While LNG may be considered a temporary solution to a global energy transition, that temporariness could be here until the middle of this century, or even up to the beginning of the next. The 2018 LNG Conference in Helsinki, Finland, was organized with the purpose of exploring the rapid growth of this seeming miracle fuel, while discussing what effective regulations are needed to ensure its sustainability. CID was proud to be a Media Sponsor for this event, and in this article we aim to recap the highlights of this important conference.
An evolving global marketplace
Eero Vanaale of Royal HaskoningDHV began the conference proceedings with a macro overview of the global LNG market in the last few years, and its upcoming developments as the 2020 Global Sulfur Cap approaches.
2016 saw 258 million tonnes of trade in LNG, and its growth has continued in 2017, which exceeded projections largely due to China closing its last coal mine in March of 2017. China’s incremental demand is poised to grow by 400 bcm (billion cubic meters). The same massive growth is mirrored in the rest of Asia, which is growing by 340 bcm, partly due to the rise of Australia and Papua New Guinea. The Middle East’s demand has been growing by about 320 bcm, and the US by 280 bcm. Overall, the use of global LNG is expected to grow by about 5% worldwide up to 2025, making LNG very much a supply driven market.
There are 20 exporting LNG countries, and 40 importing ones, 14 of which are European and import LNG by sea. Spain is the biggest market, followed by France, Italy, and Turkey. Given its coal reduction, the decrease in Britain’s demand is surprising. Although Poland and Finland are smaller markets, they still feature significant and promising growth in the LNG market. As Gazprom achieved its 2025 goal of occupying 35% of the European gas market in 2017, Europe will have to compete with Russian LNG and its growing natural gas pipeline. This means that in the Baltic area and Lithuania, there is a significant incentive to negotiate commercially and politically.
The dynamics of pricing
How LNG is priced is always a critical topic of conversation, and the 2018 LNG Conference was no different. The key insights were as follows: after Fukushima in 2012, there was a static period up to 2015 during which high oil prices drove LNG prices to follow suit, making LNG too expensive for many industries internationally. As similar cataclysms are not expected in the near future, LNG prices are assumed to be stable at around $10 in Japan, expected to grow from around $8 to $10 in Europe – a surge in price, and expected to remain in the 4 to 6 dollar range in the United States. As the United States, Qatar, Mozambique, and Russia will drive the trade expansion beyond 2020, it’s safe to assume that there will not be an under supply of LNG. In fact, as there is a decline in production from countries such as Algeria and Trinidad for various reasons, many expect an oversupply of LNG that will lead to a decrease in its price.
If, however, the price of LNG is very high, there is a threat of underinvestment in critical LNG infrastructure and new projects.. Investors may prefer renewables in a high price environment. Australia, for instance, is known for its high break-even price, especially compared to Mozambique and Russia’s Sakhalin, whose LNG has a much lower break even price of about $2,000/tone that allows it to be competitive with even the most affordable renewables.
Small scale LNG and the maritime industry
An important topic at the conference was the advent of small scale LNG solutions, and the possibilities they are creating for the maritime industry. Small & large scale LNG essentially have the same supply chain,with customer preference for safety, cost effectiveness, and security of supply being constant for both. Operators have had to expand their operations to meet the new demands of small scale LNG consumers, however. Skangas explained how it provided 1,000 bunkering operations in 2017, 60% of which were truck to ship, 38% terminal to ship, 2% ship to ship.
As Mark Bell from the Society for Gas as a Marine Fuel (SGMF) explained, the maritime industry is an important part of the future of LNG, though the industry will face many challenges after 2020, including public perception and regulations, fuel prices, and evolving ship technologies. The changing maritime industry will require adaptive companies in order to succeed in such a tight marketplace.
The promise of LNG for the maritime industry centers around the fact that gas is fully compliant with the 2020 Global Sulphur Cap, as it results in a significant environmental reduction in carbon oxides, sulfur oxides, nitrogen oxides, and particulate matter. The environmentally friendly nature of LNG is a key driver of project investment.
Bell noted that although world population does not appear to have a link to the total number of ships at sea, it does share an intrinsic link with the amount of cargo that’s moved. Thus, as the world population is likely to maintain its straight-line growth, cargo will likely increase proportionally, meaning more ships will be at sea, and thus more pollution will be emmitted. That is where LNG powered ships can revolutionize the industry. Bell suggested cautious optimism, however, reminding the audience that while a gas-fueled ship may indeed be 80% more carbon efficient than another ship, that other ship may be 50 or more years old, which lessens the significance of the comparable pollution reduction.
What is the future of LNG regulation?
The great prospects and challenges of LNG naturally led to lengthy discussions about regulation. This was a critical topic since uncertainties about future regulations reduces the number of investors that are interested in new LNG projects.
The key message from these discussions was that regulations must be applicable to different LNG bunkering and fueling operations. Further, it was concluded that any regulation must provide a standard permitting process for bunkering facilities, and an approach that facilitates all of these processes and ensures their absolute safety.
Safety is the goal of any LNG regulation, especially since the aforementioned growth in ship operations increases the risk of accidents. Thus, many steps are being taken to ensure the safety of these operations. A few of the safety measures discussed at the conference included a DNV GL approved simulator for LNG Bunkering Operations that can train crew members for 4 to 5 days, and the European Maritime Safety Agency’s “Guidance On LNG Bunkering,” which was released earlier this year.
LNG vs renewables
The key point on this debate that was shared at the conference came bluntly: “hoping that all ships suddenly jump to renewables like Hydrogen, that is unrealistic, boys and girls,” Mark Bell noted. Gas is, however, a bridge to these possibilities. It may be a temporary solution, but that temporariness may last well beyond our lifetimes, especially since most ship types now have a gas-fueled variant in service or on order. Moreover, liquid biogas will go through the exact same development phases as LNG has once it becomes available, given that it’s virtually the same product to handle.
The importance of ports
In order to be successful, LNG must be accompanied by two things: legislation, which is being developed, and demand, which ports like the Port of Helsinki is ready to meet. The Port Of Helsinki is Finland’s main foreign trade port and Europe’s busiest passenger port with a total traffic of 14.3 million tons, 11.9 million tons of unitized cargo, and 11.8 million passengers. New LNG cargo vessels are expected in 2019, and by 2025, so the Port is hard at work ensuring that LNG bunkering is available in Ten-T core ports.
Integrating ports with LNG fueled vessels faces a multitude of challenges, however. Ports need to know how, where, when, and on what terms LNG bunkering can take place. To accomplish this, they require flexibility, traffic arrangements, ensured safety, difficult to obtain permits, and an acceptable payback time for their investments. Despite these challenges, ports like the Port of Helsinki welcome LNG users, particularly because they help the ports achieve their environmental and noise goals, among others. Moreover, LNG users can help the Port of Helsinki achieve its goal of becoming carbon neutral by 2035.
From shifting market dynamics to regulations and developing infrastructure, a wide range of topics critical to the future of LNG were discussed at the 2018 LNG Conference. It is clear that the fuel is here to stay, along with the technological revolutions that it has created. The next step, however, is finding ways to make these revolutions sustainable both economically and environmentally. There was no better place to be to discuss these issue other than the 2018 LNG Conference. If you are interested in learning more about investing in LNG or preparing for the next stage of its future, contact us here.
Until next time!