Small-scale LNG making market inroads

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Overshadowed by their bigger, more eye-catching counterparts, small-scale LNG projects in fact make up the majority of US LNG facilities. And during the coming years, their number is expected to grow, writes Jim Magill

Large-scale LNG liquefaction and export facilities are helping to write the demand story for US natural gas reserves. But there is a newer demand factor for that gas: small-scale facilities sending LNG to otherwise little-tapped markets and finding new applications for the fuel.

Small LNG plants, usually with production capacities of less than 1 million mt/year, are springing up across the US to service niche markets, such as providing IMO-compliant bunker fuel to oceangoing vessels, meeting peak-shaving demand and serving a growing export market in the nearby Caribbean.

These small facilities can be sited and built more quickly and cheaply than their behemoth world-class cousins. Construction costs range into the millions rather than billions and construction takes months rather than years. The smaller plants can be built almost anywhere, allowing siting near gas production or near markets. Containerized shipment can be by truck or vessel. The timing also seems right. The Trump administration is pursuing a rulemaking to allow long- distance shipment of LNG by rail.

Demand for LNG

With the increase in US shale gas production over the past decade and a half, the demand for LNG for both domestic use and export has also increased dramatically.

According to the US Pipeline and Hazardous Materials Safety Administration, as of January 2018, there were more than 110 LNG facilities operating in the US, performing a variety of services including liquefaction, storage, transportation and regasification.

According to PHMSA, there are 160 US LNG facilities built or approved, with the vast majority small-scale projects. Of the 160 plants, four are categorized as large-scale exporting plants already in operation, while seven large-scale plants have been approved.

PHMSA also reports that the volume of LNG storage capacity in the US has grown to 55.7 million barrels in 2018 from 45.4 million barrels in 2010.

One source of LNG demand growth has come from the maritime industry, where LNG can be used as a bunkering fuel, replacing dirtier fuel oil and diesel. Increased demand is being driven by standards set by the International Maritime Organization to limit greenhouse gas emissions from oceangoing ships.

Under the IMO 2020 rule, beginning January 1 ships operating in international waters will be required to slash their sulfur emissions by more than 80%. Switching to lower-sulfur fuels, such as LNG, is one option.

A Shell executive recently predicted that LNG’s share of the bunker fuel market mix would reach 25 million mt by 2035. Nick Potter, general manager for shipping and maritime, Asia Pacific, Middle East, at Shell Trading, said while LNG had historically been used to power ships plying the coastal waters of Europe, it was increasingly being used for oceangoing vessels.

For example, Carnival Corporation has one LNG-fueled cruise ship in use and a second one on order.

“We invested in LNG because, frankly, it’s the best, most widely available fuel today, which addresses all of the current regulations,” Tom Strang, Carnival senior vice president for maritime affairs, said in June at a sustainable energy event.

Using LNG to power cruise ships means zero SOx, a 75%-85% reduction in NOx, and almost zero particulate matter, Strang said.

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