Big ambitions for small-scale LNG bunkering
Limited LNG bunkering infrastructure has long been blamed for holding back the shipping industry’s adoption of LNG as a fuel. It’s a textbook chicken-and-egg problem: Fleet operators won’t switch to gas if they cannot be confident of supply, while suppliers won’t invest if they don’t see sufficient demand. Avenir LNG – a spin-off of Stolt-Nielsen Gas – thinks it has found a way to crack the problem and make small-scale LNG distribution to ports not served by pipelines a reality. Closing the LNG supply gap As a long-standing chemical logistics business Stolt-Nielsen has established an integrated network of ships, terminals and distribution channels for transporting chemicals to every corner of the globe. However, there are virtually no such integrated networks established for the distribution of LNG, which makes it difficult to transport gas cost effectively between suppliers and customers – particularly when relatively small volumes and remote or unfrequented locations are involved. Alongside land-based energy customers and industrial concerns such as power generation, smelters and chemical plants, these cases of stranded demand include a steadily growing number of ship operators that would use LNG as a fuel if only they could be sure about availability of supply. Stolt-Nielsen saw this situation as a challenge waiting to be solved and a commercial opportunity. Adapting existing sources In 2017, Stolt-Nielsen formed Avenir – a separate entity dedicated to providing LNG to markets lacking ready access to pipelines. Andrew Pickering, CEO Avenir LNG Ltd, explained the rationale: “The business of large-scale LNG distribution is sewn up. There are well-established trades linking major suppliers and major customers, and the market incumbents have little appetite to complicate their operations extending their reach and catering for smaller customers. “When we examined the dynamics of the small-scale market, we discovered it closely replicated what we were already doing. We saw a way of transferring our existing infrastructure, integration and expertise to get up and running pretty quickly, without needing to recreate any core competencies.” A plan takes shape The plan, says Pickering, is to place vessels where there is a secure base load so that ships and terminals can be financially underwritten. Once that’s in place, peripheral opportunities can be explored and developed to support incremental growth. Avenir is constructing an LNG terminal and distribution facility in the Italian port of Oristano, Sardinia, which is due to come online in mid-2020. The company is close to a final investment decision for a project to ship LNG from the south of England up to Scotland, which is expected to come online in autumn 2021. The latter, says Pickering, is a classic example of stranded demand: “Gas was coming into Kent and then being trucked up the length of the country to customers in Scotland. How can that be efficient?” Avenir is also on the shortlist for a government-backed project in Quebec, Canada. Stranded demand is only half the picture, the flipside of which could be described as stranded supply. Most large terminals are not set up to cater for smaller LNG carriers, says Pickering. Instead, an answer was found in underutilized FSRU vessels. Initially Stolt-Nielsen leveraged its strong relationship with Golar LNG, which, as it turned out, had FSRUs with spare capacity situated close to areas of stranded demand. Later, it approached Hoegh LNG, another large FSRU operator, which had eyed the small-scale distribution market as ripe for development but was yet to step in. “Everything was coming together. Having both Golar and Hoegh on board would provide global coverage, which we could sew together into a seamless offering.” The conversation culminated in October 2018, when the three companies announced a combined investment commitment of $182 million in Avenir. Stolt-Nielsen will consolidate all its LNG activities into Avenir, including an additional two 7,500m3 gas carriers plus two already on order at Keppel Singmarine in Nantong, China, two 20,000m3 gas carriers also being built in Nantong by Sinopacific Offshore & Engineering and the joint-venture LNG terminal and distribution facility in Sardinia. LNG carrier design inverted In the design of its ships, Avenir turned conventional wisdom on its head. Pickering elaborates: “We took the opposite approach to our competitors. We consider them first and foremost as transport vessels – not bunkering ships – and that’s what drove the design. The optimization of the hull form, the dual-fuel engine and propulsion arrangement, the fuel system and auxiliaries were all optimized with the transport function in mind.” During their design, particular attention was paid to the gas containment and fuel system, as the goal was to match boil-off gas with consumption and to get both low. In addition to sophisticated boil-off gas management, bunkering functionality is bestowed through increased pumping capabilities, ship-to-ship transfer equipment and enhanced manoeuvrability for approaching receiving ships and accessing smaller customer sites. The collaboration with DNV GL was a key enabler in the design of the vessels. Pickering elaborates: “They immediately grasped the broader picture of what Avenir wants to achieve – rather than approach the project as a simplistic compliance exercise. With an ambition to create a sustainable small-scale LNG supply chain that will one day operate globally, understanding both the operational and business implications of that vision must go hand-in-hand with technical ingenuity as we encounter challenges during that journey. The ships themselves are individual components in a bigger machine.” While Avenir’s business model is currently centered around serving power and industrial customers, it anticipates growth in marine bunkering. “The appetite for LNG as a fuel for ships is picking up. We envisage the market in a few years will look very different from today, with more local import and storage facilities making LNG increasingly accessible and therefore appealing to shipping.” Low-sulphur trigger The forthcoming IMO 2020 regulations on fuel sulphur are one of many driving factors for increased small-scale LNG consumption. “With less than a year to go, there’s still considerable uncertainty. Some owners are investing in scrubbers while others are waiting to see how the supply situation for low-sulphur products develops,” observes Pickering.
