22
LNG
INDUSTRY
OCTOBER
2016
Infrastructural requirements
All of these LNG as transportation fuel applications will require
change to current LNG distribution infrastructure. Traditionally,
LNG is loaded at the jetty of the LNG plant and discharged
at the jetty of the LNG import terminal. Much of it is sent out
as gas through the pipeline grid, but some of it is distributed
by LNG trailers to off-grid gas customers and LNG-fuelling
stations. For LNG-fuelled trucks and buses, a growing number
of public and private fuelling stations are available. These
LNG-fuelling stations are supplied by LNG trailers from a
regional LNG plant or from an LNG import terminal.
For ships, the LNG bunkering facilities are mostly still under
development. In Scandinavia and China, some bunkering
infrastructure is already operational. Vessels bunker either from
trucks or from local LNG depots, which are being restocked by
either LNG trailers or a small LNG distribution carrier. In 2013,
Seagas
became the first dedicated LNG bunkering vessel. Each
day, it transfers 60 t of LNG to the LNG-fuelled ferry,
M/S Viking Grace
, in the port of Stockholm, Sweden. Around
the world, several bunker vessel projects are underway to
provide LNG in larger quantities to LNG-fuelled vessels. Small
scale LNG terminals are under development to supply these
LNG bunker vessels, which can also redistribute LNG from LNG
terminals. It will certainly take another 10 – 15 years before LNG
will be a mainstreammarine fuel, but the beginning is there.
Railroads will need LNG fuel depots to fill up the LNG
tenders. For the time being, LNG distribution by LNG trailer,
while slow and cumbersome, is probably adequate. Once
LNG-fuelled locomotives start entering commercial service in
significant numbers, the infrastructure needs to be able to meet
that increased LNG demand. If aircraft is to be fuelled with LNG,
then airports will need to have LNG storage facilities too. One
issue is how to site such facilities at large international airports.
For example, Amsterdam Airport Schiphol is served by
kerosene pipelines from the port of Rotterdam and
Amsterdam. Such long LNG pipelines would be difficult to
realise, both technically and from a cost perspective.
Small scale vs large scale
The traditional large scale LNG business model saw LNG
just as an energy transportation model, bringing quantities
of gas from the gas supplier to the gas buyer over large
distances. Small scale LNG projects are regionally focused
and see LNG as a fuel. Often, they sell directly to the LNG
end user. With increasing LNG consumption in the on-road
and marine transportation business, LNG becomes a fuel, like
gasoline, diesel and marine residual fuels. These small scale
LNG producers often lack the economies of scale of large
LNG plants, both in terms of LNG production efficiency and
sheer scale. However, the much lower investment cost and
the proximity to the end users reduces some of the global
macro-economic and political risk associated with some of the
large LNG projects that have been built in this century.
In an attempt to unite the advantages of both small and
large scale LNG plants, some developers are now proposing
mid scale LNG plants of up to 2 million tpy of LNG production
capacity. The capital footprint of these LNG plants does not
require a syndicate of major international banks to finance
construction, but the backers still want to see some
longer-term contracts with reputable offtakers to minimise the
financial risks. With most of the well-known, large LNG
importers in the world already locked into long-term contracts
with established LNG players to serve most of their LNG
demand, mid scale LNG terminal developers have to find new
players in emerging gas markets. Often, these companies are
local and regional entities with little exposure to the
international energy trade. It takes knowledge of the local
energy business landscape to find them. Arranging regulatory
approval for access to the local energy market is often the first
hurdle; the infrastructural challenge of getting the physical
supply of LNG is the next issue. Another matter is the
bankability of these local gas companies in emerging markets;
their credit rating might make finding construction finance for a
mid scale LNG plant harder than it already is. However, the
reverse could also happen; a cash rich local gas company might
actually take an equity position in a mid scale LNG plant and
bring along more local finance. It is all about finding the nugget
in the second tier market.
The future of LNG
Predictions, especially when it comes to future LNG trades,
have a tendency to be wildly off the mark. In general, LNG
has great potential to help reduce harmful emissions from
coal and oil in power generation. LNG also allows energy
importers with sea-front access to source LNG cargoes from
a wide variety of suppliers across six continents, giving them
independence from pipeline gas suppliers. In a world in
which energy is occasionally used for strategic or geopolitical
purposes, LNG offers freedom. Emerging markets are also
a bright spot. Low LNG prices and quickly deployable LNG
FSRUs are bringing relief to energy hungry developing
countries. As a transportation fuel in on-road and marine
applications, LNG is somewhat more cumbersome in terms
of fuel storage requirements than oil, but it is definitely
cleaner and gas fuel technology is already available and in
use around the world. Railroad applications will eventually
follow marine applications, aided somewhat by an overlap
in engine technology. Ultimately, the success of LNG in the
transportation fuels market is a question of how it is priced
against oil products. In the end, emission regulations will
continue to go in favour of LNG to make it a preferred fuel in
transportation applications.
References
1. ‘World Energy Outlook 2011’, International Energy Agency
(IEA), (2011).
2. ‘How China Is Trucking Into The Age Of Gas’, GE Reports,
(23 April 2015).
Figure 4.
LNG as a transportation fuel, the new business
model: an LNG-fuelled truck in British Columbia (B.C.), Canada
(image: Alexander Harsema-Mensonides).
