LNG ready to play its part
LNG will have a growing role in the electrification of the global energy economy, despite increasing headwinds from the anti-fossil fuel lobby
The use of LNG for electricity generation will continue to grow rapidly over the coming two decades as humanity addresses the multiple challenges of meeting rising demand for energy, mitigating climate change and eliminating energy poverty.
LNG-into-pipelines is likely to be the main vehicle for this growth because of the complexities involved in putting together bankable integrated LNG-to-Power schemes. Moreover, the future beyond 2040 is hard to conceive as we approach the 2050 target date for carbon neutrality set out in the 2015 Paris climate agreement—so much will depend on policies to be decided.
Such was the consensus view of industry executives, energy experts and the 150-plus delegates that gathered in Houston in early December for an LNG-to-Power forum organised by Petroleum Economist, with contributions from a variety of industry partners.
Electrification of global energy
To set the context in which the LNG industry will be operating, the opening sessions explored the realities of decarbonisation in practice. Projections and scenarios from organisations such as the IEA, and major international energy companies such as Shell, concur that the global energy economy will need to be widely electrified if the Paris climate targets are to be achieved.
But this process will be far from straightforward. Electrification creates more challenges than the public realises, cautioned Michelle Michot Foss, fellow in energy and materials at Rice University’s Baker Institute:
“Everybody needs to reset their timing—to anywhere between 50 to 100 years. It took us a really long time to get to where we are, and it is going to take a really long time for any of the stuff that people are talking about to happen.”
The past 18 months has seen a surge in public awareness of the threats posed by climate change—with the rise of activists such as the Extinction Rebellion movement and the Swedish teenager Greta Thunberg—and growing ESG concerns on the part of investors, energy company shareholders and investment banks.
But calls for carbon neutrality by 2025 or 2030 betray a startling level of what one panel moderator described as “energy illiteracy”, especially around the role that fossil fuels, notably natural gas, will need to play in the energy transition.
There is little sign so far that investors are being deterred in any major way from investing in gas/LNG-to-Power projects, despite the publicity around the European Investment Bank’s recent deliberations over its lending policies regarding fossil fuel projects.
'Electrification creates more challenges than the public realises' Michelle Michot Foss
“Natural gas demand is going to grow—a lot,” said Victor Perez, global integrated gas and region energy sector lead at professional services firm EY. “Our own analysis points to the high end of the available reputable projections: 40-60pc globally in the next 20 years.” But he added that “beyond 2040 remains an open question”.
Sounding a more cautious note, Eric Eyberg, head of US gas and LNG consulting at Wood Mackenzie, noted that “the industry is starting to think about projects differently … because of the energy transition.” He posed the question “is your project going to be viable 15 years down the road?”
Decarbonisation tool kit
“Renewables, when paired with natural gas-fired power generation, are going to be one of the most cost-effective decarbonisation tools in the tool kit,” said Steve Kellogg, global regulator and policy advisor at ExxonMobil. “For deeper decarbonisation, renewables paired with natural gas-fired power, paired with carbon capture and storage, will be one of the most cost-effective tools.”
The role of gas-fired generation will go beyond just providing backup for the intermittency of wind and solar powered; the synchronous nature and inertia of electricity supply generated by large rotating machines will aid grid stability as the proportion of asynchronous renewables generation grows.
An intriguing aspect of the Houston forum was the involvement of Microsoft as one of the event’s partners. Jeff Monk, senior industry executive for energy, confirmed that the company sees a bright future for gas-fired electricity generation and perceives a growing opportunity for its services, as digitalisation spreads throughout the electricity supply industry.
Calls for carbon neutrality by 2025 betray a startling level of what one panel moderator described as “energy illiteracy”
Focusing specifically on the role of LNG, he told delegates: “LNG is going to play a critical role from a logistics standpoint, when you look at the shale gas revolution and the availability of gas.”
The culmination of the Houston forum was a session that examined what is involved in establishing a bankable contract structure for an LNG-to-Power project, in terms of gas supply contracts, power purchase agreements, stakeholder alignment, the role of host governments, and developments in project finance.
A crucial distinction was made between integrated gas-to-Power projects—in which LNG import, storage and regasification facilities are wrapped up into a single project which includes the power station (or stations) that these facilities feed—and stand-alone LNG import facilities that supply gas into a pipeline network.
“Most of our projects are what I call LNG-to-pipe,” said Nick Bedford, CFO of Excelerate Energy. “We work with large credit-worthy governmental entities and the floating storage and regasification unit (FSRU) is feeding into multiple power plants and, in places such as Bangladesh and Pakistan, into industrial facilities like fertiliser plants and into residential gas.
“What makes LNG-to-Power so much more difficult is that an FSRU is really big and powerful; even a mid-size FSRU will power probably three 1GW power stations. If you are talking about doing LNG-to-Power in Africa, and you have an FSRU feeding just one power station, you suddenly have huge economies-of-scale problems.”
There was also discussion around the challenges of opening up new markets to LNG imports. Over the past decade all but a couple of very small markets that have begun importing LNG already had an established domestic gas industry—to a greater or lesser extent.
As Carlos Wheelock, head of LNG business development at Vitol, succinctly said: “When people complain about emerging markets and how difficult they are, it is because the low-hanging fruit has gone.”