Increased Demand for Natural Gas
According to the International Energy Agency's (IEA) World Energy Outlook 2019 report, global primary energy demand is expected to increase at an annual rate of 1% by 2040.
While the impact of COVID-19 led to a significant short-term decline in primary energy demand in 2020, the medium-term outlook indicates demand is expected to recover and increase again. One third of this estimated demand growth will be provided by natural gas. The growth rate of natural gas is the largest among all fossil fuels, while oil and coal are flat or declining.
Demand for natural gas is expected to rise sharply as it is the cleanest energy source among fossil fuels, with the lowest environmental impact from combustion emissions. The need to decarbonize and conserve the environment discourages construction of new coal- and oil-fired power plants, and makes financing more difficult.
Natural gas is expected to be used increasingly as a back-up power source for renewable energy sources, to overcome intermittency issues caused by renewables’ vulnerability to weather conditions. It can be supplied in two forms: pipelines and liquefied natural gas (LNG).
The introduction of LNG is expected to increase in emerging markets – particularly on islands where it is difficult to build pipelines. The use of LNG is also expected to increase in the emerging countries of the Asia-Pacific region; the region's rapid economic and population growth have not yet been met by pipelines and other energy supply infrastructure. In many of these regions, diesel is currently the main source of power, and the introduction of LNG is needed to reduce its environmental impact.
Establishing an Offshore Floating LNG Supply Chain
While demand for LNG is expected to increase in the Asia Pacific region, there are several obstacles to its implementation.
Compared to gas pipelines, LNG requires a larger initial capital investment in the supply chain, and therefore, it is not cost-effective unless there is high demand. Consequently, LNG is mainly transported long distances by sea to areas of high consumption.
In contrast, many of the emerging economies in the Asia-Pacific region are located on islands, where demand for LNG is small in each consumption area. Therefore, it is not effective to introduce a conventional LNG supply chain. Instead, to make the process more economical, it is necessary to create a new type of supply chain that connects multiple small-scale demand areas.
Much of the energy demand in emerging countries is for electricity, which requires the construction of LNG receiving and storage terminals, regasification plants and gas-fired power plants onshore. The expropriation of land and the construction of onshore plants are costly and time-consuming. As a result, it has not been possible to meet local power demand efficiently.
Due to these issues, the introduction of LNG in emerging countries has not been as successful as expected.
An offshore floating LNG supply chain provides an effective solution to these problems, particularly for island locations in emerging economies. LNG arrives from the global supply chain to a floating LNG Hub, which uses small shuttle ships to deliver it to the floating remote power stations of an MHI Floating Power Plant (MFPP) located in nearby energy consumption areas.
An MFPP consists of 3-in-1 floating units to receive and store LNG, with regasification and power generation infrastructure to combust the fuel and generate electricity, which is then transmitted to land to meet local energy demand.
Benefits and Risks of Offshore Floating LNG Supply Chain
By establishing a local supply chain that connects multiple small-scale power demand areas, sufficient demand can be secured to make the use of LNG economically viable.
Minimizing the construction of onshore facilities eliminates the need for expropriation of land and on-site construction, reducing both delivery time and capital investment.
Building electric power infrastructure using LNG increases the power capacity of island locations, helping promote tourism and fisheries. If these industries flourish, it will contribute to the growth of new energy demand.
If energy demand grows in island areas of emerging countries, the supply chain can be gradually expanded using additional floating facilities. If demand changes or is seasonal, the flexible floating facilities can be easily redeployed.
The introduction of LNG as an alternative to diesel and coal on islands of emerging economies will reduce environmental impact.
On the other hand, building the entire LNG supply chain offshore has the disadvantage of making the project more complex. When a client company signs a contract with multiple companies individually, the client company is responsible for supervising the entire project.
The engineering requirements and construction of an offshore floating LNG facility is equivalent to creating an LNG-related facility on a large ship. As a result, collaboration between several companies – including the LNG equipment supplier and the shipyard that builds the hull – is essential. If the responsibilities of the parties involved are unclear, things can become complicated and there is a risk the project’s overall quality cannot be guaranteed.
