Liquefied natural gas(LNG)

Liquefied natural gas, or LNG, is natural gas that has been supercooled to

minus 260 degrees Fahrenheit (minus 162 degrees Celcius). At that temperature, natural gas condenses into a liquid. When in liquid form, natural gas takes up to 600 times less space than in its gaseous state, which makes it feasible to transport over long distances.

In the form of LNG, natural gas can be shipped from the parts of the world where it is abundant to where it is in demand.

LNG is an energy source that has much lower air emissions than other fossil fuels, such as oil or coal.

LNG is odorless, colorless, non-corrosive and non-toxic. Its weight is less than one-half that of water.

The use of LNG is a proven, reliable and safe process, and it has been used in the United States since 1944.

How LNG can help

There are vast reserves of natural gas in the world without access to local markets. Liquefied natural gas (LNG) imports currently provides less than 3 percent of U.S. natural gas supplies, largely because LNG has not been price competitive with domestic natural gas. That is changing.

World natural gas supply and demand

Reserves

(Tcf) Consumption (Tcf/Yr) Reserves/Prod. (Yrs)

North America (ex Arctic) 263 27.3 10

Europe 201 18.5 11

Asia Pacific 524 14.4 36

S & C America 248 4.4 56

Former Soviet Union 2059 21.1 98

Africa 508 2.5 203

Middle East 2546 8.9 286

Total 6348 97.1 65

Source: BP 2006 Annual Statistic Review

The chart above reflects the current level of proven natural gas reserves in producing regions around the globe. It also reveals the average annual levels of natural gas consumption in those regions. What is most telling is the third column, which sets an approximate time frame for the depletion of gas reserves by region at current consumption rates. This shows why regions such as the Middle East and Africa will have excess supplies of natural gas which can be converted to LNG to supply regions with declining production and higher levels of consumption.

Cambridge Energy Research Associates predicts that the global LNG market will triple in size and play a more important role in world energy supplies over the next 20 years.

Characteristics of LNG

Liquefied natural gas (LNG) is a very pure form of natural gas and is not carcinogenic or toxic. For natural gas to be liquefied all impurities must be removed such as:

•Sulfur, carbon dioxide and mercury which are corrosive to LNG equipment

•Water, which could freeze and cause equipment blockage

•Heavier hydrocarbons which could also freeze like water

The removal of these contaminants makes LNG, when re-gasified in a receipt terminal, a very clean and reliable natural gas source for cooling, heating and power.

LNG is natural gas in its highly compact liquid form. When natural gas is cooled to minus 260 degrees Fahrenheit (or minus 162 degrees Celcius), it is reduced to one six-hundredth of its original volume and becomes a clear, non-toxic liquid. LNG offers a safe and economical means for transporting natural gas over long distances to locations beyond the reach of pipelines.

LNG is not odorized because the odorant would freeze out as a solid when natural gas is cooled down to minus 260 degrees Fahrenheit. When LNG is vaporized and distributed, the natural gas is odorized as required by government regulations.

In order for LNG to remain a liquid, its extremely cold temperature must be maintained. The temperature is maintained by heavily insulating the tanks to keep heat out and by removing the vapor that forms in the tank. LNG's low temperature requires that it be stored in specially designed tanks that can withstand extreme cold. LNG released into the environment immediately begins to evaporate, turning back into a gas.

Some members of the public have raised concerns about the possibility of LNG explosions. LNG is not stored under pressure. If the tank is ruptured, there is no massive release of energy and thus no explosion.

For an explosion to occur, LNG must first return to its gaseous state and then the natural gas vapors must accumulate in a confined space in a perfect mixture of five percent to 15 percent of gas in air, and encounter an ignition source.

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 Gasoline 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 kg/L 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 value 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. One of the very rare risks of LNG is rapid phase transition (RPT), which occurs when cold LNG comes into contact with water[2].

