Cost Efficiency and High Y-o-Y Demand Growth Account for Small-scale LNG Market Expansion
The global demand for liquified natural gas (LNG) is growing at a rapid pace. In 2020, the demand for LNG reached to more than 360 million tons, thus, witnessing a 48% increase compared to that in 2015. Moreover, the year-on-year increase in the global LNG trade has seen nearly 7-9% growth in 2019. High demand for LNG is attributed to its newer applications at a smaller scale that have emerged in recent years, including industrial (e.g., industrial boilers), agricultural, and as a bunkering fuel for large and small vessels. All these are facilitated by the abundance of inexpensive LNG supply resulting in emissions reduction, energy security and diversity, and cost saving benefits. According to Royal Dutch Shell, the demand for natural gas is expected to reach more than 4,500 billion cubic meters by 2035, from 3,600 billion cubic meters in 2018.
Interest in the use of small-scale LNG (SSLNG) has increased in recent years as demand for natural gas continues to increase. SSLNG are basically the LNG-related facilities (receiving terminals, storage units, vessels, etc.) of similar characteristics but with a lower magnitude compared to conventional LNG infrastructure. Small-scale LNG production plants have capacities lower than 1 million tons per annum (MTPA) or 100 million. SSLNG held more than 8-9% of share in global LNG trade in 2020. It is supplied to small or isolated demand centres not equipped with a pipeline infrastructure. Small-scale LNG infrastructure is now increasingly deployed to cater to the growing demand for LNG as a transport fuel.
Low Capital Costs and Stringent Emission Regulations Foster SSLNG Capacities
Growing investments into small-scale LNG facilities is primarily attributed to its lower initial investment costs compared with conventional LNG. This means that supplies can come online in a relatively short period of time and have flexibility in terms of logistics and operation not found in pipeline supply. Small-scale LNG import terminals are the most economical option for such nations that have just started adopting LNG as an alternative fuel in their respective industries.
Large-scale LNG export terminals are built near major gas producing hubs to utilise the large amounts of natural gas produced in these regions. However, small-scale LNG export terminals are primarily built to monetize small gas fields which are not economical to exploit in case a large-scale LNG terminal is built. The small export terminals are economical to construct and require much less environmental clearances than their large-scale counterparts. These terminals can be constructed within a few years and the gas produced in small gas fields can thus be exported without any heavy investments in infrastructural development.
Exploration companies are investing in the development of small-scale export terminals to utilise the gas obtained from associated fields or the gas that would otherwise be flared. Furthermore, LNG is expected to have a greater role as an alternative fuel for fuel oil with the International Maritime Organization set to strengthen fuel oil sulphur regulations and greenhouse gas emissions in international shipping from 2020. This is likely to drive the investments into small-scale LNG facilities across the globe.
Small-scale LNG has gained higher traction recently because of its environmental potential to reduce greenhouse gas (GHG) emissions and sulphur dioxides (SOx). Some other important factors include the price diversions between crude oil and LNG, policies promoting the use of gas by governments, and natural gas market development strategies by major oil and gas companies. One of the main challenges to expanding small-scale LNG capacities is the extent to which the relative price competitiveness of LNG can be can be maintained versus that of the conventional petroleum products.
Investments in LNG Satellite Stations Point to Higher Growth Prospects
There are several different LNG sourcing strategies among small-scale terminals. The small-scale import terminal operators can either source LNG from large liquefaction plants or from small-scale liquefaction plants, depending on the requirement of the terminal operator and ease of transportation. In 2020, small-scale liquefaction accounted for a major share of the global market. Increasing demand for natural gas from the marine and land transportation, and power generation sectors is the primary factor encouraging further investments in this market. Small-scale liquefaction units are widely being developed in the countries where is there are no proper infrastructure facilities for the supply of natural gas. These countries construct small-scale liquefaction terminals for the supply of LNG as a fuel to the transportation and industrial sectors (majorly mining and power generation).
LNG satellite station consists of a vapouriser & gas trim heater, tank, odourisation unit & stage regulation units, automation system and database management, interconnection, engineering & project management, and onsite maintenance & repair. The satellite stations for small-scale LNG are predominantly used in the US, Europe, and China. In 2018, the US had more than 200 satellite stations, while China and Europe collectively accounted for around 1,000 stations. Other than the market size in terms of operating satellite stations, the applications of stations in these three regional spaces also diverge.
Asia Pacific to Remain Investors’ Hotspot in Small-scale LNG Market
Asia Pacific dominates the global small-scale LNG market. In 2020, Asia Pacific accounted for more than 68% of LNG demand, of which a whopping 55% was contributed by Japan, China, South Korea, and India. In Asia Pacific, the government of Singapore is implementing proactive policies with an aim to become a major hub for LNG bunkering. Singapore has already built ship-to-ship (STS) LNG supply facilities and the government has introduced a subsidy for LNG-fuelled ship construction, and cooperation with other ports and ship-owners to promote LNG as a bunker fuel.
Europe captured almost 25% of global LNG demand in 2020. In some of the European countries, the increasing environmental awareness has driven the use of lower carbon energy. This has helped the development of SSLNG as a lower carbon energy, particularly in Nordic region and Northwestern Europe. In the Baltic Sea and North Sea areas, Norway has invested significantly in the development of LNG bunkering terminals around major commodity trading centres. Norway accounts for the largest production and distribution network for small-scale LNG in the European region.
The growing preference for LNG as a fuel in the shipping industry will be an important driver for the rising spending of China, Europe, and the US on LNG adoption. Investment in LNG fuelling stations is also expected to increase in these regions. Newer applications of LNG are expected to enhance the production, followed by higher investments into small-scale LNG facilities.
Companies Eye Investment Opportunities in Asian Countries; India in Spotlight
Some of the key players involved in small-scale LNG market include Mitsui Group, BP plc, Wärtsilä Corporation, Siemens AG, Total SA, Linde plc, GE, Petronas, Royal Dutch Shell plc, Equinor, Eni S.p.A, and Black & Veatch.
In April 2021, INOXCVA has joined forces with Mitsui Group over a small-scale LNG project in India. This partnership will enhance small-scale LNG applications development and provide impetus to gas-based economy in the country. With this deal, the Japanese company aims to invest in India’s nascent small-scale LNG infrastructure, including logistics and receiving facilities.
In January 2021, Royal Dutch Shell launched its first small-scale LNG supply project in India, a truck-loading unit at its Hazira terminal in Gujarat that will enable the cleaner fuel to be delivered to customers in India.