exports could impact the 

broader U.S. economy, including potential job and profit losses in the oil and gas 

sector.

View GAO-16-104. For more information, 

contact Susan A. Fleming at (202) 512-2834 

or flemings@gao.gov.
Letter 1

Page i GAO-16-104 Maritime Transportation

Background 5

DOE and Industry Expect the United States to Play a Large Role 

in the LNG Market over the Next 10 Years 10

If the Proposed Requirement Does Not Reduce the Expected 

Demand for U.S. LNG, It Could Expand Employment for U.S. 

Mariners and Shipbuilders 17

U.S.-Built Carriers Would Increase Transportation Costs and 

Would Likely Reduce Demand for U.S. LNG 23

Agency Comments 29

Appendix I: Objectives, Scope, and Methodology 31

Appendix II: Comments from the Department of Defense 37

Appendix III: GAO Contact and Staff Acknowledgments 38

GAO Contact 38

Acknowledgments 38

Appendix IV: Accessible Data 39

Agency Comment Letter 39

Data Tables 40

Tables

Table 1: Conversion of Liquid, Gas, and Energy Equivalents of Natural 

Gas 6

Table 2: U.S. Liquefaction Facility Construction Expected Capacity in 

Billion Cubic Feet (bcf) per day and Timelines 12

Data Table for Figure 3: Estimated Costs Associated with Acquiring 

Liquefied Natural Gas from the United States, U.S. Dollars 40

Figures

Figure 1: Process of Obtaining and Processing Liquefied Natural Gas 

(LNG) for Transport 6

Figure 2: Image of Moss and Membrane Style Liquefied Natural Gas 

Carriers 14

Figure 3: Estimated Costs Associated with Acquiring Liquefied Natural 

Gas from the United States, U.S. Dollars 15

Contents
Page ii GAO-16-104 Maritime Transportation

Abbreviations

Act Howard Coble Coast Guard and Maritime Transportation

Act

bcf billion cubic feet

BLS Bureau of Labor Statistics 

Btu British thermal units 

DOD Department of Defense 

DOE Department of Energy 

DOL Department of Labor 

DOT Department of Transportation

EIA Energy Information Administration

FERC Federal Energy Regulatory Commission

LNG liquefied natural gas

MARAD Maritime Administration

MMBtu million British thermal units

MSP Maritime Security Program

NEPA National Environmental Policy Act

NGA Natural Gas Act

USCG U.S. Coast Guard

VISA Voluntary Intermodal Sealift Agreement
Page iii GAO-16-104 Maritime Transportation

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Page 1 GAO-16-104 Maritime Transportation

441 G St. N.W.

Washington, DC 20548

December 3, 2015

The Honorable John Thune

Chairman

The Honorable Bill Nelson

Ranking Member

Committee on Commerce, Science, and Transportation

United States Senate

The Honorable Bill Shuster

Chairman

The Honorable Peter A. DeFazio

Ranking Member

Committee on Transportation and Infrastructure

House of Representatives

Worldwide, trade of liquefied natural gas (LNG)—that is, natural gas that 

has been liquefied for the purposes of storage and transportation—has 

the potential to increase from about 241-million tons annually in 2014 to 

about 424-million tons by 2020, according to the International Gas Union.1

As advances in natural gas extraction technology have dramatically 

increased the amount of domestic gas extraction, the role of the United 

States in this market is poised to change from that of a net importer of 

natural gas to a net exporter. As of September 2015, more than 30 

companies have applied to and been approved by the Department of 

Energy (DOE) to export U.S. LNG from large-scale liquefaction facilities, 

and exports are expected to begin in 2015 or 2016 via specialized LNG 

carriers.

There have long been questions about the health of the U.S. maritime 

industry, and its capacity to meet the needs of the U.S. military, including 

shipbuilding and mariner needs. To support the U.S. maritime industry 

 

1

International Gas Union, World LNG Report—2015 Edition, World Gas Conference Edition 

(Fornebu, Norway: 2015). The International Gas Union is a non-profit organization 

comprised of associations and corporations in the global gas market.

Letter
and better ensure its capacity to meet military needs, the Jones Act

Page 2 GAO-16-104 Maritime Transportation

2

and 

Cargo Preference laws3 were enacted to help support a market for U.S. 

shipbuilding and mariners.4 Currently, Congress is considering whether to 

propose legislative language that would require that U.S. LNG be exported 

via U.S.-built-and-flagged carriers with the goal of supporting U.S. 

shipbuilders and mariners and increasing jobs in those industries.5 The 

Howard Coble Coast Guard and Maritime Transportation Act (Act) of 20146

included a provision for us to report on the number of positions that would be 

created in the U.S. maritime industry each year from 2015 through 2025 if 

LNG exported from the United States were required to be carried (1) 

before December 31, 2018, on carriers documented under the laws of the 

United States; and (2) after such date, on carriers documented under the 

laws of and constructed in, the United States. Currently, LNG carriers are 

nearly all foreign built and all are foreign flagged.7 This report discusses:

· current industry and DOE expectations for the market for U.S. exports 

of LNG and how that market is expected to operate;

· stakeholders’ views on how the proposed requirement to use U.S.-

flagged-and-built carriers for LNG exports could affect jobs in the 

 

2

In general, the Jones Act requires that maritime transport of cargo between points in the United 

States be carried by vessels that are owned by U.S. citizens and registered under the U.S. flag 

with a coastwise endorsement, which in turn requires that such vessels be built in the 

United States. Section 27 of the Merchant Marine Act of 1920, Pub. L. No. 66-261, 41 

Stat. 988, 999 (1920) (codified as amended at 46 U.S.C. § 55102). 

3Three cargo preference laws identified by the Department of Transportation’s Maritime 

Administration (MARAD) include what are commonly known as the Military Cargo 

Preference Act of 1904, Pub. L. No. 58-198, 33 Stat. 518 (1904) (codified as amended at 

10 U.S.C. § 2631); Public Resolution 17, 73d Cong. 48 Stat. 500 (1934) (codified as 

amended at 46 U.S.C. § 55304); and the Cargo Preference Act of 1954, Pub. L. No. 83-

664, 68 Stat. 832 (1954) (codified as amended at 46 U.S.C. § 55305).

4These laws require that certain cargoes or cargoes shipped to specific destinations be 

transported using U.S.-flagged and/or U.S.-built vessels.

5U.S.-flagged vessels are vessels registered in the United States, which must therefore meet U.S. 

Coast Guard requirements for safety, meet crew citizenship requirements, and abide by 

the laws of the United States.

6

Pub. L. No. 113-281, § 308, 128 Stat. 3022. 

7

For the purposes of this report, LNG carriers refer specifically to vessels built for the purpose of 

transporting large amounts of LNG over long distances.
maritime, shipbuilding, and other related sectors; and

· potential effects of the proposed requirement on the market for U.S. 

LNG and the broader U.S. economy, including other industries.

To describe current industry and DOE expectations for the market for 

U.S. exports of LNG, and how that market is expected to operate, we 

collected and analyzed information on economic forecasts of the LNG 

market, including the U.S. Energy Information Administration’s (EIA) 

Annual Energy Outlook.

Page 3 GAO-16-104 Maritime Transportation

8 We interviewed DOE officials and representatives 

from four economic research and consulting firms that have published reports 

on the prospective market for U.S. LNG and LNG “liquefaction”

9

companies 

that have begun construction of U.S. liquefaction facilities to better 

understand DOE’s estimates about expected U.S. LNG exports and the 

world LNG market and to assure ourselves that the estimates are 

sufficiently reliable for the purposes of this report. We identified economic 

research and consulting companies based on a literature review. We also 

interviewed the four companies associated with the five approved and 

under-construction domestic export facilities (as listed on the Federal 

Energy Regulatory Commission’s list of approved import/export terminals 

in the continental U.S.) regarding their plans and expectations.10 In 

addition, we interviewed representatives from the identified economic 

research and consulting firms and energy companies regarding expected 

export capacity, customer plans, and the number of LNG carriers needed 

to transport expected U.S. LNG capacity. We also analyzed this 

information to develop our own estimate of the needed carrier capacity.

The provision in the Act regarding this work specifies that GAO report on 

the number of positions that would be created in the United States’ 

maritime industry each year beginning with 2015 through 2025 if the 

proposed requirement were implemented. As the proposed requirement 

had not been introduced as legislation as of October 2015, the dates 

referenced in the Act may change. As such, to describe stakeholder 

views on the potential effects of the proposed requirements on maritime 

 

8The U.S. Energy Information Administration is the statistical and analytical agency within the 

U.S. Department of Energy.

9

For the purposes of this report, “liquefaction” refers to the process of liquefying natural gas 

(see page 5 and fig.1). 

10There is an LNG export facility that has been operating in Alaska since the 1980s, but this 

facility is responsible for a very small portion of expected U.S. exports. 
jobs and the economy and to determine the potential effects of these 

requirements on the market for U.S. LNG and the broader U.S. economy, 

we have referenced timeframes more generally, rather than referring to 

specific dates. To describe stakeholder views on the extent to which the 

requirement of U.S.-flagged-and-built vessels for LNG exports could 

affect domestic jobs in the maritime, shipbuilding, and other related 

sectors, we obtained and analyzed the views of selected maritimeindustry stakeholders, as well as related documents they provided on the 

capability and capacity of U.S. shipbuilders and estimated costs and 

requirements to build and operate LNG carriers. These stakeholders 

included representatives of three shipbuilding companies; shipping 

companies (one shipbroker and one LNG carrier operator); the four major 

marine officer and unlicensed mariner unions in the United States; and 

officials from DOE, Department of Transportation’s (DOT) Maritime 

Administration (MARAD), and Department of Labor (DOL). We selected 

maritime stakeholders (including shipbuilders, mariner unions, and 

shipping companies) for interview based on recommendations from 

government and industry stakeholders and their capacity to provide 

services related to LNG carrier construction and operation. For instance, 

we selected the ship broker and ship operator based on the fact that they 

are currently involved in shipping LNG. We selected U.S. shipbuilders 

from a list of 11 large and active shipbuilding companies in the U.S. as of 

April 2015 based on their stated interest and capacity to build LNG 

carriers. We also interviewed MARAD, Department of Defense (DOD), 

and U.S. Coast Guard (USCG) officials to obtain their views on potential 

benefits for military readiness, including the U.S. maritime industry’s 

capacity to meet military needs.

