CHAPTER II.-NUCLEAR SHIP CONSTRUCTION AND

OPERATING COSTS

INTRODUCTION

The most important aspect in considering the use of nuclear powɛ in merchant vessels is its potential to lower the overall ocean transpor tation costs to the operator and to the Government (when subsidy s involved). This could be due to potential savings in operating costs which may be made possible by the use of nuclear fuel which is esti mated in the future to cost about half as much as fossil fuel.

The numerous studies have concluded that, in the next generation (near term) of nuclear ships, the probability of their being economically superior to equivalent oil-fired ships without additional Govern ment assistance is remote. However, after nuclear entry costs have been absorbed, long-range application of nuclear power can be expected to produce savings which may result in savings to both the operator and for the Government (when subsidy is involved).

In order to reach the economies that nuclear power portends, thre major objectives must be considered:

(1) The present high capital cost differences between the nuclearpowered ship and its oil-fired equivalent must be reduced materially.

(2) The cost of nuclear fuel must be reduced to the point where the saving in nuclear fuel cost as compared to fossil fuel will be sufficient to amortize the added capital cost of the nuclear plant and leave a suffcient margin for added profits and other additional operating costs associated with nuclear power.

(3) The operating costs of nuclear ships must be brought down to a point more nearly approaching that of the equivalent oil-fired ship: this means crew cost, maintenance and repair expense, refueling costs, shore staff, insurance expense, and so forth.

In any marine nuclear power application program, it must be the industry and Government goal to attain these three objectives.

NUCLEAR SHIP CONSTRUCTION COST

In order to illustrate the relative cost of nuclear-powered ships in a high-speed container ship application, the following tabulation shows the characteristics of the nuclear-powered ships proposed by American Export Isbrandtsen Lines (AEIL). The ships' general characteristics have been reviewed by the Maritime Administration and found

to be reasonable for the proposed container service from the United States to the Far East.

The construction cost of these ships have been estimated by AEIL and the Government. Since all ship and nuclear information is of a preliminary nature, these estimates must of necessity be approximations; however, the cost can be accepted as being representative. The Government estimates reflect recent increases in the shipbuilding market that apply to the oil-fired ship and the conventional portion of the nuclear ship. In adition, Government estimates of the nuclear ship includes reactor cost estimated by AEC in chapter III. The industry and Government ship construction estimates are as follows:

(2) Industry estimate (AEIL CDS application, Jan. 26, 1966):

Each of 3 nuclear ships..

Long term:

Each of 3 oil-fired ships

Difference per ship----

(1) Government estimate,' using Government reactor cost estimates:
Each of 3 nuclear ships.

Each of 3 oil-fired ships_

Difference per ship...--

(2) Government estimate,2 using industry reactor cost estimates:

Each of 3 nuclear ships..

Each of 3 oil-fired ships

Difference per sh p---

Construction cost

$44.0

26.0

18.0

34. 2

23. 4

10.8

34.0

26.0

8.0

33.0

26.0

7.0

MarAd estimate for conventional portion of ship combined with AEC estimate of propulsion plant including reactor. (See chapter III)

MarAd estimate for conventional portion of ship combined with an industry estimate of propulsion plant including reactor.

The near-term construction cost indicates the construction cost of three nuclear ships will exceed that of three equivalent oil-fired ships as follows:

3 nuclear ships (using Government reactor estimates). 3 nuclear ships (using industry reactor estimates)

OPERATING COSTS

$54, 000, 000

32, 400, 000

In addition to a wide range of opinion as to the near-term ship construction costs, there is also a difference of estimates on operating

costs. To illustrate the range of estimates and the possible future aivantages of nuclear power, the following table was developed showing only the totals for operating costs that vary between oil-fired ships with nuclear ships. To simplify the presentation, operating costs asumed to be the same for both oil- and nuclear-powered ships have been omitted from this comparison. The item "Vessel expense" includes crew, maintenance and repair, shore staff, standby tug hire, convertional marine insurance, and so forth. The nuclear fuel cost of Goernment estimates reflects those set out in chapter III. The nuclear fuel estimate in the industry estimate (col. 3) is that used by AEL in its application to the Maritime Administration. Fuel oil is taken at $2.30 per barrel, which reflects price fluctuation ranging from $2.10 per barrel in New York to about $2.50 per barrel in the Far Eas These estimates are considered relatively stable since the price of of in New York has not fluctuated materially since 1956. Since known of reserves continue to expand, no price increase is seen in the foreseeable future.

This table also includes an oil-fired equivalent ship with which to compare the relative operating cost of the near- and long-term nuclear applications. This table does not include annual amortization and irterest charges for the additional construction of the nuclear-powered ship in excess of that for the oil-fired counterpart. For simplification, all costs are at today's price levels.

Column 1. Shows an industry estimate (considered reasonable by the Government) of the annual operating cost of each of three equiva lent oil-fired ships for either near- or long-term cost comparison.

Column 2. Shows the Government estimate of the annual operating cost of each of three nuclear ships built now (near term) over a 2year period.

Column 3. Shows industry estimate of the annual operating cost of each of three nuclear ships built now (near term) over a 25-year period.

