PMRE/BUET & UH IELE WORKSHOP

The Role of LNG, GTL, CNG

Dhaka, Bangladesh. January 9-12, 2005

2005 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.

How Much Natural Gas Is Out There?

Proved natural gas reserves at end 2003, ~6000 tcf.

BP Statistical Review of World Energy 2004

Monetizing Global Natural

Gas Resources
14% ~ 15 tcf, does
not get to market

NORTH AMERICA
RESERVES
4%
WORLD PROVED
RESERVES 2002:
6,000 TCF

Much of this natural gas is stranded,

with no or little domestic demand

Monetizing Global Natural Gas

Resources Key Drivers
Abundance of proved Natural Gas
Huge stranded reserves exist
countries and companies want to
monetize these reserves
North America and Europe flat or
declining production
LNG is becoming a cost effective
solution

Monetizing Global Natural Gas

Resources
What is CNG, LNG, NGLs, LPG, and GTL?

Monetizing Global Natural Gas

Resources
Gas-to-Liquids (GTL)

Source: Deshpande, A & Economides, M.J. University of Houston

Compressed Natural Gas (CNG)

Natural Gas Composition

Hydrocarbon
s

Inerts
Impurities

Component

Typical
(Mole
Percent)

Range
(Mole
Percent)

Methane (C1)

92.77

83.74 98.22

Ethane (C2)

3.36

0.52 7.64

Propane (C3)

1.51

0.18 4.74

Iso-Butane (i-C4)

0.41

0.05 1.10

Normal Butane (n-C4)

0.47

0.06 1.63

Iso-Pentane (i-C5)

0.19

0.03 0.50

Normal Pentane (n-C5)

0.13

0.00 0.42

Hexane (C6)

0.27

0.09 0.78

Nitrogen (N2)

0.30

0.12 0.91

Helium (He)

Trace

0.00 - 0.02

Carbon Dioxide (CO2)

0.59

0.13 - 1.86

Hydrogen Sulfide (H2S)

Trace

0.00 - 0.10

Oxygen (O2)

Trace

0.00 3.00

Water (H2O)

Trace

0.00 - 0.01

Source: Cheniere

Compressed Natural Gas

(CNG)
Advantages
Simplicity
Inexpensive onshore facilities
Can start with very modest transporting
needs
Energy efficient
Can exploit isolated supply sources
Suitable for small demand markets
Source: Deshpande, A & Economides, M.J. University of Houston

Scope of the CNG

Technology
Projects using the CNG technology can be
successful technically and commercially
CNG is capable of meeting small market
demands and monetizing small supply areas
Majority of the investment involved with
shipping needs, thus, making the assets
movable and used in other areas of interests
CNG can supply gas for distances of 2500
miles cheaper than LNG
Source: Deshpande, A & Economides, M.J. University of Houston

Opportunities for CNG Marine

Transport
VOTRANS
Shifts CNG Paradigm
RATE, mmscfd

1,500

Pipelines

LNG

1,000

VOTRANSTM
500

CNG
Hydrates
0

1,000

2,000

3,000

Transport Distance, nm

4,000

Transport Costs
Supply Matched with
Demand Centers
Smaller Demand
Centers can be
converted to gas

Transport costs range from

$1.25-1.75/MMBTU (100-300 MMSCF)

Compressed Natural Gas

(CNG)
Two technologies for CNG transport
a. The Cran & Stennings approach
b. The Enersea approach
Example: Consider the transportation of 300 MMscf of
gas as CNG
Using the Cran & Stennings approach
Actual volume of CNG: 1.76x106 ft3

Using the Enersea approach

Actual Volume of CNG: 1.2x106 ft3

Source: Deshpande, A & Economides, M.J. University of Houston

Transportation of the gas

90% of the investment involved is in shipping of
the gas.
Loading and unloading is possible and easy with
small facilities.

Source: Deshpande, A & Economides, M.J. University of Houston

CNG Cargo Containment System

CNG Application
For distances up to 2500 miles, CNG
appears more attractive than LNG
Major advantage in terms of market
entry
Much less capital deployed in country
Up to 2 Bcf on a ship
Ideal for limited supply, limited
consuming markets

What Is LNG?

