“As a service” model could address emerging-market demand
The United States has received considerable attention for its first exports of liquefied natural gas (LNG) to Europe. Energy leaders, however, also need to be mindful of potential in smaller markets.
The number of smaller markets that have imported 3 million tons per year (MTPA) or less of LNG is growing. Countries importing less than 3 MTPA imported a total of almost 30 MTPA, or about 12 percent of global volumes in 2015, rising from 7.7 percent of total volume in 2014.1
Meanwhile, the biggest four LNG-importers—Japan, South Korea, China and India—accounted for 63 percent of the LNG market in 2015, down from 67 percent a year earlier. The share of the four countries cited above could slip below 50 by 2030.2
Growing ‘tail’ of LNG sales: Smaller markets importing less than 3 MPTA
Sources: International Gas Union, World LNG Report 2016 © 2016 IGU, Accenture Research
As additional LNG supply comes online, stimulating demand in the “tail,” rather than focusing entirely on the “body” (Japan, South Korea et al) becomes vital. Especially in markets where renewables are cost-prohibitive or unreliable, natural gas can be a cost-efficient way to improve air quality, reduce carbon and balance the intermittency of renewables.
Uptake could accelerate in emerging markets if barriers are reduced to accessing, purchasing, delivering LNG. The operating model may need to provide distribution without pipelines, due to lack of infrastructure in these markets, and financing options that take higher credit risks in account.
A number of developments are increasing flexibility to address demand in smaller markets:
Floating storage and regasification units (FSRUs). With capacity typically below 6MTPA, these units can be brought online faster, in locations with space constraints, and at lower cost than onshore terminals. They can even be temporary. Usually chartered from third parties, they require reduced capital expenditure. In 2015 FSRUs began operations in Pakistan, Jordan, Egypt and Dubai. In 2016-17, Colombia, Ghana, Puerto Rico, Uruguay and Chile are expected to come online.3
Regasification alternatives smaller than FSRUs. New technologies, with Sevan Marine’s HiLoad LNG solution (Floating Regas Dock) as one example, enable offshore loading, and LNG receiving and gasification terminals for smaller volumes (50-200 million cubic feet per day).4
Vessel pooling. New ventures allow customers to access flexible pooled capacity to meet their shipping requirements.
Logistics hubs and services. Accenture’s survey study of more than 25 terminals globally notes an expanding array of services: Re-exporting, LNG truck and ISO (International Standards Organization) bulk-tank filling, industrial cooling, bunkering, transhipment and break-bulk services.
Improving gas and power technologies. The value proposition is likely to improve through investments in combined cycle heat and power, integrated natural-gas generation, LNG processing plants, and carbon capture and storage.
Digital technologies. On the supply side, organizations can work to improve data visibility, thereby improving collaboration and pooling of supply, and enabling leaner control of supply chains in real time. On the demand side, digital advances can support aggregation of volumes and align deliveries to support pooled, lower-cost shipments.
Who could sell LNG “as-a-Service”?
By “as-a-Service,” we mean acting as an intermediary between large suppliers and smaller customers, thereby simplifying the journey for new LNG customers. Being able to buy delivered LNG via a bundled unit cost per MMBTU (million British thermal units) may seem far-fetched in a capital-intensive, midstream-dependent industry such as natural gas. To satisfy demand from emerging markets, however, a different business model is needed.
Potential providers with the “as-a-Service” model could include:
Large producers of natural gas, particularly those invested in gas and power and downstream applications
Gas distribution companies
Buyer ventures such as Jera, a joint venture between Tokyo Electric Power Company and Chubu Electric Power Company5, which could extend fuel procurement to smaller markets and customers.
The “as-a-Service” model could help satisfy demand from emerging markets to fuel their economic growth while also improving air quality and reducing carbon emissions.
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