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Transportation emerges as new hope for LNG demand growth

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Angela Macdonald-SmithEnergy Reporter: 29 May 2016

A move to cleaner transportation fuels could mop up the surplus in the global liquefied natural gas market more quickly than anticipated and open up a new growth market for producers such as Woodside Petroleum.

Woodside is following major Royal Dutch Shell in positioning itself to benefit from increased use of gas in road transport and shipping.

Demand for LNG from the transport sector could reach 24.4 million tonnes a year by 2020, representing a 7 per cent rise from estimated global demand, according to new findings from Bernstein Research.

That represents about 10 per cent of global LNG imports and could help absorb some of the surplus LNG supply, which is affecting the market and is expected to be particularly evident in 2018, Bernstein’s energy team, led by Oswald Clint, said.

In April Woodside announced an investment in LNG fuelling infrastructure in Dampier, Western Australia, with the aim of targeting the long-distance trucking market as well as iron ore tankers.

“We think the opportunity is immense if we can get the concept moving,” Woodside chief executive Peter Coleman said at the investor day earlier this month. “Look where we are, we are in the busiest iron ore port in the world.”

Mr Coleman said increasingly stringent environmental regulations around marine transport “is going to require new-build shipping to have a cleaner burning fuel”.

“We need to get on the front foot and supply the bunkering to allow that to happen,” he said.

Shell is leading the way, striking to supply LNG to cruise ships owned by Carnival Corporation so they can use cleaner burning gas while they are docked at port, and to barges in the Rhine region in Europe, as well as linking with Qatargas to develop LNG fuelling infrastructure in the Middle East.

At last month’s LNG18 conference in Perth, Shell’s integrated gas director Maarten Wetselaar described cruise liners as “essentially floating power stations”, noting that just one ship with 7000-8000 passengers could use as much fuel as a small city with a population of 30,000.

LNG is also set to play a bigger role in trucking fleets and in heavy equipment, partly driven by the emissions reductions commitments made late last year in Paris, according to KPMG’s global head of LNG, Mary Hemmingsen.

“That will be a big chunky piece as our cities get set up with more energy-conscious transportation systems,” Ms Hemmingsen said.

Bernstein’s Mr Clint has told clients to expect a trend of investment in LNG bunkering and fuelling infrastructure at ports, as well as continuing use of the fuel in new technologies such as in catamarans, and especially in Europe.

New regulations for ships travelling in emission-control areas limit the sulphur content in fuel to a maximum of 0.1 per cent, down from 1 per cent previously, and while in other areas the limit is 3.5 per cent this is expected to fall to 0.5 per cent in 2020, Bernstein said.

Bernstein said bunker fuel – fuel used in marine transport – represents the largest use of LNG transportation fuel, at an expected 9.9 million tonnes a year by 2020. The biggest potential is for ferries and inland barges in Europe, while the potential for LNG in ground transportation is greatest for heavy truck fleets, particularly in China.It puts demand for LNG from road transportation at 14.2 million tonnes a year by 2020.

Consumer giant Unilever intends to have 100 LNG trucks on the road by the end of this year, the group’s head of European logistics Paul de Jong said in January, describing that as “only the beginning of our LNG voyage”.

LNG prices are on their knees, both because of the drop in oil prices, and oversupply in the Asian market as it absorbs chunky new volumes from new plants starting up in Australia. Spot prices in Japan for June are $US4.46 per million British thermal units, down 37.4 per cent from a year ago and down from about $US20 in early 2014.

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