Small scale LNG can make a big difference

Liquefied Natural Gas (LNG) is no longer just an alternative to natural gas supplies by pipeline, mainly used for heating and power generation in industries and households. Small scale LNG is rapidly changing the application of LNG as an energy source. In particular in transportation, small scale LNG is playing an increasingly important role and will be a strong demand driver for LNG in the future. Moreover, small scale LNG can contribute in bringing more liquidity and diversity to smaller and isolated gas markets, such as those of the Baltic countries.

LNG in transportation

The use of natural gas as a fuel in transportation is not something new. Compressed natural gas (CNG), for example, is already widespread as a fuel for cars. Manual Lage, General Manager at the Natural Gas Vehicle Association (NGVA), notes that there are currently around 13.2 million natural gas vehicles (NGV) on the road world wide. Pakistan comes first, with 3.5 million NGVs, which is 80% of all vehicles in the country. Iran is second with somewhat over 2 million NGV. Manuel Lage explains why this figure is so high in Iran: "In Iran all cars by law have to be on gas." It should be noted that becuase of the sanctions regime, Iran suffers from a limited refining capacity.

As for trucks and buses, CNG is currently mainly being applied as fuel for urban buses and garbage trucks, which can easily fuel overnight. Already 13% of the urban buses in the main European cities run on CNG. "This is not possible for road trucks", Manuel Lage explains, "since they cannot fuel overnight". In this respect, LNG is a suitable solution as a fuel for heavy duty trucks and is actually already being realised. The advantage is that LNG requires less storage capacity than CNG and trucks can be fuelled more quickly. LNG trucks are being produced in Europe, the US and Asutralia, but China seems to be taking the lead when it comes to production figures. Chinese producers such as Dong Feng already build around half a million LNG trucks annually, according to Manuel Lage.

Bunkering fuel

Also as a bunker fuel for ships, LNG is becoming an increasingly attractive alternative. Here Japan aims to take a leading role in the building and the utilisation of LNG-powered ships. The number of ships that run on LNG is still limited, but this might change in the coming decade. According to a recent estimate by Norwegian risk management company Det Norske Veritas (DNV), 500 LNG fuelled ships will be an order by 2015 and several thousands by 2020 globally. Already, a LNG bunkering market is developing in the North Sea and the Baltic Sea, which is mainly the result of declaring the region an emission controlled area (ECA).

LNG takes to the skies

After the land and the seas, LNG might eventually take to the sky. At first glance this might seem somewhat far fetched, but there is a great potential for LNG in aviation as well. Around 13% of all transport fuels are used to keeping aviation up in the air. With fuel resources becoming scarcer and more expensive, LNG can offer an interesting alternative. Fuel comprises 30% of the operating costs in aviation, Antonio Nicotra from AIR-LNG explains. By shifting from kerosene to LNG, aviation can contribute substantially in reducing CO2 emissions.

The technology for using LNG as an aviation fuel was already tested in the mid 1980'ies by then Soviet Union plane manufacturer Tupolev. The manufacturers adapted the serial TU-154B by installing an LNG storage and feeding system in the aircraft. The adapted version, named TU-155, made its first flight on LNG on 18 January 1989 and over a hundred domestic commercial flights were carried out. However, with the disintegration of the Soviet Union and lack of financing the programme was terminated. During 1995-2005, NASA, Boeing & Airbus examined the possibility to use hydrogen as a potential fuel for commercial aviation, but eventually dismissed the idea for excessive complications and costs.

 The Arctic Princess offloading LNG at Gate in Rotterdam. From next year on, small scale LNG carriers can start supplying the Baltic.

Small scale LNG for the Baltic

In September of 2011, the port of Rotterdam took into use the regasification terminal named Gate, which is operated by Dutch Gasunie and Vopak. Gate can receive a maximum of 12 BCM of natural gas per year. Although Gate is primarily meant to supply European markets by regasifying the LNG into the European gas grid, it can also serve as hub for LNG supplies to the Baltic region. By 'breaking bulk' small scale LNG carries can start supplying the Baltic region already from next year on, Piet Kager, Commercial Manager at Dutch Gasunie, explains.

The Baltic countries of Estonia, Latvia and Lithuania mainly depend on Russian pipeline gas and are looking for options to diversify their gas supplies. According to Piet Kager, small scale LNG supplies could be of particular interest to the Baltic region from the perspective of security of supply. But the Baltic countries do not need such a large scale LNG terminal as the one in Rotterdam, Piet Kager adds. Therefore small scale LNG tankers would provide a good solution to supply a smaller LNG-terminal. To justify the needed investments for starting small scale LNG supplies from Rotterdam, the demand for small scale LNG should at least be 300.000 tonnes annually and could start already by next year. But, according to Piet Kager, this figure could be easily increased depending on the demand.

However, the Baltic countries have in the past years tried to realise plans for a joint LNG-terminal, unfortunately without success so far. The prospect of small scale LNG supplies could speed up those plans. Although volumes might be considered as small, they can bring significant liquidity to these small markets. Also from a financial point of view small scale LNG is interesting, as its price, based on spot markets, is often below that of Gazprom's long term contract prices, to which the Baltic countries are mostly tied.

Nevertheless, Gazprom too has recognised the potential of the LNG market that is taking shape in the North Sea and Baltic Sea. As of next year, it plans to take into use a small scale liquefaction facility in the Russian exclave of Kaliningrad. The EEO has learned that initial annual capacity will be around 25.000 tons of LNG, which will be gradually increased to 150.000 tons per year. In the past Gazprom also announced plans for the construction of a 2.5 BCM / year liquefaction plant in Kaliningrad. These plans for the time being seem to have been shelved.