Liquidity fuels LNG storage growth
Commercial storage of LNG is on the rise as the market evolves, and emissions controls loom larger on the horizon
Increased liquidity in the world's liquefied natural gas market, the impending cuts in permissible marine fuels emissions limits and increased use of LNG as a road fuel are combining to boost active interest in commercial LNG storage.
Leading market participants are increasing their presence in the sector, particularly in Europe and Singapore, while the US lags. The International Gas Union's 2018 annual report notes that re-exporting activity from LNG import terminals continues to grow. European terminals have traditionally led this trade, with 14 of the region's 26 operational LNG import terminals capable of reloading, including-since 2016-Lithuania's Klaipedos Nafta floating storage and regasification unit.
France re-exported the largest volume of LNG in 2017, at 750,000 tonnes, but new entrants to the practice are gaining ground: Singapore was the world's third-largest re-exporter of LNG in 2017, at 500,000 tonnes, and Japan and the Dominican Republic re-exported their first cargoes in 2017. While re-exports are small in the context of the 293m-tonne global LNG market, they appear likely to grow as the market grows more liquid.
Leading traders Trafigura Beheer, Glencore and Vitol Holding II have all staked out long-term positions in the market. Together, the companies reportedly accounted for 9% of the world market in 2017. Such market presence requires access to logistics assets. In June, Trafigura signed an agreement for the use of 160,000 cubic metres of storage at Singapore's SLNG Corp. terminal for storage and reloading operations. Despite Japan's entry into the re-export market last year, the majority of LNG storage capacity in Asia still appears dedicated to imports and runs at high utilisation rates to feed rapidly growing markets.
Increased LNG storage demand may not quickly translate into additional major LNG structure.
In Europe, LNG imports are used as an offset to Russian gas imports and for the growing transport sector, including bunkering in the European Emission Control Area (ECA), where marine fuel sulphur content is limited to 0.1% and increasing truck traffic-large oil storage operators continue to diversify into LNG storage. Leading global storage operator Royal Vopak NV has articulated a comprehensive LNG strategy, positioning itself to participate in all the downstream sectors of the LNG chain, including terminal operation, pipelines, and eventually floating storage and regasification units.
Vopak has experience in the import terminal sector through its shareholdings in the Altamira terminal in Mexico and the Gate terminal at Rotterdam. With competitor OilTanking, the world's second-largest storage concern, Vopak is also developing Germany's first onshore LNG reception terminal, which will be designed to accommodate small-scale LNG operations such as bunkering.
Analysts expect that as demand for LNG as a marine fuel grows following the arrival of the International Maritime Organisation's 2020 limits on marine fuel emissions, LNG storage requirements will increase. "The ultimate clean fuel in terms of SOx and NOx is LNG," says Alan Gelder, Vice President Refining, Chemicals and Oil Markets at consultancy Wood Mackenzie. But increased LNG storage and reloading capacity demand may not quickly translate into additional major LNG structure.
Most European LNG import facilities are operating well below capacity and some, for example Spanish Enagás's Gijón terminal, are inactive, so smaller-scale facilities needing to meet bunkering and trucking requirements may be more likely to adopt storage developments in the medium term.
In the US, development has concentrated on major export facilities for world markets, but small-scale LNG for minor ones in the Caribbean and Central America, in particular using ISO containers, is gaining ground. In August, the Department of Energy approved a regulation to fast-track approvals of terminals exporting up to 1m tonnes a year, adding flexible capacity for low-consumption markets.