This is part 2 of our Polish LNG Conference Review. To read part 1, please click here!
The moderator for the second day’s proceedings, Mark Bell from the Society for Gas as a Marine Fuel, stated that the key challenge for the sector he represents is to restraint itself from reinventing the wheel. In other words, the operators of the vessels want to follow the same procedures and receive the same quality of service wherever their route takes them. Therefore, it is critical to share knowledge and best practices across borders if one wants to accelerate the adoption of LNG globally. Bell cautioned the audience not to market LNG as a silver bullet fuel for CO2 emissions, which it is not, but indeed LNG has revolutionary potential for reducing NOx and SOx emissions.
Small Scale LNG
One of the key messages with which the participants of the Polish LNG Conference have agreed is that for the LNG sector to truly develop, large-scale LNG is not enough: it is not possible to develop the LNG sector unless small-scale LNG thrives. For example, small-scale LNG creates hope for connecting the counties in Poland, which are not yet connected by the gas network. The Lithuanian LNG Cluster is carrying out advanced work on establishing a so-called virtual pipeline, which will use digitally connected LITs, Liquid Intelligent Tanks, in order to meet gas demand in different parts of the country.
Marine LNG, Part 2
It was also valuable to listen to the beneficiaries of the uptake in LNG marine applications. Krzysztof Gerowski from Remontowa LNG Systems, which is part of one of the largest shipyards of Poland, Remontowa Group, was thrilled to inform the Warsaw audience that Remontowa is delivering vessels globally, with their most recent order being from a Canadian LNG-powered ship operator. Similarly, Krzysztof Szczerski from Wärtsilä, one of the world’s largest suppliers of power systems, shared that LNG has allowed the boil-off rate [BOG] for vessels to remain around 0.15-0.25% of their cargo volume, which is key for efficient vessel operation. Krzysztof was optimistic about the Polish Government’s vision of reviving in-land waterways, which he said could be supplied with LNG. This project is under development with the Polish Ministry of Maritime Economy and Inland Navigation and can be compared to the LNG river terminal in Basel, Switzerland, where Syngenta, one of the largest producers of agricultural chemicals, is based.
Due to the global nature of the shipping business and its resulting need for standardization, representatives of global risk management and inspection agencies were present at the conference. Tobias Rosenbaum from DNV GL shared his insight on how LNG is a glue which links markets together, which consequently results in the convergence of the global LNG price. Therefore, according to Rosenbaum, we should never again see such a huge spread between Japanese CIF LNG prices and those of European markets. Of course, that holds true in a situation where no natural catastrophes are present, which is not a certain thing given concerns raised in our reporting on the Chatham House Climate Change Summit last year. DNV GL further commented on their outlook for Australia, the United States, and Africa to become the market players with the biggest upside from LNG exports. On the topic of LNG off-takers, Rosenbaum commented on how the popularization of Floating Storage and Re-Gasification Units (FSRUs) have enabled fast development of the market. This is true considering that FSRUs are less risky from a financial perspective, have shorter delivery times, and offer the greatest flexibility in comparison with on-shore LNG terminals. This point is clearly visible when comparing Poland with Lithuania, as the former has on-shore terminals and the latter FSRUs.
Rosenbaum made a profound point stating that one market’s LNG is not the same as another’s: depending on where the commodity is coming from, its calorific value can differ by up to 17%! It goes without saying that the implications of such a difference are key for the off-taker of the LNG. This discrepancy has created a business opportunity for DNV GL, which has developed a Propane Knocking Index (PKI) Calculator in order to measure those differences. The company has also developed LNGi Portal, which provides real-time data on the movement of LNG-powered vessels globally.
