​Small going big: Why small-scale LNG might be the next big wave

Adrian Del Maestro's picture
Adrian Del Maestro, Director, PwC Strategy&
Giorgio Biscardini's picture
Giorgio Biscardini, Partner, PwC Strategy&
Rafael Schmill's picture
Rafael Schmill, Director, PwC Strategy&
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Small-scale liquefied natural gas (ssLNG), a niche but nascent industry that is already profitable and scalable, boasts significant potential. It is well placed to meet the growing demand from the shipping and trucking industries for fuels that are more environmentally friendly than oil and diesel. ssLNG also enjoys advantages in addressing off-grid power generation for industrial and residential needs in remote locations. Because of its environmental credentials, ssLNG is likely to gain further traction as market and regulatory pressures to transition to lower-carbon energy intensify. In the same way that “fracking” transformed the U.S. energy landscape, ssLNG has the potential to transform the role of gas in a number of key geographies and industry sectors. As companies approach the ssLNG market, they should be prepared to act quickly, establish a first-mover advantage and be prepared to build partnerships across the LNG chain.

The term ssLNG refers to the direct use of LNG in its liquid form, as opposed to the traditional model of regasification and subsequent introduction into the gas transmission grid. Small-scale liquefaction plants have a production capacity of fewer than 500,000 tons per year and supply end-users in places where traditional infrastructure does not reach, or to consumers requiring liquid fuel.

There are three major end uses for ssLNG:

1. Marine fuel (bunkering)
2. Fuel for heavy road transport
3. Power generation in off-grid locations.

The market is relatively immature. However, several major energy companies are already involved in ssLNG, including Shell, Engie, ENI, Gasum, and Gazprom. The size of the market is expected to grow to approximately 100 million tons per year by 2030 according to Engie, as illustrated below.

          

A number of important factors favour the growth of ssLNG:

  • The difference in price between LNG and oil, influencing the ‘Total Cost of Ownership’ for the end-user, as well as regulatory drivers (especially for bunkering)
  • This technology offers investors more immediate and potentially attractive returns in the medium term given its “plug and play” service with lower investment requirements and accelerated commissioning schedules
  • ssLNG is scalable, meaning operators can easily add capacity to serve increased demand while gaining supply chain synergies
  • Precisely because of this flexibility, ssLNG can stimulate demand in areas of the market that were previously unsuited to LNG as a fuel source, such as off-grid power generation on islands and in remote areas
  • Increased liquidity of LNG and growing environmental drivers are likely to increase adoptions rates particularly in US, Europe, and China

To succeed in the ssLNG business, companies will have to develop the right business model, engineer a flexible strategy, and build crucial core capabilities. With regard to strategy and capabilities, we believe integrating operations across the value chain and building successful partnerships are fundamental to long-term success. Simply put, in ssLNG, size still matters. The winning players will need to be active across all segments of the industry, from the supply of gas, to transportation and distribution, right down to the point of direct commercial relationships with end-users (where sizable). Companies that can move with agility, with the right strategy and capabilities in place, and that can build partnerships across the LNG value chain will benefit from the advantage that accrues to first movers. In the same way that “fracking” transformed the U.S. energy sector, ssLNG may be the next “small” revolution in the gas sector. Those first off the mark will be the most likely to reap the benefits.

The complete version of the report on which this article is based can be found at PwC Strategy& - Small going big: Why small-scale LNG may be the next big wave

Share your insights and join the conversation: Where do you see the small-scale LNG industry by the end of 2018? Leave your comment below.

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