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International Journal of Energy Economics and Policy | Vol 13 • Issue 4 • 2023 175
International Journal of Energy Economics and
Policy
ISSN: 2146-4553
available at http: www.econjournals.com
International Journal of Energy Economics and Policy, 2023, 13(4), 175-186.
Midstream Supply Chain Infrastructure Facilities and
Optimization Opportunities for Emerging LNG Markets
Firdaous El Ghazi1*, Charafeddine Lechheb2, Omar Drissi Kaitouni2
1Physics and Applications Laboratory, Ibn Tofail University, Kenitra, Morocco, 2Energy, Mechanical and Industrial Systems
(EMISYS), Mohammedia School of Engineering, Rabat, Morocco. Email: elghazi.rdaous@gmail.com
Received: 25 March 2023 Accepted: 27 June 2023 DOI: https://doi.org/10.32479/ijeep.14421
ABSTRACT
Liquied natural gas (LNG) is a major energy market experiencing signicant supply chain evolution. Supply terms are progressively changing
from long-term and binding contracts to shorter-term and exible clauses, taking into consideration demand uncertainties. This context is making
heavy investments in the LNG infrastructure risky, costly, and irreversible. The focus is shifting towards small-scale midstream facilities to develop
small-size markets. This paper presents a comprehensive analysis of the LNG supply chain from an infrastructure investment approach based on
market size and recent technological developments in the eld. It addresses the limitations of the classic conducted supply chain and investigates best
practices adapted to emerging markets. If properly executed, these logistics alternatives enable emerging markets to access LNG in a short period
with lower investment. The objective is to maximize added value while minimizing cost and operational risks. This work suggests an alternative
supply chain process replacing onshore terminals and pipeline delivery by Floating Storage Regasication Unit and truck delivery in the midstream
market. A Strengths, Weaknesses, Opportunities, and Threats analysis is conducted for the alternative supply chain model, showcasing the strengths
and weaknesses alongside opportunities and threats. The result and discussion section develop the main aspects of strategic and operational supply
chain decision-making for LNG to nd new developing opportunities and faster growth.
Keywords: Midstream Natural Gas, FRSU, Emerging Gas Markets, Investment Strategy, Hydrogen
JEL Classications: A1, F2, L1, R4
1. INTRODUCTION
A decade ago, only 23 countries had access to the liquied natural
gas (LNG) market (Savickis et al., 2021); the complexity of
the liquid natural gas supply chain, infrastructure investments,
and timeline execution are substantial market barriers. Despite
the natural gas trade’s important size and global potential, the
corresponding supply chain operations are not flexible and
practical.
Natural Gas projects are amongst the world’s most cost-
demanding projects, with total capital expenditure reaching tens
of billions of USD. The overall cost to build a large-scale LNG
Plant with a 1 million tonnes per year (TPA) capacity is estimated
to be around 1.5 billion USD (Steyn, 2021), which stands as a
barrier against the emergence of small-scale markets. The impact
of geopolitical uncertainty on energy volatility and international
price trends can expose mega investment projects to the risk of
becoming a nancial liability and source of important energy
issues nationwide. The impact of the Ukraine-Russia conict
can be listed as a perfect example (Martin, 2021), pipeline
circuits costing billions, and power plants and industries found
themselves overnight in a state of crisis. On the other hand, the
current and projected energy policies rely on natural gas to play
an instrumental role as a transitional energy source toward net-
zero carbon emissions (Barnett, 2010). Therefore, the natural gas
supply chain is expected to experience signicant development
in its liquid form, any country with access to the sea can be
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El Ghazi, et al.: Midstream supply chain infrastructure facilities and optimization opportunities for emerging LNG markets
International Journal of Energy Economics and Policy | Vol 13 • Issue 4 • 2023
176
considered a potential LNG market, able to access this energy
source as soon as an importing infrastructure is established.
Many protability studies of onshore importing facilities present
long-term paybacks and discouraging return on investments (El
Ghazi et al., 2019).
Adopting suitable technological and logistical solutions can ensure
signicant exibility and reduce nancial and operating risks.
Developing natural gas is challenging for emerging countries,
which must learn from mature markets’ supply chain experience
and look for optimized and suitable alternative solutions without
taking important risks in costly onshore importing facilities or
rigid infrastructure.
2. METHOD AND STRUCTURE
Compared to other fossil fuels, Natural gas is relatively new (Chiu,
2008). It is largely linked to the energy transition process. The
supply chain has beneted from other fossil fuel experiences and
developed through large-scale operations, long-term engaging
contracts, and heavy investments (Neumann et al., 2015). Natural
Gaz projects are among the most technically challenging and
expensive energy infrastructures. This heavy process is among
the reasons why till recently, Natural Gaz is still accessible only
to selective importing countries and markets (Harris and Gavin,
n.d.). The complexity of its supply chain is due to methane
characteristics, and optimizing its process can be challenging.
With contemporary perspectives on market evolution toward the
liquid form, it is important to keep developing new approaches
and supply chain strategies.
