The Barriers To A Small-Mid Scale

LNG Future
Tim Hadar
February 2015

Small To Mid Scale LNG

EDITORIAL INTRODUCTION

LNG Bunkering: High Flying In Europe But Its The East That
Will Make it Soar

LNG Conversion - "Do Your Homework, Play The Fundamentals

Of The Game

The Small-Mid Scale LNG Story

12

Small-Mid Scale LNG In Practice: The Polish Story

13

ABOUT SMALL-MID SCALE LNG 2015

14

ABOUT OIL & GAS IQ

15

Small To Mid Scale LNG

Global energy demand is set to double by 2050.

As a result, natural gas will become an
increasingly important part of the global energy
mix. That said, transportation of gas to regions
far from gas fields can be both expensive and
impractical. Enter liquefied natural gas (LNG).
Since the first shipment of LNG in 1959, the
industry has burgeoned and undergone a
dramatic pace of change. In the last half-decade
the global economy has gone through major
crises and technology has improved enough to
make smaller commercial projects possible.
Yet there are still major barriers for the adoption
of LNG solutions. In an atmosphere of low oil
prices, a multitude of hurdles are still left to be
jumped before the broad scale conversion of the
industrial and automotive and marine sectors to
LNG as a fuel.
In the following e-book compendium, we take a
look at several cases from across the energy
world that present the current LNG landscape
and solutions to the adoption of this up-andcoming fuel source.
Tim Hadar
Editor in Chief
Oil & Gas IQ
LinkedIn: Tim Hadar

Small To Mid Scale LNG

LNG Bunkering: High Flying In Europe But Its The East

That Will Make it Soar
It is estimated that the global sales of bunker fuels will surpass 350 million tonnes in
2013. Thats roughly analogous to the metric tonnage of the entire proven oil reserves of
Syria, topping up the worlds marine fleets every year.
In fiscal terms, global spend on bunkering for 2012 was approximately $2.6 billion with
the top 10 bunker ports below controlling more than 35 per cent of total global
bunkering volume.
Liquefied natural gas (LNG) has been used as a transport fuel since the 1930s and the
first shipment of LNG by tanker would cross the Atlantic in 1959.
The "boil off" of LNG cargo would be used as a fuel source for boilers in the first
generation LNG tankers to produce steam for the ships turbines.
Half a century later, LNG is beginning to rival traditional fuel oil as the marine propellant
of choice for the worlds domestic and international commercial fleets.
As of Q4 2013, Norwegian classification society Det Norske Veritas (DNV) stated that
there were currently 83 LNG - fuelled ships in operation or on the drawing board
worldwide.
January 2015 will see the entry into force of the International Maritime Organisation
(IMO)s stricter sulphur oxide (SOx) emissions requirements in emission control areas
(ECAs) outlined under the International Convention for the Prevention of Pollution from
Ships (MARPOL) Annex VI.
The 0.1 per cent sulphur limit that will come into force as of 2015 will directly affect in
the region of 40% of the world fleet. In line with this, growth in LNG - powered vessels is
set to skyrocket by more than 3700 per cent through 2025 (see below) with around
3,200 ships set to be commissioned over the next 12 years.
This prodigious rise in LNG - based marine traffic will entrain a concomitant rise in the
need for LNG bunker fuelling stations, prompting a 72 million tonnes rise in LNG usage at
an increase of an average of six per cent per annum.
In the same time period, the European Commission (EC) - the executive body of the
European Union (EU) that is responsible for proposing and ratifying legislation - will make
major investments into LNG - fuelling infrastructure to be installed in all 139 major EU
maritime and inland ports.

Small To Mid Scale LNG

Although the EU is leading the way with regards to funding and affirmative action in the LNG
bunkering story, positive moves in the rest of the world are changing the tide with regards to
the speed of adoption of LNG as a primary bunker fuel.
Movements in Asia Pacific

The above chart shows the distribution of bunkering demand with regards to geographical
location. As the main bunkering port for the Asia Pacific region, the Maritime and Port
Authority (MPA) of Singapore accounts for almost one fifth of the worlds bunkering demand
and fulfils 38 per cent of the market share of the top 10 bunkering ports combined.
In November 2013, the MPA signed a Memorandum of Understanding with two Belgian
ports, Antwerp and Zeebrugge, to work together on research, regulations, and other
frameworks for LNG bunkering.
The announcement follows the commissioning of the island city - states first LNG terminal
on Jurong Island in Q2 2013, at a cost of $1.38 billion USD. Its two trains currently have a
throughput capacity of 3.5 million tonnes per annum and will reach 6 million tonnes per
annum by the end of 2013 on completion of a third train and complimentary plant and
docking facilities.
Competing bunker hubs
MPA is in direct competition with two of its main rivals in the bunkering world to introduce
LNG solutions - the Port of Rotterdam in the Netherlands and the Port Of Fujairah on the
United Arab Emirate's Indian Ocean coast. In October 2013, Rotterdam was awarded 74
million - worth of subsidies by the European Union to fully develop the market for LNG as a
fuel and to open an LNG hub in Rotterdam before the end of 2015.

