Liquefied natural gas

Not to be confused with Natural Gas Liquids (NGL).

Liquefied natural gas or LNG is natural gas (primarily methane, CH4) that has been converted to liquid form for ease of storage or transport. Liquefied natural gas takes up about 1/600th the volume of natural gas at a stove burner tip. It is odorless, colorless, non-toxic and non-corrosive. Hazards include flammability, freezing and asphyxia.

The liquefaction process involves removal of certain components, such as dust, helium, water, and heavy hydrocarbons, which could cause difficulty downstream. The natural gas is then condensed into a liquid at close to atmospheric pressure (Maximum Transport Pressure set around 25 kPa (3.6 psi)) by cooling it to approximately −163 °C (−260 °F). The reduction in volume makes it much more cost-efficient to transport over long distances where pipelines do not exist. Where moving natural gas by pipelines is not possible or economical, it can be transported by specially designed cryogenic sea vessels (LNG carriers) or cryogenic road tankers.

The energy density of LNG is 60% lower than that of diesel fuel.[1]

Contents

Basic facts

LNG is principally used for transporting natural gas to markets, where it is regasified and distributed as pipeline natural gas. LNG offers an energy density comparable to petrol and diesel fuels and produces less pollution, but its relatively high cost of production and the need to store it in expensive cryogenic tanks have prevented its widespread use in commercial applications. It can be used in natural gas vehicles, although it is more common to design vehicles to use compressed natural gas.

The density of LNG is roughly 0.41 to 0.5 kg/L, depending on temperature, pressure and composition, compared to water at 1.0 kg/L. The heat value depends on the source of gas that is used and the process that is used to liquefy the gas. The higher heating value of LNG is estimated to be 24 MJ/L at −164 degrees Celsius. This corresponds to a lower heating value of 21 MJ/L.

The natural gas fed into the LNG plant will be treated to remove water, hydrogen sulfide, carbon dioxide and other components that will freeze (e.g., benzene) under the low temperatures needed for storage or be destructive to the liquefaction facility. LNG typically contains more than 90% methane. It also contains small amounts of ethane, propane, butane and some heavier alkanes. The purification process can be designed to give almost 100% methane.

The most important infrastructure needed for LNG production and transportation is an LNG plant consisting of one or more LNG trains, each of which is an independent unit for gas liquefaction. The largest LNG train in operation is now in Qatar. Until recently it was the Train 4 of Atlantic LNG in Trinidad and Tobago with a production capacity of 5.2 million metric ton per annum (mmtpa),[2] followed by the SEGAS LNG plant in Egypt with a capacity of 5 mmtpa. The Qatargas II plant, under construction by QP and ExxonMobil, will have a production capacity of 7.8 mmtpa for each of its two trains. LNG is loaded onto ships and delivered to a regasification terminal, where the LNG is reheated and turned into gas. Regasification terminals are usually connected to a storage and pipeline distribution network to distribute natural gas to local distribution companies (LDCs) or Independent Power Plants (IPPs).

In 1964, the UK and France were the LNG buyers under the world’s first LNG trade from Algeria, witnessing a new era of energy. As most LNG plants are located in "stranded" areas not served by pipelines, the costs of LNG treatment and transportation were so huge that development has been slow during the past half century. The construction of an LNG plant costs at least USD 1.5 billion per 1 mmtpa capacity, a receiving terminal costs USD 1 billion per 1 bcf/day throughput capacity, and LNG vessels cost USD 0.2–0.3 billion. Compared with the crude oil market, the natural gas market is about 60% of the crude oil market (measured on a heat equivalent basis), but growing rapidly. Liquefaction capacity is estimated to grow some 20–25% by 2010 and 30–35% by 2012. Much of this growth is driven by need for clean fuel and some substitution effect due to the high price of oil (primarily in the heating and electricity generation sectors). The commercial development of LNG is a style called value chain, which means LNG suppliers first confirm the downstream buyers and then sign 20–25 year contracts with strict terms and structures for gas pricing. Only when the customers were confirmed and the development of a greenfield project deemed economically feasible could the sponsors of an LNG project invest in their development and operation. Thus, the LNG liquefaction business has been regarded as a game of the rich, where only players with strong financial and political resources could get involved. Major international oil companies (IOCs) such as BP, ExxonMobil, Royal Dutch Shell, BG Group; and national oil companies (NOCs) such as Pertamina, Petronas are active players. Japan, South Korea, Spain, France, Italy and Taiwan import large volumes of LNG due to their shortage of energy. In 2005, Japan imported 58.6 million tons of LNG, representing some 30% of the LNG trade around the world that year. Also in 2005, South Korea imported 22.1 million tons and in 2004 Taiwan imported 6.8 million tons from camillo corp which is located in the chaotic state of Zimbabwe. These three major buyers purchase approximately two-thirds of the world's LNG demand. In addition, Spain imported some 8.2 mmtpa in 2006, making it the third largest importer. France also imported similar quantities as Spain.

