The sun sets on cheap gas: what next for LNG?

The LNG market was already tight when the war in Ukraine caused the price of natural gas to shoot up. As Europe slowly weans itself off Russian gas, LNG suppliers will have the opportunity to make up the shortfall. But this will take some time, and prices will remain high.

By James Chater

Gas squeeze

As I begin to write, Russia has launched an attack against Ukraine after months of tension. War has returned to the European continent, challenging the world order.
What has this got to do with LNG? Well, everything. Russia supplies Europe with over 40% of its natural gas. The market was already tight before the war started, with prices having risen sharply in 2021 as Covid-19 restrictions were eased and pent-up demand was released. Then the invasion led to a further spike, laying bare Europe’s dependency on Russia and its vulnerability to energy shortages and price hikes.
The recently announced halt to Nordstream 2, the second of two pipelines bringing Russian gas to Germany directly, together with the risk to existing gas supplies due to war and sanctions, means that Europe will have to turn to other energy sources. LNG can partially replace Russian natural gas, and in fact, the transition towards LNG has already begun. (This includes two shipments to Ukraine.) However, in the short term, Europe will have to rely on other energy sources (renewable, coal, nuclear) until new import terminals can be built. The troubles in Europe will eventually lead to LNG imports from US shale gas, but this will not plug Europe’s energy gap in the immediate future. And when it does, it will be more expensive than the gas it is replacing.
So recent events have consigned the era of cheap gas to the history books. As if this were not bad enough, nickel, a vital ingredient in the equipment used in liquefaction, transport, storage and regasification of LNG, has also soared in value. This is a further factor that is likely to keep the price of LNG high.

Imports

Europe’s LNG imports will rise considerably as it seeks to replace gas piped in from Russia. Germany, the most dependent on Russian natural gas after closing many of its nuclear power stations, will build two import terminals: Brunsbüttel (for 2023) and Wilhelmshaven. It is expected these terminals will also be able to handle hydrogen. Spain is working on the Arinaga terminal in the Grand Canaries, and the final investment decision for the Alexandroupolis FSRU terminal in Greece was announced in January. Capacity expansions are taking place at LNG Gate (near Rotterdam) and the Lech Kaczy´nski terminal in Poland.
China has overtaken Japan as the world’s largest importer. It aims to add new-build regasification capacity of 4380 billion cu ft by 2025; expansion projects will account for a further 1576 billion cu ft. The three major newbuild projects are Tangshan 2, Yantai 1 and Zhoushan 3. The largest expansion project is Qingdao Expansion 2.
India and Pakistan are the second and third largest Asian consumers of LNG. India is expected to add capacity of 3428 billion cu ft by 2025. The largest project is the Kakinada GBS floating terminal. The Crown LNG India terminal is to become operational in 2024. Pakistan is expected to increase regasification capacity by 1752 billion cu ft between 2021 and 2025. Its largest project is at Port Qasim, with a capacity of 438 billion cu ft3, scheduled to start operations in 2023. Other terminals at Port Qasim are envisaged.
Elsewhere in Asia, Novatek and Petrovietnam have announced a co-operation on LNG infrastructure in Vietnam to cater for growing demand for electricity. In South Korea, Nikkiso is expanding its facility at Busan to support the country’s new marine centre.

