Cedigaz sees land and marine transport as major LNG market

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Demand for LNG as fuel is likely to rise rapidly over the coming two decades, with the two main market sectors – trucking and shipping – accounting for 81 mtpa in 2025 and as much as 173 mtpa by 2035. The bullish outlook is projected in a new report from Cedigaz, the Paris-base Centre for Natural Gas Information. However, the report acknowledges that the outlook is very uncertain and gives a very wide range of possible outcomes between its low-case and high-case scenarios.

Trucking scenarios: Use of LNG in land transport will be driven mainly by the difference between the price of diesel and the price of LNG, says Cedigaz, and will be limited mainly to heavy duty vehicles (HDVs). “Environmental legislation is unlikely to play a major role in triggering the adoption of LNG as a fuel for land transportation,” says the report, “as traditional fuels and technologies will be able to comply with the gradual tightening of emissions standards”.

Projections for global road transport LNG demand. Note the wide disparity between the low-case scenario, which projects demand of just over 20 mtpa by 2035, and the high-case scenario, which projects demand of close to 230 mtpa, with the base case at 96 mtpa – highlighting the uncertainty surrounding this still-nascent market. (Source: Cedigaz)

In its base scenario, Cedigaz projects worldwide demand for LNG in road transportation of 45 mtpa in 2025, growing to 96 mtpa in 2035. China, which the report says “has several features that combine to make it a prime candidate for the development of LNG in the road sector” accounts for almost half the global market. LNG should also carve out significant market shares in the United States, Europe and elsewhere in Asia.

“China has the world’s largest inland goods transport market and has already developed an extensive LNG supply infrastructure,” says the report, “initially as a means of transporting gas from remote fields or to consumers who were not connected to the pipeline supply network. With at least 100,000 LNG vehicles and 1,100 refuelling stations at the end of 2013, China already has a head start over the rest of the world in this nascent market.”

However, the report cautions that LNG growth in China may be slowed by the ongoing reform of gas prices to bring them closer into line with market rates.

Shipping scenarios: Unlike the road transportation sector, says Cedigaz, the use of LNG as fuel in the marine sector will be driven primarily by environmental legislation and regulation, in particular the MARPOL Convention, the main international convention covering prevention of pollution of the marine environment by ships from operational or accidental causes.

Of particular importance are special sea areas defined by MARPOL, which, for reasons of oceanography, ecology and sea traffic, are provided with a higher level of protection than other areas of the sea. Examples include Emissions Control Areas (ECAs) in north-western Europe, the Mediterranean and elsewhere.

“There is little doubt,” says Cedigaz, “that the use of LNG as a fuel will grow in the marine sector, though the rate and pace of growth will be highly dependent on the timing and geographical scope of emissions restrictions set out in the MARPOL treaty.” Compliance with the new emissions limits will require: a switch to cleaner but more expensive oil-based fuels, implementation of costly flue gas treatment technologies, or a switch to LNG.

Cedigaz claims that economic analysis – taking into account all relevant factors, such as capital expenditure, operating expenditure, operational constraints and loss of cargo space – “show LNG to be a very attractive solution when compared with other compliance solutions, although the breakeven time will depend on parameters such as the age of the vessel, the cost differential between LNG and traditional fuels, and the time spent in ECAs. The base-case scenario projects demand for LNG as a marine bunker fuel reaching 35.7 mtpa in 2025 and 77 mtpa in 2035.

Projections for LNG demand in the global marine bunker fuels market. The range between the scenarios is less marked than for road transport, with the high-case scenario projecting 120 mtpa by 2035 and the low-case scenario projecting around 47 mtpa. The base case is 77 mtpa. (Source: Cedigaz)

Less bullish on rail: The report is much less bullish when it comes to LNG demand in the rail transport sector, partly because rail has a relatively low share of energy consumption compared with other modes of transport. It projects demand in the base-case scenario of 0.9 mtpa in 2025, 3 mtpa in 2030 and 6 mtpa in 2035.