Due to the low oil price, weaker economic growth and structural change in overall energy intensity in the economy, China’s LNG demand dropped slightly in 2015, the first time since 2006. But we still believe there is huge potential for LNG demand growth in China considering its economic scale and population. Importantly, natural gas only contributes 5.3% of the primary energy supply in the country and gas-fired power generates less than 3% of total power generation, far below the average level in developed countries.
Three major factors are driving LNG market growth in China:
Seeing these opportunities, a large number of non-NOCs are actively planning to enter into the LNG business. They can be categorized into the following:
It is important that the gas market is liberalized with more and various companies participating. However, the LNG business requires not only large investment capital but also significant industrial experience to ensure operational success as well as business capability to mitigate market risks. These 2nd tier players are new to the LNG industry and therefore lack LNG industry knowledge and operational experience. Furthermore, the new player face major uncertainties in the market, including:
It is understood that international suppliers are paying more attention to these second-tier LNG players, who do not have LNG terminals or LNG experience. It is likely that these suppliers would present good offers to attract these new buyers. However, buyers’ due diligence is very critical to suppliers before such a business commitment should be made, with the special focus in the following areas:
China has a huge potential for LNG demand growth and many second tier players are planning to enter into the LNG business. It is important for international suppliers to pay more attention to these emerging players as the drivers of incremental demand growth. However, these players could have different strategic focuses and performance patterns reflecting their business models and positions. We suggest suppliers undertake a screening process to shortlist the high potential buyers and then develop tactics and approach tailored to each shortlisted player. A detailed due diligence will be critical to ensure a long-term business success with these new buyers.
Galileo has been shortlisted for the CWC LNG Technological Innovation Award at the 17th World LNG Summit this year for introducing LNG Distributed Production. Can you tell us more about this technology?
Our LNG Distributed Production Solutions are designed to condition and liquefy natural gas and/or biogas right at the source. This is possible because our ZPTS Gas Conditioning plant widens the sources available for liquefaction, from sources with high content of CO2, such as biogas, to even simpler gas compositions that require minimal dehydration, and because our Cryobox LNG-Station packages all the capabilities of a large scale LNG plant into one compact unit. Both units can be hauled by two separate trailers to connect them later on to natural gas mains, biodigesters, or upstream equipment in a distant oil & gas field. Once these units are installed and commissioned, the 15 metric tons (10,000 gallons) of LNG produced on-site per day can be transported via Virtual Pipeline in order to be consumed as a diesel substitute by high horsepower users or injected into natural gas networks.
What are the advantages of using LNG Distributed Production?
By turning natural gas into LNG, or biogas into LBM, and enabling distribution logistics that are equal to liquid fuels, this model makes clean gas fuels available without the need of laying pipelines, extending the reach of current natural gas infrastructure or shortening the distance between new gas sources and consumers. This means lower emissions, reduced costs from fuel production and distribution, or new sources of profitability. For example, we can capture and monetize resources which lacked value before and caused a severe environmental impact as with natural gas when flared. At the same time, we can boost the exploitation of new wells, since gathering and gas transportation activities can be performed with a reduced CAPEX, while the LNG can be consumed as a diesel substitute fuel for drill-rig power generation and frac-water heating, as we are doing in the Bakken region of North Dakota, in United States.
Are we seeing more widespread adoption of LNG among high horsepower consumers as a result of this technology?
The projects we are developing in Argentina, United States, Canada, Colombia and Australia will showcase how natural gas from new sources, when liquefied on-site, can reach any market and serve new high horsepower consumers. In Argentina, we are building a new USD 100 million-LNG thermal power station, where the LNG supply will be obtained by flare gas reduction from scattered wells, connected via Virtual Pipeline. This way, we will produce 40.5 megawatts of power to cover the needs of 15,000 households in a first stage, and we expect to reach 120 megawatts in a year.
What does being shortlisted for the CWC Technological Innovation Award mean to Galileo?
We are very pleased for being shortlisted for this award. Throughout our history, we have invested significantly into R&D which allowed us to grow steadily. It is also an opportunity to inspire others and share together new ways of doing business in terms of carbon footprint reduction and energy efficiency.
Galileo Technologies are nominated for the CWC Technological Innovation Award which will be presented at the CWC World LNG Summit & Awards Evening on 12-15 December 2016.
