Is LNG The Next Big Thing? – Part 1

by Trefis Team
Exxon Mobil
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Over the last few years, the popularity and demand for Liquefied Natural Gas, or LNG, has magnified. The fact that natural gas is the cleanest burning hydrocarbon, and can ensure a quick and sustainable transition into a low-carbon energy world, persuaded oil and gas producers to discover economical ways to liquefy gas to overcome the problems associated with its transportation. Thus, the LNG industry gained momentum, so much so that the industry that was barely 110 million tons (MT) in size in 2000 has grown more than 1.5 times in the last 15 years. In this article, we talk about why LNG has emerged as a substitute for conventional fuels such as coal and crude oil.

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Need for Cleaner Fuels

As the world continues to expand (in terms of population), the global demand for energy is also increasing drastically. According to the International Energy Agency, the global energy demand is expected to grow by around 30% by 2040, given the consistent rise in the global population over the years. Although companies around the world are working towards finding solutions to meet the rising energy needs, there has been an increased focus on the use of clean and environment-friendly sources of energy to promote better living conditions for the current and future generations.

In line with this thought, a number of developed as well as emerging countries had committed to the goal of reducing their carbon footprint over the next few years at the United Nations Climate Conference in Paris in December 2015. Since then, developed nations such as France and Canada have announced their plans to phase out coal fired energy generation by 2023 and 2030, respectively. These countries, along with Austria, Belgium, Britain, Denmark, and Portugal, plan to completely do away with coal fired generation by the end of the next decade.

Similarly, emerging countries, such as China and India, are also progressing towards becoming a gas-based economy as opposed to a coal-dependent economy. In fact, China has suspended more than 100 coal-fired plants, either approved or under construction, and expects its gas demand to grow by 45 billion cubic meters (bcm) by 2020. Also, more than 170 members of the International Maritime Organization have agreed to a global 0.5% sulfur cap on marine fuel, effective from 2020. Given that LNG as a fuel contains virtually zero sulfur versus 3.5% specification for global marine fuel today, most of these countries are likely to shift to LNG to meet these marine fuel requirements.

Source: Royal Dutch Shell, LNG Outlook 2020

Advantages of LNG Over Other Fuels

Natural gas is considered to one of the cleanest hydrocarbon to be used as a fuel. This is because natural gas produces nearly half as much carbon dioxide, the primary greenhouse gas, as produced by coal. It also emits drastically lower amounts of sulfur dioxide (primary reasons of acid rain), nitrogen oxide (primary cause of smog), and particulate matter (affects health and visibility) compared to coal or crude oil. As a result, natural gas is viewed as a ideal successor for fossil fuels, such as coal, that degrade the environment.

Yet, due to the high cost and safety hazards (methane leakages) associated with the transportation of gas, its share in the global electricity generation has remained lower than that of coal. However, of late, thanks to the improved and innovative technologies, the issues surrounding the safety and economics of transportation of gas have been minimized, making LNG a competitive, flexible, and clean fuel, especially for shipping heavy-duty road transport. LNG, even after liquefaction, transportation, and turning it back into gas, emits 40-50% lower carbon dioxide compared to coal, and thus, has emerged as a perfect replacement for conventional sources of energy.

Fossil Fuel Emissions – Pounds per Billion BTU of Energy Input

Source: US Energy Information Administration (EIA)

Thus, given the rising need for the use of cleaner fuels and the numerous benefits of gas over coal, LNG is emerged as an appropriate substitute for fossil fuels, such as coal and oil, that are causing climate change.

Stay tuned for our next analysis – Is LNG The Next Big Thing? – Part 2 – where we will talk about the demand and supply dynamics of the LNG industry and its outlook for the next few years.

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