To identify the potential effects the proposed requirement may have on 

the broader U.S. economy, we collected and analyzed economic 

forecasts and testimonial evidence from industry stakeholders and 

economic research and consulting companies (as discussed earlier). We 

then assessed the resulting evidence using established economic theory 

and reasoning to describe potential effects of the proposal on world 

demand for U.S. LNG and jobs in other relevant U.S. industries. To 

illustrate the cost impact of a U.S.-flagged-and-built carrier requirement 

for LNG exports, if all other factors remain equal, we developed a set of 

hypothetical assumptions based on discussions with industry 

stakeholders, a 2011 MARAD report on the costs of operating U.S.-

Page 4 GAO-16-104 Maritime Transportation
flagged vessels,

Page 5 GAO-16-104 Maritime Transportation

11 and economic theory. For the purposes of estimating the 

potential costs of the proposed requirement, we made what we believe to be 

conservative estimates, including estimates of the cost of building LNG 

carriers in the United States and the costs of operating those carriers, in 

order to ensure that we do not overstate those potential cost effects. Due 

to the hypothetical nature of the proposed requirement as well as

challenges related to predicting market outcomes, the estimated cost 

impacts are meant to be solely illustrative and should not be taken as a 

prediction. We interviewed U.S. Trade Representative officials and 

industry stakeholders regarding potential implications for U.S. trade. 

Additionally, we interviewed the U.S. Coast Guard and selected (as 

mentioned above) U.S. LNG liquefaction companies and shipping 

companies regarding potential security implications for LNG customers 

related to transporting LNG via U.S.-flagged-and-built carriers. See 

additional information on our scope and methodology in appendix I.

We conducted this performance audit from March 2015 to December 

2015 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

Natural gas is a fuel that can be used in many contexts, similar to 

gasoline, heating oil, and other crude-oil derivatives and is considered 

more environmentally friendly than oil derivatives. In its gaseous form, 

natural gas is transported by pipeline. LNG is natural gas cooled to -260 

degrees Fahrenheit, at which point it becomes a liquid, and its volume is 

reduced by 600 times—allowing for ease of transportation via specialized 

 

11Department of Transportation, Maritime Administration, Comparison of U.S. and ForeignFlag Operating Costs, (Washington, D.C.: September 2011). While information on 

operating costs from MARAD is not specific to LNG carriers (or carriers of any kind), we 

determined that, as the only source of publicly available information comparing actual 

costs of U.S and foreign-flagged vessels, this report was sufficiently reliable for our limited 

purpose of developing an estimate of the potential costs of operating U.S. LNG carriers, in 

combination with additional estimates of potential costs provided by industry stakeholders.

Background

Liquefied Natural Gas
LNG carriers over long distances. This cooling process takes place at 

liquefaction facilities. Figure 1 illustrates this process.

Figure 1: Process of Obtaining and Processing Liquefied Natural Gas (LNG) for Transport

Page 6 GAO-16-104 Maritime Transportation

Depending on the context, different units of measurement are used to 

describe volumes of natural gas and liquefied natural gas, as well as their 

respective energy content. For the purposes of this report, the 

conversions used are outlined in table 1.

Table 1: Conversion of Liquid, Gas, and Energy Equivalents of Natural Gas

1 billion cubic feet (bcf) 

of natural gas

1 thousand cubic 

meters of LNG

1 million British 

thermal units (MMBtu)

1 billion cubic feet (bcf) of natural gas 1 47 1,100,000

1 thousand cubic meters of liquefied natural gas (LNG) 0.02189 1 23,308

1 million British thermal units (MMBtu) 0.0000011 4.29e-5 1

Source: GAO analysis of Department of Energy data. │ GAO-16-104

Note: These conversions are based on those included in the Department of Energy’s publication 

Liquefied Natural Gas: Understanding the Basic Facts (August 2005).

Through 2015, the United States has been a net importer of natural gas, 

along with Japan, India, South Korea, Taiwan, and others. Ocean 

transport of LNG began in the late 1950s and early 1960s. According to 

the International Gas Union, Japan and South Korea are currently the 

largest importers of LNG, and as of 2014, the largest supplier/exporter of 

LNG was Qatar, followed by Malaysia, Australia, Nigeria, Indonesia, 

Trinidad, and Algeria.12 As discussed in greater detail in the following section, 

 

12International Gas Union, World LNG Report.

World Market for Natural 

Gas
according to DOE, the market for LNG has changed recently due mainly 

to technology enhancements in the extraction of natural gas from shale 

formations and changes in energy needs.

Several federal agencies oversee or are involved in LNG exports or the 

U.S. maritime industry:

· Department of Energy: Under Section 3 of the Natural Gas Act 

(NGA), the import or export of LNG and the construction or expansion 

of LNG facilities requires authorization from DOE.

Page 7 GAO-16-104 Maritime Transportation

13 In 1984, DOE 

delegated the responsibility to approve or deny applications for LNG 

facilities to the Federal Energy Regulatory Commission (FERC).14

· Federal Energy Regulatory Commission: In keeping with its 

obligation to authorize LNG facility siting and construction under the 

NGA, FERC reviews applications to construct and operate LNG 

export facilities onshore or in state waters.15 FERC’s review is 

considered a federal action and subject to the National Environmental Policy 

Act (NEPA).16

· Coast Guard: Within the Department of Homeland Security, the U.S. 

Coast Guard is responsible for administering and enforcing 

requirements for U.S.-flag registry (e.g., determining whether vessels 

meet U.S.-owned-and-built requirements). USCG is also responsible 

for credentialing mariners and maintains records on all mariners who 

hold valid merchant mariner credentials, including data on mariners 

 

13Pub. L. No. 75-688, § 3, 52 Stat. 822 (1938) (codified at 15 U.S.C. § 717b). For additional 

information about this process, see GAO-14-762.

14DOE Delegation Order 0204-112, 49 Fed. Reg. 6684, 6690 (Feb. 22, 1984).

15For facilities located offshore beyond state waters, the Maritime Administration 

(MARAD) within the Department of Transportation authorizes construction pursuant to the 

Deepwater Port Act of 1974, as amended (Pub. L. No. 93-627, 88 Stat. 2126 (1975)). 

16Enacted in 1970, NEPA has as its purpose, among others, to promote efforts to prevent 

or eliminate damage to the environment. NEPA requires an agency to prepare a detailed 

statement on the environmental effects of any “major federal action” significantly affecting 

the environment. Regulations promulgated by the Council on Environmental Quality 

implementing NEPA generally require an agency to prepare either an environmental 

assessment or an environmental impact statement depending on whether or not a 

proposed action could significantly affect the environment. For additional information 

about this process, see GAO-14-762.

Federal Role in Maritime 

and LNG Industries
who may serve on U.S.-flag vessels that support the DOD during 

times of war or national emergencies.

· Maritime Administration: MARAD’s mission is to foster and promote 

the U.S. Merchant Marine and the American maritime industry to 

strengthen the maritime transportation system—including the 

shipbuilding and repair industry—to meet the economic and nationalsecurity needs of the nation. MARAD administers the Federal Ship 

Financing Program (commonly referred to as Title XI based on the 

part of the Merchant Marine Act of 1936 that established the 

program),

Page 8 GAO-16-104 Maritime Transportation

17 which provides a U.S. Government guarantee of private loans to 

(1) U.S. or foreign ship owners for the purpose of financing or 

refinancing either U.S. flag vessels or eligible export vessels 

constructed, reconstructed or reconditioned in U.S. shipyards and (2) 

U.S. shipyards for the purpose of financing advanced shipbuilding 

technology and modern shipbuilding technology of a privately owned, 

general shipyard facility located in the United States. In general, under 

the Federal Credit Reform Act of 1990, appropriations to cover the 

estimated subsidy costs18 of a project must be obtained prior to the 

issuance of any letter of commitments for loan guarantees.19

· Department of Defense: As we have noted, the military strategy of 

the United States relies, in part, on the use of commercial U.S.-

flagged ships and crews and the availability of a shipyard industrial 

base to support national defense needs.20

 

17Pub. L. No. 75-705, § 46, 52 Stat. 953, 969 (1936) (codified as amended at 46 U.S.C. Chapter 

537).

18The credit subsidy costs for loans and loan guarantees is the net present value of expected 

lifetime cash flows to and from the government over the life of the loan, excluding 

administrative costs.

19Pub. L. No. 101-508, § 13201(a), 104 Stat. 1388-610 (1990) (codified as amended at 2 

U.S.C. § 661c). More specifically, under 2 U.S.C. § 661c(b), new loan guarantee 

commitments may be made only to the extent that–(1) new budget authority to cover their 

costs is provided in advance in an appropriations act; (2) a limitation on the use of funds 

otherwise available for the cost of a direct loan or loan guarantee program has been 

provided in advance in an appropriations act; or (3) authority is otherwise provided in 

appropriations acts.