With the energy context continuously evolving, researchers and
eld specialists can benet from insights to understand better
the natural gas market and its supply chain alternatives. To our
knowledge and until now, only a few scientic research papers
have investigated this theme. This work required a background
review of the LNG sector and analysis of the existing supply
chain models, including importing terminals, transportation
infrastructures, supply chain disruption precedents, recent
infrastructure projects development, or failures. A top-down
approach is adopted from the perspective of an importing country,
starting with LNG maritime importation infrastructure until nal
delivery to the end consumer.
After investigating the current market development, the existing
mid-stream structure, and barriers for small markets, this paper
presents an alternative supply chain model regarding recent LNG
process and equipment developments. Most data come from
various resources, including analytics reports issued by specialized
eld organizations, supply chain research papers, and international
databases such as Statista. This paper is structured into four main
sections as below:
Section 1 provides an overview of LNG market developments,
summarizing the most relevant gas molecule chemical properties,
analyses of natural gas demand trends, and price evolution. This
section showcases the recent growth and scalability of emerging
markets.
Section 2 describes the classical supply chain components and
investigates their challenges and limits for small-size importing
markets, focusing on the heavy construction process of an
importation terminal and protability constraints.
Section 3 introduces the alternative LNG supply chain best suited
for small market scales, starting with the description of Floating
Storage Regasication Unit (FRSU) as a replacement to a classical
importation and storage onshore site, then small-scale storage
facilities at the end consumer with a truck-based transportation
model instead of pipeline routing, suitable for small volumes and
reaching more geographically dispatched industrials.
Section 4 presents results and discussions; the supply chain
alternatives are presented as one midstream optimized model.
Nevertheless, several concerns are to be addressed. This section
developed a Strengths, Weaknesses, Opportunities, and Threats
(SWOT) analysis to highlight the strengths, weaknesses,
opportunities, and threats of the proposed supply chain model
and discuss the inuence of state policies in its successful
adoption.
This work presents the finding from exploring the different
logistical alternatives, using a qualitative research approach
to synthesize relevant literature and recent energy-related
international reports.
3. LNG DEVELOPMENT AND MARKET
TREND REVIEW
3.1. Natural Gas Properties and Characteristics
Natural gas consists mainly of 80% and 98% of methane but
also contains other hydrocarbon components such as ethane,
propane, butane, and pentane (Learn About Natural Gas, 2017).
After extraction, natural gas is treated to remove the corrosive and
toxic gas H2S and convert it to elemental sulfur (Dutton, 2020).
Depending mainly on the natural gas extraction origin, the
composition and quality of natural gas can differ. Table 1 shows
the typical natural gas characteristics mainly used; countries can,
however, set different characteristics to meet local industrial
requirements. LNG does not contain sulfur, generating little SOx
emissions compared to other fossil fuels (IEA, 2021a). As for CO2
Table 1: Natural gas composition, Enbridge Gas Inc 2021
data (Learn About Natural Gas, 2017).
Component Typical analysis (mole %) Range (mole %)
Methane 94.7 87.0–98.0
Ethane 4.2 1.5–9.0
Propane 0.2 0.1–1.5
Iso-Butane 0.02 trace–0.3
Normal-Butane 0.02 trace–0.3
Iso-Pentane 0.01 trace–0.04
Normal-Pentane 0.01 trace–0.04
Hexanes plus 0.01 trace–0.06
Nitrogen 0.5 0.2–5.5
Carbon Dioxide 0.3 0.05–1.0
Oxygen 0.01 trace–0.1
Hydrogen 0.02 trace–0.05
El Ghazi, et al.: Midstream supply chain infrastructure facilities and optimization opportunities for emerging LNG markets
International Journal of Energy Economics and Policy | Vol 13 • Issue 4 • 2023 177
emissions, it is very important to consider the origin of natural gas
extraction, its physical properties, and its transportation process
to reduce CO2 emissions as much as possible.
LNG is sought as an excellent alternative toward greenhouse gas
emissions reduction and the ght against global warming, mainly
due to its low carbon emitting properties compared to other fossil
fuels (IEA, 2021a) and also because it makes it possible to develop
an energy transition strategy while ensuring optimal operation
combined with renewable sources of energies for electricity
generation (EIA, 2021).
The physical properties of natural gas present many advantages
in the industrial elds (US Department, 2005). Natural gas is:
• Colorless and odorless: For safety reasons, an odorant is
artificially injected to give a strong smell allowing gas
detection in the event of a leak (Learn About Natural Gas,
2017).
• Non-toxic and non-corrosive: The use of natural gas does not
present any toxicity danger for humans and does not cause
corrosion of pipelines or storage facilities (Learn About
Natural Gas, 2017), which helps preserve them over time and
reduces maintenance costs.
• Lighter than air: Due to its lightness, natural gas rises in the
air and disperses rapidly in case of a leak.
• In the gas phase above −161°C: To be liqueed, natural gas
requires a specic process with cryogenic materials to preserve
the liquid phase conditions. Otherwise, natural gas can be
transported in its gaseous phase through pipelines.
Many advantages are associated with natural gas liquid form.
Unlike the gaseous phase that needs pipeline circuits, LNG can
be transported worldwide, both offshore and onshore, without the
constraint of xed infrastructure and rigid location prerogatives.
