(Article originally published in the March / April 2021 edition.)
UPGRADES AND DEGRADATIONS:
Cooking with gas
As a sign of the times, propane has overtaken diesel as the main US petrochemical export. The transition to natural gas, in all its forms, is accelerating.
By Jack O’Connell
In March, the US Energy Information Agency (EIA) reported that propane exports rose 13% last year to a record 1.2 million barrels per day, supplanting fuel oil distilled (diesel) as the country’s main export of petroleum products.
Propane, a byproduct of natural gas, is used extensively outside the United States for heating, particularly in South America, where most propane exports go. Europe is another great destination with new and fast growing markets in Asia and Africa. In the United States, propane has grown in popularity in the wake of the pandemic, with houseworkers using it in heaters and restaurants using portable heaters to accommodate outdoor diners in cooler climates.
In addition to heating, propane is widely used for cooking, as any backyard master grill knows. And propane often powers gas ovens and stoves in places where natural gas lines are not available.
And, of course, natural gas in all its forms – including propane and butane – is an important raw material for the chemical industry (think plastics and man-made fibers and ammoniacal fertilizers). The chemical industry is, in fact, the biggest consumer of natural gas, which is also used to power and heat factories.
Why is all this important? Because at a time when decarbonisation is all the rage, it is encouraging to see the exports of a clean energy product (propane) increase and a less clean energy product (diesel fuel) fall. US natural gas exports (LPG and LNG) now exceed their oil exports, in barrels, and that’s another good sign.
But exports are only part of the story. The big news is that natural gas, including LNG and LPG, is rapidly supplanting petroleum and coal as the world’s preferred energy source and providing vital ‘bridge fuel’ for an energy-powered future. renewable.
“We see LNG as a transitional fuel that offers an immediate option to reduce carbon emissions and can be used for scalable ships built in this decade and beyond,” said Antony DSouza, division manager Maritime Americas by DNV, in the Executive Achievement of this edition. “In the deep sea segment in particular, dual fuel solutions and ‘alternative fuel ready’ solutions could ease the transition by laying the groundwork for future modernization. “
The number of LNG, LPG and dual fuel-powered ships is increasing by leaps and bounds as the shipping industry rushes to meet its self-imposed clean energy goals. Last October, the first conversion of a VLGC (Very Large Gas Carrier) to dual-fuel LPG propulsion was completed when the 2015-built BW Gemini began week-long sea trials, as part of a program that BW LPG is undertaking to modernize the ships in its fleet to the most efficient and environmentally friendly fuel.
With the world’s largest fleet of LPG carriers, BW plans to upgrade a minimum of four and up to 12 vessels to the dual-fuel configuration, seamlessly switching between diesel and LPG. In addition to the environmental benefits of using LPG (97% reduction in SOx, 90% particulate matter, 25% reduction in greenhouse gases), BW says it expects efficiency gains up to 11% of LPG, creating significant improvements in fuel economy.
The next step forward? Ammonia. If LNG and LPG are sustainable transition fuels into the future, ammonia is the future. And already the first step has been taken with an approval in principle from Lloyd’s Register (LR) for a medium-sized gas transporter powered by ammonia by the Belgian shipowner Exmar, a pioneer of innovative design and engineering. , having introduced LPG as a fuel for the first time in 2012.
“This is an important step in the advancement of alternative fuels for the transition of maritime transport to zero carbon,” notes Ed Fort, global head of engineering systems at LR. Wartsila Gas Solutions designed the ammonia fuel system for the 40,000 cubic meter transporter, which will be built at the Jiagnan Shipyard in Shanghai.
You knowledgeable readers of MarEx know the difference between LNG and LPG, don’t you?
We are all familiar with LNG – liquefied natural gas, the product that you freeze at minus 162o Celsius so that it becomes liquid and you can ship it in dome-shaped tankers to any part of the world. And with the abundant and very cheap natural gas in the United States, thanks to the miracle of shale technology, companies can profit from the price difference between cheap American LNG and more expensive LNG in others. parts of the world, especially in Asia and the Far East.