20 GAO, Puerto Rico: Characteristics of the Island’s Maritime Trade and Potential Effects of 

Modifying the Jones Act, GAO-13-260 (Washington, D.C.: Mar. 14, 2013).
In addition to the roles described above MARAD and DOD jointly manage 

programs intended to increase capacity for the military, including those 

related to sealift capacity. Sealift is the process of transporting DOD’s and 

other federal agencies’ equipment and supplies required during 

peacetime and war. First, the Voluntary Intermodal Sealift Agreement 

(VISA) program was established to provide DOD with “assured access” to 

commercial sealift and intermodal capacity to support the emergency 

deployment and sustainment of U.S. military forces.

Page 9 GAO-16-104 Maritime Transportation

21 To meet national 

defense or other security needs, DOD may use commercial sealift 

capacity, to the extent it is available, to meet ocean transportation 

requirements. This commercial sealift capacity includes U.S.-and-foreignflagged vessels and/or intermodal capacity to support DOD’s needs. In 

the event voluntary capacity does not meet DOD’s contingency 

requirements, DOD may activate VISA as necessary.

A second program, the Maritime Security Program (MSP), is administered 

by MARAD and is intended to guarantee that certain kinds of militarily 

useful ships and their crews will be available to DOD in a military 

contingency.22 Currently, MSP provides direct payment of $3.1 million per year 

for up to 60 militarily useful U.S.-flagged vessels participating in 

international trade to support DOD.23 DOT determines the commercial 

viability and DOD determines the military usefulness of vessels that seek 

participation in MSP. According to MARAD, as of October 2015, there 

were 165 large oceangoing vessels operating under the U.S. flag, 139 of 

which have been categorized as militarily useful. If needed, vessels in 

MSP would be activated through the VISA program.

 

21Intermodal capacity includes dry cargo ships, equipment, terminal facilities and intermodal 

management services. 

22Vessels in the voluntary MSP are also enrolled in VISA.

23As of October 1, 2015, there were 58 vessels that participate in MSP.
Page 10 GAO-16-104 Maritime Transportation

According to DOE, due to advances in extraction technologies and 

growing worldwide demand for natural gas, the United States is expected 

to become a net exporter of natural gas in the next few years. For 

decades the United States has been a net importer of natural gas, and as 

recently as just a few years ago the prospects that the U.S. would 

become a net exporter in this market seemed doubtful. For example, 

EIA’s Annual Energy Outlook 2011 did not have any projections for net 

exports of natural gas by the United States, but the next year’s Energy 

Outlook did show projected exports and those projections in more recent 

years have risen.24

According to EIA, this evolution in the U.S. natural gas industry relates to 

the discovery of more energy resources as well as advances in hydraulicfracturing and horizontal-drilling technologies. Moreover, studies we 

reviewed noted that the pricing of natural gas in many other regions of the 

world has traditionally been linked to oil prices, while in the U.S. prices 

are set based on supply and demand conditions in North America. 

Economic theory suggests that these differing price mechanisms in 

various regions of the world have encouraged some companies to invest 

in U.S. natural-gas liquefaction and export facilities with the intent to 

profitably sell U.S. natural gas in other regions where natural gas prices 

have generally been higher, particularly when oil prices are high. More 

recently, however, DOE officials told us that as the LNG export market 

has developed, oil-linked pricing is coming under pressure as buyers are 

benefiting from more options and demanding more flexibility in their 

 

24Department of Energy, Energy Information Administration, Annual Energy Outlook 2011, 

DOE/EIA-0383(2011) (Washington, D.C.: April 2011) and Department of Energy, Energy 

Information Administration, Annual Energy Outlook 2012, DOE/EIA-0383(2012) 

(Washington, D.C.: June 2012).

DOE and Industry 

Expect the United 

States to Play a 

Large Role in the 

LNG Market over the 

Next 10 Years

DOE and Industry Expect 

the United States to 

Become a Significant 

Exporter of LNG
purchases. Nevertheless, demand for natural gas is expected to be 

strong with growing demand in the coming years.

Beyond the cost of natural gas, there are other key costs that are 

important in determining U.S. competitiveness in the LNG export market. 

Unlike the transport of natural gas by pipeline, the transport of LNG 

requires the product to be stored and transported at extremely low 

temperatures, necessitating LNG carriers to have expensive technology 

to accommodate such cold-storage transport. In terms of transportation 

costs, the United States does not have an advantage over some other 

sources of natural gas or LNG for the large importing countries in Europe 

and Asia. For example, according to a study we reviewed as of now, 

much of Europe is supplied with natural gas by pipeline. As a result, LNG 

from the United States is less likely to be an economical source of natural 

gas to that region under many possible market conditions. While some 

Asian markets—notably Japan and Korea—have little pipeline gas 

supply, exports from planned liquefaction facilities in Australia and East 

African countries will have a proximity advantage (that is, shorter and thus 

likely less expensive transportation) to Asian countries over the United 

States. As such, according to economic reasoning, the question of the 

extent to which a cost advantage in gas supply is offset by cost 

disadvantages in transport plays an important role in determining U.S. 

competitiveness in the world LNG market.

Recent investments in liquefaction facilities are an important indicator that 

market conditions are such that the United States is expected to be 

competitive in the market for LNG exports. Despite higher transportation 

costs for U.S. LNG as compared to LNG from other countries into key 

export markets in Asia, investors were willing to commit substantial 

resources to develop the liquefaction facilities needed for that trade, as 

evidenced by their construction. In particular, five large scale liquefaction 

facilities are currently under construction in the United States, with one 

facility expected to come online by the end of 2015 and all five facilities 

expected to be operational within about 3 years (see table 2).

Page 11 GAO-16-104 Maritime Transportation

25 The total 

 

25According to DOE officials, “large-scale” facilities generally have a capacity to liquefy in 

excess of 0.1-billion cubic feet (bcf) per day of natural gas and generally intend to produce 

LNG for the purpose of exports via large LNG carriers. Conversely, small-scale facilities 

generally have a capacity of less than 0.1 bcf per day, and may produce LNG for various 

purposes including transport via intermodal containerized cargo aboard trucks or container 

ships. According to DOE officials, several of these small-scale facilities have applied to 

export LNG and some are currently operating.
daily capacity of these five facilities is nearly 10-billion cubic feet (bcf) of 

natural gas, which constitutes about 12.4 percent of expected U.S. natural gas 

production

Page 12 GAO-16-104 Maritime Transportation

26 and approximately 18.1 percent of the world’s expected LNG 

capacity in 2020.27 The business model used by the U.S. facilities currently 

under construction has helped to increase the business certainty of the 

liquefaction facilities, likely increasing their ability to obtain financing. In 

particular, according to representatives from the five facilities, the 

liquefaction capacity being built in the United States has been contracted 

out under 20-year contracts to buyers—mostly importers in Asian 

countries. Further, these contracts specify that buyers must pay for 

liquefaction services provided by the specific facility whether or not they 

choose to use all the capacity for which they contracted (that is, 

regardless of the amount of gas the customer chooses to have liquefied).

Table 2: U.S. Liquefaction Facility Construction Expected Capacity in Billion Cubic 

Feet (bcf) per day and Timelines

Site Location Total capacity First liquefaction

Sabine Pass Louisiana 3.5 bcf/day 2015a

Corpus Christi Texas 1.8 bcf/day 2018

Cameron Louisiana 1.7 bcf/day 2018

Freeport Texas 2 bcf/day 2018

Cove Point Maryland 0.77 bcf/day 2017a

Total n/a 9.77 bcf/day n/a

Source: GAO Analysis of Industry Documents │GAO-16-104

a

These facilities are expected to begin liquefaction late in the year.

Investments in facility construction, and the contracting of the associated 

capacity, have helped to position the United States as an emerging LNG 

exporter. Based on discussions with DOE officials, liquefaction facilities, 

and economic consulting firms, the expected level of U.S. exports over 

the next several years is tied, among other things, to the amount of 

liquefaction capacity of these five facilities. However, the fact that, 

according to liquefaction facility representatives, the liquefaction capacity

is already under contract and liquefaction facilities are expected to 

 

26Based on estimates in EIA’s Annual Energy Outlook 2015. 

27 Based on estimates in a report issued by the International Gas Union: International Gas 

Union, World LNG Report – 2015 Edition, World Gas Conference Edition (Fornebu, 

Norway: 2015).
receive payments for their full capacity does not mean that the capacity 

will necessarily be fully used all the time. Volatility in world market 

conditions may at times cause capacity to be underutilized due, for 

example, to periods of reduced demand such as during a recession. 

Moreover, other world suppliers are expected to enter the market over the 

next several years, and this could reduce the relative attractiveness of 

U.S. LNG. Even customers that have already purchased liquefaction 

capacity may choose not to use all the capacity for which they contracted 

from U.S. liquefaction facilities if new supply sources are more 

economical. As a result, some market uncertainty exists as to whether the 

full U.S. LNG capacity from the five facilities will, in fact, be exported over 

the next 20 years, even though liquefaction facility representatives stated 

that capacity is already under contract.

Additional uncertainties regarding U.S. exports of LNG relate to whether 

more capacity for liquefaction is likely to be developed beyond the 

capacity currently under construction. A number of additional liquefaction 

facilities have applied for approval from DOE and FERC in the past few 

years, and, as of September 2015, DOE has approved more than 30 

companies to export LNG from large-scale liquefaction facilities. 

However, based on current demand, representatives from liquefaction 

facilities told us that it is unlikely that some of those additional facilities will 

ever be built. Thus, while confidence regarding U.S. exports in the next 

few years under expected market conditions is driven primarily by the 

capacity commitments in liquefaction capability, longer-term forecasts are 

more uncertain due to unknowns regarding macroeconomic conditions, 

increased exports by other countries, as well as whether additional 

liquefaction capacity will be profitable to develop.