3.2. Supply and Demand Trends
Traditionally, natural gas is considered a volume market but
recently started to interest small market use. The discovery and
exploitation of natural gas are relatively recent compared to other
types of fossil energy (Chiu, 2008). Its technology is undergoing
continuous developments and technical progress; it contributes
positively to improving effectiveness and efciency at all product
value stream levels.
Natural gas development is driven by its availability as a resource
and by its preference by industrials in many elds. Cooling natural
gas to −160°C can liquify the gas and reduce its volume by a factor
of 600 (US Department, 2005), guaranteeing easier transport and
storage. There are large reserves of natural gas, shale gas is also
developing rapidly, and new resources are continuously explored.
Figure 1 shows the countries with the largest LNG export and
import capacities (Global LNG Export Capacity by Country,
2022). As of 2022, Australia has the largest LNG export capacity
with 87.6 million metric tons per year in LNG export; Australia
and Qatar are currently the major exporting countries, followed
by the United States, which has an annual capacity of 73.9 million
metric tons. The United States is expected to add nearly 300 million
metric tons of yearly exporting capacity in the future.
As for LNG importing capacities, Japan has the largest import
capacity in the world, with 227.7 million metric tons per year
capacity. Which is more than double the importing capacity in
South Korea, ranking second. Meanwhile, China has the largest
LNG import capacity under development and is expected to add
over 200 million metric tons in annual capacity (Global LNG
Import Capacity by Country, 2022). Some regions are still not
listed among the important consuming energy markets, yet they
are developing rapidly and seeking LNG market access, such as
North Africa et Eastern-South Europe (Ouki, 2022).
The subsequent sanctions of Europe on Russian natural gas
tightened supplies of natural gas and led to a shift toward LNG
to reduce energy’s dependence on Russian pipelines in the future;
it also surged the need for faster emergence and development of
LNG Export facilities (Gas Market Report, Q3-2022-Analysis,
2022). Ahead of the 2022/2023 winter, and as an anticipation of the
energy’s peak demand, the European Union (EU) member states
adopted several measures by setting a threshold of 80% of minimal
storage level at the opening of winter to be increased to 90% in
the following years. The Russo-Ukrainian conict stimulated the
extension of LNG import capacity within the EU either through
the expansion of existing onshore regasication plants or by
hiring offshore oating storage and regasication units; EU-based
companies secured several short-term LNG contracts. In this
context, the global LNG trade increased by +6% year over year
from January to August 2022, mainly driven by a spiking demand
in Europe that rose by +65% during the same period (Gas Market
Report, Q4-2022-Analysis, 2022).
Since natural gas consumption is mainly driven by its use in
power generation, Table 2 shows the global natural gas installed
power generation capacity outlook (Global installed natural gas
generation capacity 2050, 2021); it is observed that the power
generation capacity will reach about 2.4 terawatts by 2050,
the forecast growth is expected to be over 31% between 2020
and 2050. Accordingly, the LNG trade is expected to increase
signicantly.
The evolution of the contractual supply model is among the
main driving factors of the supply chain model evolution. In the
Take Or Pay (TOP) contract model, the provision requires the
buyer to take and pay for a quantity of LNG in a contract year or
otherwise pay an agreed price for any LNG not taken. The seller
must honor the volume delivery at prior nominated periods. The
TOP clauses offer a mechanism that guarantees a certain level of
Table 2: Worldwide installed natural gas power generation
capacity with a forecast until 2050 (in gigawatts) (Global
Installed Natural Gas Generation Capacity 2050, 2021).
Year Installed capacity
(Gigawatts)
Growth
(%)
Cumulative
growth (%)
2020 1.839 - -
2025 2.027 10 10
2030 2.183 8 19
2035 2.195 1 19
2040 2.223 1 21
2045 2.304 4 25
2050 2.414 5 31
El Ghazi, et al.: Midstream supply chain infrastructure facilities and optimization opportunities for emerging LNG markets
International Journal of Energy Economics and Policy | Vol 13 • Issue 4 • 2023
178
revenue for the duration of the contract to benet suppliers that
can help nance greeneld LNG developments (Freehills, 2020).
Figure 2 summarizes the 2022 McKinsey survey on how the energy
transition changes LNG demand (McKinsey, 2022).
The 2022 natural gas market was disrupted by significant
uncertainties relating to the forecast of elevated prices for the
next ve years. To deal with this situation, many buyers are
reverting to long-term contracts with concerns rising about
supply shortages. This level of condence varies by region.
Southeast and south Asia regions lost short-term condence
because of high costs and their direct impact on end-users.
Concerning Europe, buyers remain uncertain beyond 2025,
despite their need for gas, given the rapidly changing energy
transition that can reshape the energy mix. They are condent
about natural gas prices going down by then. As for Chinese
buyers, condence is balanced over both time frames with a
slight preference for short-term contracts, conrming that LNG
is a key vector of their energy transition.
LNG price evolution has experienced many disruptions in
recent years; Figure 3 shows the monthly natural gas price index
worldwide from January 2020 to October 2023 (Statista, 2022b).
