With the advent of shale gas and the anticipated rise of the LNG sector in North America, Specialty Gas Report asks what this could mean for those in the gas and equipment business.

LNG Cryostar

With the advent of shale gas and the anticipated rise of the LNG sector in North America, Specialty Gas Report asks what this could mean for those in the gas and equipment business.

There can be no doubt that now is a golden age for gas, due to the growth in desire for LNG. While its use as a transportation fuel in the future is well documented, what benefits could there be for those in the distributive sector associated with the gas?

Philippe Heisch, Cryostar’s LNG sales engineer, reflected on the feeling of being involved with LNG during a timespan where huge growth is being predicted. “The small-scale LNG market is currently starting to grow faster on the same kind of trend we had been seeing a few years ago with the LNG carriers. Indeed, a lot of LNG carriers have been ordered and as the delivery times are usually about two to three years, we are now seeing the effect of this tremendous amount of LNG being transported over the sea and arriving to our terminals.”

But what about the smaller scale distributive side? Heisch continued, “LNG is now widely available, it is coming from the import terminals, small scale liquefaction plants, peak shavers, or satellite plants.”

“Having LNG right at the doors of our countries shows the consumers the opportunity to use LNG as a substitute to petrol which is becoming more and more expensive.”

“Being involved in this type of business for more than seven years now,” Heisch affirmed, “I saw a big move in 2011 and 2012 towards LNG for onshore applications. Indeed, the amount of people seeing an interest towards LNG is growing exponentially.”

“This kind of booming market can both be an opportunity and a threat for companies such as ours that have always been involved with cryogenics mainly for industrial gases. Indeed, the tremendous growth of this market will require a lot of dedicated and specialized resources in order to design, construct, and install the required assets to run the small scale LNG supply chain.”

“Nevertheless, it should be seen as a great growth vector for our industry, players will have to grow, and become more and more specialized in this field. It will be mandatory to focus on how they are going to re-think their offerings, and not only repeat what has been done for decades in the industrial gas sector. We will be required to deal with a commodity product where margins are much lower than for industrial gases and we will have to concentrate on highest safety standards, as any incident could rapidly kill this upcoming market.”

Change and adaptation
Where can a company, that is either already involved with LNG or aiming at diversifying into the emerging market, make their profits and where will the largest profits be made?

“This market will bring substantial profits, but again, we need to be careful because profits will be made by volumes and not by overpricing the products,” said Heisch, adding, “Gas is a competitive, and sometimes even regulated market, therefore the profits are quite small.”

“Indeed suppliers will need to be competitive in setting up their cost strategy based on large volumes in order to become more price efficient, and make their profits on larger volumes. The revenues will grow, of course, but it can be detrimental to the profits in our industry if the costs are not well managed.”

“This will bring some new competencies to our industry, such as people targeting on cost reduction, production efficiency, and standardization. It will be required to implement quality procedures in order to cope with this increasing demand. Moreover, developments will be required, and R&D will play a key role here.”

Heisch expanded, “Development is an important topic, especially when speaking about profits. Indeed, this is an area where the historical industrial gas players will need to invest and put some efforts in quite soon, in order to benefit from their advance in terms of cryogenic engineering and establish some barriers for new entrants in order to keep their advance.”

In closing, it seems the most important change is to consider LNG not as a cryogenic fluid, but as LNG in its own right, and this in itself will present technology challenges for the gas and equipment companies.

“On the equipment supplier side, this will require some changes and adaptations, and the ones not willing to do that might encounter some harder times,” Heisch says. “Indeed, we need to imagine that as industrial gas equipment suppliers we have always been working with cryogenics - but this new market and its requirements are completely different, be it in terms of sales and marketing channels, or technical requirements, and will therefore require manufacturers to serve both markets keeping their current level of quality and services.”

“It is an interesting challenge, a great opportunity, but the players in front of us are huge, their requirements are not the same (as their specifications come from the oil and gas industry), the contracts present more constraints, and the risk is multiplied too.”