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Maritime: LNG as a solution or an anchor?

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By Diego Balverde

· 3 min read

Understanding LNG and energy availability

It's common to hear discussions about energy by those without firsthand knowledge of the subject, especially regarding Liquified Natural Gas (LNG). The primary concern is whether there's sufficient availability to export LNG from gas-producing regions worldwide. At the moment, the availability is resoundingly insufficient.

To grasp the availability of LNG, understanding terminal development and regasification is crucial, as is knowing the time investment required for these processes. Prospective investors often wonder about the return on investment timelines. Profitability in this sector is directly tied to the legal frameworks of the resource-rich nations and the legislations governing LNG trade, which primarily exist in developed countries.

Economic capitalization and return risks

Various industry reports underscore the tremendous potential of LNG, projecting its viability for the next five years. However, they clarify that the profitability of LNG is likely to decline after 10 to 20 years, making it a risky venture for investors. This forecast impacts investment influx, especially in countries like Argentina that possess the capacity but lack the necessary infrastructure.

Investment in an LNG terminal can range from 3,000 to 10,000 million dollars, with construction timelines spanning 24 to 60 uninterrupted and continuous months.

Global demand and terminal capacities

There are 83 operational terminals spread across 23 countries, boasting a total capacity of 572 million tons of weight, equivalent to 1,276 million cubic meters of LNG. Between January and September, European countries experienced a surge in LNG demand. However, this heightened demand from Europe results in price escalations and diminished availability, affecting importing nations adversely.

Currently, around 600 methane tankers are in operation, with sizes ranging up to 266,000 m3. The compression of LNG is 600 times at -192° Celsius, allowing for efficient transportation. After transport, regasification restores its consumable state, i.e., natural gas. However, the availability of these ships and regasification units is constrained, impacting global LNG accessibility.

There are 23 operational regasification plants in Europe, with six situated in Spain. The total annual consumption of the European Community is 490 billion m3, highlighting the inefficiencies and environmental impacts of replacing gas with LNG through the regasification process.

Analysis: the future of LNG energy

A decline in LNG energy utilization is anticipated post-2030 due to a transition to cleaner energy sources. Given the investment and financing timelines, the return variable could range from 2 to 5 years in the most optimistic scenarios, suggesting non-viability in the long run.

Promises from the United States to offset Europe's dependence on Russia by sending LNG reserves seem questionable, considering LNG is classified as fossil energy and was removed from the list of renewables.

Often, discussions about LNG overlook the crucial role of logistics, which significantly influences market values. The relocation of empty ships and the regasification processes can potentially increase LNG prices between 16% and 19%.

Shell's profit generation is triple its annual projections, benefitting a select group of VIP shareholders through dividend liquidation. This scenario elucidates the disproportionate distribution of war benefits.

Reflection: investment in energy transition

Would compensating losses due to rising international inflation or investing in energy transition be better solutions? Investments in cleaner practices and technologies could revitalize the economies of countries not rich in energy, increasing their GDP, enabling companies to consume clean energy, and reducing pollutant emissions.

While logical and sustainable solutions are available, the world continues to bear the brunt of unsustainable consumer ambitions. A reevaluation of energy practices and investments is imperative for transitioning towards cleaner, more efficient energy solutions, with LNG serving as a focal point in this crucial global discourse.

illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

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About the author

Dr. Diego Balverde is an Economist at the European Central Bank and has extensive experience in climate finance. He is currently also an Advisory Member of the Council of Foreign Trade at The World Bank. Diego is very active on the international sustainability stage having attended COP27 as a Circular economy for Climate Change specialist and will also be attending the G20 Conference in India as part of the Energy, Sustainability and Climate Task Force. Diego holds a PhD in Foreign trade from Chapman University and an MBA degree from Cambridge Judge Business School.

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