Exports
US LNG export capacity has grown so fast that, according to the EIA, the United States will have overtaken Australia and Qatar to become the largest exporter by the end of this year. New liquefaction units at Sabine Pass (train 6) and Calcasieu Pass in Louisiana will come into operation by the end of this year. Further projects include a fourth export facility for Louisiana, at Cameron Parish, and the Rio Grande project, which will capture over 90% of the CO2 in a CCS facility. Finally, Alaska LNG is an ambitious project to extract and purify gas on the North Slope before piping it to the southern port of Nikiski where it will be liquefied and exported.
In Australia, Woodside has approved Scarborough and Pluto Train 2. The module assembly of Pluto 2 will be carried out by Sembcorp, while Baker Hughes will provide gas turbines and centrifugal compressors. Woodfibre LNG has awarded a contract to McDermott for a plant that will exploit hydroelectricity for the liquefaction process and other low-emission technologies.
As for Russia, its LNG projects have been thrown into uncertainty because of divestment. Shell has pulled out of its Gazprom projects and BP has announced it will sell its 20% Rosneft stake. Norway’s sovereign wealth fund has also said it will withdraw from its Russian investments. Before the war, Gazprom announced plans to build a large complex at Ust-Luga in north-western Russia. It is also building several small-scale projects to deliver gas to places that are distant from gas lines. Novatek’s LNG 2 project, tapping into the Utrenneye onshore field, is projected to run the first train by 2023 and move to full production of 19.8 million tpy by 2025. An Arc7 ice-class module carrier sailed through Arctic waters to deliver a process module from the Chinese port of Tianjin to Murmansk, Russia.

Technology

LNG technology continues to develop fast and is mainly focused on lowering carbon emissions. LNG-fuelled ships are now well established, but now UECC has gone a step further, having taken delivery of the first ship with a hybrid propulsion system combining LNG and a battery. It is the first in a series of three new-build pure car and truck carriers (PCTC) that are being delivered from China’s Jiangnan Shipyard.
Carbon capture is also starting to play a greater role. Examples include Rio Grande LNG, and the Novatek-RWE and Nakilat-ABS collaborations. SHI has developed an onboard carbon capture system for LNG-fuelled ships. Its SENSE IV gas liquefaction system, in fact a floating LNG plant, is said to be up to 14% more energy-efficient than existing systems.
Another new development is bio-LNG, produced by anaerobic digestion of organic waste. This not only reduces emissions but also lower engine noise and reduce pollutants. In October 2021 the first bio-LNG plant was opened in the Netherlands. Wärtsilä has developed a ship engine that can run on bio-fuel.

Materials

Stainless steels and nickel alloys are used in storage tanks (mainly 9%; C-Mn, Al 5083 and Al 6063 are also used; 304L is used for the piping), full-containment LNG tanks (9% for the inner layer, with a concrete outer layer, separated by a thin carbon-steel plate), cryogenic heat exchangers (Al 5083, Al 6063, 304L, 316L), cryogenic piping (304L, 316L) and LNG carriers (5% Ni, 9% Ni, Al 5083, 304L, Invar) ⁽¹⁾.
Posco’s recently introduced High Manganese Steel can replace 9% Ni in the cargo tanks, fuel tanks and the piping systems of LNG carriers and LNG-fuelled ships. This alloy, with 22.5%-25.5% of manganese, exhibits low thermal expansion and good machinability. It is also cheaper than 9% Ni. Given the current stratospheric price of nickel, it is likely to catch on. So far, Posco’s alloy has been used for the LNG fuel tank of a bulk carrier built by Hyundai Mipo Dockyard (2016); in an LNG storage tank for shipbuilder DSME; in carriers, pipes and storage tanks built for Exxon; and in LNG tank 5 at POSCO Energy’s LNG terminal in Gwangyang, South Jeolla Province. Apart from LNG, it will also be applied in liquid hydrogen storage tanks.
As I conclude, large parts of Ukraine lie in ruins. Russia’s invasion, apart from doing untold damage, has set markets on edge, with natural gas and nickel prices soaring ever higher. This trend could be reverse in the event of a lasting peace being restored. Should the situation continue, there will be few, if any winners, but in the medium term, suppliers of LNG will find a ready market in Europe as it weans itself off Russian natural gas. Ultimately, though, the current crisis is likely to accelerate development of renewable energy, which not only has environmental advantages but also fosters greater energy independence, which the EU, in its Versailles Declaration (10-11 March 2022) has identified as one of its priorities.