A host of new and expansion LNG projects announced or under way at the end of 1999 signaled a revival of interest in the technology for 2000 and beyond. As elsewhere in the petroleum industry, technological advances led to greater efficiencies and improved the economics of formerlymarginal projects.
That was the view of Mobil Technology Co.`s Amos Avidan, writing in Oil & Gas Journal as 1999 ended. Avidan, manager of surface engineering for Mobil Technology, Dallas, coordinated natural gas technology, LNG, and gas-to-liquids development efforts.
Energy markets, including the LNG trade, had been on a roller coaster ride in the years since June 1997,1 said Avidan.
Energy demand in East Asia, which had been growing at more than 5%/year, slowed in 1998. Oil prices fell by about 50% but then rebounded in 1999 as East Asian economies started recovering and OPEC limited production.
Some observers suggested that LNG had reached a crossroad and faced an uncertain future. Yet, although some LNG cargoes were postponed in 1998 and early 1999, the LNG trade enjoyed expansion for much of 1999.
Several supply and receiving projects started operation or entered the construction or engineering phase. The outlook for 2000-2010, he said, looked bright. Among the reasons:
- Qatar Liquefied Gas Co. (Qatargas) was operating three LNG trains under a 6 million tonne/year (tpy) contract with Japanese buyers and was selling spot cargoes in Turkey, Italy, Spain, and the US.
Late in 1999, it announced plans to increase capacity to 8.4 million tpy to increase exports to Japan and South Korea. The expansion was to be completed in 2002.
- Atlantic LNG Co., Trinidad, commenced operations of its 3 million tpy train in 1999, delivering cargoes to Spain and the US. Engineering for an expansion began almost immediately.
- A second LNG supply project in Qatar, the Ras Laffan Liquefied Natural Gas Co. (RasGas), started up its first train under a 4.8 million tpy contract withKoreaGas Corp.
RasGas had also sold five spot cargoes to a US customer and signed a sales andpurchase agreement (SPA) to supply 7.5 million tpytoIndia`s Petronet.
Thecompany had also signed a heads of agreement for 2.6 million tpy in potential sales to India`sDakshin BharatEnergy Consortium.
Further negotiations with other potential RasGas customersin Europe and Asia were part of Qatar`s vision of becoming one of the world`s largest suppliers of LNG (Figs. 1-3).
- Oman`s 6.6-million tpy project was to send supplies to Korea, Japan, and India. And, in late 1999, Nigeria`s 5.9-million tpy project began supplying LNG to Atlantic Basin and Mediterranean markets.
- Several other expansion or grassroots projects were in the engineering or planning phases.
Healthy demand
Worldwide demand for natural gas late in the 1990s was growing about 50% faster than demand for petroleum. Faster growth could result from environmentally motivated economic incentives, said Avidan.
Combined-cycle turbines, fueled by natural gas, can generate electricity at up to 60% efficiency and with very low nitrogen and sulfur-dioxide emissions. Carbon dioxide emissions per kilowatt are about half that of other fossil fuels.
Natural gas was also replacing LPG for domestic and commercial applications.
The future for natural gas may look even brighter if new applications take off. The use of natural gas as a transportation fuel, while still relatively limited, can grow as fleet users switch to LNG and compressed natural gas.
One potential application may be fuel cells in which natural gas (or such natural gas derivatives as methanol) can provide the source of hydrogen fuel. Fuel cells in 1999 were being considered for transportation, as well as for power generation.
LNG`s growth rate in the first 10 years of this century was projected by several studies to average 6%/year, about the same as forecast in 1997 (Fig. 4). LNG contributes about 5% of world natural gas consumption and about 25% of cross-border natural gas trade.
Future success depends upon continuation of the outstanding safety, reliability, and environmental protection records of LNG plants, ships, and receiving terminals.
At the same time, LNG prices must stay competitive with pipeline gas, where available, and in most cases, with the prices of competing fuels which do not have the same environmental benefits, said Avidan.