Natural Gas

LNG

LNG is natural gas that has been

cooled that it condenses to a
liquid
Temperature -256oF (-161oC)
Atmospheric pressure.
Volume is reduced 600 times
Thus economical to transport
locally and between continents
in specially designed ocean
vessels
Liquefaction technology makes
natural gas available throughout
the world

What Is LNG?
LNG is liquid form of the natural
gas used for cooking, heating
and power generation.

Typical LNG Composition

The liquefaction process removes

Others
Methane
almost all contaminants
5%
95%
LNG must meet higher and lower
limits on energy content
LNG composition has traditionally
been set by markets in Japan,
LNG COMPOSITION (Mole Percent)
Methane Ethane Propane Butane
Source
South Korea, and Taiwan
Alaska
99.72
0.06
0.0005
0.0005
LNG also is used in the U.S. as an
Algeria
86.98
9.35
2.33
0.63
alternative fuel for public
Baltimore Gas & Electric
93.32
4.65
0.84
0.18
transportation systems.
New York City
98.00
1.40
0.40
0.10
San Diego Gas & Electric

92.00

6.00

1.00

Nitrogen
0.20
0.71
1.01
0.10
1.00

Source: Liquid Methane Fuel Characterization and Safety Assessment Report . Cryogenic Fuels. Inc. Report
No. CFI-1600, Dec. 1991

LNG Properties
100%

Density
3.9ppg (Water 8.3ppg)
LNG floats on water.

Over-Rich
Will not burn

Flammability range
5 15%.

Upper Flammability Limit (UFL) 15%

Lower Flammability Limit (LFL)

5%

Flammable
Too Lean - Will not burn

Flammable Range for LNG (Methane)

Comparison of
Properties of Liquid
Fuels

LNG

Liquefied
Petroleum
Gas (LPG)

Gasoline

Fuel Oil

Toxic

No

No

Yes

Yes

Carcinogenic

No

No

Yes

Yes

Flammable Vapor

Yes

Yes

Yes

Yes

Form Vapor Clouds

Yes

Yes

Yes

No

Asphyxiant

Yes, but in a vapor cloud

Yes, same As LNG

No

No

Extreme Cold Temperature

Yes

Yes, if refrigerated

No

No

Other health hazards

None

None

Eye irritant,
narcosis, nausea,
others.

Same as
gasoline

Flash point oF

-306

-156

-50

140

Boiling point oF

-256

-44

90

400

Flammability Range in air

%

5-15

2.1-9.5

1.3-6

N/A

Stored Pressure

Atmospheric

Pressurized
(atmospheric if
refrigerated)

Atmospheric

Atmospheric

Behavior if spilled

Evaporates, forming
visible clouds.
Portions of cloud could
be flammable or
explosive under certain
conditions.

Evaporates,
forming vapor
clouds which could
be flammable or
explosive under
certain conditions.

Evaporates,
forms flammable
pool;
environmental
clean up
required.

Same as
gasoline

Source: Lewis, William W., Lewis, James P, Outtrim, Patricia A., PTL: LNG Facilities - The Real Risk, AiChE Meeting, New Orleans, April 2003 as modified by industry
sources.

Auto Ignition Temperature of

Liquid Fuels
Fuel
LNG (primarily methane)
LPG

Autoignition
Temperature, oF
1004
850-950

Ethanol

793

Methanol

867

Gasoline

495

Diesel Fuel

Approx. 600

Source: New York Energy Planning Board, Report on issues regarding the existing New
York Liquefied Natural Gas Moratorium, November 1998

General LNG Production Process

LNG

Ships

-259 F

Gas
Treatment Refrigerant
Compression
Pipeline
Feed Gas

Heat
Exchangers
Pentanes and heavier
Condensates
Impurities
-Carbon Dioxide
-Mercury
-Hydrogen Sulfide
-Water
-Nitrogen

Heat
expelled to
water or air

Source: Cheniere

LNG Storage

LNG Plant Site

Bontang Indonesia

LNG
BADAK

STORAGE :
LNG : 4 x 95,000 m3 + 2 x 125,000 m3
LPG : 5 X 40,000 m3
Cond. : 10,000 m3 + 12,000 m3

Dock-2

Dock-3
LPG Tanks

Dock-1
1

A
B

C
D
E

Sources: Ministry of Energy and Mineral Resources of the

Republic of Indonesia

With 8 trains running, the

capacity of the plant has
reached 22.25 MMT/year
LNG, 1 MMT/year LPG and
10 MMbbl/year
condensates.