LPG, on the other hand, is liquefied petroleum gas, a by-product of petroleum refining and natural gas extraction. This is the substance you see being burned in oil wells, where much of it is not captured, and is sometimes referred to as liquid natural gas (NGL) or “wet gas.” These are mainly propane or butane and other derivatives such as ethane.
LPG can also be used as a fuel for automobiles and buses, and you may have seen a city bus or school bus pass with the words “Powered by LPG” stenciled over the LPG storage tank on its roof. . LPG as a fuel is economical and efficient and offers all of the clean combustion benefits associated with both LNG and natural gas.
But the real beauty of LPG is its ease of use. It does not need to be refrigerated down to minus 162o Celsius like LNG. It is a gas, but liquefies easily and can be transported in lightly pressurized containers. No need for sophisticated multi-billion dollar liquefaction and regasification facilities.
So let’s take a quick look at some of the opportunities available in investing in LNG and LPG.
How to play it
On the LNG side, Cheniere (LNG) is the obvious choice. Founded in 2016, the company has become in five short years the largest LNG producer in the United States and the second largest LNG operator in the world. It has two facilities along the Gulf Coast, close to cheap and abundant natural gas sources.
The first, at Sabine Pass in southwest Louisiana, operates five “trains” (processing facilities) and a sixth is expected to be completed next year. The second, in Corpus Christi, Texas, has two trains in service and a third about to start. Total production when all nine trains are completed? Forty-five million tonnes.
Commenting on the 2020 results, President and CEO Jack Fusco said, “After a year in which the all-time price has become mainstream, I am extremely proud to report fourth quarter financial results and fiscal year 2020 which places us firmly within our Unchanged Consolidated Adjusted EBITDA forecast range and above our Distributable Cash Flow forecast range for the year. We achieved this while successfully managing a full spectrum of challenges over the past year, ranging from a global health crisis and its far-reaching effects to record LNG market prices and two major hurricanes that made landfall near. of our infrastructure. The results we published today prove once again the resilience, stability and reliability of our business throughout the commodity cycles. “
A bit of corporate talk there, but you get the idea: the company has delivered on its initial expectations for the year and has once again proven its resilience to cyclical ups and downs.
As for the year ahead, Fusco is even more optimistic: “I am confident that we can continue to perform in 2021, and many tailwinds are present today. We are in the final stages of commissioning train 3 at Corpus Christi and look forward to commissioning this project in the coming weeks. In addition, the global LNG market has strengthened significantly since our last quarterly update, improving our outlook for the remainder of the year. Today we are raising our financial forecast for 2021 and are confident in our ability to deliver reliable financial results again. “
Even more convincing, especially for you ESG investors, Cheniere has an excellent environmental record and takes pride in its sustainable products and operations.
The stock was recently trading around 70 and has more than doubled from its low last March when the virus first hit. Its sister stock, Cheniere Energy Partners (CQP) – an MLP (master limited partnership) – trades around 40 and pays a healthy dividend of 6%.
On the LPG side, Dorian (GPL) remains my favorite. It plays in the VLGC space with 24 modern carriers and is a major exporter of propane. In his latest earnings report, covering the fourth quarter of last year, Chief Executive Officer John Hadjipateras said: “I am pleased and grateful to report that our sailors and shore personnel continue to be in safety in these dangerous times. In addition, thanks to a solid freight market, the Company generated very solid results in the last quarter.
Those “strong results” included a net profit of $ 36 million on revenues of $ 89 million – essentially unchanged from the prior year period, but impressive nonetheless. As the company does not pay a dividend, it has decided to reward shareholders through a share buyback.
“With a modern ECO fleet, dedicated professionals who support our clients, a healthy balance sheet and favorable market fundamentals, we are focused on returning capital to our investors,” Hadjipateras explained. “After reviewing various options, our board of directors concluded that the take-over bid provides an option and represents a very compelling way to return money while maximizing financial value for our shareholders. “
The tender, which expired in early March, resulted in the purchase of more than eight million LPG shares – about 17% of the outstanding shares – at $ 13.50 per unit, thus raising the future earnings per share and putting money back into the hands of shareholders. A good deal if you can get it!
Jack O’Connell is the magazine’s editor.
The opinions expressed here are those of the author and not necessarily those of The Maritime Executive.