Small To Mid Scale LNG

In the fifth largest Emirate in the UAE, the first land-based LNG regasification facility received
government approval in November 2013. The terminal will have a projected throughput
capacity of 1.2 billion cubic feet (34 million m) of natural gas per day, and will be
constructed and operated by EmiratesLNG, a joint venture of International Petroleum
Investment Co. (IPIC) and Mubadala Petroleum for 2015. One month before approval was
given for the commencement of this megaproject, a venture between Shell and Dubai
Maritime City (DMC) was announced for developing sustainable and environment friendly
sources of energy in the maritime sector."
Perhaps the Roman poet Ovid summed up the ethos of competition: A horse never runs so
fast as when he has other horses to catch up and outpace.
China: A superpower of the high seas?
Another factor in the global move towards LNG bunkering is the changing environmental
perspective of the Middle Kingdom. It is estimated that by 2030, the Peoples Republic of
China alone will own up to one quarter of the world commercial fleet, increase its carrying
capacity from nine billion tonnes per year to between 19 and 24 billion tonnes a year.
Since the first trialing of diesel dual technology in 2010, Chinese maritime companies have
commissioned and put into service 30 dual fuel vessels at a rate of ten per year, including the
world's first tugboats operated on diesel-LNG engines.
In June 2013, Chinas growing commitment to LNG powered vessels was affirmed by the
classification of six 174,000 m3 dual fuel diesel engine (DFDE) LNG tankers to all hit the
waves by 2017. In a statement released in 2013 by Chinas Ministry of Transport (MOT), the
Government of the People's Republic stated its intention to have two per cent of the
domestic Chinese inland fleet operating on LNG dual fuel vessels by 2015, doubling that
number fivefold to ten per cent by 2020.
The MOT has targeted the construction of between 200 and 500 vessels solely fuelled by
LNG by 2030. The gasification of the Yangtze, the third longest river in the world, is also of
great import to the LNG bunkering story in the East.
The Yangtze River Delta generates as much as 20 per cent of Chinas GDP and in 2012, 1.78
billion tonnes of cargo was transported along Asias longest river - three times more cargo
than the Mississippi and five times as much as the Rhine.
In September 2013, Haiqi Ganghua Gas Development Constructed the first offshore LNG
bunker station along the Yangtze in Nanjing. Natural gas services operator China Gas Holding
has also promised to beg in LNG bunkering on the Yangtze River in 2014.
In a statement to the press, the company's Vice President, Liang Yongchang, said: There are
lots of vessels which will be converted to LNG power, so there is a big potential in the LNG
bunkering market.

Small To Mid Scale LNG

LNG Conversion - "Do Your Homework, Play The

Fundamentals Of The Game"
Why should you convert your marine fleet to LNG, and is it even feasible for LNG bunkering
to exist in North America without the shale boom? Find out here in this exclusive interview
with Peter Keller, Executive Vice President of Tote Inc.

TH
PK

Tim Hadar, Editor In Chief, Oil & Gas IQ

Peter Keller, Executive Vice President, TOTE Inc.

TH
Hello and welcome. This is Tim Haidar and today I'm speaking with Peter Keller, the
Executive Vice President of TOTE Inc. Peter, thanks very much for joining us today.

PK

It's my pleasure.

TH
Let's into the case of your organisation and why you have gone down the LNG
conversion and construction route. What was your organisation's motivation?

PK
Well, we operate in two major trade lanes: one, to Puerto Rico from Jacksonville and
the other from Tacoma, Washington to Anchorage, Alaska. Both of those trades that we
operate in are self-contained, that is the ships just go back and forth from those ports on a
weekly basis. In the Florida trade lane to Puerto Rico, the ships are well over 35 years old
and needed to be replaced.

Small To Mid Scale LNG

As we looked at the application of the environmental containment areas and as we looked at

our own responsibilities as corporate citizens, in terms of our environmental stewardship, it
became very clear that if we were to become the kind of company that we wanted to be,
being very conscious of the people we were serving, it was appropriate that we consider
alternative fuel sources for our new build between Jacksonville and Puerto Rico.

The more we examined that, the more it became obvious to us that we really needed to
address the source of the emission issues, which was the fuel itself. And the only fuel that
made sense after going through all those iterations was liquefied natural gas, LNG. So, that's
really the genesis of that decision.