According to representatives from the liquefaction facilities we spoke with, 

under current business models and contracts, the costs associated with 

importing LNG (including, for example, feed gas, liquefaction services, 

and transportation) are separate, and U.S. liquefaction facilities have no 

responsibility for shipping LNG. According to representatives at all five 

U.S. liquefaction facilities, customers take possession of the LNG at each 

facility’s loading terminal, and customers arrange for LNG carriers to 

transport the LNG at their own expense. For example, representatives 

from one liquefaction facility explained that their customers may contract 

for the services of existing LNG carriers on long-term charters or may 

contract for construction of new carriers to transport U.S. LNG exports. 

See figure 2 for pictures of two styles of LNG carriers. A representative 

from another liquefaction facility told us that its customers have already 

Page 13 GAO-16-104 Maritime Transportation

Customers of U.S. LNG 

Have Responsibility for 

Transporting LNG from 

Liquefaction Facilities
contracted to build new LNG carriers to serve their needs in the new U.S. 

export market.

Figure 2: Image of Moss and Membrane Style Liquefied Natural Gas Carriers

Page 14 GAO-16-104 Maritime Transportation

Transportation costs borne by contracted overseas customers include 

vessel operating costs, such as fuel and labor, and capital costs, such as 

the purchase and financing of LNG carriers. Costs for transporting U.S. 

LNG vary depending on the destination. Thus, transportation costs affect 

the total delivered price of LNG to customers. Figure 3 shows an example 

from two liquefaction facilities of the costs that, combined, represent the 

total “landed” price of LNG for customers in Europe and Asia. According 

to representatives of the five liquefaction facilities, U.S. LNG customers 

are primarily from Asian countries, but some cargos are contracted to 

companies in Europe and would likely incur lower shipping costs.
Figure 3: Estimated Costs Associated with Acquiring Liquefied Natural Gas from 

Page 15 GAO-16-104 Maritime Transportation

the United States, U.S. Dollars

Note: The costs of feed gas and transportation are highly variable; these examples are provided for 

illustrative purposes only. Costs for liquefaction, natural gas supply, and transportation are generally 

discussed per MMBtu (energy content) rather than gas or liquid volume. One bcf of natural gas is 

equivalent to roughly 1,100,000 MMBtu.

aCalculated as 115 percent of average 2014 Henry Hub price per MMBtu. The Henry Hub is a major 

gas trading center in the Gulf of Mexico and the delivery point for natural gas futures contracts on the 

New York Mercantile Exchange.

b

Transportation cost estimates and liquefaction fee were provided by a company associated with 2 

U.S. liquefaction facilities. Representatives from the three other U.S. facilities generally agreed with 

these estimates.

c

Estimated transportation costs as a percentage of estimated costs associated with acquiring LNG 

from the United States.

Estimates of the number of LNG carriers necessary for transporting U.S. 

LNG vary, but based on estimates of representatives from the five 

liquefaction facilities with whom we spoke, about 100 or more LNG 

carriers will be needed to transport U.S. exports once liquefaction 

facilities are fully operational. Stakeholders, including DOE officials and 

shipbuilder representatives, estimated the number of needed carriers to 

be as low as 25 and as high as 200. However, based on their knowledge 

of the contracted liquefaction capacity, representatives from liquefaction 

facilities, one shipbuilder, and an international association of LNG 

importers told us that about 100 LNG carriers will be needed for 

transporting U.S. exports and that most of these carriers have already 

been ordered or are under construction. This estimate is generally in line 

with our analysis of the needed carrier capacity to transport roughly 9.77 

bcf per day (the currently contracted capacity of U.S. facilities) based on 

the factors below (see app. I for more information on this analysis):

About 100 or More LNG 

Carriers May Be Needed 

to Transport Expected 

U.S. LNG Exports in the 

Coming Years
· Most modern LNG carriers have a cargo volume of between 160,000 

to 170,000 cubic meters.

Page 16 GAO-16-104 Maritime Transportation

28

· Most U.S. liquefaction capacity has been contracted to customers in 

Asia.

· According to a ship-building company we spoke with, a one-way 

voyage for an LNG carrier from the U.S. Gulf Coast to Japan can take 

approximately 30 days (or about 60 days, roundtrip) through the 

Panama Canal.

According to the shipbroker and other maritime stakeholders we spoke 

with, the current world LNG carrier fleet includes over 400 carriers, with 

another 160 new carriers scheduled for delivery by the end of 2018. 

Maritime stakeholders we spoke with said there is currently an 

overabundance of LNG carriers available in the world’s LNG shipping 

market relative to current demand, due in part to a speculative rush of 

orders. However, these stakeholders expect this to change in the next 

few years as increased LNG capacity from the United States and 

Australia begins to come online and older LNG carriers are taken out of 

service, at which point additional carriers may be needed.

As mentioned previously, currently operating LNG carriers are nearly all 

foreign built and flagged. For example, a ship broker we spoke with 

estimated that Korean shipyards have built about 250 of the 350 LNG 

carriers delivered in the last 20 years and also have the largest share of 

LNG carriers under construction. According to MARAD officials and a 

shipbuilder representative, LNG carriers have not been built in the United 

States since 1980, and no LNG carriers are currently registered under 

U.S. flag.29

 

28To put this into context, 170,000 cubic meters of LNG is equal to about 3.7 bcf of natural gas.

29Sixteen LNG vessels were built in the U.S. in the 1970s and are either operated under foreign 

flag for use in international trade, have been repurposed, or have been decommissioned. 

Congress has authorized the Coast Guard to issue coastwise endorsements for three 

specified U.S.-built LNG vessels, which would make them eligible for use in transport of 

LNG for domestic shipping under the Jones Act. The ship operator noted that these 3 

vessels are not well-suited to global trade because of their relatively small size (125,000 

cubic meter capacity). 
Page 17 GAO-16-104 Maritime Transportation

While we cannot reliably estimate the total number of U.S. mariner jobs 

that would be created due to the possibility that the proposed requirement 

could reduce demand for U.S. LNG (discussed in the next section), Coast 

Guard officials and representatives from four mariner unions estimated 

that each U.S.-flagged LNG carrier would likely employ a crew of between 

40 and 52 mariners, as discussed below. According to Coast Guard 

officials and representatives from mariner unions we spoke with, LNG 

carriers typically require about 20 to 26 mariners to operate, depending 

on the type of propulsion system used in the vessel. According to 

representatives from mariner unions, this number is a fairly average crew 

size for a large ship; in comparison, the average container ship requires 

about 20 mariners. A ship’s crew is comprised of officers and unlicensed 

mariners. For example, according to representatives from one mariner 

union, a typical LNG carrier may be operated by 11 officers (including 

deck and engineering officers) and 15 unlicensed mariners (7 deck crew, 

5 engine crew, and 3 stewards). To estimate the total number of mariner 

jobs each LNG carrier would support, mariner groups told us that this 

number should be doubled to 40 to 52 to account for vacation time, other 

types of leave, and training. Assuming that demand for U.S. LNG is not 

decreased and that 100 LNG carriers would be needed to transport the 

five U.S. facilities’ full capacity of LNG once they are fully operational, 

approximately 4,000 to 5,200 mariners could potentially be employed on 

U.S.-flagged LNG carriers. However, as discussed in the next section, 

implementation of the proposed requirement would likely lead to 

decreased demand for LNG.

If the Proposed 

Requirement Does 

Not Reduce the 

Expected Demand for 

U.S. LNG, It Could 

Expand Employment 

for U.S. Mariners and 

Shipbuilders

If Demand Is Not 

Reduced, Maritime 

Stakeholders Say the 

Proposed Requirement 

Could Expand 

Employment for U.S. 

Mariners, Though Time 

Would Be Needed for 

Training
All currently operating LNG carriers are foreign-flagged (as discussed 

previously) and, according to mariner unions we spoke with, employ few 

U.S. officers and no unlicensed U.S. mariners.

Page 18 GAO-16-104 Maritime Transportation

30 According to 

representatives from the mariner groups we contacted, about 180 active U.S. 

officers have the training and experience to work on LNG carriers, but the 

last time any U.S. unlicensed mariners worked on LNG carriers may have 

been over a decade ago. While all U.S. flagged vessels are required to 

hire predominantly U.S. citizen mariners,31 maritime stakeholders told us 

that foreign-flagged vessels may be able to hire the least expensive 

crews available with the necessary skills.

U.S. mariners may not be immediately available to operate LNG carriers 

due to training and experience requirements and expectations from 

carrier operators. In the shipping industry, there are minimum experience 

requirements for working on LNG carriers, as discussed below. 

Representatives from mariner unions we spoke with stated that the U.S. 

maritime industry has the capacity to accommodate the potential demand 

for LNG carrier crews and recruiting mariners would not be an issue. 

However, based on requirements for obtaining necessary credentials, 

ensuring officers and unlicensed mariners have sufficient experience and 

training could take years. According to a representative from one mariner 

union we spoke with, unlicensed mariners need to complete a one-week 

LNG-carrier training class. However, qualification for employment on LNG 

carriers also requires experience working on an LNG carrier. For 

example, Coast Guard requirements for a “tankerman” credential 

(certification required to work on a tank vessel, including LNG carriers) 

include at least 90 days of experience as well as at least 10 loadings or 

unloadings of liquid cargo while working on the tanker.32 According to 

Coast Guard officials, currently there about 300 U.S. mariners holding a 

national endorsement as Tankerman‐PIC (person in charge) that is valid 

for liquefied gas tank vessels. For an LNG carrier, the latter requirement 

 

30“Unlicensed mariner” is the term used to refer to more entry-level/non-officers of a vessel crew, 

though they are subject to Coast Guard and international training and credential 

requirements.

31U.S. regulations for manning are in 46 C.F.R. Part 15 and are further explained in Coast Guard 

Policy contained in the USCG Marine Safety Manual Volume III Part B.

