As the UK’s traditional North Sea source of natural gas slowly ebbs away and wider energy security issues increase, alternative supplies of fuel such as liquefied natural gas (LNG) are becoming ever prominent.
A return to nuclear power has been mooted as the answer to address future electricity demand, while 40% of all power produced in the UK is believed to come from natural gas and over 18 million UK homes are users of natural gas.
With the demand from consumers and businesses in the UK for more energy from natural gas increasing, previous industry forecasts suggest a 16% increase in UK annual gas demand by 2011-2012 - with peak demand growing by 20% over the same period. Enter the Dragon LNG project in Milford Haven, Wales.
Already with a number of existing liquefied natural gas sites in Britain, LNG is rapidly growing as the best technology for the large-scale movement of natural gas over long distances. This cryogenic technique is fast becoming the alternative of choice to oil or piped gas, with the Dragon LNG terminal in Wales currently under development and set to enable the import and storage of the clean and reliable fuel in the near future.
Under construction at the Waterston site in Milford Haven, this had formerly been the location of the Gulf Oil refinery until 1997, when refining operations ceased. Ideally situated as an energy terminal then, the site looks set to provide a perfect gateway for UK LNG imports in the years to come and secure a safe and reliable means of energy stability for the British isles.
The rise of the Dragon LNG project has been both significant and swift, since the inception of the scheme in 2002. The venture draws on the extensive experience of its three shareholder company’s, notably the BG Group (50%), Malaysia’s Petronas (30%) and 4Gas (20%). The BG Group has been active in the field of LNG for over 40 years, since 1959, while Petronas is in fact one of the world’s leading exporters of the product and owns the largest fleet of LNG ships.
For its part, 4Gas acquired the Waterston site in 1998 when it purchased the then defunct Gulf Oil Refining Ltd from Chevron, and had used it as a storage and service facility for the oil and energy industry.
Gateway to security
When completion of the development is achieved as expected, LNG will be delivered to Milford Haven by LNG carriers from North Africa, West Africa, the Caribbean and Malaysia which will berth at one of the site’s refurbished jetties.
This could be influential for the energy security of a United Kingdom, and its economy, so dependent on gas.
According to the Dragon LNG website, industry forecasts supported by those of the UK Government suggest that the UK’s dependence on imported gas will rise to almost 50% by 2011 or 2012. In order to access the bountiful supplies around the world, a substantial amount of infrastructure development is likely to be required.
Industry has recommended that up to three more fixed pipelines, or interconnections, with the Continent are implemented over the next decade, while the importation of gas via the UK’s West Coast is widely regarded as the best solution to ensure diversity and security of energy supply.
So why is LNG so important?
The significance of both LNG and the Dragon project is attributable to several ongoing factors.
Nigel Thompson, Partner in the Global Projects practice group of Baker Botts in Dubai, is experienced in the field of advising sponsors and lenders on the development of major infrastructure ventures in the energy and oil & gas sectors. Thompson highlighted his vision of the need for LNG in the UK as he exclusively told gasworld, “The UK is a gas dependent country and economy. With reserves of gas from domestic North Sea production beginning to run down, importation of gas will become increasingly important.”
“Additional demand is driven by the wave of gas-fired power plants - the ‘dash for gas’ that were commissioned in the 1990’s and the first part of this decade, to replace the ageing coal and oil-fired plants,” he added.
Describing the ongoing bearing of LNG as a fuel source, Thompson continued, “Despite policy decisions to diversify the UK’s sources of energy in the future, in the short and medium term the UK will continue to require large amounts of gas to fuel its domestic, industrial and power generation needs. This may well mean that additional LNG reception capacity remains both economically feasible and necessary.”
How is LNG shaping-up in the UK today?
Evidently, there’s a strong market opportunity for LNG in the UK and the rest of the world - and although a number of projects are already underway, a chasm for potential still lay ajar in this market.
There are a number of existing LNG sites in Britain which have been in operation for around 30 years, including facilities at Dynevor, Aberdare in South Wales, Avonmouth near Bristol, Glenmavis in Scotland, and Partington in Manchester.
Added to this, a new operational import terminal is located at the Isle of Grain at Rochester in Kent and the Dragon project in Wales will seek to boost supply security.
The significance of this is underlined by Global Projects’ Thompson as he exclusively explains, “Dragon LNG provides a vital new source of gas to the UK market, which utilises a large proportion of gas for domestic, industrial and power generation use. Dragon LNG also adds additional security of supply to the UK through its processing of gas which is not sourced in the Middle East or from Russia.”
“Along with the recently commissioned pipeline which brings gas from mainland Europe (making landfall at Bacton), the new LNG reception facilities in Pembrokeshire (Hook and Dragon) and at the Isle of Grain will undoubtedly be heavily utilised,” he added.
Similarly to the much lauded ‘hydrogen economy’, LNG is widely regarded as a fuel for the future or a tool for our energy diversity in the years to come. LNG however, is here and now, a concept already well established and in practice, and with much of the required infrastructure in operation.
As a source of energy it has been used for more than 60 years in countries such as the US, Korea and Japan, with improved technology making it increasingly economical and broadening the market for its use.
This is a market that would appear to afford much potential and opportunity for exploration.
While the UK market is catered for to a certain degree and the implementation of the Dragon LNG project will provide a welcome boost, there still remains a growing need to secure access to additional sources of natural gas to meet consumer and commercial demands.
An increasingly instable energy climate, and the recent dispute at the UK’s Grangemouth refinery for example, only serve to highlight how fragile our fuel and energy market can be.