In terms of our ships that we operate between Tacoma and Anchorage, those ships are
currently about ten years old, so they're fairly good tonnage, but they're also now having to
operate in the ECA. So, it became clear that we also needed to change the fuel on those
ships, so in those two ships, we are working on a conversion programme where we will be
removing the existing engines manufactured by MAN and replacing them with upgraded
equipment.
We had, originally, hoped to convert the MAN engines, but the manufacturer was not able to
accomplish that task, so we now have to do a complete re-conversion of those vessels and
we will be doing that at about the same time as we're building our new Marlin class ships,
which are the 3,100 TEU container ships that are going to, then, operate between
Jacksonville and Puerto Rico.

TH

Is the decision that you've made to go for an LNG solution based on economics?

PK
No, not really. We have these ECA requirements that we all understand and we all
support. We are also very closely tied, in our businesses, to both the people of Alaska and
the people of Puerto Rico. And, as an organisation, we do take our social responsibilities
very, very seriously. Now, in terms of the varying levels of fuel pricing right now, yes, there
are some economic advantages to the price of LNG at the moment. However, long-term, we
all understand the volatility of fuel costs. This is not really about fuel costing, this is really
about environmental and conforming to the ECA.

As I always tell people; if I could tell you what the price of any fuel was going to be on a
worldwide basis any time over the next three to five years, I likely would not be doing what
I'm doing today! I would be a lot more popular and have a lot more people asking me for my
advice and happily paying for it if I could do that properly!

Small To Mid Scale LNG

TH

You and me both, and I'd certainly win the lottery every other week as well.

PK
Absolutely. That's why, in these kinds of situations, yes, you always have to look at the
economics, but at the end of the day, we have a sustainable business, we have a business
that supports the people of Alaska on one coast, a business that supports the people of
Puerto Rico on another coast, we've been in those businesses for many, many years, we're
tied to those economies, we support those economies, and we also need to support the
people environmentally and socially, as well as with a service that allows them to continue to
have a viable environment.

TH
You've spoken from your organisational point of view, about the adoption of LNG
fuelling and, therefore, the infrastructure around that makes sense. Speaking from almost a
continental point of view now, what is the case for energy bunkering in North America?

PK
At the end of the day, the most compelling issue in all of this, really, is how do you
provide the LNG to the ship? We all know that the shipboard technology, ships that have
been running on LNG fuel for many, many years. All of the LNG carriers run on their cargo, so
the technology of actually using LNG in a maritime engine is not the major challenge. The
major challenge is how do you provide the fuel to the planes or the ship and that is what we
have been spending a tremendous amount of time on in both Jacksonville and Tacoma,
Washington, to create a supply environment, so that we will be able to have liquefied natural
gas near the vessel and then to either bunker it directly to the ship or bunker it through a
bunker barge in the port area.

We believe that we have now the necessary supply. We have made announcements at
Jacksonville and have supply partners. We're very close to making announcements in
Tacoma, Washington, and by the time this conference takes place in June, we will have done
that. And we are now working on the regulatory and technical issues associated with them
bringing that liquefied natural gas from the plant that cools it cryogenically, to the flange of
the ship. Quite honestly, when one is looking at these opportunities, it is the supply side that
I think, over the course of time, will be the real inhibitor. We are quite fortunate in that in
both of these trade lanes, the ships come back to a port every week and that's what they do,
they just go back and forth, back and forth.

So, we have the ability to supply in either Anchorage, Tacoma and Washington, Jacksonville,
Florida or San Juan, Puerto Rico, as the fuel is available to us and we're working right now,
principally, with Tacoma, Washington and Jacksonville, Florida, in order to assure that supply
on a weekly basis and are now working on the details, which, hopefully, we'll be able to
spend a little more time on in Vancouver later on this year.

Small To Mid Scale LNG

TH
With regards to LNG bunkering as a solution for North America, could it actually exist
as a viable solution in the hearts and minds of the people in the maritime industry without
the shale boom that's happening in North America at the moment?

PK
Well, certainly, having the available supply is critical and having the sustainable supply
long-term is critical. We never would have made the investment we've made in ships that
will have a life of 30 or 40 years if we did not believe that there would be a sustainable
supply of gas that we could run through a liquefaction facility, in order to power our ships.
Now, the ships are dual fuel and they can run on other fuels, but clearly, they're made to
operate on liquefied natural gas.

So, yes, supply is very, very important to us. I think that we believe that, given the
environmental benefits of liquefied natural gas, and as the industry gets more accustomed to
working with liquefied natural gas, which, by the way, is the safest fuel we know.