32See 46 C.F.R. § 13.203. National tankerman endorsements are issued for either liquefied gases 

(including LNG) or dangerous liquids (oil and chemical) and mariners must have the 

endorsement appropriate to the cargo of the vessel on which they will serve.
could take 10 months or more to satisfy. According to representatives 

from a shipping brokerage company we spoke with, it could also be 

difficult for U.S. mariners to gain the necessary experience aboard a 

foreign-flagged LNG carrier (necessary due to the current lack of U.S.-

flagged LNG carriers) because of the relatively higher costs associated 

with U.S. unlicensed mariners—discussed later in this report—compared 

with available foreign mariner crews competing for those jobs.

Increased employment opportunities for U.S. mariners, if they did occur, 

could have benefits related to military readiness. DOD and MARAD 

officials told us that any action that increases the number of U.S. mariners 

available to operate the reserve sealift fleet is beneficial. However, we 

found in August 2015 that while MARAD has stated that there is a need 

for additional mariners for military purposes DOD has had a sufficient 

number of mariners to meet its past needs.

Page 19 GAO-16-104 Maritime Transportation

33 In fact, we found that 

according to Coast Guard data, the number of mariners potentially qualified to 

operate the reserve sealift fleet has increased, from 37,702 in 2008 to 54,953 in 

2014. While MARAD estimates that only 11,280 of those mariners are 

available, we found that MARAD had not fully analyzed the availability of 

mariners for a prolonged activation, and we recommended MARAD 

conduct a full analysis.34 As such, it is unclear to what extent the additional 

mariner capacity possible under the proposed requirement would provide 

a benefit to military sealift capacity.

Representatives from 3 of 11 companies we contacted operating large 

and active U.S. shipyards expressed interest in building LNG carriers.35

However, the shipyards would need to acquire the equipment and technology to 

build specialized LNG-containment systems that store LNG at minus 260 

degrees Fahrenheit.36 In order to license this technology, shipyards must pay a 

licensing fee and successfully complete a qualification process, which includes 

building a mock-up of the containment system, to be certified to build the 

 

33GAO, International Food Assistance: Cargo Preference Increases Food Aid Shipping Costs, and 

Benefits Are Unclear, GAO-15-666 (Washington, D.C.; August 2015).

34DOT concurred with our recommendation. 

35The three shipyards are National Steel and Shipbuilding Company, Aker Philadelphia, and VT 

Halter Marine.

36According to shipbuilders we spoke with, most LNG vessels use a containment system designed 

and licensed by a French company.

A Few U.S. Shipyards 

Expressed Interest in 

Building LNG Carriers, but 

a Number of Challenges 

Exist
containment system. Although some U.S. shipyards are currently gaining 

experience building LNG-powered vessels, shipbuilders and others we 

spoke with stated that this experience is not comparable to building the 

large containment systems required for transporting LNG for trade. 

Specifically, LNG-powered vessels use containment systems with a 

capacity of about 900 cubic meters. These systems are generally 

purchased overseas and welded onto the vessel. Conversely, according 

to shipbuilders, LNG carriers have larger containment systems, with 

approximately 170,000 cubic meter capacity, that must be constructed 

within the carrier.

Based on information from shipbuilders, we found that construction of 

LNG carriers in U.S. shipyards presents several challenges that could 

likely mean higher costs and longer lead and construction times than 

those for Korean shipyards, which currently build most LNG carriers:

· Shipyard infrastructure: Only two of the three shipyards in our 

review currently have docks long enough to accommodate 

construction of the LNG carriers necessary for international trade 

(approximately 1,000 feet long) without substantial capital 

improvements.

Page 20 GAO-16-104 Maritime Transportation

37

· Availability: The two shipyards with docks large enough to build 

these LNG carriers currently have vessel orders that take up their 

shipbuilding capacity through approximately 2018, after which 

representatives stated they may be available for building LNG 

carriers. However, we believe that given the limited dock space, 

orders they may receive in the near term for other types of vessels 

may delay future construction of LNG carriers.

· Timeline: Representatives from those two shipyards with docks long 

enough to build LNG carriers estimated that it would take about 4 to 5 

years to build an LNG carrier from the time of initial contact with a 

buyer. According to one representative, the process of building 

capacity, preparing for construction, and constructing the first LNG 

carrier would include:

 

37It is unclear whether, or the extent to which, U.S. shipyards would expand to create 

additional capacity for this potential market. According to representatives from one 

shipyard, anything may be possible given a market and enough funding.
· development of carrier specifications,

· contract negotiations,

· qualification to build the LNG containment system,

· detailed design of the carrier,

· construction of the carrier,

· installation of the containment system, and

· final testing of the carrier and containment system.

· Productivity: Representatives from those two shipyards stated their 

shipyard can produce one and two large vessels a year, respectively. 

Based on these rates, we estimate it would take over 30 years to build 

the 100-carrier fleet potentially needed for U.S. exports. These 

shipyard representatives stated that as more carriers are built, 

efficiency may increase and construction may gain speed. Increased 

efficiency might somewhat reduce the number of years it would take 

to provide an adequate fleet for this trade. In comparison, according to 

representatives from a ship brokerage, major Asian shipyards may be 

capable of delivering between 50 and 80 large ships in 1 year, for 

reasons discussed below.

As a result of U.S. shipyards’ capacity constraints, as well as their 

anticipated lower productivity than foreign shipyards, LNG carriers built in 

U.S. shipyards would likely cost more than those currently built in foreign 

shipyards. According to industry representatives we spoke with, new LNG 

carriers built in Korean shipyards, where the majority of LNG carriers are 

currently built, are generally priced from $200 to $225 million. Currently, 

no U.S. shipyards build LNG carriers, so there are no actual carrier prices 

for comparison. However, representatives from the three U.S. shipyards 

we spoke with estimated that U.S.-built carriers would cost about two to 

three times as much as similar carriers built in Korean shipyards, 

depending on factors such as volume.

Page 21 GAO-16-104 Maritime Transportation

38 Based on this range cited by U.S. 

 

38Additionally, the definition of what constitutes a U.S.-built LNG carrier under any 

proposed requirement—meaning the amount of foreign-built components allowed or the 

extent of assembly required in U.S. shipyards under the requirement—would also affect 

costs.
shipyards, the cost of U.S.-built LNG carriers could range from $400 to 

$675 million. Another factor that contributes to cost differences between 

U.S. and Korean shipyards, according to representatives from a shipping 

brokerage company we spoke with, is that Korean shipyards have made 

capital investments in equipment that increases efficiency such as cranes 

that can lift 2,000-4,000 tons, compared to cranes in U.S. shipyards that 

can lift 600 tons.

Officials from the two U.S. shipyards with sufficient dock space stated that 

hiring of U.S. shipyard workers would depend on the number of LNG 

carriers ordered and would rely in part on foreign workers. 

Representatives from one shipyard roughly estimated that for an order of 

one large LNG carrier they might hire about 1,000 short-term U.S. 

workers and hire an additional 250 to 300 skilled Korean workers for the 

duration of the build time to ensure the work is done correctly. However, if 

they had contracts for a larger number of carriers, they would likely hire 

fewer Korean workers, who would gradually be transitioned out as U.S. 

workers were trained to complete the work. A representative from the 

second shipyard stated that the skills needed to build the LNG 

containment system do not exist in their current workforce, so for an order 

of two LNG carriers, they would likely hire skilled foreign shipyard workers 

to do the work in order to mitigate risk and increase schedule 

predictability, even if the costs of employing a foreign workforce may be 

slightly higher than using U.S. workers. Representatives also stated that 

they would be unlikely to increase capacity by opening another shipyard 

to build LNG carriers alongside other vessels, so they might not hire any 

additional new workers. Nonetheless, they noted that this LNG work 

would add to the stability of the shipyard’s current 1,100 shipbuilding jobs, 

and lead to a more skilled workforce.

This shipyard employment estimate is roughly comparable to estimates 

using Bureau of Labor Statistics (BLS) estimates on job creation. Based 

on employment estimating tools from BLS, construction of a $450-million 

ship (as noted above, a conservative estimate of the cost to build an LNG 

carrier in the United States) is associated with 1,675 jobs in the 

shipbuilding industry. However there are a number of caveats associated 

with this estimate. For example, the numbers in BLS’s estimates 

represent averages for all types of ship and boat building, and are not 

specific to LNG carriers. Additionally, the number of shipbuilding workers 

would likely remain steady across the production of multiple ships over 

time, so it would not provide new jobs for every additional carrier ordered. 

For example, the estimated need for 100 LNG carriers to serve the U.S. 

Page 22 GAO-16-104 Maritime Transportation

If LNG Customers 

Contract to Purchase 

U.S.-Built Carriers, 

Construction of Those 

LNG Carriers Could 

Provide Employment in 

U.S. Shipyards, according 

to Shipyard 

Representatives
LNG export market will not result in 167,500 jobs. And finally, while jobs 

may be created in the shipbuilding sector, a certain number of the jobs 

would likely be taken by people who are currently working in other 

construction or related industries, such as welders or other skilled trade 

workers. As such, while shipbuilding jobs might increase, not all of that 

increase necessarily represents net new jobs for the overall economy.

Increasing or stabilizing jobs in the shipbuilding industry for a period of 

time, if it occurred, could have additional benefits for military readiness. 

DOD officials told us that there is no military use for LNG carriers 

because the carriers are too specialized for current military needs. 

However, in addition to offering stability for U.S. shipbuilder jobs, as long 

as a market for U.S. LNG is at or near currently expected levels, the 

proposed requirement could help maintain shipbuilding capacity in the 

event it is needed for military purposes. Officials from DOD and MARAD 

stated that any actions that increase the capacity of U.S. shipyards as an 

industrial base would be indirectly beneficial for the Navy and military 

readiness in general.