Spot sales
Construction and finance of LNG and natural gas distribution infrastructure require long-term take-or-pay contracts.
The quantity of LNG sold on a spot basis is low, about 2% of total in 1998, Avidan said, citing major studies of the market. Spot and short-term sales in Europe and the US amounted to about 1.8 million tpy, with Abu Dhabi and Qatar accounting for most of these sales.
The LNG spot market will not displace long-term sales, he said, but can increase, depending on the availability of LNG ships not committed to long-term trades.
Longer-term, the spot market will not predominate because of limited availability of uncommitted ships, terminals, and liquefaction plants, and the hurdle of financing the billions of dollars needed to increase this infrastructure.
In addition, LNG suppliers and customers have been able to develop more flexible and innovative long-term or medium-term contracts. Still, large LNG suppliers with spare capacity will be able to provide customers in Europe and the US with spot sales.
For example, Qatar`s two LNG companies, which have signed sales and purchase agreements for more than 20 million tpy and plan more, will have more than 3 million tpy of incremental LNG available until 2005 due to the ramp-up schedules.
It is likely, said Avidan, that this volume will be used to bridge to longer term sales or sold in the spot market.
Eastern, western markets
There are two LNG markets: West of Suez, or the Atlantic Basin, where LNG trade began in 1964; and East Asia.
The Atlantic Basin LNG market in 1999 included Belgium, France, Italy, Spain, Turkey, and the US. First shipments of LNG to Greece took place in November 1999, and plans were under way to ship it to Portugal and possibly Brazil, Lebanon, and Israel.
The East Asian LNG market includes Japan, South Korea, and Taiwan, due to be followed by India and China.
LNG import volumes along with LNG supply projects under way or possible are shown in Tables 1-4.
Projections for 2010 were averaged from several published sources, including Cedigaz and the US Department of Energy. Both eastern and western LNG markets were thought likely double in the century`s first decade.
LNG from Algeria has been received at Belgium`s Distrigaz LNG terminal in Zeebrugge since 1987. The amount of more than 3 million tpy is supplemented by much smaller quantities of spot sales, in some cases for other customers such as Gaz de France and Spain`s Enagas.
Although Belgium was growing in importance as a regional gas hub-especially with the completion of the UK Interconnector gas pipeline-LNG deliveries were thought unlikely to increase significantly to northwest Europe.
France started importing LNG from Algeria in 1965, and contracts at yearend 1999 amounted to 7.5 million tpy, with deliveries to the LNG terminals at Fos-sur-Mer and Montoir-de-Bretagne. In addition, Gaz de France (GdF) agreed with the Italian utility, ENEL, to take 2.5 million tpy of Nigerian LNG at Montoir as part of a swap agreement.
GdF will divert 1 million tpy of Algerian LNG from Fos to the SNAM terminal at La Spezia and will also turn 2 billion cu m/year (bcm/year) of its Russian gas to Italy by way of the TAG pipeline through Austria.
The Italian gas market more than doubled in size in 1980-2000; demand in 1998 was more than 62 bcm. It was forecast to increase to more than 90 bcm/year in 2010.
At yearend 1999, SNAM, the state-owned company, handled 95% of Italy`s imports of natural gas. A change in that role loomed with industry deregulation directed by the European Union.
Although most gas will continue to be imported through pipelines from Algeria and Russia, LNG has an important role, said Avidan. The SNAM terminal at Panigaglia, near La Spezia, in operation since 1971, was modernized in 1992 and in 1999 had a capacity of 2.5 million tpy.
The need for additional LNG terminals, particularly in the north, had been recognized for some time. Two attempts to permit LNG terminals, at Montalto di Castro and Monfalcone, were stymied by local opposition. Therefore, new LNG supplies to ENEL had to be rerouted through France.
