CNG Gets Ready to Make a Stand and Stake Place in the Energy Mix

Compressed natural gas (CNG) proponents are hoping that the world's first marine CNG project is finally getting close.

More than a decade since this alternative gas shipping concept was first mooted, and after numerous false starts, there was cautious optimism in the air at a marine CNG conference in London last week.

The fact that steel prices have fallen and shipyards are hungry for work should boost CNG projects given that about three quarters of a scheme's costs relate to the vessels carrying the gas.

Low gas prices should also be working in favour of CNG players, and potential buyers, because of the bigger price differential relative to the high-priced fuels the gas would replace.

Also spurred on by higher LNG prices andfalling gas supplies, there is an "unprecedented" level of interest in CNG projects, Graham Hartnell, manager of LNG and gas consulting at Poten&Partners, told attendees at an Informa-organised conference.

It is not clear how long this perceived window of opportunity will be around - some say maybe ?12 to 24 months - and if there is any project that is sufficiently advanced to take advantage of the fair winds.

Potential developments are being worked on in the Caribbean and Mediterranean regions as well as South- East Asia, Africa, South America and northern Europe, though details are scant.

The key CNG technology proponents - EnerSea, Sea NG, FPC, Trans Ocean Gas and Ce Tech - are by and large ready to push ahead with construction of vessels because their containment systems have been substantially approved by the relevant classification societies.

So why are there continuing delays if the technology challenge has been cracked and commodity, material and yard prices are low? Hartnell said financing and commercial structures are now the two key issues that remain to be resolved.

Banks are working to stricter criteria and are lending less for bigger returns, while the gas resources earmarked for CNG are usually controlled by smaller operators - not the supermajors or independents - which themselves have run into financial difficulties.

The CNG technology developer is also stuck between the gas resource holder and gas purchaser with little influence over either side, even though its profit margin will depend on the commercial deal eventually agreed between the two sides.

Until there is alignment between the gas buyers and sellers on the one hand and the CNG transporters on the other hand, projects will not go ahead.

Among other potential roadblocks, David Stenning, president and chief operating officer of Sea NG, highlighted geopolitical issues—such as gas export restrictions—when itcomes to inter-country projects.

Hartnell also suggested possible competition could emerge from floating liquefied natural gas projects, which may be downsized to compete directly against CNG schemes that usually target smaller fields able to produce about 100 million cubic feet per day of gas.

Many observers also commented that another reason marine CNG projects have moved so slowly is the inherently conservative cultures of both the shipping and offshore oil and gas sectors.