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Martin Wilkes speaks to Energy News on revolutionising small-scale LNG markets

AUSTRALIA could resurrect its so far less-than-successful small-scale LNG industry by opening up to international markets, particularly Southeast Asia where Indonesia has pioneered a ‘shuttle’ style strategy that could revolutionise the sector, RISC’s principal advisor Martin Wilkes has told Energy News.

Small-scale LNG revolutionising market
Monday, 23 May 2016
Anthony Barich, Energy News

Earlier this month Tokyo-based Mitsui OSK Lines teamed up with Indonesian partner Pelindo Energi Logistik to launch a jointly operated small-scale LNG carrier Triputra, which conducted the project’s first discharging operation at the Port of Benoa on the holiday island of Bali.

This was the second shuttle transport after one serving West Java, for which MOL secured an order in 2011, delivered a cargo into to a floating storage unit at the port.

As the charterer, Pelindo is working to establish a gas value chain at Bali, and is using gas from the FSU to feed into a power plant on Bali.

This is a ground-breaking project that pioneers a new mode of transport for natural gas in Indonesia, where domestic gas demand is increasing.

However, Wilkes told Energy News that Indonesia had been talking about small-scale LNG for a decade, and he suspects it would have taken so long because of the lack of scale.

Indonesia was delivering large-scale LNG abroad last decade, but as production dwindled, it has been protecting production and looking at ways of bringing in gas supplies.

“It’s worked a bit on the mainland, particularly in Java where they have floating storage and regasification units operating, and supplying gas into the grid. In the future they can potentially use these as break-bulk facilities to which large-scale LNG carriers are offloading, and small-scale LNG carriers shuttling smaller volumes across the archipelago,” Wilkes said.

“Volumes can be delivered, hopefully from Australia, into the Java bay, then (they can) shuttle it to users on remote islands, and what’s remaining goes into the Jakarta main grid.

“So you can see there a set-up which is allowing a combination of international and local trade, and that’s something which hasn’t really been done before.”
The record in Australia has not been great. Wesfarmers has a small-scale plant south of Perth, Energy Developments’ West Kimberley Power Project had a difficult first few years, Energy World Corporation’s plant near Alice Springs has been shut-in for more than a decade, and a Tasmanian venture which targeted 20,000 tonnes per annum for transport has an offtake that is only 25% of the expected level.

The local market for small-scale gas simply hasn’t grown as much as anticipated.

“In the past people have thought the small-scale [regional] LNG market would grow quicker than it has done – like Tasmania or WA, they’ve gone on projections of people switching to LNG from other fuels or new players coming into the market to create their market for them, and a lot of that hasn’t happened,” Wilkes said.

“There are no silver bullets for that, but [partly as a result of this experience] we have advised people about making their projects accessible to international markets.”

Wilkes said it’s difficult to see small-scale LNG working in Southeast Asia without having an alternative off take, which would be the international market.

Growth opportunities

Apart from Indonesia, Wilkes sees potential in the Philippines and Malaysia, though the latter has quite a big grid on the mainland. Even then, Malaysia is starting to import LNG, with a regasification terminal now up and running.

Of the last 14 LNG import terminals that have been built in the world, 11 have been floating storage regasification units, which by their nature are quite a lot smaller than land-based terminals.

Indeed, Woodside Petroleum CEO Peter Coleman told the recent LNG18 conference in Perth that floating regasification units would be a “real market changer” for the company as a “very cheap” entry into new markets.

While countries such as Thailand, Pakistan and Poland were once considered too small to be viable gas importers, FSRUs have opened up new opportunities there as well.

This fits in with RISC’s assessment a year ago that the spot market was getting bigger for LNG internationally in terms of smaller parcels and smaller contracts.
This lends itself to smaller gas fields, because they don’t necessarily have the reserves to sign up for long contractual arrangements.

“While the historical move has been about economies of scale and making things bigger because you can see it working, you may see a drawback now to smaller options that fit better with market diversification,” Wilkes told Energy News.

“That’s why if you can get your product to an export point, and you can make your storage and offloading facility such that it can accept international cargoes as well, then you open up that international market.

“It probably doesn’t work for the micro/mini-scale LNG like road trucking, but at some point there are areas where you could look at both a regional and an international market, and that’s liable to be more successful than trying to do a small market on its own.

“By having access to the international market it allows you to then generate that local market at a slower rate; whereas if you’re reliant on that local market being there from day one, chances are it’s not going to be there, as we’ve seen historically.”

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