John Burrow and Laura Musick, Black & Veatch, outline how a resurgence in the popularity of small scale LNG facilities is meeting the needs of investors concerned about the industry’s current state of over-supply.
The global LNG industry has matured dramatically since the first significant developments in the 1960s, and over that time there has been many trends come and go. The market has entertained a wide variety of different contract structures, plant capacities, and execution strategies to meet the latest needs of an ever-changing industry. With the current concerns of an over-supplied LNG market, a new trend of small scale LNG or micro LNG has emerged, bringing many new players along with it. For the purposes of this article, small scale LNG will consider facilities with a capacity of 0.3 million tpy or less.
The bar to enter the LNG market as a producer or developer has traditionally been quite high. Projects shifted to a mega train approach to take advantage of economies of scale, but that left small outfits like local utilities or transportation industries unable to compete. The complex liquefaction processes, multifaceted long-term contracts, and billion-dollar price tags left little room for small LNG consumers. Recently, there has been renewed interest in the value of small scale LNG facilities. The simplicity and reduced risk that these facilities bring can neutralise, if not over-compensate, for the efficiency gains and economies of scale that large baseload LNG plants offer. A smaller capacity lends itself to several clear benefits, which align with investors’ interests.
Can small scale LNG compete?
Small scale LNG facilities provide a number of financial advantages. It is common practice in the LNG market to evaluate the cost of a liquefaction facility on a US$/tpy basis. When strictly looking at this basis, small scale LNG facilities will almost always have a higher cost of production than a baseload plant; however, one of the major benefits that small scale LNG offers is the significantly lower CAPEX investment required for the plant to reach commercial operation. Many large baseload facilities have been developed over the last decade to produce upwards of 6 million tpy. These facilities carry price tags of tens of billions of US$ and can include over 500 miles of pipeline. Conversely, a 0.1 million tpy liquefaction facility with limited storage and access to a pipeline could cost less than US$100 million.
This is an abridged version of an article that was originally published in the August 2020 issue of LNG Industry. The full version can be read here.
Read the article online at: https://www.lngindustry.com/liquid-natural-gas/12082020/bigger-isnt-always-better/