GREEN4SEA: Where does the industry stand with respect to micro-liquefaction from your perspective and what are the key challenges and wish list for the way forward?
Sean Lalani: In terms of micro-liquefaction we are definitely in a transition stage. Over the last decade the industry was typified by a sense of hopefulness for various applications and for industries to adopt, most notably on road trucking. What we have seen during the last five years is a transition away from trucking to high horsepower applications.
We are also seeing a movement to facilities that are designed for marine bunkering operations or multi-industry applications. These facilities have a long-term perspective and a long-term solution to what the market needs, all this in the interest of creating efficiencies.
These facilities are characterized by being near the water to enable waterborne distribution of LNG. This means that a city like Jacksonville is leading the way in terms of infrastructure and providing the opportunity for micro-liquefaction to be competitive to large scale LNG.
G4S: Tell us a few words about Eagle LNG ‘s project in Jacksonville, FL. What are your goals & aspirations from the proposed LNG facility? When it will be ready for operations?
S.L: We are very excited about our projects. We are constructing the Maxville LNG Project, a domestic natural gas liquefaction plant located west of downtown Jacksonville, FL, and a state-of-the-art marine bunkering terminal at Talleyrand in Jacksonville, FL; both will be operational later this year at the end of Q3 or the beginning of Q4.The Maxville Project will supply LNG to Crowley Puerto Rico Services to be used in their LNG-powered Commitment Class ships for U.S. mainland to Puerto Rico trade.
In addition, earlier this year we filed our formal application with the U.S. Federal Energy Regulatory Commission (“FERC”) for authorization under Section 3(a) of the Natural Gas Act to site, construct and operate natural gas liquefaction and export facilities located at a site on the St. Johns River in Jacksonville, Florida. The proposed Project consists of three liquefaction trains, and at full build-out, will be capable of producing up to 1.65 million gallons of LNG per day, or approximately 1 million tonnes per annum. The produced LNG will be transported to markets in the Caribbean and Latin America for power generation. It will also be delivered to local and regional markets, including marine bunkering and high horsepower applications for domestic consumption.
G4S: From your perspective, what are the key challenges for the operation, management, maintenance and development of a LNG terminal?
S.L: That's a pretty big question. At the end of the day LNG needs to end up being easier than bunker fuel. For that to happen it is important that customers and partners choose experienced operators that are comfortable with all the new regulations. When you pick the right partner from the outset everything looks easy and seamless. Things happen on time and on budget.
A lot of operators are out there saying that it can’t be that hard, even though they don’t have the experience and knowledge to back up their statement. What we are finding is that if you get the wrong partner, things wind up being late, more expensive and ultimately the promise of LNG does not get delivered. From our perspective the key challenge is from the market side to understand that there are experienced operators that have been doing this for a while and on the other hand, there are people that can’t execute. I think the key point of all this, is that it is not as simple as it looks on the surface but at the same time it can be simple if you choose the right partner that has the expertise.
G4S: What are the key differentiations that may enhance the attractiveness of LNG against other fuel options?
S.L: Without a doubt the economy and the environment. LNG provides fuel security because it is produced domestically. It is not being imported from the Middle East or Venezuela.
From the environmental perspective one issue which we believe is not talked about enough is about spill management. Every week I read the trade publications and most times there is an article about spillage from a vessel somewhere around the world. The challenge with bunker fuel is the cleanup. With LNG, first we're not going to spill it but even to the extent that there is a spill it boils off. Yes it has a greenhouse gas impact, but the cleanup does not leave an environmental footprint on the water, which I think is very positive.
G4S: What are your projections for the price of LNG within the next years, especially in 2020 with the implementation of the Global Sulphur Cap?
S.L: The beauty of LNG is that the vast majority of the cost is typified by investment in infrastructure, certainly in these early days. What this means from a volatility perspective is that the cost of fuel is only 20 to 40 percent of the cost. As a result, the exposure to the underlying commodity, in this case natural gas, versus diesel or bunker fuel is much different. In diesel or bunker fuel you are exposed 60 to 80 percent to the underlying commodity which is crude oil. So it’s a big difference.
In terms of future LNG prices, once that infrastructure is built and the costs recovered, then the infrastructure portion of that price will inevitably decline. This in turn will enhance the attractiveness of LNG. Furthermore, the new IMO regulations are favorable because its demand will increase, which will allow us to build more infrastructure. This in turn, provides the opportunity to spread the infrastructure investments and be more efficient and competitive.
G4S: What are the key reasons making owners hesitant to proceed with LNG as a fuel and what developments you see that may change that attitude with respect to OPEX, CAPEX & infrastructure issues?
S.L: The key reason is familiarity with the product. Not knowing what LNG is. Let’s not forget the fact that the industry has been working with diesel and bunker fuel for more than five decades. They know it. On the other hand, LNG is new and for some it seems a bit intimidating. Secondly the economics of LNG in the current fueling pricing environment are not as robust as they were two years ago when oil price was significantly higher.
G4S: What is your key message/ advice to shipowners when deciding on LNG as a marine fuel?
S.L: If you are considering LNG don't make a decision for the next 30 years based on today's price or what has happened during the last 18 months. Despite the current challenges, LNG offers a compelling value. I have no doubt in my mind that the age of natural gas is here and the best is yet to come for LNG.
The views presented hereabove are only those of the author and not necessarily those of GREEN4SEA and are for information sharing and discussion purposes only.
Sean Lalani serves as President of Eagle LNG Partners, a wholly owned subsidiary of Ferus Natural Gas Fuels LP, building LNG infrastructure across the United States to supply clean-burning, competitively-priced fuel for the marine, remote power, rail, oil and gas, and trucking industries. Based in Houston, Texas, Sean is responsible for leading the development of Eagle’s liquefied natural gas business in the U.S., including the building of two LNG plants in Florida with name plate capacity of nearly 2 Million LNG-gallons per day. Sean joined Ferus in 2003 playing an instrumental role in the start-up of the company and was responsible for creating Ferus’ natural gas fueling business plan. Prior to joining Ferus, Sean held various roles as a business consultant, commodity consultant, and in corporate finance, commodity trading, contract negotiations and settlements, and marketing. Sean has 15 years of experience in the oil and gas industry and holds a finance degree from the University of Alberta.