Global LNG Market Insight
Building on Rosenbaum’s points, Victoria Nagy from SGS, an inspection agency, noticed that the LNG business has undergone a major transformation since a lot of LNG has recently come on-line, which in turn has created a buyer’s market. Therefore, the LNG business is no longer a long-term relationship business, which it historically has been. Nagy compared the LNG market of the past to a marriage without a possibility of divorce. One can imagine that in that market, the quality of the LNG involved was much less of an issue since over time it averaged out. Now, when 28% of LNG is traded on the spot market, the quality of individual cargo is significantly more important. Not only is the increasing number of spot transactions driving the complexity of LNG trade, but the maladjustment of contracts is also creating a significant risk. As reported by Nagy, counterparties would often copy and paste contracts under which other commodities are being traded for LNG trades. It is needless to say that the Center for Industrial Development does not recommend such business practices, yet, unfortunately, many players in the market do exactly that.
LNG’s Flexible Outputs
While thinking about applications of small-scale LNG, we must augment our understanding of LNG. Of course, it is a fuel, but it is also a storage medium for heat, or rather coldness in the case of LNG. This augmentation in understanding of LNG opens up a whole new host of user cases for it, since burning LNG can create three streams of outputs: electricity, heat and coldness. Imagine supplying an IT data center with LNG, which would supply both electricity and coldness needed for such a facility. Similarly, imagine an LNG-powered power plant combined with water desalination unit, which not only supplies a city – say Dubai, or Los Angeles – with electricity and portable water, but also with coldness for AC systems. Moreover, numerous user cases can be envisioned in agriculture, where a food processing center receives both electricity, heat and coldness from one single source: LNG. This case is particularly visible with milk-processing facilities, which need all three inputs for smooth operation. In Warsaw, we have learned that LCNG stations, Liquefied-to-Compressed Natural Gas, are gaining popularity in Germany. Such stations enable filling up cars and trucks with both LNG and CNG, while being supplied by LNG only. During the process of regasification from LNG to CNG form, the released coldness can be captured and employed in some of the user cases described above.
New LNG Technologies
Charlotte Vinding, representing the Maritime Development Centre from Denmark, pointed out that uses of small-scale LNG are highly context dependent: in her country, there are no viable opportunities for introducing small-scale in-land LNG, as the whole of country is connected to the natural gas grid. However, the maritime users of LNG, which bunker their vessels in Denmark, are starting to enquire whether it would be technically and economically viable to liquefy biogas produced by Danish farmers. Such an initiative has to be considered as groundbreaking, as it decreases the dependency on energy imports and therefore, increases national security. Further, it decreases the environmental impact of both agricultural and transport operations. It is worth keeping an eye on the development of LBNG: Liquefied Bio-Natural Gas.
Transportation Uses of LNG
It was refreshing to transition from discussing the structural understanding of how the LNG sector is developing globally and in the CEE Region to listening about how truck manufacturers are both responding to and creating the future of LNG. Fabio Pellegrinelli from Iveco was proud to state that with the recent introduction of the long-range LNG-powered Stralis truck, the company offers a full range of CNG and LNG powered vehicles to meet the needs of every potential user group in Europe. Pellegrinelli stressed that while advancements in electric cars are truly staggering, focusing on heavy transportation creates a much higher environmental impact: exchanging one diesel-powered truck with a methane-powered truck reduces emissions at a rate equivalent to exchanging 72 diesel-powered cars with 72 electric cars. The reason why truck manufactures are so quick to launch LNG-powered vehicles is that their customers demand it. The key customer group driving change in the heavy vehicle sector are supermarkets, which would like to decrease the environmental impact of their fleet servicing supermarkets located in close proximity to densely populated areas. The business case is even stronger, since efficient trucks could convert expired food in to biogas, to be sold separately. The biogas could consequently power trucks creating a supply chain in line with a circular economy.
Iveco is engaged in exactly such a pilot project in France with a local supermarket chain, Carrefour. It is necessary to underline that Iveco is part of CNH Industrial, which owns agricultural and construction brands: including New Holland and Case IH. The former is engaged in the creation, testing and subsequent commercialization of a natural gas-powered tractor. Moreover, New Holland is operating La Bellotta, a model farm outside of its Turin’s headquarters which is developing a model of an energy-positive farming operation.