The proposed requirement would increase the cost of transporting LNG 

from the United States, which would decrease the competitiveness of 

U.S. LNG as compared to other sources. This decreased competitiveness 

may in turn reduce demand for U.S LNG. The extent of this reduction is 

unclear. Additionally, any reduction in demand for U.S. exports due to the 

proposed requirements and resulting changes to the LNG market may 

decrease jobs in other U.S. industries such as the liquefaction and the oil 

and gas industries.

As we have noted, transportation costs for LNG are a fairly significant 

portion of the overall cost of the product in import markets. Based on 

information shared with us by representatives from U.S. liquefaction 

companies regarding current expected costs of the key phases for the 

LNG export supply chain—gas supply, liquefaction, and transportation—

shipping costs are expected to make up about 26-percent of total costs 

for U.S. LNG delivered to an Asian market. Representatives from 

liquefaction companies, shipping companies, and an economic consulting 

company we spoke with currently expect U.S. LNG exports from the 

United States over the coming years to be transported on carriers built in 

foreign countries—primarily Korea and Japan. If these exports were 

required to be transported on U.S.-built and U.S.-flagged carriers, the 

costs associated with transport would be higher, as described below.

Page 23 GAO-16-104 Maritime Transportation

U.S.-Built Carriers 

Would Increase 

Transportation Costs 

and Would Likely 

Reduce Demand for 

U.S. LNG

The Proposed 

Requirement Would 

Increase Transportation 

Costs For U.S. LNG 

Exports
The requirement to ship U.S. LNG on U.S.-built-and-flagged carriers 

would affect both the cost of carrier construction, as noted above, as well 

as carrier operation. Our conversations with the 3 shipbuilders and 2 

shipping companies have suggested that the purchase price of a U.S.-

built LNG carrier is likely to be at least double—and could be significantly 

more—the cost of an LNG carrier constructed in South Korea. In addition, 

operating costs for U.S.-flagged carriers would be higher than for 

internationally flagged carriers. According to a 2011 MARAD study, U.S. 

crews are generally more highly paid than international crews and certain 

other operating costs associated with U.S. flagging requirements, such as 

insurance costs, are also higher. The study found that operations costs of 

U.S.-flagged vessels of various types were, on average, about 2.7 times 

that of foreign-flagged carriers.

Page 24 GAO-16-104 Maritime Transportation

39 However, based on our discussions with one 

mariner union, the differential for the costs of crewing U.S-flagged LNG carriers 

compared to international carriers may be less than the cost differential for 

the types of vessels MARAD surveyed. This is because, according to 

three mariner unions we spoke with, LNG carriers require more highly 

skilled mariners, so crew costs for international LNG carriers are 

generally higher than crew costs on other types of ocean-going vessels.

The higher costs of building and operating U.S. LNG carriers may make it 

more challenging for shippers to obtain financing for construction of U.S.-

built carriers than for carriers built in other countries. A critical question 

regarding any large capital project is whether potential investors believe 

that the asset will be profitable enough to warrant the investment, 

particularly if financial returns carry substantial risk. To better understand 

the cost implications of a requirement that U.S. LNG exports be carried 

on U.S.-built-and-flagged carriers, we conducted an analysis designed to 

develop a general estimate of the additional shipping revenues that 

investors must believe will be earned over the life of the investment to 

provide reasonable certainty that the investment is financially viable.40

 

39Department of Transportation, Maritime Administration, Comparison of U.S. and ForeignFlag Operating Costs (Washington, D.C.; September 2011).

40While shipping rates may vary substantially over the course of time given global macroeconomic 

conditions, our analysis focuses solely on the amount of revenues gained through shipping 

rates that are necessary to cover the investment in building and operating an LNG vessel. 

In other words, at times shipping rates may far exceed that needed for full cost recovery, 

and at other times rates may be low enough that carriers may not fully recover costs for a 

period of time. Our focus is solely on the additional revenues required, on average, over 

the 25-year period to cover the higher costs associated with the U.S. build and operations. 
Although we do not have data to conduct a detailed estimate,

Page 25 GAO-16-104 Maritime Transportation

41 by making some 

hypothetical assumptions we are able to provide an illustration of the potential 

cost impact of a U.S.-built-and-flagged carrier requirement for LNG 

exports, if all other factors remain equal. 42 These assumptions include:

· The U.S.-built carriers would be financed through 25-year debt at a 4 

percent rate of interest.43

· A U.S.-built LNG carrier of approximately 170,000 cubic meter 

capacity will be priced at $450 million, about twice that of such 

carriers being constructed for this trade in Korea.44

· Operating costs of the U.S.-flagged LNG carriers would be 50-percent 

higher than an internationally flagged LNG carrier (likely a 

conservative estimate, compared to the MARAD study cited above).

· A U.S. carrier would make six deliveries of LNG each year to an Asian 

destination.45 This suggests an annual capacity of over 23-trillion British 

thermal units (Btu) of energy per LNG export carrier.

We found that, under these assumptions, the additional transportation 

costs associated with a U.S.-built-and-flagged LNG carrier would be 

roughly $0.73 per MMBtu of delivered energy product. Based on our 

discussions with U.S. liquefaction companies, we understand that an 

estimated shipping rate for LNG from the U.S. to market destinations in 

 

41Data on the costs to build LNG carriers in the United States is not available because 

carriers of this size and type have never been built in the United States.

42For additional information on this analysis, see Appendix I.

43This interest rate assumes that investors in LNG carriers are able to participate in the 

MARAD loan guarantee programs at rates comparable to those prevailing recently. 

However, if investors are not able to obtain these loan guarantees and/or if future interest 

rates rise, the appropriate interest rate assumption would be higher.

44According to a shipbroker we spoke with, the current market price of a Korean-built LNG 

carrier is based on the achievement of substantial economies of scale in construction.

While the average cost of a carrier built in the United States would decrease over time, the 

extent to which economies of scale and increased efficiency would contribute to cost 

reduction is unclear. Nevertheless based on our discussions with shipbuilding industry 

officials, we believe this to be a conservative estimate of the average cost of a U.S.-built 

LNG carrier.

45This estimate is based on discussions with several industry stakeholders who told us that 

transit time for an LNG vessel from the United States to Asia is roughly 30 days each way. 
Asia is roughly $3.00 per MMBtu under the status quo market 

environment, suggesting that a requirement for U.S.-built-and-flagged 

carriers to transport U.S. LNG would be associated with about 24-percent 

higher shipping rates if all of the additional cost were passed on to the 

buyer.

Page 26 GAO-16-104 Maritime Transportation

46

Higher shipping rates likely associated with U.S.-built-and-flagged carriers 

would decrease the competitiveness of U.S. LNG, but the extent to which 

this would occur and its effects are uncertain. As we have noted, world 

supply and demand conditions determine the extent to which there is a 

market for U.S. LNG exports, and those conditions would be affected by 

higher shipping costs for U.S. LNG exports. The increase in shipping 

costs may increase the delivered price for U.S. LNG relative to non-US 

LNG and other energy sources. A higher relative price may in turn reduce 

demand for U.S LNG. However, it is difficult to know the extent to which 

these added costs would affect U.S. LNG exports because of the variety 

of additional supply and demand factors that may also affect purchasers’ 

decisions.

First, leaving aside the higher cost of U.S. LNG to purchasers, the 

shipyard capacity in the United States could present a major limiting 

factor for accommodating U.S. exports under a U.S.-built-and-flagged 

requirement. As we noted earlier, the U.S. shipbuilding industry does not 

have the capacity to build the carriers needed for the expected level of 

this trade in the near term so it will take many years for enough carriers to 

be built to service the expected level of exports. As such, the manner in 

which any U.S.-built requirement is implemented would be a critical 

element in the market consequence of this requirement. If U.S.-built 

carriers were required within, for example, 5 years of the requirement’s 

passage, total carrier capacity available to ship LNG would itself be a 

major limiting factor for exports. Because capacity would likely only be 

able to come online gradually over more than 3 decades, limited LNG 

 

46Note that the $0.73 per MMBtu cost differential estimate is based on increases to only the 

capital and operating cost portions of total shipping costs that would be different for U.S. 

flagged versus foreign vessels. The market shipping rate (which, according to liquefaction 

facility officials, is expected to be roughly $3.00 per MMBtu for voyages to Asia) also 

reflects other cost elements, such as fuel costs and other voyage costs—such as port and 

canal costs—which would not be higher for U.S. vessels. Thus, the increase in capital and 

operating costs that we hypothesize for U.S. vessels, when taken as a percentage of 

estimated shipping rates, represent only a 24-percent increase.

Increased Transportation 

Costs Would Reduce U.S. 

Competitiveness in the 

LNG Market
would likely be exported for some period of time, requiring purchasers to 

import from other sources in the early and intermediate years. This 

reduction in the currently planned exports of U.S. LNG may cause the 

U.S. export industry to not develop as currently planned—particularly if 

liquefaction facilities were unable to enforce provisions of their contracts 

that require them to pay regardless of services used (see further 

discussion below). Moreover, in the interim years, importers may be 

developing new sources for their product and contracting for long-term 

purchases from these other suppliers. Such circumstances would likely 

undermine any substantial development of U.S. exports. However, the 

ability to reflag international carriers to the U.S. flag might be able to 

occur in a more timely fashion such that this ability to reflag could mitigate 

a substantial impact on exports related to LNG carrier availability if the 

requirement for U.S.-built carriers were phased in over a longer term.

A second factor that may influence the market effect of this requirement 

relates to customers’ existing financial commitments. As discussed 

previously, according to representatives of liquefaction facilities, all of the 

LNG liquefaction capacity for U.S. exports is already committed under 20-

year contracts—that is, customers have already agreed to pay for 

liquefaction services for a long period of time whether they fully use the 

service or not. Additionally, according to liquefaction companies we spoke 

with, some of these customers have contracted to lease foreign-built 

carriers on a long-term basis and/or have contracted for the construction 

of new carriers in foreign shipyards for the transport of U.S. LNG. These 

existing financial commitments may constrain the manner in which these 

purchasers can adjust their business plans in response to a U.S. carrier 

requirement.