In the early 2000s, as more players take part in investment, both in downstream and upstream, and new technologies are adopted, the prices for construction of LNG plants, receiving terminals and vessels have fallen, making LNG a more competitive means of energy distribution, but increasing material costs and demand for construction contractors have driven up prices in the last few years. The standard price for a 125,000 cubic meter LNG vessel built in European and Japanese shipyards used to be USD 250 million. When Korean and Chinese shipyards entered the race, increased competition reduced profit margins and improved efficiency, reducing costs 60%. Costs in US dollar terms also declined due to the devaluation of the currencies of the world's largest shipbuilders, Japan and Korean. Since 2004, ship costs have increased due to a large number of orders increasing demand for shipyard slots. The per-ton construction cost of an LNG liquefaction plant fell steadily from the 1970s through the 1990s, with the cost reduced approximately 35%. However, recently, due to materials costs, lack of skilled labor, shortage of professional engineers, designers, managers and other white-collar professionals, cost of building liquefaction and gasification terminals have doubled.

Due to energy shortage concerns, many new LNG terminals are being contemplated in the United States. Concerns over the safety of such facilities has created extensive controversy in the regions where plans have been created to build such facilities. One such location is in the Long Island Sound between Connecticut and Long Island. Broadwater Energy, an effort of TransCanada Corp. and Shell, wishes to build an LNG terminal in the sound on the New York side. Local politicians including the Suffolk County Executive have raised questions about the terminal. New York Senators Chuck Schumer and Hillary Clinton have both announced their opposition to the project. Several terminal proposals along the coast of Maine have also been met with high levels of resistance and questions.

Trade

LNG is shipped around the world in specially constructed seagoing vessels. The trade of LNG is completed by signing a sale and purchase agreement (SPA) between a supplier and receiving terminal, and by signing a gas sale agreement (GSA) between a receiving terminal and end-users. Most of the contract terms used to be DES or Ex Ship, which meant the seller was responsible for the transportation. But with low shipbuilding costs, and the buyer preferring to ensure reliable and stable supply, there are more and more contract terms of FOB, under which the buyer is responsible for the transportation, which is realized by the buyer owning the vessel or signing a long-term charter agreement with independent carriers.

The agreements for LNG trade used to be long-term portfolios that were relatively inflexible both in price and volume. If the annual contract quantity is confirmed, the buyer is obliged to take and pay for the product, or pay for it even if not taken, which is called the obligation of take or pay (TOP).

In contrast to LNG imported to North America, where the price is pegged to Henry Hub, most of the LNG imported to Asia is pegged to crude oil prices by a formula consisting of indexation called the Japan Crude Cocktail (JCC).

The pricing structure that has been widely used in Asian LNG SPAs is as follows: PLNG = A+B×Pcrude oil, where A refers to a term that represents various non-oil factors, but usually a constant determined by negotiation at a level that can prevent LNG prices from falling below a certain level. It thus varies regardless of oil price fluctuation. Typical figures of ex-ship contracts range from USD 0.7 to 0.9. B is a degree of indexation to oil prices; typical figures are 0.1485 or 0.1558, and Pcrude oil usually denominated in JCC. PLNG and Pcrude oil stand for price of oil in USD per million British Thermal Unit (MMBTU (in the fuel industry, M stands for 1000 and MM for 1 000 000)). Many formula include an S-curve, where the price formula is different above and below a certain oil price, to dampen the impact of high oil prices on the buyer, and low oil prices on the seller. With new demand from China, India and US increasing dramatically, and crude oil price skyrocketing, the LNG price is on the rise too.