The global natural gas price increased until reaching 893.1 index
points in August 2022, which is 19 times the index point of
August 2020. The price spike is due to a global supply shortage
from the post covid economic recovery and a surge in electricity
demand, particularly in Europe. This situation was worsened by
the Russia-Ukraine conict, driving up prices for natural gas in
the latter half of 2021. The decrease noted in October 2022 is
due to weather conditions, this year’s winter being warmer than
expected, reducing overall demand.
There are many uncertainties regarding LNG price evolution and
market demands, making it challenging to conceive an optimal
logistic model. Apart from inecting the commercial trade, price
evolution is an important input for supply chain investment and
interregional ows, especially for estimating protability and
payback. Given the multitude of actors from sellers, traders,
exporters, explorers, and consumers, with many regional
particularities and geopolitical aspects. It is nearly impossible
to predict price evolution. The market is experiencing growing
trade, new players, stronger competition, and new technology
developments.
4. CHALLENGES AND LIMITS OF THE
CLASSICAL SUPPLY CHAIN MODEL FOR
LNG IMPORTING COUNTRIES
4.1. Natural Gas Classical Supply Chain Description
In general, the LNG supply chain doesn’t include a heavy
chemical process; it consists mainly of extracting natural gas
offshore or onshore, transforming it from the gaseous state
to the liquid form after a few processing operations. Natural
gas is liqueed and stored in liquefaction plants. Figure 4
describes the full LNG extracting and rening process with
different scales (Tcvetkov, 2022). It has been proven that beyond
2,500–3,000 km, the transport of LNG by sea tanker becomes
more attractive compared to pipeline transportation (Khan and
Osiadacz, 2015).
For maritime transportation, LNG tankers unload in receiving
terminals once arrived at their destination. LNG is temporarily
stored in convenient storage tanks. To be marketed, LNG is
regasied by heating or pressure; the gas is then transported by
pipeline to the consumption areas. Pipelines are considered among
the safest means of transport because they are ground-xed, but
at the same time, they are very costly due to heavy drilling work,
expensive material use, and considerable environmental impacts
(Ferris, 2021). The pipeline is traditionally used to transport gas
Figure 2: McKinzey company survey on how the energy transition is
changing LNG demand (McKinsey, 2022)
Figure 1: Countries with the largest LNG export and import capacities in operation worldwide as of July 2022 (in million metric tons per year).
(a) Countries with the largest LNG export capacity. (b) Countries with the largest LNG import capacity
b
a
El Ghazi, et al.: Midstream supply chain infrastructure facilities and optimization opportunities for emerging LNG markets
International Journal of Energy Economics and Policy | Vol 13 • Issue 4 • 2023 179
from importing terminals to consuming locations, with multiple
compression stations to sustain pressure and temperature control.
This classical natural gas supply chain takes a long time to be
established, and long-term contracts to ensure profitability,
considering geopolitical risks in pipeline routing between countries
and regions. Pipeline construction on large distances needs proper
authorizations, environmental impact studies, and risk analyses,
including corrosion protection mechanisms and non-destructive
inspection methods. All the different logistics components take
time to develop. Once natural gas reaches its destination, it can
be kept in the pipeline indenitely without being used or needed
immediately.
This model structurally presents a lack of optimization based
on a seller’s approach, which pushes the gas toward the
customer without adapting to his actual consumption need.
A better optimal strategy would be for the customer to pull
the energy source instead of the seller pushing it, depending
on his consumption level, production rate, price context, and
seasonality factors.
4.2. Market Size Requirements and Protability
Constraints
Protability is usually the most important criterion for decision-
making. Even if the combined ecological and industrial advantages
of natural gas can provide sufcient motivation to invest, a long-
term protability study must be conducted to assess the economic
impact of such an investment decision. The Capital Expenditure
(CAPEX) estimate is a very important step. Considering the scope
of an onshore importing terminal alone, the storage tank represents
the most signicant investment after considering the coastal
environment, such as the pumping and vaporization process. Based
on the cost allocation for some LNG terminals realized in different
environments (El Ghazi et al., 2019), the CAPEX composition of
an importing terminal is as follows:
• Allowance for land
• Jetty and port access
Figure 3: Monthly natural gas price index worldwide from January 2020 to October 2022 (Statista, 2022b)
Figure 4: Description of the full LNG extraction and rening process (Tcvetkov, 2022)
El Ghazi, et al.: Midstream supply chain infrastructure facilities and optimization opportunities for emerging LNG markets
International Journal of Energy Economics and Policy | Vol 13 • Issue 4 • 2023
180
• Technical and economic feasibility studies
• Storage and instrumentation
• Vaporizing, boil-off handling, pump-out
• Utilities, offsites, re, and safety
• Project management team.
The regasication alone represents 35% of the total cost of the
project. Port equipment and LNG tanks generally concentrate
heavy investments, with very large disparities related to land
conditions. As for the Operating Expenses (OPEX), the specicity
of the market makes it challenging to estimate operating
expenses, imported quantities depend on variable consumption,
purchase prices are very volatile, and their trend is unpredictable
and depends on several variables: exchange rate, geopolitical
stability, contract conditions, sea freight, supplier countries, price
indexation, etc.