Mobil and Edison Gas were cooperating on a proposed offshore terminal in the northern Adriatic.2
Inaugural Greek LNG imports entered the Revithoussa LNG terminal from Algeria at the rate of 600,000 tpy in 1999.
Spain`s 1998 Hydrocarbons Law was to liberalize the country`s gas markets by 2010. The law allows third-party access to the existing Spanish gas infrastructure, including LNG terminals, storage facilities, pipelines, and international gas connectors.
Capacities at the LNG terminals at Barcelona, Cartagena, and Huelva were expanded, and a new terminal was contemplated for Bilbao.
Neighboring Portugal began importing natural gas from Algeria in 1997 via Spain. Transgas proposed construction of an LNG terminal at Sines.
Turkey`s rapidly growing demand for natural gas reached nearly 10 bcm in 1997, about 13% of its total energy demand. Natural gas entered the country via pipeline from Russia and as LNG from Algeria and Qatar. Nigeria was to become an LNG supplier to Turkey, too.
Turkey, surrounded by major gas producers, wanted to diversify its sources of gas supply. It was a good example, said Avian, of how LNG can complement pipeline gas. Turkey imported LNG at Marmara Ereglisi in 1999 and wanted to start construction of terminal near Izmir.
In the US, the first natural gas liquefaction peak-shaving plant was constructed in 1941. Chicago Union Stockyard and Continental Oil Co. pioneered the development of LNG as a means of transporting gas in the 1950s, leading eventually to the first commercial international LNG trade between Algeria and the UK in 1964.
The first US LNG receiving terminal was designed as a peak-shaving facility by Distrigas (a subsidiary of Cabot) and started operation in Boston in 1971.
Imported LNG and synthetic natural gas (SNG) were predicted to become major sources of natural gas supply in the US in the 1970s. Three additional LNG terminals were eventually built: at Lake Charles, La., Elba Island, Ga., and Cove Point, Md. The latter two terminals had not been used by 1999, while the Lake Charles terminal`s activity was well below capacity.
The natural gas supply disruptions of the 1970s turned into a deliverability surplus in the 1980s, both phenomena resulting from regulation. At the end of the 1990s, LNG and synthetic natural gas (SNG) were not forecast to become major components in the supply of natural gas in North America, but LNG imports by the US were increasing.
Gas from the Atlantic LNG project in Trinidad was moving to Boston, spot cargoes of LNG from Qatar and other suppliers were supplementing LNG from Algeria in Lake Charles, and plans were under way to activate the LNG terminals in Maryland and Georgia.
An LNG terminal coupled to a combined-cycle power plant was under construction in Puerto Rico by Enron.
In Brazil, with gas demand growing at about 10%/year, most imports moved via pipelines from Argentina and Bolivia. But the country was considering LNG import.
Petrobras and Shell formed a joint venture to develop a terminal south of Recife, with an initial capacity of 1.5 million tpy.
In the Middle East, Israel considered importing natural gas for power generation and industrial uses. Its options included a pipeline from Egypt and possibly an offshore LNG terminal in the Mediterranean. The initial demand was forecast to be about 2 million tpy.
Elf was pursuing plans to export LNG from Qatar to Lebanon.
LNG in East Asia
Asian economies in 1999 began to recover from their 1997-98 financial crisis. LNG supplier Indonesia and major customer South Korea were among the countries most affected.
If anything, said Avidan, the crisis demonstrated the robust nature of the long-term LNG trade. Despite wide fluctuations in demand and price, existing contracts were honored as both buyers and sellers exercised flexibility.
Long-term gas demand is likely to grow strongly, Avidan said, citing the US Energy Information Administration.3 In the shorter term, some projects were scaled back, and South Korea was postponing cargoes in 1998 from Indonesia and Malaysia.
While historically the Chinese were the first to use natural gas for industrial purposes (brine production in Sichuan, with natural gas transported in bamboo pipes almost a thousand years ago), natural gas did not become a major energy source in modern China.
