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:
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
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