Reality today, development and prospects for the future. Focus on Asia Focus on Europe Key drivers By Easy-Skill (www.easy-skill.com)

1. Oil&Gas Note | April-2014
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Small-Mid Scale LNG : reality today, development and prospects for the future
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LNG (Liquefied Natural Gas) – is natural gas converted into liquid form with the temperature of -162°C for the purpose of easy transportation and storage.
It consists primarily of methane (90%-95%) and takes 600 times less volume comparing to natural gas in the gaseous state.
WHY LNG?
Global energy use is expected to grow by more
than 50% by 2040. Half of the growth – South
and Southeast Asia, namely China & India with
limited pipeline infrastructure.
Increasing scarcity of natural resources drives
companies to innovate the types of resource
exploitation => previously untapped fields can
be used now thanks to shale gas extraction and
FPSO1
Relative flexibility in terms of transportation and
delivery of LNG to the target markets. No
dependence on pipelines breaks the barriers
between LNG exporters and highly remote
potential importers and target consumers.
LNG is considered to be much “greener”
comparing to the existing fossil fuels. Its
utilization will lead to less CO2, NOx, SOx and
other emissions and may positively affect the
environment.
Comparingto oil, LNG leads to a reduction of 15%CO2 , 90%NOx ,
100%SO2 and 100%soot/particles
Source: Energy demand and emissions of marine engines, Hans Otto Kristensen, Technical University of Denmark, 2012. 1FPSO – FloatingProduction, Storage and Offloading
Gas Reserves Small-Mid Scale LNG Plant
Pipelines
Fuel Delivery
Fueling
Small-Mid Scale LNG gains attractiveness: focus on Asia
LNG market is booming. A large number of LNG projects is planned
and many are already under construction in almost all major gas
exporting countries. However, gas liquefaction is not only about
construction of giant plants of 20 million tones per annum (MTPA)
capacity which require dozens of billions dollars of investment.
In Asia, where energy consumption and therefore demand is
constantly rising, the long wait of large LNG projects development
can lead to higher costs as in this case it will be necessary to
import expensive alternatives. At the same time it is not profitable
to develop massive LNG projects for small gas fields which remain
untapped even though being located closer to the target
consumers. In this respect, small and middle LNG plants and FLNG
(floating) constructions of 0.1 – 1 MMTPA capacity sound like a
good idea perfectly corresponding to the needs of the market.
The most active players in this direction in Asia are the Philippines
and especially Indonesia, with its small untapped and stranded gas
resources which are scattered across the Indonesianarchipelago.
Another key factor why small-scale LNG is becoming more and
more attractive for investors is its price competitiveness against oil
products. For example, the cost for liquefaction, shipping and
regasification with a delivery distance less than 1,000 kilometers
to the market would be just over $8 per million British thermal
unit (mBtu) – far below $20 for liquid fuels2. Moreover, another
potential benefit of small-mid scale LNG projects is their faster
construction time with only 36-48 months needed for a complete
development.
In general, Asia is forecasting to face the second biggest growth in
terms of small-mid scale LNG infrastructure3. The region is ideal
for such developments as there is large, dispersed population and
lack of gas pipelines connections.
2According to John Sattar – LNG&Natural Gas Consulting Group, Poten&Partners, at the Gas Asia Summit2013 in Singapore.
3Source: Oil&GasIQ 2014 survey

2. Oil&Gas Note | April-2014
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Small-Mid Scale LNG strengthens its positions: focus on Europe
1 GLE Small-ScaleLNG Map, March 2014; 2Light, Medium and Heavy Duty Vehicles
3 European Commission (2009d)and (2011b); 4PWC Analysis 2013
5 The Prospects for Natural Gas as a Transport Fuel in Europe, the Oxford Institute for Energy Studies, March 2014
6 TWh – TeraWatt Hour(s)
LNG as a Fuel: Key Drivers
Stricter Emissions Regulations
Environmental Benefits
Cost Saving
Europe continues to extend its LNG consumption and build up
small-mid scale LNG infrastructure. The absolute leader by the
number of small-mid scale LNG plants in the region is Norway with
6 plants already in operation and one more planned. The main
actors are Gasnor, Statoil and Skangass. The latter owns one of the
most innovative and advanced plants – Risavika (Stavanger) LNG
built in 2011. It is also worth mentioning that the second biggest
actor in terms of number of liquefaction facilities is Russia with 5
plants being in operation and another one being planned on the
Gulf of Finland.
