LNG: Small is the New Big

BIG used to matter. Big meant #economies of scale. (You never hear about “economies of tiny” do you?). Big meant power and profit and growth. Big meant control over supply and control over markets. Big planes were better than small ones, because they were faster and more efficient. Big buildings were better than small ones because they facilitated communications and used downtown land quite efficiently. Bigger computers could handle more simultaneous users.

 But then, small thing happened…

Enron (big) got audited by Andersen (big) and failed (big). In India, Satyam (big) got audited by PwC (big) and failed (big).

The #World Trade Center was a terrorist target. Network (big) TV advertising is collapsing so fast you can hear it. American Airlines (big) is getting creamed by JetBlue (think small). Boing Boing (four people) has a readership growing 100 times faster than the New Yorker (hundreds of people). Today, Craigslist (eighteen employees) is the fourth most visited site according to some measures.

 Fifty years ago, the first commercial LNG cargo was shipped from an LNG export facility in Algeria in 1964. Since then, LNG has grown into a truly global commodity. This growth has been accompanied with, and driven by, economies of scale in the design and construction of facilities. Since the first trains in Algeria of 0.4 mtpa LNG, the conventional LNG business has evolved into 7.8 mtpa mega-trains in the 77 mtpa Ras Laffan Industrial City in #Qatar

 In recent years, a comeback of smaller scale LNG facilities has emerged. New liquefaction and distribution facilities are being constructed and operated across the globe. Currently, the global small-scale LNG (SSLNG) installed production capacity is of 20 mtpa spread around more than hundred SSLNG facilities. This is on top of the installed capacity for conventional LNG plants of approximately 300 mtpa. The SSLNG market is developing rapidly, especially as a transportation fuel and to serve end users in remote areas or not connected to the main pipeline infrastructure. One of the potentially ground-breaking changes in the Asian region is the development of small-scale LNG and break-bulk LNG.

 A move to small-scale or break-bulk would be a departure from conventional LNG import terminals and the conventional #LNG supply chain with an offshore LNG regasification terminal. But this is not a new format. In the early stages of the LNG industry, LNG carriers and terminals were smaller. The LNG carriers built in the 1960s and 1970s varied in size between 30 000 cubic metres (m3) and 90 000 m3. Also, Japan used many small-scale vessels in the 1990s. Today, an LNG cargo averages 160 000 m3. This model would certainly depart from the conventional LNG SPAs, which usually link an LNG liquefaction plant to a #regasification terminal. The traditional point-to-point model has seen many modifications over the past decade, with the emergence of spot cargoes, arbitrage between different destinations and the rise of aggregators, which all points to a different way of using the traditional LNG chain.

 LNG re-exporting has emerged since 2009 due to the low demand for gas in some regions, coupled with the high differential between Asian gas prices on one side and European or North American gas prices on the other, prompting companies to resell their gas to Asian markets. This trend emerged first in the United States and is now mostly seen in Europe. The past ten years have seen the rise of FSRUs in developing countries. Smaller in size, they enable countries to have faster access to LNG imports as the construction requirements on the site are much more limited than for an offshore terminal. Small liquefaction plants have also been developed to serve the downstream market. This trend is seen particularly in China, where the LNG mainly serves the transport sector.

 Small-scale and break-bulk LNG import projects would have the following characteristics:

 Smaller terminals. A smaller terminal leads to faster build times. Due to its smaller size, the capital and operational costs are more affordable for small players and the projects can be built in less time.

 Ships. An average cargo ship has a capacity of 160 000 m3. The biggest cargoes are carried by Qatar’s Q-Max, with a carrying capacity of 266 000 m3. At the other end of the spectrum, some small-scale LNG barges with capacities between 1 000 m3 and 30 000 m3 are being built. Ships as small as 1 000 m3 can be found in Norway or Japan and are used for coastal trade. The smallest (below 15 000 m3) can have a different design with cylindrical tanks.

Distance. Besides the smaller size of regasification facilities and cargoes, these shipments would typically travel over shorter distances, as is the case in the Baltic region. These LNG cargoes would no longer travel thousands of nautical miles, but rather hundreds. The smallest ships built decades ago were adapted to the trade in the Mediterranean Sea, with short distances between North African producers and European buyers.

Customers. Small-scale LNG would be able to supply one single gas-fired power plant needing a few million cubic metres over the year, without having to develop a large LNG regasification terminal or find additional gas users, for which a transmission and potentially a distribution network would need to be built. This would be an advantage in regions where the gas network is still insufficiently developed, non-existent or too expensive to develop. Against this backdrop, LNG represents the most flexible means by which Asian countries could access imports when they do not possess gas resources or when they are located far away from markets. A smaller size would be more adapted to feed-gas-fired plants with a capacity of 10 MW to 50 MW, which would typically need 10 Mcm to 50 Mcm of LNG per year. In India, GVK and GMR are looking at de-risking their power business by getting into backward integration to ensure fuel supply.

Operations. The example of the Dutch Gate terminal features a traditional LNG import terminal with the capacity to redistribute LNG to smaller ships or directly to end users. Japan did the same decades ago. The LNG can either be loaded then or unloaded later to a smaller ship. It could also serve for road or maritime transport applications and be loaded on small trucks for inland distribution. Finally, it could also be regasified and sent to the distribution network. While moving to break-bulk services, small-scale LNG ships could undertake several unloading operations to multiple small-scale regasification terminals within a region. Different LNG users should be able to have access to the terminal through contracting for certain LNG services (unloading, reloading LNG into a ship, trans-shipment, bunkering, LNG storage, LNG regasification and send-out of pipeline gas or LNG). The operator of the LNG terminal could be different from the users (like Vopak in the Dutch Gate terminal) and earn revenues from regulated LNG terminal activities.

 Economics. Such a development could be looked at from a regional point of view in order to have synergies among small buyers. The economics of using small-scale and break-bulk LNG, possibly in co-ordination with further transport by truck, would have to be compared with developing a standard pipeline network. Also, for the terminal owner, it would make sense to have the booking commitments of several companies in order to raise financing. The specificities of LNG such as boil-off in storage and transport should also be taken into account regarding who pays for them.

 In addition to economic aspects, another important item is the interaction between the liquefaction terminal and the buyer(s). There are essentially two options:

1. LNG is imported directly through a normal regasification terminal and then divided and split into several cargoes and redistributed to small-scale LNG terminals in the region, like a milk delivery round/routine

2. It is imported directly to a small-scale LNG terminal.

Remote power generation sets might also be targeted with LNG in pressurised container tanks. Displacement of industrial use of LPG and fuel oil might also be targeted. Low utilization of big LNG terminals across the globe including some local examples are influencing the strategy of GMR Group, which is in the process of setting up an LNG (liquefied natural gas) terminal of comparatively smaller size at Andhra Pradesh’s Kakinada sea port. The project envisages a start-up capacity of 1.75 million tonnes per annum (MTPA), which comprises of captive use by GMR Energy Limited to the tune of 0.85 MTPA, with the balance for domestic piped and non-piped users within a radius of 450 kms.

From White Martins experience in Brazil in 2006 to small and mid scale LNG market in China today, we have numerous good examples of innovative approach of #Black & Veatch offerings for remote and distributed users to get benefitted by the accelerated schedule, lower installed cost and increased reliability by modular fabrication and project execution.

•  Views expressed here are personal and doesn’t necessarily represent my association with any organization.