Several stakeholders told us that implementation of the proposed 

requirement and associated increases in transportation costs could 

prompt customers to attempt to modify, renegotiate, or terminate their 

liquefaction contracts. Specifically, according to two liquefaction 

companies and a representative from an economic research and 

consulting company, customers might try to excuse their contractual 

obligations by invoking contract law doctrines such as force majeure 

(generally defined as unforeseeable circumstances outside the control of 

the contract parties that prevent compliance with a contract) or 

impracticability (generally defined as where contract performance of an 

act [such as contractual duty] can only be rendered at excessive or 

unreasonable difficulty). While the outcome of such potential litigation is 

uncertain, any litigation could create delays and add to market 

uncertainty, which may, in turn, reduce the market for U.S. LNG. If 

Page 27 GAO-16-104 Maritime Transportation
customers are able to modify, renegotiate, or terminate these contracts, 

the liquefaction facilities would likely experience reduced profits, which 

might adversely affect their operations.

Similarly, purchasers would need to be able to finance the U.S.-built LNG 

carriers to be able to continue their plans to purchase U.S. LNG. As we 

noted, the increased cost of U.S.-built vessels could make it more 

challenging to finance these vessels. Moreover, existing commitments to 

lease or contract for foreign-built tankers could add an additional 

obstacle. If customers are not able to modify, renegotiate, or terminate 

contracts for leased tankers or for the building of new tankers in foreign 

shipyards, customers’ ability to purchase U.S. LNG may be constrained 

because they may not be able to finance additional tankers built in the 

United States. In that case, whether or not they must pay for liquefaction 

capacity they have contracted for (without receiving any LNG), 

purchasing U.S. LNG might no longer be a financially viable option.

A reduction in the level of expected U.S. LNG exports due to higher 

shipping costs could have effects on sectors of the economy involved with 

the LNG export supply chain. Reduced or eliminated exports would 

render some or all of the capacity in liquefaction facilities unnecessary, so 

some jobs that have been or are expected to be created in these facilities 

would be lost. For example, representatives from one facility stated that 

they expect to employ more than 200 individuals once the facility 

becomes operational. Further, if contracts for the purchase of liquefaction 

were modified, renegotiated, or terminated by customers (for example, 

through the litigation process or through default), these facilities could be 

less profitable, which could lead to financial implications for their 

investors. Further, as discussed above, the potential gain in jobs in the 

shipbuilding and mariner occupations that the carrier requirement would 

be designed to promote might not be fully realized if U.S. LNG exports 

were reduced. If, for example, the market for U.S. LNG were eliminated, 

no LNG carriers would need to be built in the United States.

In addition, in the gas extraction industry, any reduction in exports would 

likely cause a small loss in the number of jobs, since there would be 

reduced demand for natural gas supplies.

Page 28 GAO-16-104 Maritime Transportation

47 Another possible effect of 

 

47If the requirement were also imposed on exports of LNG from Alaska, that trade may also be 

affected.

Proposed Requirement 

and Changes in U.S. LNG 

Exports May Have Ripple 

Effects through the LNG 

Supply Chain
reduced U.S. exports would be reduced revenues for oil and gas companies 

involved in energy extraction, which could have a further effect of reduced 

investments by these companies. Finally, reduced exports could lead to a 

small decrease in the price of natural gas in the domestic market, since 

more of the supply of the product would be maintained for domestic use.

Representatives from economic forecasting firms, one shipbuilder, and 

one liquefaction company we spoke with stated concerns that the 

proposed requirement may have implications under existing trade 

agreements, including:

· potential legal action to challenge the requirement brought in various 

forums,

· potential adverse effects on current or future trade negotiations, and

· potential retaliatory trade practices, such as foreign government 

action to protect one or more industries within their respective 

countries.

A few stakeholders have proposed that the requirement may also have 

some safety and security benefits beyond military readiness. For 

example, one mariner union raised the possibility of U.S. carriers being 

perceived as safer than those built and/or flagged in other countries. 

However, other stakeholders, including the Coast Guard, stated there is 

no reason to believe U.S.-built-and-flagged carriers would be any safer 

than foreign LNG carriers. According to industry reports, as of February 

2015, there have been no major accidents involving LNG carriers. 

Similarly, Coast Guard officials stated that they have 

protocols/procedures in place to help ensure safety of the United States

from ships coming into U.S. port and that they saw no security benefit 

associated with reducing the number of foreign shippers entering U.S. 

waterways and ports.

We provided a draft of this report to the Departments of Defense, Energy, 

Homeland Security, and Transportation and the U.S. Trade 

Representative for their review and comment. We also provided a draft of 

this report to DOL for informational purposes. DOE and DOT provided 

technical comments, which we incorporated as appropriate. DOD 

provided technical comments, which we incorporated as appropriate, as 

Page 29 GAO-16-104 Maritime Transportation

Stakeholders Expressed 

Concerns about Potential 

Trade Implications

Few Stakeholders Cited 

Safety and Reliability 

Benefits

Agency Comments
well as formal comments. In its comments, which are reprinted in full in 

appendix II, DOD stated that it appreciated that we noted that U.S. 

national security plans and strategies rely, in part, on the ability to draw 

on U.S. commercial ships and mariners as well as the existence of a 

domestic shipbuilding industrial base. USTR and DHS had no comments.

We are sending copies of this report to the appropriate congressional 

committees, the Secretary of Defense, the Secretary of Energy, the 

Secretary of Homeland Security, the Secretary of Labor, the Secretary of 

Transportation, and the U.S. Trade Representative. This report is also 

available at no charge on the GAO website at http://www.gao.gov.

Page 30 GAO-16-104 Maritime Transportation

If you or your staff have any questions concerning this report, please 

contact me at (202) 512-2834 or FlemingS@gao.gov. Contact points for 

our Offices of Congressional Relations and Public Affairs may be found 

on the last page of this report. GAO staff who made major contributions to 

this report are listed in appendix III.

Susan A. Fleming

Director, Physical Infrastructure Issues
Appendix I: Objectives, Scope, and 

Methodology

The Howard Coble Coast Guard and Maritime Transportation Act of 

2014

Page 31 GAO-16-104 Maritime Transportation

1

includes a provision for GAO to report on the number of positions that 

would be created in the United States maritime industry each year in 2015 

through 2025 if liquefied natural gas (LNG) exported from the United States 

were required to be carried: (1) before December 31, 2018, on vessels 

documented under the laws of the United States; and (2) after such date, 

on vessels documented under the laws of the United States and 

constructed in the U.S. This report discusses: (1) current industry and 

Department of Energy (DOE) expectations for the market for U.S. exports 

of LNG, and how that market is expected to operate, (2) stakeholders’ 

views on how the proposed requirement to use U.S.-flagged-and-built 

carriers for LNG exports could affect jobs in the maritime, shipbuilding, 

and other related sectors, and (3) potential effects of the proposed 

requirement on the market for U.S. LNG and the broader U.S. economy, 

including the market for U.S. LNG and other industries.

To describe current industry and DOE expectations for the market for 

U.S. exports of LNG, and how that market is expected to operate, we 

collected and analyzed information on economic forecasts of the LNG 

market including the U.S. Energy Information Administration’s (EIA) 

Annual Energy Outlook for several years, including 2015.2 We interviewed 

DOE officials and representatives from four economic research and 

consulting firms who have published reports on the prospective market for 

U.S. LNG and LNG liquefaction companies that have begun construction 

on U.S. liquefaction facilities to better understand DOE’s estimates about 

expected U.S. LNG exports and the world LNG market and to assure 

ourselves that the estimates were sufficiently reliable for the purposes of 

this report. We identified economic research and consulting firms for 

interviews based on work they performed relevant to this topic. We 

determined that reports issued by those companies were reliable for our 

purposes based on our reading of the methods and analysis used as 

described in their published reports. We also interviewed the four 

companies associated with the five approved and under-construction 

export facilities (as listed on the Federal Energy Regulatory Commission’s 

list of approved import/export terminals in the continental U.S. as of July 

 

1

Pub. L. No. 113-281, § 308, 128 Stat. 3022.

2Department of Energy, U.S. Energy Information Administration, Annual Energy Outlook,

(Washington, D.C.: September 2015). The U.S. Energy Information Administration is the 

statistical and analytical agency within the U.S. Department of Energy.

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

2015) regarding their plans and expectations.

Page 32 GAO-16-104 Maritime Transportation

3 We interviewed 

representatives from the identified economic research and consulting firms and 

energy companies regarding expected export capacity, customer plans, and the 

number of LNG carriers needed to transport expected U.S. LNG capacity. 

We also analyzed this information to develop our own estimate of the 

needed carrier capacity. To estimate the necessary number of carriers 

needed to transport U.S. LNG capacity, we made the following 

assumptions:

· U.S. liquefaction capacity of 9.77 bcf per day, based on information 

from the five under-construction U.S. facilities;

· 330 liquefaction days per year, assuming that liquefaction facilities 

would operate at 90 percent productivity;

· carrier capacity of 170,000 cubic meters LNG, based on information 

from industry stakeholders; and

· six round-trip voyages per carrier, per year, based on:

· Information from the five liquefaction facilities that a majority of 

U.S. LNG capacity is contracted to customers in Asia, and

· Statements from stakeholders that a round trip voyage to Asia 

would take about 60 days.