Gas at yearend 1999 accounted for only 2% of total energy use, but the government had plans to triple this share by 2010. Increased domestic production was to be coupled with LNG imports, and as the market develops, with long-distance pipelines.
The central government approved plans for the first 2.5-million tpy LNG import terminal in Guangdong, in southern China, with possibly starting in 2005. Plans were under way for other LNG terminals, particularly near Shanghai.
India has a large appetite for natural gas, as a clean, economically competitive fuel for its growing economy. Because domestic supply could not meet growing demand, LNG import plans were under way.
The country expected to become one of the world`s largest importers of LNG. Oman LNG signed a 1.6-million tpy contract to supply Enron`s Dabhol power plant in Maharashtra.
The 7.5 million-tpy contract between Qatar`s RasGas and India`s Petronet will supply 5 million tpy of LNG to the new Dahej terminal in Gujarat and 2.5 million tpy to Cochin. In addition, other Indian regions and entities were lobbying Petronet for new LNG facilities.
An international consortium headed by CMS Energy won a tender for a power plant and an LNG terminal in Ennore, Tamil Nadu, and signed a heads of agreement with RasGas for the potential supply of 2.6 million tpy of LNG.
Other LNG import schemes were proposed. A consortium headed by British Gas planned an import terminal at Pipavav, and Total planned a facility at Trombay.
Japan`s domestic natural gas production contributed less than 3% to its growing demand for clean energy. All of the gas imported by Japan in 1999 was LNG, of which Japan has long been the world`s largest importer.
Despite a slowdown in economic growth in Japan towards the end of the century, LNG imports in 1999 appeared on their way to exceed those in 1998. Early in the 21st Century, as the Japanese economy picks up, demand for LNG will keep increasing again rapidly, said Avidan.
A major feature of the Japanese natural gas distribution system is lack of a comprehensive distribution grid. In 1999 there were more than 20 terminals in Japan, each serving a local area, with some regional interconnections.
Several LNG terminals were in construction or planning stages. Small amounts of LNG were trucked to small satellite distribution terminals. The development of an in-country grid, said Avidan, may give support to longer-term plans to import gas by pipeline from Sakhalin Island, Russia, or the Asian mainland.
South Korea`s LNG demand in the first half of 1999 rose about 25% from the same period in 1998. Korea had been importing LNG from Indonesia (more than half) and Malaysia (about one-third), and smaller volumes from Brunei and Australia.
Korea Gas Corp. (KOGAS) received the country`s first cargo from Qatar`s RasGas in September 1999 under a 25-year contract to import 4.8 million tpy of LNG. The RasGas venture illustrated a trend of further integration between suppliers and customers: KOGAS holds a 5% stake in RasGas.
Natural gas use in South Korea increased by more than 80% during 1980-99 but still accounted for less than 10% of the country`s energy consumption. With the Korean economy recovering, KOGAS, to be privatized by 2002, was expanding existing terminals (Pyongtaek and Inchon) and constructing its third LNG terminal on the Korean Peninsula`s southern coast.
Pohang Iron and Steel Corp. also received a government mandate to import LNG for its own use and was constructing its own LNG terminal.
KOGAS was developing a nationwide gas grid, and there was consideration of long-range pipelines from Siberia and Sakhalin.
Taiwan imported more than 3 million tpy of LNG from Indonesia and Malaysia through China Petroleum Co.`s terminal at Yungan, in the south. The capacity of the terminal was expanded to 4.5 million tpy and was to further increase to 7.5 million tpy.
Total LNG consumption, said Avidan, was likely to reach more than 13 million tpy by 2010. The government decided that a new terminal in the north, where most of the demand is, would also be needed.
The terminal will be anchored by an initial supply of 2 million tpy of LNG to the Tatan power plant.
LNG technology
Avidan pointed out that the LNG industry must extend the 35-year record of safety, reliability, and environmental protection it had amassed by the end of the 20th Century in order to maintain its growth and progress.