Column 4. Shows the long-term cost of each of three nuclear-powered ships built after completion of a land-based prototype development program and assumes the availability of low-cost nuclear fuel.

This table does not in any way reflect an operating differential subsidy as it is intended here to show a comparison of absolute costs.

COMPARISON OF SELECTED OPERATING EXPENSE FOR OIL AND NUCLEAR POWERED SHIPS

1 Does not include construction cost, amortization and interest charges or allowance for 3 party liability. 2 Garmatz/Cotton waiver of use charge for 1st 5 years.

1 These nuclear fuel estimates by reactor manufacturers for maritime reactors are

covered in the NUS 265A, Summary Report, April 1966.

This table shows on a near term basis (col. 2) that if three nuclear ips are built, it will probably cost about $1 million (350,000×3) ore to operate per year than three equivalent oil-fired ships.

In column 3, however, the estimates from industry sources on nearrm nuclear application show, over a 25-year period, that the average nual cost for operating a group of three nuclear ships will be proximately $1,500,000 less than three equivalent oil-fired ships. This riation is primarily due to a difference in Government and industry timates as to the future costs of nuclear fuel. Industry has so taken a more optimistic view toward the size of the crew a nuclear ship, and have not included training costs, and standby requirements.

Column 4 reflects Government estimates of the long-term advantage nuclear power in the second generation of nuclear ships applying clear fuel cost goals which AEC hopes will be reached through a search and development program effort and reflects reduced operatg costs that MarAd hopes to see develop during the operational riod of near-term nuclear ships. Under these conditions, the annual erating cost of the nuclear ship is about $800,000 (expressed in lay's dollars) less than the equivalent oil-fired ship.

This saving will be reduced by the annual cost to finance the differce in construction cost between a nuclear ship and the oil-fired uivalent ship. The additional construction cost of a nuclear ship in 105,000 shaft horsepower size is estimated to be in the range of 7 to $8 million. The annual cost to finance this investment is estited to be from $700,000 to $800,000 per year which indicates that uclear ship has the prospects of being equal to or may have a slight vantage over the oil-fired equivalent ship.

These estimates are extremely sensitive to any change in the basic umptions such as fuel costs, operating costs, and capital investment ts. For example, if the cost of nuclear fuel does not meet the target t of 1.5 mills shaft horsepower per hour and costs 20 percent more, at is 1.8 mills shaft horsepower per hour, then the estimated savings the annual operating costs would be reduced by approximately 00,000 per year. Conversely, if nuclear fuel costs can be reduced to mills shaft horsepower per hour, the nuclear ship will show a subntial advantage over the oil-fired ship. Likewise, plus or minus iations in operating cost or the reactor plant cost would have a ilar effect on predicted savings. These estimates include current derwriters and Maritime Administration estimates of the increased miums necessary for marine hull and machinery, and write out & I. insurance for a nuclear-powered ship. The estimate does not lude any premium cost for third party nuclear liability insurance the reason that such insurance for ships is not available. The annah is covered for third party liability by an extension of Price derson. Such extension is applicable only to the Savannah. See pter VII for a more detailed statement on this issue.

This relative economical position of nuclear power as compared with is as reasonable as can be developed in view of the number of unolved questions that surround the long-term construction and opting costs of nuclear powered ships in a fleet, starting approximately to 15 years in the future. It is believed, however, that these assumpas are conservative and that after an extended period of proven

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reliability with a near-term nuclear fleet, such items as insurance and maintenance and repair may be reduced below the assumptions made here for the second generation ships (long term). In view of these factors, it must be emphasized that estimates do not lend themselves to a meaningful prediction as to how long it will take to recover the nuclear entry cost. These estimates do, however, indicate a reasonable chance for their recovery if expectation of reduced nuclear fuel cost, construction, and operating cost can be realized, and if the predictions of future ship power requirements and world trade trends follow present indications. Any other cost reduction breakthroughs that the advanced reactor test program might develop would materially enhance the benefits of a nuclear program beyond present estimates.

The next application of nuclear power in our merchant marine should be in an environment favoring its use. This environment, developed in chapter I, envisions the development of integrated transportation systems which will require, in order to be most profitable, large, high-speed ships in a power range favorable to nuclear power.

At the present time the trade routes which present the most favorable atmosphere for containerization in a integrated transportation system concept precludes the use of one ship in order to provide the required sailing frequency.

It does seem probable that the requirements of these systems could be met with two, three, or four ships. The best developed proposal to date presented by AEIL is based upon the use of three ships in the United States to Far East trade.

Since it is contemplated to give all U.S. shipowners an opportunity to offer proposals to participate in this program, the range of possibilities has been extended to include a possible four-ship system. The eventual number of ships decided upon will depend ultimately upon the characteristics of trade route selected and the total "entry" cost to the Government.

The range of the total cost to the Government for the additional costs associated exclusively with nuclear power of a two-, three-, or four-ship program is as follows:

1 This table does not include the usual construction subsidy for the equivalent oil-fired ship or the usual operating differential subsidy for a conventional ship. These costs will be in addition to those shown.

2 This value is for a 10-year program. Included in this amount is the cost of the test facility and a 5-year research and development program is $74,200,000 as shown in ch. IV.