Under these assumptions, we calculated a need for approximately 870 

carrier voyages per year to transport U.S. LNG exports, or about 145 

carriers total. However, depending on destination (some U.S. capacity 

has been contracted to customers in Europe, which would require less 

time per round trip), expected productivity of liquefaction facilities (at least 

one liquefaction facility we spoke with expects to operate at about 80 

percent efficiency), and the amount of gas customers eventually purchase 

and liquefy (customers may, at one time or another, choose not to use 

their entire contracted capacity), we believe 100 carriers, as estimated by 

the liquefaction companies we spoke with, is a reasonable estimate of 

projected need.

 

3There is a LNG export facility that has been operating in Alaska since the 1980s, but this 

facility is responsible for a very small portion of expected US exports. We were unable to 

interview officials from this facility.
Appendix I: Objectives, Scope, and 

Methodology

The provision in the Act regarding this work specifies that GAO report on 

the number of positions that would be created in the U.S. maritime 

industry each year in 2015 through 2025 if the proposed requirement 

were implemented. As the proposed requirement has not been introduced 

as legislation as of October, 2015, the dates referenced in the Act may 

change. As such, to describe stakeholder views on the potential effects of 

the proposed requirements on maritime jobs and the economy and to 

determine the potential effects of these requirements on the market for 

U.S. LNG and the broader U.S. economy, we have referenced 

timeframes more generally, rather than referring to specific dates. To 

describe stakeholder views on the extent to which the requirement of 

U.S.-flagged-and-built carriers for LNG exports would affect jobs in the 

maritime, shipbuilding, and other related sectors, we collected and 

analyzed information on the capability and capacity of U.S. shipbuilders 

and estimated costs and requirements to build and operate LNG carriers 

based on documentary and testimonial evidence from selected maritime 

industry stakeholders. These stakeholders include representatives of 

three shipbuilding companies; two shipping companies (one shipbroker 

and one LNG carrier operator); the four major marine officer and 

unlicensed mariner unions in the United States; and officials from DOE, 

Department of Transportation’s (DOT) Maritime Administration (MARAD), 

Department of Homeland Security’s U.S Coast Guard, and Department of 

Labor (DOL). We selected maritime stakeholders (including shipbuilders, 

mariner unions, and shipping companies) for interview based on 

recommendations from government and industry stakeholders and 

capacity to provide services related to LNG carrier construction and 

operation. For instance, we selected the shipping companies based on 

the fact that they are currently involved in shipping LNG. We selected 

U.S. shipbuilders from a list of 11 large and active shipbuilding companies 

in the United States as of April 2015 based on their stated interest and 

capacity to build LNG carriers. To estimate the employment required to 

support a given level of ship-building, we relied on the Bureau of Labor 

Statistics’ Employment Requirements Table (ERT), which is a commonly 

used methodology. However, this type of analysis has limitations:

· Estimates for the ERT are based on the ship and boat-building 

industry as a whole, using the Domestic Nominal ERT. According to 

BLS, it is not possible to obtain more precise estimates of the job 

supported in the construction of LNG carriers specifically.

· The ERT is based on a snapshot of the economy at a given time and 

does not take into account changes in productivity based on increases 

Page 33 GAO-16-104 Maritime Transportation
Appendix I: Objectives, Scope, and 

Methodology

in production (for example, economies of scale).

· All estimates refer to jobs, but not necessarily full-time.

· These estimates include the effect of inputs into production, but not 

the additional impact of spending by these employees on consumer 

goods. If these effects were included, (sometimes called multiplier 

effects) this would induce additional employment gains outside the 

shipbuilding industry.

· We relied on the most recent ERT available, which was 2012, so the 

table does not take more recent changes into account.

We also interviewed MARAD, Department of Defense, and U.S. Coast 

Guard officials to obtain their views on potential benefits for military 

readiness, including U.S. maritime-industry capacity to meet military 

needs.

To identify the potential effects of the proposed requirement on the 

market for U.S. LNG and the broader U.S. economy, we collected and 

analyzed economic data and forecasts and testimonial evidence from the 

industry stakeholders and economic research and consulting companies 

we spoke to (discussed earlier) and assessed the resulting evidence 

using established economic theory and reasoning to describe potential 

effects on world demand for U.S. LNG and jobs in other relevant U.S. 

industries. To illustrate the cost impact of a U.S.-flagged-and-built carrier 

requirement for LNG exports, if all other factors remain equal, we 

developed a set of hypothetical assumptions based on statements from 

industry stakeholders, a 2011 MARAD report on the costs of operating 

U.S.-flagged carriers,

Page 34 GAO-16-104 Maritime Transportation

4

and economic theory. These assumptions include:

 

4Department of Transportation, Maritime Administration, Comparison of U.S. and Foreign-Flag 

Operating Costs (Washington, D.C.: September 2011). While information on operating 

costs from MARAD is not specific to LNG carriers (or carriers of any kind), we determined 

that, as the only source of publicly available information comparing actual costs of U.S. 

and foreign-flagged vessels, this report was sufficiently reliable for our limited purpose of 

developing an estimate of the potential costs of operating U.S. LNG carriers, in 

combination with estimates of potential costs provided by industry stakeholders.
Appendix I: Objectives, Scope, and 

Methodology

· The U.S.-built carriers would be fully funded through 25-year debt at a 

4 percent rate of interest.

Page 35 GAO-16-104 Maritime Transportation

5

· A U.S.-built LNG carrier of approximately 170,000 cubic meter 

capacity will be priced at $450 million, about twice that of such 

carriers being constructed for this trade in Korea (a conservative 

estimate of construction costs, based on statements from shipyard 

representatives, and others).

· Operating costs of the U.S.-flagged LNG carriers would be 50-percent 

higher than an internationally flagged LNG carrier (likely a 

conservative estimate, compared to the MARAD report, based on 

statements from stakeholders that the different in cost might not be as 

large for LNG carriers and in an effort to ensure our analysis does not 

overestimate the potential costs of operating U.S.-flagged LNG 

carriers).

· A U.S. carrier would make six deliveries of LNG each year to an Asian 

destination.6 This suggests an annual capacity of just over 23 million 

MMBtu of energy per LNG export carrier.

For the purposes of estimating the potential costs of the proposed 

requirement, we made what we believe to be conservative estimates, 

including estimates of the cost of building LNG carriers in the United 

States and the costs of operating those carriers, in order to ensure that 

we do not overstate those potential cost effects. Due to the hypothetical 

nature of the proposed requirement as well as challenges related to 

predicting market outcomes, the estimated cost impacts are meant to be 

solely illustrative and should not be taken as a prediction. We interviewed 

U.S. Trade Representative officials and industry stakeholders regarding 

potential implications for U.S. trade. Additionally, we interviewed the U.S. 

Coast Guard and selected (as described above) U.S. LNG liquefaction 

companies and shipping companies regarding potential security 

implications for LNG customers related to transporting LNG via U.S.-

flagged-and-built carriers.

 

5This interest rate assumes that investors in LNG carriers are able to participate in the MARAD 

loan guarantee programs at rates comparable to those prevailing recently. However, if 

investors are not able to obtain these loan guarantees and/or if future interest rates rise, 

the appropriate interest rate assumption would be higher.

6This estimate is based on discussions with industry stakeholders who told us that transit time 

for an LNG vessel from the United States to Asia is roughly 30 days each way. 
Appendix I: Objectives, Scope, and 

Methodology

We conducted this performance audit from March 2015 to December 

2015 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

Page 36 GAO-16-104 Maritime Transportation
Appendix II: Comments from the Department 

of Defense

Page 37 GAO-16-104 Maritime Transportation

Appendix II: Comments from the Department 

of Defense
Appendix III: GAO Contact and Staff 

Acknowledgments

Susan Fleming, (202) 512-2834 or FlemingS@gao.gov

In addition to the contact above, Catherine Colwell, Assistant Director; 

Amy Abramowitz; Pedro Almoguera; Ben Bolitzer; Ken Bombara; Brian 

Chung; Katie Hamer; Geoff Hamilton; Delwen Jones; Sara Ann 

Moessbauer; Josh Ormond; and Oliver Richard made key contributions to 

this report.

Page 38 GAO-16-104 Maritime Transportation

Appendix III: GAO Contact and Staff 

Acknowledgments

GAO Contact

Acknowledgments
Appendix IV: Accessible Data

Page 39 GAO-16-104 Maritime Transportation

ASSISTANT SECRETARY OF DEFENSE

3500 DEFENSE PENTAGON

WASHINGTON, DC 20301•3500

LOGISTICS AND MATERIEL READINESS

NOV 18 2015

Ms. Susan A. Fleming

Director, Physical Infrastructure Issues

U.S. Government Accountability Office

441 G Street, N.W.

Washington, DC 20548

Dear Ms. Fleming:

This is the Department of Defense (DoD) response to the GAO Draft 

Report, GA0- 16- 104, "MARITIME TRANSPORTATION: Implications of 

Using U.S. Liquefied Natural Gas Carriers for Exports" dated December 

2015 (GAO Code 541130). The Department acknowledges receipt of the 

draft report. The Department also notes that the report includes no 

recommendation but appreciates the GAO noting that U.S. national 

security plans and strategies rely, in part, on the ability to draw on U.S. 

commercial ships and mariners as well as the existence of a domestic 

shipbuilding industrial base . Thank you for the opportunity to review and 

provide input to this draft.

Appendix IV: Accessible Data

(541130)

Agency Comment 

Letter

Text of Appendix II: 

Comments from the 

Department of Defense

Page 1
Appendix IV: Accessible Data

Sincerely,

David J. Berteau

Data Table for Figure 3: Estimated Costs Associated with Acquiring Liquefied 

Page 40 GAO-16-104 Maritime Transportation

Natural Gas from the United States, U.S. Dollars

Cost per million British thermal units (MMBtu)

Cost category Europe Asia

Cost of feed gasa$5.05 $5.05

Liquefaction feeb$3.50 $3.50

Transportationb$1.00 $3.00

Total $9.55 $11.55

Percent transportationc10.5% 26%

Data Tables
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