Re-election of NDA will be credit neutral for oil and gas sector: ICRA
The re-election of National Democratic Alliance (NDA) will be credit neutral for the domestic oil and gas sector, research and retaings agency ICRA said today. It added that even though the government’s initiatives should help companies in the sector going forward, clarity on pricing freedom on sensitive products and adequate subsidy provision will be critical for the financial profile of the Public Sector Undertakings (PSUs). “The re-election of NDA will be credit neutral for the domestic oil & gas sector. Even while the credit profiles of the oil & gas companies are getting strained due to debt funded consolidations among the PSUs, large dividend payouts and shares buyback, and intervention in the pricing of auto fuels when crude prices were ruling high,” said K Ravichandran, Senior Vice President at ICRA. Oil and Natural Gas Corporation (ONGC), India’s largest oil and gas producer, had last fiscal acquired Hindustan Petroleum (HPCL), the government-owned fuel retailer at a cost of Rs 36,915 crore. While, the acquisition helped the government meet its disinvestment target for the fiscal, it impacted the oil explorer’s working capital and cash reserves during the fiscal. Also, Oil Marketing Companies (OMCs) had to face the ire of the consumers when they had last year initiated a 19-day price freeze on petrol and diesel before the Karnataka elections. Petrol and Diesel prices at retail pumps operated by IOC, HPCL and Bharat Petroleum (BPCL) remained unchanged for 19 straight-days from 24 April, 2018 even as the benchmark international fuel prices had increased on the back of surge in crude oil prices. “There have been several policy initiatives such as for reinvigorating the exploration & production sector, deeper penetration of natural gas through aggressive roll out of CGD infrastructure in new cities and new LPG connections, which should help the companies in the sector going forward,” Ravichandran said. The government had during its previous tenure revamped oil and gas bidding framework and the oil and gas exploration policy. The new bidding frame-work allowed companies to carve out their own blocks and allowed all forms of hydrocarbon extraction under a single license. Also, the HELP frame-work replaced the then prevalent fiscal system of production sharing based on Investment Multiple and cost recovery or production-linked payment with a revenue sharing model. Petroleum and Natural Gas Regulatory Board (PNGRB) has awarded licenses for setting up city gas distribution networks in 136 geographical areas in the past year which is expected to expand the network of Compressed Natural Gas (CNG) stations in the country to 10,000 from the current 1,500 and piped natural gas (PNG) connections to household kitchens to five crore from around five lakh currently. PNGRB Chairman D K Sarraf had in March said around Rs 70,000 crore investment was committed in 86 GAs awarded in the 9th city gas bid round in August last year while additional Rs 50,000 crore was committed in the 50 GAs awarded in the 10th round this year. The government has also released 7.19 crore LPG connections under Pradhan Mantri Ujjwala Yojana (PMUY) so far. Commenting on the results of the just concluded general elections, Pramod Chaudhari, chairman at Praj Industries said. “I expect the new government to take up economic stimulus and growth as a priority agenda. As a result of the prevailing geopolitical situation, there is a sense of skepticism, especially owing to the rise in crude oil prices and flagging trade wars. New Government should de-bottleneck and accelerate the implementation of progressive Bio-fuels policy.” Chaudhari also said the government should oversee fulfillment of ethanol blending mandate of 10% and eco-system development to set up Compressed Bio Gas (CBG) plants. In a bid to reduce reliance on conventional fuels, increase farmers’ income and propel the use of biofuels in the country, the oil ministry had last year launched a new scheme and announced the new biofuel policy. The scheme aims at rolling out 5,000 Compressed Bio-Gas plants in a phased manner, with 250 plants by the year 2020, 1,000 plants by 2022 and 5,000 plants by 2025, at an investment of around Rs 1.7 lakh crore.