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SMALL-SCALE LNG
In a show of foresight appropriate to a leading marine transportation operator,
I.M Skaugen is currently building up to ten “Multigas” carriers which will have the unique design capability to transport LNG in addition to our traditional products. This gives us an opportunity to be the early mover in an exciting new market currently under development around the globe - that of small-scale distribution of LNG.
Our ambition in this market is not only to transport the LNG but also take an active part in the whole supply chain, acting as a seller of LNG directly to the end-users.
LNG, or liquefied natural gas, is natural gas that has been cooled down to minus 163 degrees celsius, at which point it is about 1/600th the volume of natural gas at standard temperature and pressure (STP), making it much more cost-efficient to transport over long distances. It is an odourless and non-corrosive gas and less dense than water.
Small-scale LNG is a complement to the traditional large-scale LNG supply chains where LNG is transported over long distances to large and costly receiving terminals where it is turned into gas and fed into national pipeline systems.
With the small-scale LNG concept, natural gas in the form of LNG can be supplied directly to end-users located outside the normal cover of pipeline systems. This will give these end-users the unique opportunity to switch to natural gas - an energy source with significantly lower emission levels of greenhouse gases.
The small-scale LNG concept not only gives a flexibility where capacity can easily be built up over time by adding more ships and terminals but it requires much smaller and less costly terminals. In addition to tying up less capital, the smaller terminals will be faster to build and have less impact on the environment.
LNG as a product is a fast-growing sector of the global gas market. It presently accounts for around ten per cent of all natural gas supply and LNG use is expected to rise by over 10 per cent each year over the next decade. Growth of world LNG trade is driven by increasing demand and declining domestic natural gas resources in gas-consuming countries, as well as by the desire of gas-producing countries to commercialise their resources in new territories. The global effort to limit greenhouse gases emissions will also help to make natural gas the preferred fuel choice.
The decision to make our own-designed and own-built “Multigas” vessels - the first of their kind - capable of carrying the more traditional cargoes of LPG and Ethylene, as well as LNG, makes it possible to switch between differing gas cargoes. Furthermore, we will be able to gain access to a new market without the costs normally associated with the building of a dedicated LNG fleet.
As you would expect, a move into this market needs to be scrutinized at every stage in the process and, therefore, the company has been working for half a dozen years to analyse the market potential and supply chain management of small-scale LNG. Our objective has been to demystify LNG and build a robust supply chain concept based on known and off-the-shelf technologies. The first result is a partnership with Lyse Gass and the exploration of LNG-based services for customers in Scandinavia.
Lyse Gass is planning to build a new natural gas liquefaction plant in the Stavanger area which will have an annual capacity of around 300,000 tons (415 million cubic meters). Under the agreement, Lyse Gass will supply the LNG, we will provide the marine transport capability and we will jointly market and sell the LNG to customers. The initial strategy is to focus on large industrial users in order to achieve sufficient volumes and build the necessary economies of scale needed for the production, shipping and terminal side of the supply chain. Talks are already advanced with potential customers in Scandinavia and in the Baltic region.
In addition to larger industrial users, we believe there are opportunities to develop smaller customers in an area up to 300 km from any LNG terminal, using both road- and rail-based transport. Analysis suggest that this retail end of the market is less price-sensitive and could generate higher margins than the large industrial user that will form the base business in terms of volumes. This retail market business will be very much dependant on the development of the necessary land-based transportation infrastructure, though the development of this second phase of activity can be progressed in parallel with the pursuit of the larger industrial customers.
With the growth that is being forecast globally for LNG we will not just confine ourselves, in the long-term, to only considering Scandinavian opportunities. There are many other parts of the world that are seeing rapid energy demand growth but a lack of pipelines and, therefore, natural gas means that LNG is an obvious alternative.
The exploration of the LNG market will be a challenging one, but with our ‘can-do’ attitude and the creation of the innovative marine infrastructure this will be a major new business opportunity for us over the coming years.
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