The operating costs of a terminal are generally made up of the
following elements:
• Operating maneuvers: such as supply reception costs dedicated
to LNG harbor, cargo reception, storage, and product delivery
• Maintenance costs, including corrective and preventive
maintenance
• Energy consumption related to conducting daily operations
• Human resources and salaries: it is essential to provide an
organization chart; wages are generally subject to variation,
depending on countries’ legislations.
Based on OPEX data from various LNG terminals, the rst year of
OPEX is estimated at 2.5% of project CAPEX (Zhang et al., 2017).
accordingly, a higher CAPEX investment would result in higher
operating costs. Protability is generally simulated on an economic
lifespan of 20 years despite a longer real lifespan (Ferris, 2021).
Since volume is not the only parameter affecting protability
(Giranza and Bergmann, 2018), we consider minimizing cost
in a non-predictable price evolution market to be a synonym for
maximizing payback and protability.
5. LNG SUPPLY CHAIN DESIGN AND
OPTIMIZATION ALTERNATIVES FOR
EMERGING MARKETS
5.1. FRSU
To overcome the challenges and constraints of the classical
supply chain, this section gradually introduces LNG supply chain
alternatives, starting from importing facilities until client delivery.
The approach is driven by cost reduction targets within the CAPEX
investment. The logistic process should be tailored to the demand
level, the target being continuous optimization at all levels while
keeping operational reliability and safety.
FRSU was rst developed in 2005 (Zawadzki, 2018). Originally,
it is an LNG tanker re-used as an onshore oating terminal. Some
equipment and process modications are required to ensure this
transformation. FRSU can receive and unload LNG while ensuring
berthing stabilization and operations delivery. The growth of
the LNG market is driving the growth of FRSU, especially for
emerging countries wishing to develop natural gas or reduce
their CO2 impact and replace coal with natural gas for electricity
production. Currently, FRSU storage capacities start from
30,000 m3 (Putra et al., 2019),; the smaller the capacity, the more
it conditions small volume reception. The standard design model
is between 120,000 m3 and 200,000 m3 capacity; the frequency of
unloading LNG carriers depends on the FRSU capacity in terms
of natural gas effective use. The FRSU has a regasication unit
that sends natural gas according to demand by heating or high
pressure; it also has the following main features:
• LNG tanker unloading station
• LNG unloading transfer pipes
• LNG storage capacity
• Temperature and pressure control equipment
• Pumps and vaporizers
• Transfer station to the regasication unit
• Pipeline refueling station
• LNG tank truck or container loading station
• Control and count units.
According to the 2021 Bloomberg LNG market analyses, FSRU
ships are in high demand as buyers seek quicker and more efcient
facilities (Shiryaevskaya, 2021). At the end of 2021, the total
LNG tanker eet is around 700, among which 48 operate FRSU
worldwide (GIIGNL, 2022). In 2020, There were 43 oating
terminals in operation worldwide, a nearly 11% increase between
2021 and 2020, while the LNG market increased by 4,3 % (Weetch,
2022). Figure 5 showcases the growth of the FRSU eet; units
doubled between 2016 and 2021 (Statista, 2022a). This trend
reects an unprecedented gain of interest in FRSU. Three oating
terminals started commercial operations in 2021, respectively, in
Brazil, Croatia, and Indonesia (GIIGNL, 2022). Croatia then joined
the ranks of LNG-importing countries in 2021.
FSRU can be either newly constructed or transformed from an
existing LNG tanker. The transformation process includes adding
trans-shipment, regasication equipment, and mooring systems.
Since LNG tankers have an accentuated specialization with no
other area of application, it favorises future development of FSRU
projects, steadily growing the proportion of LNG oating receiving
terminals. According to Timera Energy (Crawford, 2018), the top
3 advantages of FRSU are:
Figure 5: Number of oating storage regasication units (FSRUs)
worldwide from 2016 to 2021
El Ghazi, et al.: Midstream supply chain infrastructure facilities and optimization opportunities for emerging LNG markets
International Journal of Energy Economics and Policy | Vol 13 • Issue 4 • 2023 181
• Lower capital cost
• Shorter lead time
• Greater exibility.
Protability is the most important decisional factor; Figure 6
summarizes a comparative study between the CAPEX required
by classical onshore terminals and FRSU for a 3 MTPA (Zhang
et al., 2017). The comparison shows a 35% cost difference, with
560 m$ for an Onshore terminal investment and only 350 m$ for
an FRSU. As for the operating costs, they are between 20,000 USD
and 45,000 USD/Day for the FSRUs against a range from 20,000
USD to 40,000 USD/Day for onshore terminals. Therefore, the
cost of a new FSRU is approximately only 60% of the cost of a
new onshore terminal.
