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Viewpoint: Making small-scale LNG terminals commercially viable

Tue 03 Jul 2018

Viewpoint: Making small-scale LNG terminals commercially viable
Karthik Sathyamoorthy (AG&P): Five steps to developing a successful small-scale LNG terminal project

LNG has the potential to revolutionise emerging industries in countries such as India, Pakistan and Bangladesh. AG&P president of LNG marketing Karthik Sathyamoorthy explains how to establish a viable supply chain to support this transition

There is a need to invest significantly in the development of the domestic energy infrastructure to provide power to emerging industries in the world’s fast-growing gas economies; this will ensure their continued economic growth.

Before making these investments, it is important to decide on the right energy mix, balancing the desire for cleaner fuel sources with the need for grid stability and affordability. LNG has a key role to play here, as it is a cleaner fossil fuel and is also versatile, with potential applications ranging from power generation to use as a transport fuel. The challenge is to make LNG accessible.

By making LNG readily available and integrating it into existing energy ecosystems, countries such as India, Pakistan and Bangladesh can successfully shift to a low-carbon, stable energy system, serving a new generation of customers.

The starting point for this endeavour is a well-functioning LNG supply chain for importing, storing and distributing LNG. Such a system requires not only substantial capital expenditure, but also an innovative approach to serving smaller end-customers, from sourcing to last-mile delivery.

The new supply chains must be nimble enough to cater to more cost-focused customers – who want flexibility in the quantity and lock-in periods for the LNG they buy – as well as robust enough to grow in line with rising demand.

A modular and scalable approach is the most pragmatic way to meet demand for smaller volumes of LNG from a wider range of off-takers. Many of the proposed LNG projects across the Asia region are relatively small, requiring 1-2M tonnes per annum (mta) of LNG and supporting a single power producer. AG&P sees opportunities in developing small-scale import terminals to serve such customers.

AG&P believes flexibility and agility are key to developing the right-sized solutions to serve customers for whom a large, one-size-fits-all approach will not work. AG&P’s solutions use standardised and scalable designs, new technologies and integrated maritime and onshore LNG transport, storage, break-bulk and regasification assets to streamline logistics and reduce costs, not least by eliminating the need for bespoke engineering for each piece of infrastructure along the LNG supply chain.

The challenges and complexities involved in establishing LNG supply chain solutions are still being learned. While innovative technologies are making LNG more accessible, analysing project risks at the outset and factoring in the potential for complexity and delay will increase the likelihood of successful project implementation.

Each LNG project has its own requirements and characteristics which need to be understood to deliver LNG to the customer at the best price. The following five steps are critical for developing commercially viable, smaller-scale LNG terminals:

  1. Feasibility studies: at the conception stage of any LNG project, specialists are required to examine the proposed site and conditions and perform feasibility studies to ensure the optimum configuration is selected.
  2. Onshore and marine infrastructure: the viability of a project depends on the costs associated with the supporting, location-specific infrastructure. This must be independently evaluated during both the pre-front-end engineering and design (pre-FEED) and FEED stages.
  3.  Procurement considerations: developing the most cost-effective solution requires a thorough cost-benefit analysis of building new infrastructure, versus the conversion of existing assets, leasing or chartering.
  4. Regulations and tax: early engagement with the relevant port authorities is essential so the terminal infrastructure is fully compliant with the port code, conditions of use and regulations. This can be a lengthy process and must be factored into the project timeline.
  5. Port and marine services: most project developers enter into a port services agreement for the provision of tugs and support services with a third-party provider. These negotiations can be complex and time-consuming, and the port services provider may be unwilling to take on liability for any aspect of the project.

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