- POINTS TO BE ADDRESSED
- The establishment of an offshore LNG supply chain is crucial for the widespread use of LNG in emerging countries.
- Building an offshore LNG supply chain requires a variety of technologies and it is risky for the client to integrate them.
- KEY POINTS TO THE SOLUTIONS
- Collaboration between group companies allows Mitsubishi Heavy Industries (MHI) to provide a one-stop LNG supply chain solution, which includes ship building, gas-fired power generation systems, LNG plants, and LNG carriers. A single solution simplifies construction and reduces delivery lead times for clients.
- MHI’s competitive strength draws on years of accumulated technology and experience in developing supply chain infrastructure facilities and technologies.
- An MFPP can be equipped with a powerful and highly efficient gas turbine combined cycle (GTCC), consisting of a gas turbine, a boiler and a steam turbine that collects and reuses waste heat.
Providing a One-Stop Offshore Floating LNG Supply Chain to Minimize the Drawbacks of an Increasingly Complex Project
MHI Group comprises a variety of companies providing a wide range of technologies, including ship building, gas-fired power generation systems, LNG plants, and LNG carriers. Collaboration between group companies means MHI can provide a “one-stop” offshore floating LNG supply chain solution. As a result, the risks and burdens on the client company can be minimized.
The group’s ability to offer a single offshore floating LNG supply chain solution is grounded in its operational base in Japan.
Japan began importing LNG in 1969 and has long been the world's largest LNG importer, currently accounting for about a quarter of the world's imports. For more than half a century, Japan has accumulated technology and experience in developing supply chain infrastructure facilities and technologies for LNG production and transportation, storage and regasification, and gas power generation.
Since the beginning, MHI has played a key role in building Japan's LNG supply chain. In addition to constructing onshore LNG plants, the company builds LNG carriers in collaboration with Mitsubishi Shipbuilding Corporation, an MHI Group company. Years of accumulated technologies and experience in the field helps the group provide a one-stop offshore floating LNG supply chain solution.
Providing Total Solutions for the Offshore Floating LNG Supply Chain, from High-Efficiency Power Generation Facilities to LNG Milk-Run Systems
The MFPP, sits at the technological heart of MHI’s offshore floating LNG supply chain offering, providing LNG receiving and storage facilities, regasification units, and power generation facilities.
Once LNG from the global supply chain arrives at a central LNG Hub, small shuttle ships are used to transport it to multiple MFPPs located near to areas of energy demand on what are known as “milk runs”. In addition to providing equipment and facilities, MHI’s total solution includes operating these small LNG shuttle ships to transport the fuel between the hub and the floating power plants.
Adjacent to the floating power plant, Floating Storage Units (FSU) and Floating Storage & Regasification Units (FSRU) are built to receive the LNG fuel and turn it back into gas ready for combustion.
The platform’s power generation facilities can be equipped with gas turbines and a gas turbine combined cycle (GTCC) consisting of a gas turbine, a boiler and a steam turbine that collects and reuses waste heat. These turbines have a maximum power output of 350 MW and an efficiency of 50 to 56%, compared to a non-GTCC gas turbine with 30 to 60 MW power output and 35 to 50% efficiency. Each floating power plant is equipped with the best power generation equipment in accordance with the required output and power generation efficiency.
Benefits of Introducing an Offshore Floating LNG Supply Chain
Implementing an offshore floating LNG supply chain will provide the following benefits to various stakeholders:
- By establishing a local supply chain that unifies multiple small electricity demand areas, oil and gas companies can secure natural gas sales destinations.
- Building an LNG-powered electricity infrastructure on the islands of emerging countries will promote tourism and fisheries (providing benefits to governments).
- The development of tourism and fisheries in emerging economies will lead to new energy demand (benefitting oil and gas operators and utilities).