The Panama Canal Expansion is the largest project at the Canal since its original construction. What were the main challenges that you overcame to deliver this huge project successfully?
The expansion of the Panama Canal posed great challenges from the technical, orographic, geological and climate point of view, which were overcome by innovation and dedication from both contractors and Panama Canal personnel. However, I would say that the most important and difficult challenge was winning over the support from the Panamanian population. According to the Constitution, the decision to go ahead with the expansion of the Panama Canal through the construction of a third set of locks required a national referendum. The challenge was to inform all Panamanians from all social classes of the need to invest in this project, instead of maintaining the status quo and cashing in the toll revenues.
For this purpose, the Panama Canal Authority formed a group of spokespersons who travel throughout the country explaining the project, its benefits to the country and to the world, as well as the financial and environmental aspects. I was part of that group that had the privilege to carry the message to our countrymen and obtained a positive result in the referendum back in 2006 with 70% of support.
The opening of new locks in the Panama Canal has changed the inter-basin LNG flows forever. How did you adapt to the LNG business to make the transit of LNG vessels possible?
This was a joint effort with the industry, which opened up to the Canal and shared its knowledge with us. The Panama Canal began its efforts by learning about the business attending conferences such as the CWC Group that allowed us to develop a wonderful network of very competent and experienced professionals. This effort began in the Market Research area of our organization and, as we learned more, we invited colleagues from the Vice-Presidencies of Operations and Environment to be part of what we called in-house the LNG Committee. Within this committee, we carried out risk assessments with the help of SIGTTO and several companies that gave us excellent insights on what to do to make the transit of LNG vessels possible without going to unnecessary and extreme security and safety measures that would have made it unviable otherwise.
How has the expanded Panama Canal impacted LNG shipping routes and travel time?
The Panama Canal has opened the gate between the Atlantic and Pacific coasts enabling savings of up to 15 days between the Gulf of Mexico and Trinidad to Asia on each leg in comparison with alternative routes. In addition, regional trade also benefits from these savings in routes such as Gulf of Mexico to Chile, reducing voyage time in 6.3 days on each leg. This opening will have an impact in voyage costs, evolution of trade, increased flexibility, as well as in LNG pricing and source diversification.
Panama Canal Authority has been shortlisted for the CWC LNG Award for Outstanding Contribution 2016. What does this nomination mean for you?
To the Panama Canal Authority, this nomination is a great honour because it represents a recognition from the industry as one of its own and reflects the acknowledgement of the efforts that the Authority has done to understand and enable this trade, and, in such effort, I stand together with my colleagues who set aside differences in our perspectives to work together as a team and welcome the LNG as a new market segment of the Panama Canal Neopanamax locks.
Panama Canal Authority are shortlisted for the CWC LNG Award for Outstanding Contribution 2016. The LNG Awards will take place on Tuesday 13th December as part of the CWC World LNG Summit.
You’re speaking on ‘The Big Discussion’ on the future of gas at the CWC World LNG Summit in Barcelona this December, how do you see the role of gas in a low-carbon global economy?
The trend towards a low carbon economy may have become an irreversible trend due to the convergence of factors including a) the ratification of the agreement reached in Paris during the COP 21 through a general consensus of governments, companies and public opinions that it was urgently needed to tackle the climate issues, b) the emergence of technological breakthroughs both in non-fossil energy cost (solar, ….), as well as 3) digitalization of the energy sector and 4) energy efficiency.
Only a few years ago, experts announced a golden age for gas, natural gas being considered as the ideal bridge for energy transition. The situation today is somewhat less positive in some markets where gas is struggling to grow its market share but the present situation is influenced by factors that may not last and in mid to long term gas is well positioned to solve a complex equation: reducing emissions while ensuring economic prosperity and security of energy supply.
In most energy scenarios, natural gas is the fastest and even the only fossil fuel whose share will continue to grow and as such we believe it is promised to a bright future. It can also complement renewable sources whose share is poised to grow steeply in the power generation sector. The gas future will, however, differ from one region to another.
What more needs to be done to promote gas as the energy source of the future in developed and developing nations?
Several actions may be required to speed up the development of natural gas:
The first one is of course to continue to improve natural gas competitiveness so as to reduce the cost of access for final customers relative to other energy sources. This will be achieved by reducing the cost of the total value chain, by adapting contractual prices and other contractual conditions (flexibility of volumes, of destination….) to the needs of customers, as well as by innovation in technology and in business models.