Modularity adds up to FRSU’s advantages; it is an attractive
option for growing markets. With limited volume trade, and
land availability, the choice of seaport remains very important;
it must allow berthing stability and favorable weather conditions
(Wood and Kulitsa, 2018). FRSU requires minimal onshore space
and offers exibility in terms of possible relocation. Timeline is
also an important factor in favor of FRSU. It can be constructed
considerably faster than onshore terminals with less technical
complexity. It can be considered higher quality and security
due to its fabrication process in a controlled shipyard instead of
temporary labor on a remote site (Wyllie, 2021). Buyers can either
own their FRSU vessel or use a leasing process to start operating
for a period. Depending on the business model, the leasing option
is generally cheaper than purchasing.
FRSU is allowing faster LNG access for emerging countries.
They are increasingly considering this option. For instance, the
Moroccan government issued in Mai 2021 a call for tender for its
rst LNG terminal, an FRSU technology based at Mohammedia
Port (procurement Kingdom of Morocco, 2022). Poland announced
building 2nd FSRU due to Czech and Slovak demand for buying
more LNG (Pekic, 2022).
5.2. Calibrating Supply to Demand: LNG Small-scale
Storage at End Consumer Site
As the predominant natural gas onshore transportation is the
pipeline, gas consumers need to have a continuous and important
consumption level with little exposure to volatility and seasonality
effects. The pipeline logistic model is currently challenged for its
limited geographic coverage in this context of demand and price
uncertainties. Consumers are looking for exibility, and the supply
chain model needs to adapt rapidly, especially since the natural
gas context is favorable to take over other fossil fuels markets
to drive the energy transition. Except for power stations whose
conditions of use and pressure parameters differ, the industrial
plants use vaporized natural gas pressure that is generally low (<4
bars). Using LNG storage at the end consumer site can provide the
required gas pressure. Since the storage contains natural gas in a
liquid phase, the most common vaporizing process uses ambient
air vaporizers. LNG storage capacities have the following main
components:
• LNG tank truck unloading station or an LNG container storage
• Pressure control equipment
• Withdrawal pumps
• LNG vaporization equipment
• A gas pressure regulator unit
• Control and security units.
During ow operations and due to the very low temperature of the
natural gas liquid phase, vaporizers tend to freeze, which is why
two vaporizers are recommended. Each one operates alternately
to ensure continuous functioning. It is also necessary to ensure
the gas is supplied at a positive temperature. At the outlet of the
vaporizers, a heater is therefore installed to help raise the gas
temperature in a cold environment. The storage capacity must
be dimensioned to enhance exibility regarding production and
supply uncertainties and also to benet from the seasonal patterns
in gas prices.
5.3. LNG Distribution Trucks
LNG transportation is adapting to best respond to market
developments. Transportation is among the key elements when
studying the natural gas supply chain. It is the main part of the
midstream; the increase of LNG trade is naturally increasing
demand for LNG transportation. Once an LNG storage is installed
at the industrial site, LNG can be delivered by trucks or iso-
containers. LNG iso-containers are pressurized storage tanks
containing LNG in liquid form that can be transported through
a simple logistical chain consisting of pickup and delivery. They
are double-jacketed (Muttaqie et al., 2022) to maintain very
low temperatures, with inner casing in stainless steel, thermal
insulation made of aluminum laminate, and external casing in
carbon steel or stainless steel. Once the iso-container is delivered
to the consumer site, the LNG transfer can be done by a pressure
difference or using an external pump.
LNG trucks are equipped with a small LNG vaporizer to
maintain the pressure in the tank by vaporizing liquid and
injecting it into the gaseous phase if the pressure drops. Most
LNG Trucks are equipped with pumps; otherwise, LNG Trucks
must unload by pressure differential and a pressure build-up
Unit (RoadLinx, 2021). The transport distance is a key element
affecting both security and protability aspects. LNG trucks
cannot replace or compete with pipelines but are considered an
alternative solution to overcoming pipeline limits and challenges
Figure 6: CAPEX comparison of terminal with FRSU (3MTPA)
(Zhang et al., 2017)
El Ghazi, et al.: Midstream supply chain infrastructure facilities and optimization opportunities for emerging LNG markets
International Journal of Energy Economics and Policy | Vol 13 • Issue 4 • 2023
182
for emerging markets. While pipelines are adapted to large
volumes, trucks can operate with a spot delivery principle,
allowing more exibility. Also, pipelines represent point-to-
point rigidity and geographic inexibility, while LNG trucking
provides a competitive supply option for larger geographical
coverage.
Finally, since the transportation sector is generally linked to
pollution generation, it is important to address the development
of LNG truck transportation with a sustainability dimension.
It can contribute to developing a new LNG market, also called
compressed natural gas (CNG), an eco-friendly alternative to
gasoline. Natural gas can be a reliable fueling energy source for
transportation with less pollution impact compared to other fossil
fuels (Safari et al., 2019). It is also important to consider technical
development in truck types adapted to road proles to optimize
energy consumption aspects.
