Sales of systems which convert liquefied petroleum gas (LPG) into synthetic natural gas (SNG) have increased by 10 times in the past year as more customers fear disruptions to gas supply, Algas-SDI sales director for gas systems, Sean Guichon, told Argus.
"The installation of new systems spikes when there is a crisis," Guichon said. In 2009-21 — relatively stable years in the European gas market — Algas only sold roughly 15 SNG systems in Europe, but in the past year, the firm has sold 42 and is planning to ship another 16 before December, Guichon said. Most of these were sold to the glass industry because glass furnaces need to operate all the time — "if they lose their fuel supply, the furnace will fall apart", he explained.
"Every industry has shown an interest in SNG" because "anybody who uses natural gas is concerned about being cut off", Guichon said. Traditional users of SNG systems such as glass, ceramics, steel, industrial food and beverage producers and heat plants have long made use of SNG, but smaller commercial loads, particularly critical ones such as hospitals or emergency shelters, have now become an important segment for Algas as well.
One notable industry which does not tend to make use of SNG is refineries, which instead back up with pure LPG using dual-fuel burners to modify the LPG's combustion characteristics to the desired level, Guichon noted.
"The main driver for the surge in SNG systems is threefold — first is energy security, second is energy diversity and third is economic," Guichon said, noting that SNG systems allow customers to store energy on site for security of supply, while the ability to buy different fuel from different suppliers means greater competition, which drives prices down, and also ensures diversity of supply. LPG is a "very easy" substitute for gas, World LPG Association director David Tyler explained to Argus last month.
The price of installing an SNG system varies by customer, but typically the systems will pay for themselves in roughly 18-24 months because gas companies will offer a discounted rate for customers who own an SNG system in a liberalised market, Guichon said.
The typical installation time for a system is roughly 4-5 months for small and medium-sized systems of 0-20MW, and 6-8 months for larger systems of more than 20MW, he said, adding that supply chain issues from the Covid-19 pandemic have been "mostly resolved".
Demand for SNG systems here to stay
Demand for SNG systems will remain strong going forward because gas prices remain volatile and it is difficult to electrify energy-intensive industries, Guichon said.
"I don't think the natural gas crisis is over," Guichon said. "If Europe has a strong winter, the weaknesses in the system will break. Prices will spike and customers will be cut off." Gas prices are typically lower than LPG because LPG is derived from the production of gas, but the main benefit of SNG systems is that they guarantee security of supply, he said. If LPG is cheaper than gas at some points, that is "just an added bonus".
There has been increasing demand from the industrial and commercial segments for LPG as a secure and economical alternative to gas, although lower gas prices have "temporarily reduced industrial demand for LPG" in Germany, leading German LPG distributor Primagas told Argus. Germany's industrial demand for LPG in 2022 grew by almost 30pc year on year, according to national LPG association DVFG, and there was a sharp increase in orders for SNG systems, German LPG equipment manufacturer Flussiggas-Anlagen director Alexander Schneider said.
Poland's Luzyce glassworks said its December investment in replacing natural gas with LPG paid for itself within three months — the firm switches back to gas when it becomes the cheaper option, but can switch again within 24 hours now that it has the LPG infrastructure in place.
Forward prices towards the beginning of the month suggested that LPG would be cheaper than gas in the winter, although infrastructural bottlenecks could inhibit the wider use of LPG as the continent is increasingly dependent on US imports arriving at a few large terminals, mostly in the Amsterdam-Rotterdam-Antwerp area. In addition, replacing pipeline gas flows for bigger industrial users involves almost daily truck deliveries, requiring more trucks and drivers.
Butane prices have also surged in northwest Europe in recent weeks, with large cargo butane outright values at 21-week highs, which could allow gas to remain more economic.