The second one relates to the opening of new markets both by opening up new territories to gas and by developing new usages for gas (transportation, maritime, trucks,…)
The third one will consist in designing the market adequately in order to maximize the use of natural gas along with renewable energy sources.
Finally, the consensus reached for energy policies calling for a more decarbonized society would not be consistent without a correct price signal for CO2 emissions. Today, this is far from being the case: actions are needed if we want gas to substitute coal since such substitution is one of the most efficient ways to approach the objectives defined in Paris last year.
Finally, in the future, electrification should grow dramatically, from roughly 20% of energy demand today up to maybe 40% in the next coming 30 years. This is good news and a fantastic opportunity but it will not materialize without determined actions from all stakeholders.
Of course, our industry also needs to be more vocal to make sure that the benefits of switching to gas are correctly understood, be it for power generation, heating or transport. Gas brings flexibility as it can be transported and stored in many forms, from gaseous to CNG or LNG. It is also much more environmentally-friendly than other fossil fuels. In particular, LNG has a great role to play in helping to develop the use of gas, whether it is in the transportation sector or in other sectors for customers who are not connected to pipelines.
Finally, we need to develop the proper tools and the right commercial approach in order to unlock new markets and reduce market risks. In this respect, LNG also has a great role to play, as it allows to increase international gas trade and supply options. FSRUs, flexibility of contracts and better adjustment to the commercial needs of gas buyers will be key to grow gas demand worldwide.
Are gas and renewables the perfect partners or are they mutually exclusive?
Natural gas is the best complement of RES since it can cope with the intermittency of wind and solar energy. However, the general assumption that intermittent RSE will be “naturally” complemented by gas which is flexible should not be taken for granted.
Intermittency of renewable energy sources in Europe, where electricity networks are connected, is managed through gas, but also through coal and through imports and exports of electricity. In theory, gas should complement renewables, but in practice this does not necessarily happen: indeed, so far the development of renewables on the European continent has been at the expense of natural gas. Over the last ten years, gas has lost about 100 Bcm of consumption, either because renewable energy sources were highly subsidized or because the marginal cost of natural gas was not competitive enough, or because of political incentives for other sources such as coal. In some countries, Germany for instance, this has led to situations where renewables have reached a high level of market penetration without any reduction in CO2 emissions because coal was favoured. This kind of policy incoherence needs to be addressed.
That being said, the scale and timing also matters: energy requirements cannot be entirely met by renewables and energy transition will take a long time before it fully materializes. In California, where politicians announced that they wanted to shut down nuclear plants and replace them with renewables, they are actually bringing more gas-fired power generation online. If gas becomes more competitive, its versatility (the fact that it can be used for a variety of uses including heating, cooling, transportation,) its flexibility and its performance characteristics make it a great partner for renewable energy sources in the short to medium-term.
How likely is it that coal will be removed from the energy mix in the future?
Coal is used for almost 40% of the world’s electricity generation; therefore it seems doubtful that it will be removed from the energy mix within a day. But indeed the objective towards a decarbonized energy system calls for a drastic reduction of coal consumption. In some countries, the role of coal has decreased very quickly, essentially because of policy actions and incentives for energy transition. A consistent price signal for CO2 cost is also needed.
We have seen a big shift to a buyers’ market in the global LNG industry. As the incoming President of GIIGNL, how do you see the role of buyers adapting in the next 5 years ?
Energy issues are of a long term nature and the energy markets are confronted to long investments cycles.
As a result and despite the fundamental changes that the energy markets are facing now, keeping a long term vision and strategy is of essence.
In that respect, expressions such as a buyer’s or seller’s market are relative because equilibrium changes over time.
However in the present circumstances where markets are globalizing and where risks are increasing, there is a need for more flexibility and fluidity at each and every level of the market. That is the reason why buyers require more flexibility (volumes, destination, price,…) in their portfolio. If security of delivery remains essential both for sellers and buyers and if security for financing investments requires long instruments, the importance of liquid markets and market instruments will be more and more required.
In addition, buyers will continue to reduce the cost of access to LNG, and technology might bring new concepts along the line of floating infrastructure for which unit size (and consequently cost) as well as reduced time to market might bring more flexibility and reduce the risk attached to the build-up of new markets or projects.