6. RESULTS AND DISCUSSION
6.1. Towards an Open Supply Chain: Mid-stream
Model and SWOT Analyses
After identifying LNG midstream challenges and presenting
supply chain alternatives. Figure 7 summarizes in one midstream
model the suggested supply chain process for small-scale LNG
markets. Natural gas is liqueed to reduce its volume by 1/600
factor, whether by sea vessel or container, or truck. Once the
LNG is received and stored in FRSU tanks, LNG can either be
sent to onboard regasication for pipeline injection (in the case
of already existing pipes or a large provisional demand) or be
sent out in liquid form for LNG truck transportation for small to
mid-scale demand. The consumer’s site must be already equipped
with an LNG storage capacity, allowing it to maintain the ow and
production demand while supply is discontinuous.
While the classical mid-stream model is a supply-driven ow best
adapted to large-volume transactions, making gas available to the
consumer regardless of its demand, this model is more adapted
to market uctuations. It is developed on a demand-driven ow
basis. All the composing components: FRSU, storage capacity,
eet size, and truck transportation rotations, are customized to
meet consumer needs. As a business model, it breaks with the
habit of having a single operator for the entire supply chain; it
creates new LNG submarkets and introduces new competitors.
However, this model requires important aspects of planning and
product transfer. Strategic and operational planning are key aspects
of this model’s success. Operational management prerequisites
are stricter; any decision should be taken on reliable and precise
performance indicators, requiring agility to adapt to rapid market
changes. We summarized Table 3, the SWOT analyses for this
model, which reects this supply chain’s strengths, weaknesses,
opportunities, and threats. This analysis enlightens the investment
decision-making process by presenting the different aspects and
dimensions of this model.
As an emerging LNG market, rapid access to the molecule
is an important decision-making factor. The most important
advantage is the investment cost of FRSU, which is only 60%
cost of the onshore terminal delivered in nearly half the time.
The emergence of short-term LNG contracts with more exible
volumes will further enhance this supply chain model, even in
large consuming countries wishing to develop regional access
and autonomy. However, this model comes with its own set
of challenges, especially operational planning. Maximizing
profitability comes through minimizing both CAPEX and
OPEX expenses, including fleet dimensioning, optimum
routing, storage inventory, and delivery. The proliferation of
intermediary players presents an opportunity for emerging LNG
submarkets but exposes the supply chain to vulnerabilities and
possible ow interruptions. The ownership and risk transfer
are also important to consider. Government policy can play a
major role in enhancing market development through adequate
incentives and policies.
6.2. Energy Policy Impact
The maturity of local regulations is often perceived as a strong
market development barrier. Natural gas future might be brighter
compared to other fossil fuels due to its lower pollution emissions
that remain the subject of controversy and a critical question
for the industry’s future. Currently, the four largest global
LNG markets, namely the EU, China, Japan and South Korea,
have introduced carbon neutrality aspirations in 2020 that may
Figure 7: Natural Gas logistic distribution model adopting FRSU
El Ghazi, et al.: Midstream supply chain infrastructure facilities and optimization opportunities for emerging LNG markets
International Journal of Energy Economics and Policy | Vol 13 • Issue 4 • 2023 183
potentially restrict opportunities to supply LNG for higher-
emission projects (McKinsey, 2021). LNG characteristics,
in terms of high standards and compliance with safety rules,
make it subject to legal authorizations and specic permitting
processes. Various regulatory reforms may be needed to promote
the development of the gas sector, such as licenses for facility
construction and LNG truck acquisition, and distribution licenses
should be standardized.
The proposed business model can accelerate market regulatory
development. The clear separation in logistics segments makes it
possible to reduce the potential vertical monopoly and increases
fair competition. This model will benet third-party operators’
access. In addition to manufacturers, this model can be adapted
to domestic consumption. Incentives such as tax exemptions
can encourage the development of the sector. Investment in an
FRSU facility can be made by a state institution to ensure its legal
governance; it is the case in several countries, such as Morocco,
or by foreign investors with the required expertise in the eld.
Many scientic research papers developed natural gas pricing
liberalization but limited their scope to mainly mature LNG
markets. Emerging ones should benet from state regulation and
sometimes even subsidies for faster development. Incentives can
take many forms; the International Energy Agency (IEA) report
(IEA, 2021b) stated that tax exoneration and subsidy could have
similar incentive effects as they both decrease investment costs
and enhance protability. It’s the government’s role to give a
strong push for rapid LNG development and help accelerate
steady emerging markets with adapted infrastructure and supply
chain models.
6.3. LNG Development Challenges in a Net Zero
World
The global LNG Market is more than ever facing a pronounced
climate of uncertainty, between the current energy crisis with
an imminent need to reduce dependence on Russian Gas and
the pledges to achieve a net zero emission to get onto the 1.5°C
pathway. Despite the pressure put on fossil fuel energy-based
demand, Gas will remain resilient and vital for this transition
as it will gradually replace coal and serve as feedstock for the
production of blue hydrogen (Van Dorsten and De la Cruz, 2022).
In a net-zero future, Gas can play a fundamental role if the carbon
capture and storage technology evolves and allows better cost-
efciency in lowering emissions (Mckenzie, 2022).
In the accelerated energy transition at 1.5°C, the gas demand
can be projected to decline. The market can be subject to more
competition with the development of green alternatives like
hydrogen and ammonia that could be available for a lower price.