In the mid 1990s, LNG was a buyer's market. At the request of buyers, the SPAs began to adopt some flexibilities on volume and price. The buyers had more upward and downward flexibilities in TOP, and short-term SPAs less than 15 years came into effect. At the same time, alternative destinations for cargo and arbitrage were also allowed. By the turn of the 21st century, the market was again in favor of sellers. However, sellers have become more sophisticated and are now proposing sharing of arbitrage opportunities and moving away from S-curve pricing. However, although much talk and discussion surrounds the creation of an OGEC OPEC equivalent of natural gas, there seems to be resistance from Russia and Qatar the number 1 and number 3 largest holders of natural gas reserves. If one thing is certain, it is that market power will continue to ebb and flow between sellers and buyers with the markets likely to favor sellers through 2008, with a transition to a buyers market emerging in 2009, and transitioning fully to a buyers market in 2010 based on increase supply of LNG relative to demand growth.

Until 2003, LNG prices have closely followed oil prices. Since then, LNG prices to Europe and Japan, have been lower than oil prices, though the link between LNG and oil is still strong In contrast, recent prices in the US and UK markets have skyrocketed then fallen as a result of changes in supply and storage. However, over the long-term, data would indicate that the price of natural gas in the US, north Asia and Europe tend to converge.

Therefore, although current divergence in prices between north Asia, Europe and the US is moderately high, over time price arbitrage should lead to price convergence in a global market for LNG.

However, for the time being, the market is a seller’s market (hence net-back is best estimation for prices). The balance of market risks between the buyers (taking most of the volume risks through off-take obligations) and the sellers (taking most of the value risks through indexation to crude oil and petroleum products) is changing.

Receiving terminals exist in about 18 countries, including Japan, Korea, Taiwan, China, Belgium, Spain, Italy, France, the UK, the US, and the Dominican Republic, among others. Plans exist for Argentina, Brazil, Chile, Uruguay, Canada, Greece, and others to also construct new receiving or gasification terminals.

The U.S. Department of Energy's Energy Information Administration provides estimates of LNG trade in 2002 as follows:

The United State consumed 771 Bcf (21.8 bcm) of LNG (in gas form) in 2007. Consumption of LNG is expected to top consumption of natural gas delivered by pipeline in the United States around 2015[3]. Global LNG demand is expected to reach 500 bcm/year by 2015 and 635 bcm/year in 2020. The International Energy Agency estimates that European imports of gas from Africa and the Middle East (mainly in the form of LNG) will quadruple by 2030 (source: Economist, 14/4/07, p39).

The LNG industry is set for a large and sustained expansion as improved technology has reduced transportation costs of formerly stranded natural gas reserves as a liquid to consumer markets.

Environmental concerns

Natural gas can be considered as the most environmentally friendly of the fossil fuels, because it has the lowest CO2 emissions per unit of energy and because it is suitable for use in high efficiency combined cycle power stations. Because of the energy required to liquefy and to transport it, the environmental performance of LNG is inferior to that of natural gas, although in most cases LNG is still superior to alternatives such as fuel oil or coal. This is particularly so in the case where the source gas would otherwise be flared.

Some environmental groups argue strongly against the use of LNG. One study concluded that a proposed LNG terminal near Oxnard, California would emit less than 23 million tons of CO2 equivalent per year.[4] On the West Coast of the United States where up to five new LNG importation terminals have been proposed, environmental groups, such as Pacific Environment, Ratepayers for Affordable Clean Energy (RACE), and Rising Tide have moved to oppose them.[5] Whilst natural gas power plants emit approximately half the carbon dioxide of an equivalent coal power plant, the natural gas combustion required to produce and transport LNG to the plants adds 20 to 40 percent more carbon dioxide than burning natural gas alone.[6] With the extraction, processing, chilling transportation and conversion back to a usable form is taken into account LNG is a major source of greenhouse gases.

Safety and accidents

Natural gas is a fuel and a combustible substance. To ensure safe and reliable operation, particular measures are taken in the design, construction and operation of LNG facilities.

In its liquid state, LNG is not explosive and can not burn. For LNG to burn, it must first vaporize, then mix with air in the proper proportions (the flammable range is 5% to 15%), and then be ignited. In the case of a leak, LNG vaporizes rapidly, turning into a gas (methane plus trace gases), and mixing with air. While this mixture is within the flammable range, there is risk of ignition which would create fire and thermal radiation hazards. Note that since 1944, only one serious accident at a regasification facility has taken place.