Brief History of LNG

EMERGENCE
1941 First commercial LNG production
1964 Algeria first commercial LNG export
facility
Spawned all US receiving terminals and
several European counterparts
1969 Kenai USA starts supply to Japan
1970 Libya starts supply to Italy
DEVELOPMENT
1972-1990 Development of Far Eastern
LNG trade
Brunei, Indonesia, Abu Dhabi, Malaysia,
Australia start production
Korea, Taiwan, USA join Japan as importers British Gas Canvey Island LNG Terminal

A World First Import Terminal

GROWTH
1996 Qatar starts production
1999 - Trinidad starts production
2000 Nigeria starts production

LNG VS PIPELINE
The distance over which
natural gas must be
transported increases,
usage of LNG has
economic advantages over
usage of pipelines.
Liquefying natural gas and
shipping it becomes
cheaper than transporting
natural gas in offshore
pipelines for distances of
more than 700 miles or in
onshore pipelines for
distances greater than
2,200 miles.

Why LNG Now?

Growing Global LNG Demand
Growth in LNG Demand

Natural Gas Trade Movement

6,000

2002

7% per year growth (1992-2002)

5,000

bcf

4,000
3,000
2,000
1,000
1970

1980
Japan
Italy

Source: BP Statistical Review of World Energy June 2003

1990
South Korea
Belgium

1992
Taiwan
Turkey

1994

1996
France
Greece

1998
Spain
Portugal

2000
USA
UK

2002

Source: Cedigaz, BP Statistical Review of World Energy June 2003

LNG is about 6% of worldwide natural gas consumption

and about 94% of natural gas consumption in Japan.

Global LNG Imports by Basin

In 2002 there are 43 terminals
with a capacity of over 280
million tonnes, 24 of the terminals
are in Japan.
Inter-regional
LNG
trade
is
expected to increase six fold over
the next 30 years.
Most of the increase in LNG trade
would be in the Atlantic basin,
which will overtake the pacific
basin in volume.
Importing countries will need to
add almost 660 million tonnes of
new regasification capacity.

Global LNG IMPORTERS

Year 2002

Pacific Basin
South Korea
16%

Atlantic Basin

Taiwan
5%
France
8%
Spain
8% USA

Other
31%

Japan
48%

Portugal
0%

Source: World Energy Investment Outlook, IEA, Nov. 2003.

5%
Italy
4%
Belgium
2%
Greece
0%

Turkey
4%

Global LNG Imports

Japan 24
23

Importing Country
Existing
Planned

Global LNG Exports

Global LNG Exporters
2002

160
140

Pacific Basin

Billion cu. m

120
100

Australia
7%

80

Brunei
6%

UAE
5%

Atlantic Basin
Oman
5%USA
1%

Qatar
12%

60

Algeria
18%
Other
27%

40
20
0
1970 1975 1980 1985 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Indonesia

Algeria

Malaysia

Qatar

Australia

Brunei

Oman

Nigeria

UAE

Trinidad & Tobago

USA

Libya

Malaysia
14%

Nigeria
5%
Trinidad &
Tobago
Libya
4%
0%

Indonesia
23%

There are currently 16 liquefaction plants with 70 trains in operation worldwide

Source: BP Statistics, ,World Energy Investment Outlook, IEA, Nov. 2003.

LNG Liquefaction Facilities

The LNG industry could be poised for dramatic growth
Global LNG Supply

Existing
Under
Construction
Proposed

LNG supply growing

Multiple LNG supply
proposals announced
Long term LNG supply
outlook robust

30

Source: Cedigaz, NPC

LNG Liquefaction Facilities

More than 60% of the
equity is owned by
state companies; in
some cases in joint
ventures with major
oil and gas producers

Liquefaction Capacity
mpta

10

Sonatract
Pertamina
Petronas

10.0
9.1
8.9
4.7
4.7
4.6

Source EIA

Others
16%

4.4
3.8

Abu Dhabi National Oil Company (ADNOC)

