Liquefied natural gas or LNG transcends the traditional limits of gas in terms of storage and transportation, making gas available to the world and feasible for off-grid or transportation fuel applications. In large scale markets, LNG is already a strategic commodity. However, in the small scale market limited growth is experienced. Why is the small scale LNG market not booming?
The emergence of LNG
Historically gas was mostly limited to the well; expensive pipeline infrastructure was necessary to transport the molecules from location A to B. Although distances of thousands kilometres were economically feasible, this resulted in an undesirable form of supplier power. Starting in the 1960s, the implementation of liquefaction trains enabled large scale condensation of the gas into a cryogenic fluid, reducing the volume of gas approximately 600 times. The liquid composition made it economical to store and transport the gas over long distances.
Large scale LNG applications
This gas could then be applied in many ways. Large scale applications, by far the largest part of the market, consist of importing terminals mostly storing and regasifying the gas for network injection or local electricity production. Large scale gas (and therefore also LNG) is suitable for flexible electricity production and is a vital component for the energy transition to sustainable energy. The strategic value of gas is recognised worldwide as LNG terminals flourish, even in the countries with existing gas supplies. While being strategically indispensable for a sustainable energy provision, the direct environmental benefits of large scale applications are limited.
Small scale LNG – environmental benefits
However, the environmental effects of small scale applications have a largely positive impact as opposed to existing solutions. Small scale LNG is an attractive substitute for off-grid applications, heavy road and water transportation (now mostly diesels). For shipping the tide is turning as new regulations will restrict emissions and cleaner fuel is imperative. As a substitute shipping fuel, LNG terminates almost all SOx, NOx and particulate matter emission, and reduces CO2 emissions by 20%. This is a significant step in the right direction. In terms of sustainability, small scale LNG is favourable as substitute fuel in off-grid and transportation applications, but is it economically feasible?
For off-grid, shipping and road transport applications, business cases show a decrease in fuel costs in comparison to current alternatives. Analysis shows a transition from diesel to LNG for road trucks can reduce fuel costs by up to €3 per 100 km. Noise pollution is also reduced. Although this may seem a marginal factor, it is of great value as it means that deliveries can be made outside of regulated time spans, e.g. in the evenings.
However, off-grid applications mark long payback times, uncertain supply and price developments, all of which can hinder the growth of this industry. In countries with limited gas infrastructure, off grid LNG applications are growing due to economic and environmental benefits with feasible payback times. For road transport, regulations and a low number of filling stations limit the use to local distribution. LNG quality or lacking fuel standards are often mentioned as a barrier, while analysis shows that most engines can cope with almost all available LNG worldwide. In many countries, LNG trucks are becoming a more common phenomenon in local markets, but few transport movements are made internationally. For shipping, despite the urgent need for cleaner fuel, in some countries the market is currently quite disappointing. The ‘infrastructure vs demand’ deadlock and the lack of (international) regulations are hindering growth. Technical barriers, frequently mentioned by end-users, may be of lesser influence as engines evolve rapidly and (new-build or conversion) prices are expected to decline.
LNG – a ‘cool’ fuel
In conclusion, LNG is a ‘cool’ fuel carrying many advantages. A limited number of barriers seem to be stalling overall market growth, especially in shipping. It is important that end-users and suppliers work together to break the current deadlock and to accelerate the development of (local) regulations to both enable and force the implementation of LNG.
Written by Thomas Vles, Consultant, Squarewise