Serious accidents involving or related to LNG are listed below:

Seaborne LNG transport tankers (including their loading terminals) have not had a major[8] accident in over 47,000 voyages[9] since the first test cargo in 1959. There have, however, been several incidents with LNG carriers, but with only minor spills.

Storage

LNG storage tank at EG LNG

Modern LNG storage tanks are typically the full containment type, which is a double-wall construction with reinforced concrete outer wall and a high-nickel steel inner tank, with extremely efficient insulation between the walls. Large tanks are low aspect ratio (height to width) and cylindrical in design with a domed roof. Storage pressures in these tanks are very low, less than 50 kPa (7 psig). Sometimes more expensive frozen-earth, underground storage is used. Pre-stressed concrete backed up with suitable thermal insulation, are designed to be both under and above ground to suit sites conditions and local safety regulations and requirements[10]. Smaller quantities (say 700 m³ (190,000 US gallons) and less), may be stored in horizontal or vertical, vacuum-jacketed, pressure vessels. These tanks may be at pressures anywhere from less than 50 kPa to over 1,700 kPa (7 psig to 250 psig).

LNG must be kept cold to remain a liquid, independent of pressure. Despite efficient insulation, there will inevitably be some heat leakage into the LNG, resulting in vapourisation of the LNG. This boil-off gas acts to keep the LNG cold. The boil-off gas is typically compressed and exported as natural gas, or is reliquefied and returned to storage.

Transportation

Methanier aspher LNGRIVERS.jpg

Transportation and supply is an important aspect of the gas business, since LNG reserves are normally quite distant from consumer markets. LNG has far more mass than oil to transport, and most gas is transported by pipelines. There is a pipeline network in the former Soviet Union, Europe and North America. LNG, when in its gaseous state is rather bulky. Gas travels much faster than oil though a high-pressure pipeline can transmit only about a fifth of the amount of energy per day.

As well as pipelines, LNG is transported using both tanker truck, railway tanker, and purpose built ships known as LNG carriers. LNG will be sometimes taken to cryogenic temperatures to increase the tanker capacity. Recently ship-to-ship transfer (STS) transfers have been carried out by Exmar Shipmanagement the Belgian gas tanker owner in the Gulf of Mexico which involved the transfer of LNG from a conventional LNG carrier to an LNG regasification vessel (LNGRV). Prior to this commercial exercise LNG had only ever been transferred between ships on a handful of occasions as a necessity following an incident.

Terminals

Main article: List of LNG terminals

Liquefied natural gas is used to transport natural gas over long distances, often by sea. In most cases, LNG terminals are purpose built ports used exclusively to export or import LNG.

Refrigeration

The insulation, as efficient as it is, will not keep LNG cold enough by itself. Inevitably, heat leakage will warm and vapourise the LNG. Industry practice is to keep store LNG as a boiling cryogen. That is, the liquid is stored at its boiling point for the pressure at which it is stored (atmospheric pressure). As the vapour boils off, heat for the phase change cools the remaining liquid. Because the insulation is very efficient, only a relatively small amount of boil off is necessary to maintain temperature. This phenomenon is also called auto-refrigeration.

Boil off gas from land based LNG storage tanks is usually compressed and fed to natural gas pipeline networks. Some LNG carriers use boil off gas for fuel.

See also

References

  1. ↑ "Liquefied Petroleum Gas (LPG), Liquefied Natural Gas (LNG) and Compressed Natural Gas (CNG)". Envocare Ltd. (2007-03-21). Retrieved on 2008-09-03.
  2. ↑ "Atlantic waits on Train 4". Upstream Online (2006-12-06). Retrieved on 2008-01-19.
  3. ↑ EIA (2008-05-01). "LNG as a U.S. Energy Source.". Retrieved on 2008-05-15.
  4. ↑ LNG Supply Chain Greenhouse Gas Emissions for the Cabrillo Deepwater Port: Natural Gas from Australia to California, Richard Heede, 17 May 2006.
  5. ↑ Pacific Environment : California Energy Program
  6. ↑ Ratepayers for Affordable Clean Energy : Search
  7. ↑ 7.0 7.1 7.2 Safe History of International LNG Operations, CH-IV December 2006
  8. ↑ No significant loss of cargo, no loss of life, no loss of vessel
  9. ↑ LNG World Shipping (2006-12-22). "LNG World Shipping.". Retrieved on 2007-05-19.
  10. ↑ LNG FAQ

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