Editorial - LNG: a product in its own right [NGW Magazine]

Until a few years ago, liquefying gas was only seen as a transportation solution: a very costly and capital-intensive alternative to pipelines. One that was best avoided, unless the distance to market exceeded a few thousand kilometres. Once delivered to the buyers’ jetty it would be vaporised, pressurised, perhaps odorised and injected into the buyer’s gas grid.

But it was seldom discussed as a fuel in its own right, except by a very few cutting-edge companies operating heavy-duty vehicles in isolated regions; or cranes at ports where the emphasis was on saving money on diesel, rather than on cutting emissions.

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The costs in all the links of the energy chain and the monopolistic nature of the markets ruled out all but the wealthiest from participating, so the players tended to be governments and the international oil companies.

But with what passes for dizzying speed in the gas industry, the LNG side of things is fast catching up with the pipeline business to the extent that it is now almost as commonplace as its older relative. The floating LNG transport, storage and regasification model, pioneered by Excelerate, was one of the first signs of radical change; then came different indices, alternatives to the standard crude oil price; shorter contract lengths down to month-ahead delivery; and downstream competition.

And traders have been prepared to hedge risk and take on buyers that the old guard had considered not sufficiently creditworthy to underpin a major upstream investment. They have accordingly joined in and after a rocky start now enjoy a growing share of the market. They can exploit the inefficiencies that had so far gone unnoticed while contributing to the overall demand for gas by removing the mystique around LNG.

All these trouble-free developments in the last decade or so have encouraged more countries to open up their energy mix to gas, while growing globalisation and sophisticated trade has led many to open up their markets to competition. In Asia, for example, the government of Bangladesh is now mulling plans to allow the private sector, including foreign entities, to import and market LNG or regasify it and market it, at prices to be negotiated bilaterally.

The changes have also thrown into stark relief the oddity of projects such as the Turkmenistan-Afghanistan-Pakistan-India pipeline, a once bold idea that now looks obsolete before the first section of linepipe is laid.

Technology companies are innovating rapidly too, coming up with industry-approved ideas for barges and hoses for carrying and transferring the LNG, and floating power plants that may be quickly plugged into the national grid of the importer, until or unless a better solution to a power shortage may be found.

Having unclogged the arteries of trade through technology and competition, smaller vessels can get the fuel the last few miles to the end consumer who might be miles from a pipeline but needs cheap energy.

The picture downstream is also altering decisively, as more LNG is needed as is, almost until the point of combustion. The pressure to decarbonise the energy mix as well as to clean up sulphur emissions has forced minds to concentrate on the next lowest hanging fruit after power generation. Some kinds of transport are ripe for transformation.

With large swathes of European waters being policed for dirty vessels for some years now, switching to LNG will be one option for meeting the lower sulphur cap in other parts of the world too next year. Ferry operators plying the English Channel or the busy Baltic Sea as well as container ships on global journeys are all opening up a much bigger market for gas than had been envisaged in the near term.

The announcement by Uniper and Titan LNG that Wilhelmshaven’s floating storage and regasification unit will cater to the needs of both waterborne and terrestrial transport is just the latest addition to a growing network of intake and offtake points where LNG, rather than pipeline gas or a liquid hydrocarbon, is the fuel. And more companies are planning to run fleets of trucks on LNG or CNG.

Some operators of LNG import terminals that had not built truckloading and bunkering facilities into their original designs are now getting round to adding them, in readiness for the expected growth in demand.

A January 2019 paper by the Oxford Institute of Energy Studies argues that with more stringent environmental regulations coming into force in January 2020, the North Sea/Baltic Sea experience has shown that LNG does have a viable future as a shipping fuel, albeit at a steady, rather than a spectacular, rate of growth.

The effects of all these changes throughout the chain are significant and will make the gas industry yet more democratic and accessible, as it opens its doors to more entrants with different angles and business models, and it is key to the process of commoditisation. True, the relatively high cost of storage and transportation is still a key differentiator from oil, but the cost of carbon and the desire for clean air will offset that. 

For this and other reasons, NGW has decided that the time is ripe to launch a new publication this January that will be dedicated to the needs of this growing market. LNG Condensed will be a mix of news and features providing independent comment and analysis on the world as NGW sees it. We hope to welcome you as subscribers to this free monthly publication.

NGW Magazine Volume 4 Issue 2 is now available to Premium Subscribers.