Three Infrastructure Trends Shaping the Future of LNG
ABS Group Global Oil, Gas and Chemical Division
As early adopters of LNG as a marine fuel in North America seek to optimize costs and reinforce their positions as environmental stewards, recent economic fluctuations and infrastructure trends are shaping the expansion of this emerging market. Read how three recent infrastructure trends will impact the ongoing development of LNG projects and influence future adoption rates.
3 LNG Infrastructure Trends
1. LNG Bunkering Projects Proceed Despite Economic Slowdown
Despite the recent economic downturn, early adopters have proceeded with LNG bunkering project commitments. While declining oil prices may have reduced LNG's economic advantage over traditional fuel, LNG remains an attractive marine fuel option. Early adopters benefit from the ability to meet heightened emission standards in Emission Control Areas (ECAs) without paying a premium for traditionally more expensive fuels such as low-sulfur marine gas oil (MGO) or marine diesel oil (MDO).
Operators continue to engage our expertise for risk assessment and hazard analyses related to LNG bunkering, including proving the feasibility and increasing the safety of simultaneous operations (SIMOPs) – a crucial aspect of the economic viability of LNG as a marine fuel. We anticipate that the industry is not far from witnessing its first SIMOPs trials.
Looking Ahead at Future Infrastructure Projects
While existing LNG bunkering project commitments are moving ahead, if the downturn persists, we may witness a decrease in new short sea and ocean-based transport projects. The impetus to invest in LNG infrastructure appears to be less urgent while oil prices remain low. While still attractive in the long-term, companies may defer capital investments in new LNG ship builds or retrofits until traditional fuel becomes less appealing economically.
2. Inland Fueling Infrastructure Expands
A new infrastructure project along the Ohio River aims to provide LNG from the Marcellus Shale as a fuel source for river traffic. This marks the first inland maritime fueling project in the United States.
Waterway suitability assessments are an essential element of these projects. ABS Group has conducted these assessments for rivers in areas including Louisiana, Oregon and Maine to meet the growing demand for LNG as fuel for ships.
Among key factors driving adoption is the need to reduce sulfur emissions in order to comply with ECA regulations. The use of LNG on vessels reduces emissions on busy waterways like the Ohio River.
Impact on North American Inland LNG Markets
As we see increased adoption of LNG in one sector, such as river ship fuel, it opens opportunities for other inland markets such as heavy truck fleets or locomotives. As the marine sector works through implementation challenges, LNG as a fuel source becomes increasingly viable for other applications. With the successful adoption in any one market, we can expect to see further interest generated across other markets.
3. FSRU Technology Accelerates Emergence of New Markets
Analysts predict that over the next 15 years, an estimated 60% of global LNG demand will come from recent and emerging LNG markets. With less capital and time required for investment, floating storage and regasification units (FSRUs) are helping to drive the emergence of these new geographic markets.
Until recently, "more than one-third of global gas reserves [were] stranded by their location or field size without commercially viable access to world markets," explained Tor-Ivar Guttulsrod, Director of FLNG at ABS, the parent company of ABS Group, in an Offshore Magazine article. Now, operators in emerging markets can take advantage of the quicker project timelines, smaller facility footprints and reduced overall cost associated with FSRU and FLNG technology compared to land-based terminals.
Ongoing Development of New Markets
ABS Group sees growing demand for offshore terminal and FSRU development in areas considered recent and emerging LNG markets, including Latin America and Southeast Asia. The flexible, cost effective nature of FSRUs provides for continued expansion of LNG despite the industry's current economic downturn.
We are actively working with operators to deliver hazard identification studies and risk assessments to support the expansion of LNG in emerging markets. Several of these projects represent significant global milestones, such as an LNG terminal that will be the largest FSRU in operation once delivered.
Even with the continued low oil prices, LNG still holds an edge over other fuel options due to its sulfur-free content that complies with recently strengthened ECA standards. While low-sulfur content oil has recently become less expensive due to lower oil prices, LNG remains attractive as a long-term option. As such, we expect to see continued investment in LNG projects and infrastructure by committed early adopters of this alternative fuel and a temporary pause in new projects from possible entrants until active CAPEX spending has been restored.