Brunei Government
Omani State
Nigeria National Petroleum Company

BHP

25

17.0

Total

Vico
Mitsui
Unocal

20

23.3

Shell
Qatar Petroleum
Mitsibushi
Exxonmobil
Japan Indonesia LNG Company (JILCO)

BP
Nippon Oil Corporation (NOC)

15

3.4
3.4
3.0
3.0
2.6
2.2
2.0
2.0
1.4

Oil
Companies
23%

State
Owned
61%

LNG Supply: Summary

Almost all existing liquefaction projects have
announced expansions: Trinidad, Nigeria, Qatar,
Oman, Malaysia, Brunei, Indonesia, Australia.
Expect most of these to be built. Would raise
worldwide total capacity by over 40% to
approximately 184 million tons per annum.
Additional countries have announced planned and
prospective greenfield liquefaction plants (as of
April 2001): Angola, Australia, Egypt, Indonesia,
Iran, Nigeria, Norway, Papua New Guinea, Russia,
U.S. (North Slope), Venezuela, Yemen.

World LNG Imports and

Export
2003 (Billion Cubic Feet)

Source: BP Statistical Review World Energy 2004

Atlantic Basin LNG Supply and Demand

8,000

7,000

Middle East

6,000

New Markets
Venezuela

5,000

Bcf/yr

Angola
4,000

Egypt

3,000

Trinidad

2,000

Nigeria

Europe

United States

1,000

Algeria
0
Supply (2001)

Demand (2001)

Supply (2010)

Source: Pace Global Energy Services

Demand (2010)

How Much Does LNG Cost?

LNG costs are
declining.
Natural gas can be
economically
produced and
delivered to the U.S.
as LNG in a price
range of about $2.50
- $3.50/MMBtu
depending largely on
shipping cost.

LNG COSTS ARE DECLINING

Does not include feedstock prices

$/MMBTU

2.5

0.5

2
1.5

0.1

0.1

2.5

1.8

0.5
0

1980's

Sources: El Paso

Liquefaction

Shipping

Regasification
and Storage

2000's

LNG Project Costs Will Continue

Dropping

Typical LNG Value Chain

EXPLORATION
&
PRODUCTION

LIQUEFACTIO
N

SHIPPING

REGASIFICATIO
N
& STORAGE

$1.0 - $2.5
billion

$1.5 2.0
billion

$0.8 - $2.3
billion

$0.5 - $1.0 billion

$0.5-$1.0/MMBtu

$0.8$1.20/MMBt
u

$0.4$1.0/MMBt
u

$0.3-$0.5/MMBtu

TOTAL = $3.7 - $7.8 billion or $2.00 - $3.70/MMBTU

Greatest variability is in upstream feedstock for liquefaction and shipping distance.

Sources: Industry

Current LNG Cost Competitiveness

Source: Marcy Darsey et al, Liquefied Natural Gas, Exploring Energy,

Inc.s Future with a Developing Field, UH Law Center, 2004

Liquefaction Costs Transformed

$ per tonne of capacity

Source: BP

LNG Greenfield Liquefaction Costs

World LNG Outlook

Liquefaction Facilities
Liquefaction Cost is Dropping

Technology improvement,
higher capacity plants,
improved economies of
scale

Source: ALNG

Source: IEA

LNG Shipping
166 existing LNG ships, as of
Nov 2004 with 105 on order. The
fleet size needs to increase by 34 times to meet the projected
growth in trade by 2030.

Source: NLNG

Source: EL PASO &

LNG OneWorld, /www.lngoneworld.com/

Major Natural Gas Trade Movements

BP Statistical Review of World Energy 2004

New Trade Routes Are Emerging

Existing
ExistingTrade
Trade
Prospective
ProspectiveTrade
Trade
Source: Iwata, Makoto, Mitsui O.S.K. Lines, Ltd., LNG
Transportation, LNG Ministerial Summit, Washington D.C., 2003

LNG Shipping Costs

Source: LNG OneWorld, /www.lngoneworld.com/

World LNG Outlook

Shipping
Shipping Cost is Dropping
Competition between
shipyards, technology
improvement, higher capacity
ships, improved economies of
scale

Source: IEA

Cost of Transport to the Eastern

U.S.*
*Based on Cove Point, MD LNG Import Terminal.

