Prospects For LNG To Contribute To The “20-20-20” Targets As A Transition Fuel

Mr John Holding

Given the EU targets – set some 3½ years ago now  – which are to be met by 2020:

• A reduction in EU greenhouse gas emissions of at least 20% below 1990 levels
• 20% of EU energy consumption to come from renewable resources
• A 20% reduction in primary energy use compared with projected levels, to be  achieved by improving energy efficiency – collectively known as the “20-20-20” targets – a question that naturally arises is whether there is a role for LNG (Liquefied Natural Gas) as a transition fuel or even as a component of the ultimate solution.

LNG as a globally transportable, fungible fuel offers the same attributes as natural gas with the added advantage of freeing the dependence from established fixed gas pipeline supplies – e.g. Russian gas into Europe. But gas is a hydrocarbon, so it contributes to GHGs, however, it is relatively “clean” having the lowest Carbon Coefficient of all naturally occurring hydrocarbons. Consequently there are numerous opportunities for gas – hence LNG – to substitute for dirtier fuels. It appears that LNG could contribute towards the EU targets.

But at the present time, global LNG projects are undergoing a hiatus – for a whole raft of reasons. The US market for LNG has currently shrunk with the exploitation of unconventional US Shale Gas resources and this additional supply source has contributed to the fall in Henry Hub prices thereby impacting the Atlantic Basin LNG market equilibrium price, hence supply side economics.

The paper will look over these issues to weigh and balance them along with considerations of the UK and European state of play with respect to LNG projects and markets and the apparent bonanza of US Shale Gas. LNG’s role in a carbon constrained world will be evaluated, particularly from the point of view of IOCs who will be driven by the outlook for risks and returns in the hugely capital intensive and long term LNG business.

The paper will conclude by drawing some conclusions as to the viability of LNG as a transition fuel to contribute to the 20-20-20 targets.