Even if this trend may not appear as colliding for buyers and producers the same way, the dialogue and cooperation between both of them remains essential for the success of the LNG industry in the future.
Jean -Marie Dauger will be speaking at the CWC World LNG Summit in Barcelona, 12-15 December 2016.
Nakilat has been shortlisted for the CWC LNG Technological Innovation Award at the 17th World LNG Summit in Barcelona this year. Can you tell us more about the latest green technologies that Nakilat has adopted onboard and how these impact operational efficiency?
As a global leader in LNG transportation, Nakilat has adopted the latest green technologies on-board to enhance operational efficiency and operate in an environmentally-responsible manner. To this effect, Nakilat has effectively capitalized on its vast expertise in handling gas carriers and completed the world’s first main engine gas injection (MEGI) retrofit for a Q-Max LNG vessel to run on LNG as an alternative fuel. The modified vessel has the world’s first low-speed marine diesel engine that can utilize forced LNG boil-off gas and HFO, depending on the requirements of the voyage.
The MEGI retrofit conversion project is the first of its kind, and out measures similar system installations on new buildings due to the complexities involved in integrating this new system with existing ones on-board the vessel. Unlike most new buildings, the technology utilizes liquid-LNG directly from the cargo tank, which has also proven to run reliably from re-liquefaction condensate return, giving further flexibility in operation. The system involves extracting liquid-LNG from the vessel’s cargo tank, storing it in fuel supply skids (FGSS) and pressurizing it to power the engines. This is also the first ever ME-GI conversion involving a twin-engine configuration along with the associated systems, piping and safety shut-down systems allowing for redundant operations.
The converted vessel is able to operate with maximum flexibility in a safe and sustainable manner, enabling the vessel’s engines to meet current and future emissions standards set by the International Maritime Organization (IMO).
What are the environmental benefits of the new technologies?
The use of MEGI allows a cleaner fuel technology with a significant reduction in environmental emissions, cleaner burning engines with potential to increase mean time between maintenance, provide flexibility of fuel supply to react to market changes and reduced bunkering activities which in turn will offer operations and marine risk reduction.
Not only will this pilot MEGI retrofit result in greatly reduced emissions but also, it will allow the converted vessel to operate with maximum flexibility in a safe and sustainable manner, enabling the vessel’s engines to meet current and future emissions standards set by the International Maritime Organization (IMO).
How will the International Maritime Organization’s recently announced new regulations on sulfur emissions impact the future of LNG as a marine fuel?
Green shipping is the future of the maritime industry as we see it and LNG as a fuel can represent a significant part of that future. It has the ability to reduce Sulphur emissions by up to 95%, NOx emissions by 80% and cargo content by up to 25%. It has cost benefits over distillate fuels and removes the contaminants at source when compared with the use of scrubbing technology. LNG as marine fuel is developing a lot of interest as a sustainable alternative and compliant fuel to meet current and future emissions regulations.
What does being shortlisted for the CWC LNG Technological Innovation Award mean for Nakilat?
Nakilat is honoured to be shortlisted for this prestigious global award that recognizes us as one of the leading innovative companies in the LNG industry. The successful completion of the MEGI project is a milestone in Qatar’s standing as a reliable provider of clean energy in a safe and environmentally-sensitive manner, and highlights Nakilat’s proactive approach in adopting the latest technological advancements on its vessels towards the sustainable development of the maritime industry, in line with its vision to be a global leader and provider of choice for energy transportation and maritime services.
Nakilat are nominated for the CWC LNG Technological Innovation Award. The winner will be announced at the CWC World LNG Summit on Tuesday 13 December 2016. For more information on the CWC LNG Awards please click here.
Shell’s Chris Johnson takes a look at the ‘new normal’ in the LNG industry, and what challenges and solutions there are in reducing LNG supply costs.
Looking at BG Group’s unique LNG portfolio model, Steve discusses where he thinks the LNG industry is heading over the next five years, and what are the enablers driving growth.
Discussing the emerging markets that will be front runners for North Americas LNG, Kathleen predicts what factors will allow more US LNG projects to take FID pre 2020 and what she sees US LNG FOB and tolling models looking like in the future.
Pertamina’s VP LNG tells us all about Indonesia’s projects and what role gas plays in the country’s energy mix now and in the near future.
Steven talks us through LNG sale, purchasing and tolling agreements, as well as the opportunities and challenges presented by anticipated oversupply in the market.