Optimizing the natural gas value chain to advance decarbonization

Sep. 16 2020

Developing the natural gas value chain was one of the shipping industry’s first major steps towards providing cleaner, alternative fuel on a large scale.

In recent years, demand for liquefied natural gas (LNG) has skyrocketed, driven by changing environmental regulations and increased social awareness. Huge investments have allowed the natural gas value chain to grow and thrive ever since, developing key production centers, global infrastructure and distribution networks.

Despite this rapid progress, there remain geographical, technical and financial challenges for actors across the natural gas value chain, including gas producers, ship operators, equipment manufacturers and regulatory bodies.

From developing infrastructure and new technologies, to lowering costs and improving efficiency, maritime stakeholders must continue optimizing the LNG value chain. This will be a crucial step towards advancing the energy transition from fossil fuels to carbon neutral fuels.

What is the LNG value chain?

The LNG value chain for the marine and offshore industry can be summarized as follows:

  • Production & Liquefaction – natural gas is extracted from offshore reserves via floating production. Gas is treated, then cooled to temperatures as low as -160° C and liquefied by storage and offloading units (FLNG)
  • Transportation – LNG is transferred from the FLNG to gas carriers with specifically designed cargo containment systems onboard to manage cryogenic cargo
  • Delivery – gas carriers transfer LNG to onshore or offshore import terminals, floating storage and regasification units (FSRU), near-shore floating storage units (FSU), etc.

Optimizing the natural gas supply chain

First, ensuring the regular, global availability of LNG depends on reliable infrastructure in the right places. Offshore actors must be able to provide consistent LNG production with a minimum chance of operational shutdowns.

While infrastructure is well developed in Asia and Europe, further distribution networks and bunkering facilities must be built to ensure worldwide fuel availability. Through 2020, the global LNG carrier fleet has grown, with new opportunities opening for small-scale LNG transportation and bunkering in areas unconnected to the gas grid.

Second, equipment and systems manufacturers will need to pursue technological developments along the natural gas value chain. While most technology for cargo containment, liquefaction and LNG systems is mature, the cost of onboard installation remains high compared to other marine and offshore technologies.

Manufacturers will need to continue innovating, developing a greater range of technologies for membrane tanks, cargo containment systems, propulsion engines, reliquefaction systems, offloading arms, etc. As more technologies are certified, improved safety and reliability will help reduce CAPEX, and retrofitting and conversions will become more feasible for assets with older designs or obsolete technology.

LNG Bunkering at the terminal - LNG Value Chain

Third, today’s asset owners, operators, managers and charterers are keen to improve efficiency and asset management in order to decrease OPEX for gas carriers and floating units.

Recent years have seen increased requests for efficiency studies, energy and fuel consumption audits and risk-based technical studies to improve operations. Looking forward, increased digitalization of onboard systems and use of digital twin-powered asset management technologies will enable unit operators and managers to optimize performance.

These improvements will be further bolstered by operators’ embrace of remote inspection as a means of minimizing downtime, extending or avoiding dry-docking, and preventing production delays.

Moving from LNG to carbon-neutral fuels

Developing the natural gas value chain has laid valuable groundwork for achieving decarbonization through the use of LNG as fuel. The rapid adoption of LNG is already reducing the maritime industry’s CO2 emissions while slashing sulfur oxide, nitrogen oxide and particulate matter emissions. Meanwhile, the industry is working to reduce fugitive emissions of methane to limit overall greenhouse gas (GHG) emissions.

Carlos Guerrero Global Market Leader for Gas Carriers and Oil Tankers

Global Market Leader for Gas Carriers and Oil Tankers

Bureau Veritas M&O

The rapid development of the gas value chain is a testament to the maritime industry’s ability to adapt and innovate. As of 2020, offshore production has become feasible, and gas carriers of all sizes regularly transport and deliver LNG worldwide.
Equipment manufacturers have increased their technical expertise, classification societies have developed key safety regulations, and regulatory bodies have placed a crucial stepping stone on the road to decarbonization.

This is a good start for the energy transition – but it is only the beginning. Thanks to the development of global infrastructure and distribution networks, the LNG supply chain has paved the way for carbon-neutral drop-in fuels (e.g., biofuels, synthetic natural gas).

Drop-in fuels can use the same infrastructure and transportation technologies built for LNG, enabling pilot projects for biofuel- and synthetic gas-powered vessels to begin in Europe.

At the same time, LNG has enabled marine actors to develop crucial technological, regulatory and safety expertise for the production, transportation and delivery of gas fuels. These will be the guiding principles for regulatory bodies, equipment manufacturers and ship owners as carbon-neutral and zero-carbon fuels are further developed.

By optimizing the LNG value chain, the shipping industry can go beyond today’s challenges, and safely advance to the next phase of the energy transition.