LNG import terminals is another crucial part of small-mid scale
infrastructure. Here we have new leading actors on the stage –
Spain, France, Sweden, the UK and Italy. And if the last two
acquire regular facilities providing such services as regasification,
storage and sending out natural gas into the pipeline grid, Spanish,
French and Swedish terminals can provide additional services such
as reloading, transshipment, loading of bunker ships, truck loading
and rail loading.
Another two types of small-mid scale installations gaining more and
more importance especially in Europe can be referred to fueling
infrastructure. Namely, these are LNG refueling stations for trucks
and LNG bunkering facilities for vessels. The former are already well
developed in Spain, the UK and the Netherlands. Other countries
are also following the trend but with less stations in operations
(Sweden, Portugal, Belgium, Italy, Norway)1. This is a relatively new
and prospective direction driven by low-cost and tendency of the
European Commission to restrict the emissions regulation. On
average, depending on the type of the vehicle (LDV, MDV, HDV)2
the emission of CO2 is targeting to be reduced by 20-25%3 by
2025. Moreover, according to the PWC analysis4 the additional
investment for an LNG truck can be recovered over between 1.5
and 2.1 years representing the quickest pay back period comparing
to conventional fuels. Generally there is a large room for further
developments and enlargements especially in the sector of MDV
and HDV which will be most likely required to switch fully to a more
environmentally friendly fuel such as LNG.
If regulations concerning HDV and MDV and vehicles in general are
expected but have not yet come into power, the situation with
marine vessels is different. In accordance with the International
Convention for the Prevention of Pollution from Ships known as
MARPOL, the level of SOx was capped at 3.5% down from 4.5% for
all shipping from January 1st, 2012 with the view of its further
reduction to the level of 0.5% by January 1st, 2020. These limits
are even more strict in special emission control areas (SECAs) with
the reduction of SOx to 1% from the original 1.5% beginning from
July 1st , 2010. This level will fall under the point of 0.1% from
January 1st, 2015. The SECAs cover the Baltic Sea, the North Sea
and the English Channel, simply put, almost the whole water area
of Northern Europe. One more initiative by IMO (international
marine organization) is the introduction of the energy efficiency
design index (EEDI) requirements that cover the reductions in CO2
emissions from new build vessels5. Taking the fact that in the
process of LNG combustion sulphur oxide is more or less fully
eliminated, liquefied gas can be a perfect solution for vessels. At
the moment the highest volume of LNG fueling infrastructure is
concentrated in Norway, Germany, Sweden, Spain and the
Netherlands with the highest number of LNG bunkering facilities
for vessels in Norway (7 stations in operation and 2 under
development)1.
0
1
2
3
4
5
6
7
8
9
10
Norway Germany Spain Netherlands Sweden France
Number of facilities allowing vessels to bunker
LNG
Import Terminals Stationary Facilities for Vessels Bunker Ships
Source: GLE Small-ScaleLNG Map, March 2014
Seen as a pioneer in LNG shipping. LNG ships are present in most
sectors in the country and 49 vessels have been converted to LNG
or built new.
Government set up the “Initiative for Natural-Gas-Based Mobility”.
The share of methane in the transport fuel mix at the end of 2011
= 0.47%. The target – 4% by 2020.
Large number of LNG regas terminals and significant movement of
LNG to provide gas to remote networks have provided a basis for
LNG-based transportation.
Recently, the government and industry have agreed upon the
Green Deal LNG which targets 50 inland barges, 50 ships and 500
trucks running on LNG by 2015.
Future truck demand is put at 2.5 TWh6 by 2020 and 10 TWh by
2030 whilst LNG demand for ships in the Baltic region is forecast to
reach 60 TWh by 2020 and 96TWh by 2030.
Source: The Prospects for Natural Gas as a Transport Fuel in Europe, the Oxford Institute for Energy Studies, March 2014
GDF Suez is actively promoting LNG for HDVs stimulating demand
in the transport sector. Concerns – planned introduction of
“ecotax” on all HDV movements. In the marine sector Brittany
Ferries plans to introduce LNG-fuelled vessels in 2017.