Volvo Group, represented in Warsaw by Piotr Werner, also just launched a line of long-range LNG-powered FH and LH model trucks. In contrast with Iveco’s truck, which can be powered by LNG, CNG, or a combination of both, Volvo’s design needs LNG, diesel and AdBlue. The manufacturer explained that the truck turns LNG into CNG, and uses 90-95% LNG for each travelled mile, while the remaining of the fuel comes from diesel.
Based on the profiles of the sponsorship partners for the conference, it is safe to assume that the transport sector is where LNG development will be most significant in the short to medium term. This is because Barter, together with Iveco, organized field visits to showcase how they deal with LNG in critical situations, such as LNG leaks. While Iveco is developing its Blue Corridor project (as covered in our report on the of the St. Petersburg Gas Forum), it is clear that Iveco is really focused on developing and promoting a market for LNG-powered vehicles throughout Europe.
Developing the LNG market in Poland
We left possibly the most important element of the puzzle, how to develop the LNG market in Poland and CEE more broadly, for the end of this article. Anna Chmielewska from the European Bank of Reconstruction and Development, or EBRD, stated that regulation is the key to market development, since unregulated market development leads to higher prices. Chmielewska further noted that transparent, stable and predictable regulations should be the goal of governing agencies. This certainty gives investors confidence that policies will not change drastically throughout the duration of their investment. This is particularly fundamental point we should appreciate, as it comes from the supplier of capital and not a regulator!
Poland, together with the Baltic States, is a member of the EU and is therefore bound to the Union’s Energy Policy. Therefore, the presentation of Maciej Ciszewski from the EU Commission on Energy is critical for understanding what the framework for the development of the LNG market in Europe will be. The EU Commission predicts that the natural gas consumption of the EU will remain fairly stable through 2030 at 370bcm. However, domestic natural gas production is predicted to decline, as demonstrated by the largest European gas field, Groningen. The implications of declining domestic production include an increase in the percentage of imports. Under such a scenario, diversification of supply sources and routes are key objectives for the EU. The Commission believes that increasing regional co-operation in LNG imports and utilization is critical. That would enable the full utilization of existing infrastructure throughout Europe. Ciszewski stated that the EU wishes to support the use of LNG in as many forms as possible. However, it is up to the industry to lead this conversation and the Commission wants to support market signals with smart regulation. Therefore, the ultimate objective of the Commission is to contribute to the development of a fully transparent, liquid, and competitive gas market within the whole of the EU. An ambitious goal, which the Center for Industrial Development could not support more.
We, the Center for Industrial Development, believe that energy, agriculture, and mining can and should create positive economic development across entire global value chains. This very belief is at the core of our joy and commitment in supporting the Polish LNG Conference and its organizer, the Polish LNG Platform. We strive to connect gas producers from the U.S. with opportunities present in the CEE Region, and Poland, while creating sustainable value for stakeholders in existing and future value chains. To achieve this, we will continue to contribute our knowledge and network to the development and success of LNG in Europe and globally, in both large and small-scale applications. Therefore, we are thrilled to be returning to Poland in November 2018 for the second edition of the Polish LNG Conference. In the meantime, please contact us about any of the opportunities or developments mentioned in this article. We will see you in Poland in November!
Mateusz Ciasnocha is constantly on a mission to “unleash dormant potential.” He specializes in agriculture, energy, and Africa, and is also passionate about innovation and entrepreneurship. A Hult International Business School graduate, Mateusz currently studies at ESCP Europe Business School and the University of Oxford, where he is receiving a Masters in Energy Management and Philosophy Certificate, respectively. Mateusz is currently in India participating in the prestigious IDEX Fellowship, which enables him to work with Vrutti to support 130,000 smallholder farmers.