$1.60
$1.40

Mid East

W. & N. Africa

$1.20

$/MMBtu

$1.00
$0.80
$0.60
$0.40
$0.20
$-

Source: Pace Global Energy Services

LNG Value Chain

Shipping opportunities

Nautical miles

10,000

8,000

Much closer to
US markets

Much closer to
European markets

Likely cargo / trade swap players

Broadly equidistant from US

and European markets
Likely market arbitrage players

6,000

Barcelona

4,000

Lake
Charles

2,000

0
Atlantic
LNG

Venezuela Egyptian
LNG

Algeria

Nigeria
LNG

Angola
LNG

Snohvit
LNG

Arbitrage and swap opportunities

Source : BG

Source: BG

LNG Spot Cargo - Volume

Volume of LNG Spot Cargo
MTPA

Spot Trading is
increasing rapidly
5 fold increase
from 1998

Sources : Clarkson Research Studies, LNG Trade & Transport, 2003,

BP
Source: Iwata, Makoto, Mitsui O.S.K. Lines, Ltd., LNG
Transportation, LNG Ministerial Summit, Washington D.C., 2003

World LNG Outlook

Storage and Regasification Facilities
Storage and Regasification Cost is Dropping

Larger capacity plants,

improved economies of
scale

Source: IEA

Offshore Storage &

Regasification Terminals

Proposed Cabrillo Port FSRU (Floating Storage and

Re-gasification Unit), Oxnard, CA.
Proposed ChevronTexaco Port Pelican Project, offshore
Louisiana - Gravity-based structure
Source - ChevronTexaco

Source: BHP

Energy Bridge (Shuttle and LNG

Regasification System), Excelerate, Offshore LA.

LNG Regas.
Vessel

35+
35+
Meters
Meters

Subsea
Manifold

Docking Buoy
and Riser

Subsea
Pipeline

10
10 to
to 12
12 Miles
Miles (Dependent
(Dependent on
on Water
Water Depth)
Depth)

The Energy Bridge is a regasification vessel and a buoy system that

delivers natural gas into offshore pipelines.
Source: El Paso

Main Pass Energy Hub

Cavern-based LNG Receiving Facility
McMoran, LA.

The Bishop Process

receive LNG directly from an offshore tanker,
pressurize and warm it to 40oF,
Inject the resulting natural gas into underground salt caverns for storage.
effectively eliminate the need to build expensive above-ground cryogenic
storage tanks
Source: Conversion Gas Import
http://www.conversiongas.com/html/bishop_processtm.html

LNG Supply Issues

LNG Interchangeability
LNG HHV Relative to Typical Pipeline Tariff Range

Scheduling coordination, blending, and inert gas injection could result in

consistency of gas product and easily overcome interchangeability concerns.

Gas-to-Liquids (GTL)
What are they?
GTL technology converts natural gas into
hydrocarbon liquids and promises to
complement LNG in transporting remote
natural gas to distant markets in the
absence of existing pipelines.
Impetus for the GTL technology: Clean fuel
obtained as product and easy transportation
Source: Deshpande, A & Economides, M.J. University of Houston

Gas-to-Liquids (GTL)
GTL processes convert the gas into
hydrocarbon liquids.
The main products are Middle
distillates like gasoline, kerosene, jet
fuel, naphtha and diesel

Source: Economides, M.J. University of Houston

Reasons for GTL attraction

Monetizing stranded natural gas
Salvaging associated gas
Meeting environmental specifications
Maintaining pipeline productivity (e.g.,
Alaska pipeline)

Source: Economides, M.J. University of Houston

Gas to Liquids
The Fischer-Tropsch synthesis (F-T synthesis) is one
the important technologies in GTL.
The main advantage of the F-T products is the
absence of sulphur, nitrogen and complex cyclic
hydrocarbons resulting in almost no emissions of
sulfur dioxide, nitrous oxides and unburned
hydrocarbons.
For 100 barrels of liquids there is a need for 1
MMscf of gas
Source: Deshpande, A & Economides, M.J. University of Houston

Overview of a typical
process
Fischer-Tropsch Method

Source: Economides, M.J. University of Houston

Processes for converting methane

Existing and Emerging

Technologies
Company

Syngas

Fischer-Tropsch

Catalyst

Plant Size, bpd

Sasol (SPD)

ATR(O2)

