LNG: Small scale – Big opportunities

Jorge Ferreiro's picture
Jorge Ferreiro, LNG and FSRU Specialist, ANCAP Natural Gas
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The collapse of oil prices has brought down with it exploration & production, engineering & construction, services and … LNG prices, and at the worst of times.

On the supply side, there is lots of LNG available. Born out of the longest period ever of high oil prices in real dollars from late 2010 until mid-2014, some 140 MTPA are currently under construction and coming on-stream before 2020 mainly from Australia (last July saw first LNG from BG’s Queensland Curtis train 2) and the US (first LNG from Cheniere’s Sabine Pass expected early 2016). This represents an increase of 58% over the 240 MTPA traded in 2014.

With demand faltering, or at least definitely not growing at the same pace as in the last decade, there is a veritable tsunami of LNG looking for a home.

On the demand side, traditional customers such as China and India, and some unlikely players such as Toshiba, are actively trying to shed volumes. The huge LNG for power market is continuing to face fierce competition from coal.

On the supply side, there is a host of new market positioning strategies, from big players making forays into the low-credit and spot arena traditionally dominated by trading houses, to more flexible commercial terms like gas market indexation, on-demand LNG and no destination clauses.

In view of this, some projects have been cancelled or delayed. But surprisingly, not that many: most keep going probably because of the associated costs of postponement in terms of commercial penalties, and fear of loss of investor and customer confidence, and market positioning. Those still advancing towards FID are now targeting the 2022-2025 timeframe (FID to be taken in 2017-2020) when the tsunami will have eventually washed away.

While traditional big scale LNG is struggling, small scale is flourishing. Countless (and I mean, really countless) projects ranging from LNG-fueled ships (and associated bunkering facilities), to heavy transportation like trucks and bus fleets and even train), to virtual pipelines are springing up everywhere in Asia, Europe and the Americas.

The big issue here is the cost of logistics, which becomes increasingly significant as parcel sizes decrease. This is further complicated and made onerous by the fact that LNG, being a boiling cryogenic, is a sort of “perishable” product, which requires expensive insulated storage tanks and transportation containers. And even then, it cannot be held in storage for long because of boil-off and ageing issues. This requires a type of “minimal” and “just in time” logistics chain not normally associated with other fuels.

Because of this fundamental constraint, small breeds small, and there is an accompanying flurry of small scale liquefaction going on to cater for the small LNG market, further complicating the scenario for large LNG.

The key issue is to connect both the large and small LNG chains through the development of efficient hubs and break-bulk facilities to transition from traditional LNG carriers carrying from 140,000 to 260,000 m3 of LNG all the way down to about a few thousand cubic meters of intermediate storage, and on to 500 to 50 m3 end user tanks.

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