The challenges of the LNG industry

2014.05.20

Thomas Chhoa (General Manager Global Transport, Shell), John Sattar (Senior Consultant – LNG & Natural Gas, Poten & Partners), Derek Novak (Vice President of Operations, ABS Pacific Division), Stephane Maillard (Business Development Manager, GTT) and René Van Vliet  (Chief Project and Technology Officer, NextDecade) moderating the session

Thomas Chhoa (General Manager Global Transport, Shell), John Sattar (Senior Consultant – LNG & Natural Gas, Poten & Partners), Derek Novak (Vice President of Operations, ABS Pacific Division), Stephane Maillard (Business Development Manager, GTT) and René Van Vliet (Chief Project and Technology Officer, NextDecade) moderating the session

With the call towards more sustainable energy sources by activists and environmental watchdogs getting increasingly urgent, there has been a lot of attention given to alternative forms of energy. Liquefied Natural Gas, or LNG, is one example of a more sustainable form of energy due to its lower carbon emissions. This is natural gas that has been converted to liquid form for ease of storage and transport, and is an alternative fuel that is growing in popularity, currently making up about 21% of the world’s energy supply. When burned, it releases around three-quarters as many greenhouse gases as oil, and around half as much as coal.

LNG was the sole focus of the 3rd annual Asia Pacific Small & Mid-Scale LNG (APAC LNG) Forum, which ran from 15-16 May at the swanky Pan Pacific Hotel in Singapore. It was chaired by René van Vilet, a former employee at Shell International who now runs his own consultancy for LNG business development. The speakers at the conference ranged from bigwigs at energy companies to financiers and lawyers working with the gas industry. Speakers included Thomas Chhoa, who is Shell’s Global General Manager for LNG to Transport, and Ben Arnott, who is a Director in Standard Chartered Bank’s Oil & Gas Corporate Finance division. This clearly demonstrates that some big names in the traditional fossil fuel industry are starting to become very interested in LNG.

There was a palpable sense of excitement in the hotel: the LNG industry has gained a lot of prominence of late, with General Electric proclaiming the beginning of an “Age of Gas” (http://www.ge.com/stories/age-of-gas), but the industry is still young enough for new players to enter and for unforeseen changes to take place.

On the first day of the conference, many speakers mentioned LNG’s increased use as the fuel of choice for ships, the rationale being that LNG is the cleanest alternative. While there are less than 100 LNG-powered ships in the world today, it is projected that there will be well over 1000 such ships by 2020. Meanwhile, overall demand for LNG worldwide has increased by almost 3% per year in the last decade.

However, shifting trends in demand suggest that the industry is in a period of transformation. Right now, the increasing use of gas is one of the biggest topics in the energy industry. Yet many factors still conspire to hinder the growth of LNG and to prevent easy integration of LNG into industrial systems, and the strongest factor is the sheer cost of production.

Ben Arnott (Director, Oil & Gas Corporate Finance, Standard Chartered Bank)

Ben Arnott (Director, Oil & Gas Corporate Finance, Standard Chartered Bank)

Managing costs is a big challenge to LNG companies. Rapidly evolving and increasingly complex technologies require substantial capital investment, but the returns in the oil and gas sector are not improving. This means that smaller players and marginal field developments are vulnerable to price volatility. Traditional fuels like oil continue to be a very sought after asset for investors and bankers, and this may prevent such people from channeling money to LNG. In Asia particularly, the financiers of LNG have it tough, with an estimated fourteen-year return on investments. Hence, it is hard to argue for LNG purely on economical terms, at least in Asia.

Yet certain Asian governments are helping to encourage the development of LNG. The Singapore government has opened up the gas and LNG trading market to competition, welcoming new aggregators and originators of gas into the picture. Singapore is a world leader in oil refining and storage, but has ambitious new plans to develop into a major energy hub for gas and LNG industries. Gastech, the world’s largest natural gas and LNG conference and exhibition, will be held there on 28-30 October 2015. By now, its representatives Matthew Meredith, Executive Vice President at dmg::events (UK) Ltd, Dr Anthony Barker, BG Group’s General Manager and Jonathan Goh, Director at Energy Market Authority (EMA) Singapore had a welcome speech at the Gastech 2015 Press Launch and Networking Reception as the part of the 3rd Annual APAC LNG Forum.

However, what went unmentioned throughout the APAC conference was the question of whether we are even right to try and make LNG into a fuel to be used over the long term. There seemed to be an implicit assumption that because LNG is somewhat cleaner than the alternatives, we need ask no questions about future sustainability. Rather than simply seeing LNG as a complement to existing fossil fuels, we need to begin to view it as a bridging technology, something that should be scaled up quickly as a replacement for dirtier fuels, while we research the scalable fully renewable technologies that we need to power the future. It would be excellent to see this addressed in future conferences.

In the meantime, for the sake of a slightly cleaner, more sustainable environment, let us hope that more players will be willing to enter the LNG market and help build the infrastructure so that we can see LNG get used more and more.

 

Report prepared by Raymond Tan

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