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Small-Scale LNG Business Is Viable; The Norwegian Experience.

Article Excerpt
Dr. Eric Jarlsby, a Norwegian energy consultant based in Stavanger, says small-scale LNG business in limited markets has proven to be viable, citing the experience of Norway in this field. The following are excerpts from a paper he presented to the IRAEE international conference, Energy & Security in the Changing World, held in Tehran on May 25-27, 2004, in a session on LNG and GTL chaired by APS Energy Group President Pierre Shammas (excluding many images, figures and graphs).

1. Introduction: "This paper reviews the concept of small-scale LNG distribution...being developed in Norway. A conceptual framework for the paper is drawn from the field of competitive strategy, in that natural gas is described as a product that has a competitive domain and faces certain challenges in competing for a share of the total energy market.

"Subsequently, current developments in small-scale LNG distribution in Norway are reviewed in terms of what has been done, the economic rationale and observations to date. It is shown in generalised terms how the concept of LNG-based supplies can lower barriers to market entry and competition for natural gas, with a view that observations from Norway may be of interest also in other parts of the world.

2. The global competitive domain of natural gas: "Natural gas has for a number of years been a favoured fuel for the world. Its share of total energy consumption has risen steadily over the years, and reached 24.3% of global primary energy consumption in 2002...

"Natural gas as a share of total energy consumption lags behind in the Asia Pacific region, and particularly in China with a gas share of only 3%. In contrast, Iran covers more than 50% of its energy needs with natural gas, according to BP's statistics. Large differences exist also between two European nations which both are rich in natural gas:

"The Netherlands, with nearly 40% of energy needs covered by gas; in contrast to Norway, with only 8%. Even this modest figure for Norway overstates the use of natural gas in the ordinary sense, since most of this gas is used to power offshore oil and gas production as well as to feed one large methanol plant.

"When considering the reasons for these large differences in natural gas use, the issue of reserves inevitably comes to our mind. Natural gas reserves are not equally distributed around the world, and this is a quite obvious explanation for the big difference seen between the Middle East and the Asia-Pacific region, and between Iran and China. However, the differences in relative use of natural gas must have other reasons besides differences in reserves. Consider that the reserves of crude oil are more unevenly distributed in the world than those of natural gas, when related to energy consumption in various regions, while exhibiting much less variations in energy market share than does natural gas.

"Two supplementary explanations are offered for why the relative use of natural gas varies so much across the world. First, the different competitive position of gas compared to oil for final applications; and second, logistical barriers.

"...First, energy is needed for transportation. Second, we need energy for providing the hot and the cold for productive purposes and for our personal comfort. Third, we need energy to obtain light and to run all the electrical equipment that modern life has become so dependent on. These three basic applications usually require energy to be delivered in quite different forms... Natural gas has the unusual property of being both a primary energy and an end-user product, requiring only little processing on its way from the reservoir to the kitchen... The energy product...

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