While legacy train designs have proven themselves in the past, smarter, newer LNG terminals are likely to change the market dynamics and bring in more elasticity and adaptability to contracts in changing market conditions in the near future.
Terminals for liquefied natural gas that ship and receive the fuel are undergoing a technological revolution. The next-gen terminals, are being designed and built keeping in mind buyers from emerging markets who prefer small volumes on shorter more flexible contracts.
Legacy export terminals have been massive in size and likewise in costs, going up to tens of billions of dollars. In order to justify their investment, long term supply deals, typically across decades, were required. Until now.
New modular designs are being made such that the parts of the LNG export terminal can be snapped together much like Legos, which allows a more dynamic elasticity in plant designs that are tuned to increase/decrease in demand and supply.
These next-gen liquefaction plants, known as trains, are now under construction in the U.S. state of Georgia and are expected to go operational sometime in the middle of 2018.
These trains are “more consistent with market conditions,” explained John Baguley, chief operating officer of Australia-based LNG Ltd, which has proposed mid-scale LNG plants in the United States and Canada.
The new designs are reflective of a maturing market, having a more diverse base of customers that will drive future growth.
Case in point: while in 2008, the average lifespan of a contract was typically 18 years and of more than 2 million tonnes per annum (Mtpa), in 2016, the requirements dropped to less than 8 years and less than 1 Mtpa; players from emerging markets, including India and China, are now wanting more flexibility due to uncertainties in the market.
In recent years, demand for LNG has surged as it is a cleaner fuel than oil or coal; abundant supply has also driven down market prices.
Globally, consumption of LNG has risen by 10% to 33.1 billion cubic feet per day in 2016; it is expected to grow by 75% by 2027, said the U.S. Energy Information Administration.
The United States, with well developed energy hubs and abundant supply of gas pipeline is emerging as a dominant global producer of LNG.
In 2015, the U.S. export capacity shot up from less than 2 million tonnes per annum (Mtpa) to 18 Mtpa in 2017; it is now projected to peak at 77 Mtpa by 2022, placing the country, behing Australia, as the world’s second biggest producer of LNG.
However, experts are divided whether ultimately this modular design approach will pay off, i.e., although it allows for more flexibility and could cost less, the technology remains unproven.
“The issue that everybody is wrestling with is, does that really save you money?” said Jason Feer, head of business intelligence Poten and Partners, a shipbroker.
The $2 billion Elba Island project, being developed in Georgia’s Chatham County by Kinder Morgan, with 10 trains and an export capacity of 2.5Mtpa, will act as a test case.