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 now in operation is 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),[3] followed by the SEGAS LNG plant in Egypt with a capacity of 5 mmtpa. The Qatargas II plant has 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 made the first LNG trade, buying gas from Algeria, witnessing a new era of energy. As most LNG plants are located in "stranded" areas not served by pipelines and the costs of LNG treatment and transportation are huge, development was slow during the second half of the last 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), of which LNG forms a small but rapidly growing part. Much of this growth is driven by the 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 sales to the downstream buyers and then sign 20–25 year contracts with strict terms and structures for gas pricing. Only when the customers are 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 ExxonMobil, Royal Dutch Shell, BP, BG Group; Chevron, 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.[citation needed]

In the early 2000s, as more players invested, both in liquefaction and regasification, and with new technologies, 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, costs were reduced by 60%. Costs in US dollar terms also declined due to the devaluation of the currencies of the world's largest shipbuilders, Japanese yen and Korean won. Since 2004, ship costs have increased due to a large number of orders which have increased demand for shipyard slots. The per-ton construction cost of an LNG liquefaction plant fell steadily from the 1970s through the 1990s. The cost reduced by approximately 35%. However, recently, due to materials costs, lack of skilled labor, shortage of professional engineers, designers, managers and other white-collar professionals, the cost of building liquefaction and regasification terminals has 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.[4] Several terminal proposals along the coast of Maine have also been met with high levels of resistance and questions.

[edit] Commercial aspects

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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, holding the seller responsible for the transport of the gas. With low shipbuilding costs, and the buyers preferring to ensure reliable and stable supply, however, contract with the term of FOB increased. Under such term, the buyer, who often owns a vessel or signs a long-term charter agreement with independent carriers, is responsible for the transport.

LNG purchasing agreements used to be for a long term with relatively little flexibility 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, in what is referred to as the obligation of take-or-pay contract (TOP).

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. There has been much discussion regarding the creation of an OGEC, the OPEC equivalent of natural gas. Russia and Qatar, countries with the largest and the third largest natural gas reserves in the world, have finally supported such move.[citation needed]

Until 2003, LNG prices have closely followed oil prices. Since then, LNG prices in Europe and Japan have been lower than oil prices, although the link between LNG and oil is still strong. In contrast, prices in the US and the UK have recently skyrocketed, then fallen as a result of changes in supply and storage.[citation needed]

In late 1990s and in early 2000s, the market shifted for buyers, but since 2003 and 2004, it has been a strong seller's market, with net-back as the best estimation for prices.[citation needed]

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

[edit] Trade

In 2004, LNG accounted for 7% of the world’s natural gas demand.[5] The global trade in LNG, which has increased at a rate of 7.4 percent per year over the decade from 1995 to 2005, is expected to continue to grow substantially during the coming years.[6] The projected growth in LNG in the base case is expected to increase at 6.7 percent per year from 2005 to 2020.[6]

Until the mid-1990s, LNG demand was heavily concentrated in Northeast Asia — Japan, Korea and Taiwan. At the same time, Pacific Basin supplies dominated world LNG trade.[6] The world-wide interest in using natural gas-fired combined cycle generating units for electric power generation, coupled with the inability of North American and North Sea natural gas supplies to meet the growing demand, substantially broadened the regional markets for LNG. It also brought new Atlantic Basin and Middle East suppliers into the trade.[6]

By the end of 2007 there were 15 LNG exporting countries and 17 LNG importing countries. The three biggest LNG exporters in 2007 were Qatar (28 MT), Malaysia (22 MT) and Indonesia (20 MT) and the three biggest LNG importers in 2007 were Japan (65 MT), South Korea (34 MT) and Spain (24 MT). LNG trade volumes increased from 140 MT in 2005 to 158 MT in 2006, 165 MT in 2007, 172[7] MT in 2008 and it is forecasted to be increased to about 200 MT in 2009 and about 300 MT in 2012. During next several years there would be significant increase in volume of LNG Trade and only within next three years; about 82 MTPA of new LNG supply will come to the market. For example just in 2009, about 59 MTPA of new LNG supply from 6 new plants comes to the market, including:

Northwest Shelf Train 5: 4.4 MTPA

Sakhalin II: 9.6 MTPA

Yemen LNG: 6.7 MTPA

Tangguh: 7.6 MTPA

Qatargas: 15.6 MTPA

Rasgas Qatar: 15.6 MTPA

Natural gas is the world’s cleanest burning fossil fuel and it has emerged as the environmentally preferred fuel of choice.