Slurry phase
180-250 oC, 10-45 atm

Fe, Co

50,000

Shell (SMDS)

POX(O2)

Fixed bed
(Non-catalytic)
180-250 oC, 10-45 atm

Co

50,000

ExxonMobil
AGC-21

ATR(O2)

Slurry phase
(Fluidized bed)
180-250 oC,10- 45 atm

Co

>50,000

(RIM)

BP

SMR

Fixed bed

Co

Syntroleum

ATR(air)

Fixed bed
180-250 oC, 10-45 atm

Co

<10,000

Rentech

SR

Fixed bed, slurry

Fe

<5,000

GTL Technology Assessment

Source: GTL Study

GTL Technology Assessment

All propose mild hydro-isomerization/hydrocracking for
product upgrading
Exxon and Sasol are considering separate upgrading for
light fraction (naphtha) and heavy fraction (distillate)
Shell proposes single stage hydrocracking/isomerization
Exxons patented oxygenate preservation (for enhanced
lubricity) and fuel formulation technology could well
prove valuable in non-blending fuel markets
Oxygenates improve lubricity of GTL diesel
Benefits in blending markets are doubtful

Upgrading technology is likely to be modified on a siteby-site basis to extract premium products (waxes, aolefins, alcohols, lube feedstock)

Source: GTL Study

GTL Cost
Cost of GTL products: $20+ per bbl of oil
required for economic returns on GTL
project.
GTL can satisfy different market needs.

Source: Deshpande, A & Economides, M.J. University of Houston

Comparison of CNG and

GTL
GTL production costs: $20,000-35000/barrel of liquid produced
For 500MMscf/d plant

$1.5 billion

CNG: $30-40 million for 500MMscf/d unit.

Ships used for transporting petroleum products can be leased for
transporting the GTL products.
Shipping is a major part of a CNG project

Source: Deshpande, A & Economides, M.J. University of Houston

Comparison of CNG and

LNG
Size of investment for a 500MMscf/d plant
CNG
LNG
Reserves:
Modest
Large
Production cost:
MM$30-40
MM$750-2000*
Transportation costs: MM$230/ship MM$160/ship
Unloading costs:
MM$16-20
MM$500-550
Total investment:
$1-2 billion** $2-3 billion**
* Depending upon the location of the production site
** Depending upon the number of ships used for the transport of the gas.

Source: Deshpande, A & Economides, M.J. University of Houston

Comparison of CNG and

LNG
Price of the gas delivered
LNG value chain per MMBTU
Exploration and Production: $0.5-1.0/MMBTU
Liquefaction: $0.8-1.2/ MMBTU.
Shipping: $0.4-1.5/ MMBTU*.
Regasification and Storage: $0.3-0.5/ MMBTU.
$1.00 as netback for the investors

Final price of LNG: $3.00-5.20/MMBTU.

* For transport distances from 1000 miles to 5000 miles
Source: Deshpande, A & Economides, M.J. University of Houston

Comparison of CNG and

LNG
CNG value chain per MMBTU
Exploration and Production: $0.5-1.0/MMBTU
Processing and transportation: $1.08-3.82/MMBTU*
$1.00 as netback to the investor
Final unit price of CNG: $2.58-5.82/MMBTU
* For transport distances from 1000 miles to 5000 miles

Source: Deshpande, A & Economides, M.J. University of Houston

Comparison of CNG and

LNG
Advantages of CNG over LNG
Requirement of lower throughput of gas for a project
Involvement of lower capital
Ease of deployment faster implementation of a
project
Ability to access stranded reserves and monetize
them
Majority of the investment is in the shipping, making
the assets movable and reducing the risk involved
Disadvantages
Inability to transport large volumes of gas such LNG
Disparity in the volume transport hinders commercial
possibility of CNG
Source: Deshpande, A & Economides, M.J. University of Houston

LNG vs. CNG

Trinidad
to GOM

Australi
a to
Baja

Venezuel
a to GOM

Feedstock gas

0.75

0.75

0.75

Liquefication

0.95

0.70

Transportation

0.50

1.20

Regasification

0.45

0.45

3.05

3.45

TOTAL w/ Margin

1.65
2.40

Source: Deshpande, A & Economides, M.J. University of Houston

Dialogue
CNG experience in India
CNG supply for fleet vehicles established in
India