This would challenge the protability of costly LNG supply
projects that would be assessed differently and will take into
consideration new parameters like carbon off-setting (Filippenko,
2022).
To reconcile the need to address the short-term energy crisis with
the net-zero environmental ambitions, LNG importing terminals
can be an option to cover for the Russian gas and convert in
the future to handle green fuels, a technical compromise that
remains at this stage theoretical. LNG Importation terminals
are designed to receive the liquied product at −160°C; the
cryogenic uid is pumped into pipelines and storage tanks also
designed to withstand cryogenic temperatures before turning it
back into gas for nal delivery. Despite the conceptual similarity
from a supply chain perspective between LNG and Hydrogen,
almost none of the equipment used in an LNG infrastructure can
handle hydrogen because its molecules are smaller than methane
and require cooling to −250°C. A technically possible way to
switch and adapt LNG infrastructure for Hydrogen is to convert
the latter into ammonia that can liquefy at −33°C. Ammonia
can be used for power or to make fertilizers, or converted into
hydrogen fuel. The adaptation costs are estimated to be 15%
of a new facility, according to a Bloomberg case study on
Germany’s energy transition (Shiryaevskaya, 2022). Figure 8
demonstrates how the approach can be conducted in an LNG
importation facility.
The adjusted technical conguration must adapt to the additional
product ows, where pumping systems must be installed and
dedicated for Ammonia and crackers to break the compound for
customers looking only for hydrogen, two energy-consuming
processes for which clean power sourcing must consider to
guarantee the net-zero emission. The integration of synthetic
LNG in the importation process can also be an important
contributor to the net-zero emission path, in a process where
hydrogen is combined with captured carbon dioxide to form
methane. As of today, there is no facility producing synthetic
methane at large-scale. If it reaches mass production level
and with competitive prices, it can easily be shipped using the
existing facilities and networks and turned into green hydrogen;
the generated carbon dioxide can be captured and used again in
the production of synthetic LNG in a zero-carbon emitting loop
(Shiryaevskaya, 2022).
Table 3: SWOT analyses of the optimized supply chain
model
Strength Weaknesses
• Lower operational cost
• Delivering spot markets
• Time delivery
• Relocation possibility
• Better geographical coverage
• Operational exibility
• Less investment, better
protability
• Financing exibility: leasing
options
• Adapted for small electricity
plants
• New LNG markets development
(retailers)
• Limited storage capacities
• Less adapted for 24 h/24 gas
consumption
• Planning complexity:
multi-operation supply chain
• HSE logistics risks
• Interdependency between
logistic components
• Risk and ownership transfer
Opportunities Threats
• Short-term supply contracts
• Energy transition
• Regional markets developments
• Industrialization in developing
countries
• Supply uncertainties
• State policy and regulations
• Seasonal pricing patterns
• Net Zero emission
regulations
El Ghazi, et al.: Midstream supply chain infrastructure facilities and optimization opportunities for emerging LNG markets
International Journal of Energy Economics and Policy | Vol 13 • Issue 4 • 2023
184
7. CONCLUSION
Beyond the cyclical effect of the energy crisis that favored the
development of LNG, we have demonstrated that, due to its
composition and characteristics, LNG structurally presents an
interesting alternative to other fossil fuels. Several countries are
integrating LNG as a key component of their energy transition
strategy. Having initially emerged as a mass product, the classically
adopted supply chain was designed to better suit large consuming
markets. The long-term protability of heavy investments in
natural gas condemns the emerging markets to seek logistics
alternatives adapted to their industrial needs, especially since
the increased volatility experienced in the LNG market does not
provide long-term visibility of commercial conditions. There are
numerous countries wishing to develop LNG and can benet
from supply chain optimal facilities. The FRSU is the rst step
toward this development, especially in the absence of existing
import and pipeline infrastructure. FRSU is only 60% cost of the
onshore terminal delivered in nearly half the time. If pipelines
are recommended in some cases, such as continuous electricity
production, the case of industrial consumers is different and can
be managed with other logistics alternatives. LNG supply by
truck or iso-container allows the discontinuous supply of gas
to the industrial consumer having already an installation and
storage capacity adapted to its consumption needs on its proper
land. This model allows better geographical coverage and better
access to LNG, even for small consumption in areas far from
import sources. This supply chain alternative is of particular
importance in developing regions such as Africa. However, the
success of this model largely depends on optimized operational
management to overcome storage capacity limitations and
interdependence between the partitioned logistic segments.
Operational management can be enhanced by integrating machine
learning or deep learning management tools for a rapid and
efcient decision-making process.
LNG mature markets can also benet from this model if wishing
to develop autonomous regional markets. Even though LNG is
considered mostly a cleaner alternative compared to other fossil
fuels, it’s still causing methane emissions to the atmosphere. It
requires further optimization to ensure sustainable development
and overcome its remaining threats and vulnerabilities,
especially in supply planning and policy aspects. There are
still some challenges to consider, especially concerning state
regulations and future net-zero targets. The fact that this model,
as described, can be adapted for the production of blue hydrogen
is a strategic factor to be considered as an opportunity. Future
research can develop this aspect and investigate the technical
reuse alternatives.
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