It is lighter than air, it dissipates vertically into the air, it is at minus 260F, so it is a cryogenic
fuel, and therefore, is not volatile in its state. I think that once people come to grips with all
of that, we will see much more acceptance and, together with that, as we develop these
supply sides and as we develop bunkering capabilities and other fuelling capabilities, I think
you will see a major switch in those trade lanes that are predominantly inside of ECA to this
and other potential alternative fuels.

We're already seeing it in the Jones Act trades in the United States, where at least one of our
competitors has announced that they will be building LNG ships much like ours. We
anticipate another major Jones Act player will be building LNG ships and the current Jones
Act tankers that are being built, many of those are being built to, what they term, LNG ready
specifications. So, at least in coast-wide trades in the United States, the Jones Act trades,
we're already seeing a lot of activity, just as you're seeing a tremendous amount of activity
within the continent of Europe.

TH
You make an interesting point about developing the supply side in North America.
How do you see that unfolding across the period of the next half-decade?

PK
We've seen a tremendous amount of work being done on liquefaction facilities. As we
know, these are relatively large, fairly costly facilities, with a tremendous amount of
regulatory oversight. But in Jacksonville, for example, there is a potential that there could be
as many as three facilities built in the next five to ten years. There is at least one other
facility being rumoured in the state of Florida.

Small To Mid Scale LNG

There is a large facility in Georgia that people are looking at. There are a lot of facilities
being built in the Gulf for the United States. There is talk of facilities up at the Philadelphia
area to support the Marcellus shale. So, as liquefied natural gas comes forward as a
potential fuel, you're going to see much more investment.

We're also seeing it in North America as a more generalised transportation fuel. Every one of
the class one railroads in the United States is experimenting, at one level or another, with
liquefied natural gas. I talked to the president of a major railroad yesterday and they have
actually ordered LNG tenders and are converting locomotives for active tests late this year,
so we're going to see that. I've also, over the course of my career, done a lot of work in
California and other places with an organisation called the Coalition for Responsible
Transportation that converted trucks in port areas to alternative fuels. And we're going to
continue to see conversion of road transportation in the United States to alternative fuels,
whether it's CNG or LNG.

And, in order to support that, a number of companies, like clean energy and Westport, are
actually building LNG gas stations across the United States. Jacksonville has two and there is
a whole system of, I believe, about 200 - 250 LNG gas stations that exist today across the
United States in support of this movement to alternative transportation fuels.

TH
Now, the final question that I had is a question that I expect to be on the lips or, at
least, in the minds of people who are thinking very seriously about converting their fleets be they maritime or land based as well - to LNG. And that is; what kind of advice would you
give to those people who are starting out on a journey towards LNG conversion for their
business?

PK
It's no different than any other activity we take in business. You've got to do your
homework. You've got to do the blocking and tackling. You've got to play the fundamentals
of the game before you get too fancy. We've spent well over two years just learning about
LNG and, obviously, we've only scratched the surface and there are many, many, many years
of learning that still needs to take place. But it really is just about not letting the technology
scare you. Understanding what LNG really is, which is a cryogenic fuel, and then talking to as
many people as you can and learning as much as you can and trying to separate the wheat
from the chaff.

TH
Peter, thanks very much for you insight into this issue and thanks very much for that
advice, which, I'm sure, will be helpful.

Small To Mid Scale LNG

Small To Mid Scale LNG

In this exclusive interview for Oil & Gas IQ, Mariusz Calinski, Chairman of the Board of Grupa
DUON S.A. takes us through the progress of small-mid scale LNG in Poland.
Mariusz Calinski is the Chairman of the Management Board at Grupa Duon SA and Chairman of
the Management Board at KRI SA.
He received his undergraduate degree from the Poznan University of Economics and a graduate
degree from the Poznan School of Banking.
In the course of his interview, Mariusz touches on:

The driving force behind small-scale LNG in Poland?

What area is seeing the most market growth
How the market is set to develop in the next 5 years?
How much the spread of small-scale LNG is dependent on hydrocarbon price volatility?
Which countries Poland looks to for its inspiration in its small-mid scale LNG developments

PODCAST: The Psychology Of

Process Safety: How To Bridge
The Mental Gap
Listen to this interview now
Small To Mid Scale LNG

Is smaller scale LNG on your radar? Or, is your organisation

looking to incorporate LNG into your energy or fueling mix?
This article was created in collaboration with Oil & Gas IQs upcoming Small-Mid Scale Summit,
taking place from 28 - 30 April, 2015 at the Crowne Plaza Amsterdam - South , Amsterdam, The
Netherlands.

For more information about how the summit and to hear from the
likes of Vopak LNG, Gas Unie and Primagaz, download the agenda
including full speaker line up at http://www.smallmidlng.com/ email
enquire@oilandgasiq.com or call +44 (0)20 7036 1300.

Small To Mid Scale LNG

Small To Mid Scale LNG