He also cited pressure to keep lowering costs throughout the LNG value chain. These pressures are caused by the general worldwide trend of convergence of energy prices and continuing deregulation in Asian and European gas markets.
LNG technology has been responsive to these pressures. Natural gas production costs and liquefaction plant costs fell by 30-50% in the 1990s alone. Shipping costs fell by more than 20% in 1999 as a result of the Asian crisis.
Several commercial liquefaction technologies were in use as 2000 began, and new ones were proposed.
The Cascade process uses three refrigerants, typically with three stages for each, to approximate the natural gas cooling curve. The propane precooled, mixed refrigerant (MR) process uses propane as well, then uses a mixed refrigerant in a spiral-wound heat exchanger to cool the natural gas to -160° C.
Most LNG plants at the end of the 20th Century used the propane precooled, MR process and spiral-wound heat exchangers manufactured by Air Products & Chemicals, Allentown, Penn.
Phillips in Kenai, Alas., had used a cascade liquefaction process since 1969. A new version of the Phillips process, Optimized Cascade, operates at the Atlantic LNG plant in Trinidad, which started up in 1999.4
A single MR process, PRICO, had been in commercial operation in Algeria, and Black & Veatch Pritchard, Overland Park, Kan., offered an updated version for license.
Linde and Statoil, Linde and BHP (nitrogen cycle), Technip, the French Institute of Petroleum (Dual MR), and others proposed other liquefaction technologies and equipment.
LNG plant costs
Although the liquefaction section is at the center of the LNG plant, it sometimes gets too much attention, said Avidan. A search for opportunities to cut costs should look at the entire plant in approximate proportion to the real distribution of plant costs (Fig. 5). The liquefaction section typically amounts to only 15-20% of the total plant cost.
He noted the difficulty of comparing the costs of different LNG liquefaction plants on a consistent basis. In one of the more widely quoted comparisons, LNG plant costs are grouped into 5-year periods and averaged within each period.5 Each period`s costs are corrected to 1996 US dollars (Fig. 6).
There is, however, no correction for gas composition (and hence for the equipment needed to treat the gas). Similarly, no attempt is made to correct for project scope, location-specific factors, contracting environment at the time, owner`s costs, and the number of trains built at the same time.
There seems to be a declining trend from about $400/tonne in the early days of LNG to an average of about $260/tonne at the end of 1999. The costs for the Australian North West Shelf project seem higher, largely due to local factors, such as large domestic gas sales, Avidan said.
DiNapoli and Yost estimated that reduction in LNG liquefaction costs to be 15-35% in the 20 years leading up to 1999.6 These cost reductions are not the result of any single technical innovation but of a combination of various factors realized through the efforts of project sponsors, vendors, equipment suppliers, and EPC contractors, they stated.
Supply capacities
LNG supply capacity as 2000 began was nearing 90 million tpy.
Indonesia had been the largest LNG supplier, with more than 28 million tpy capacity from P.T. Badak and P.T. Arun, followed by Algeria with more than 20 million tpy of capacity following an extensive modernization campaign.
Among newer LNG suppliers, Qatar in 1999 was well on its way to becoming the world`s largest supplier, having the massive North Field reserves of more than 370 tcf of gas.
Other LNG producers are Malaysia (16 million tpy), Brunei (6.5 million tpy), Abu Dhabi (5 million tpy), Australia (7.5 million tpy), Trinidad (3 million tpy) and Libya (2.5 million tpy).
Alaska exported more than 1 million tpy of LNG to Japan through Phillips`s Kenai facility. Avidan said there are those who would like a trans-Alaska natural gas pipeline to supply North Slope gas to a proposed LNG export terminal in the south.
A competing proposal would convert this gas to liquids, through gas-to-liquids (GTL) technology, to be exported via the existing Trans-Alaska Pipeline.
The two-train, 5.9 million tpy Bonny Island LNG project in Nigeria began deliveries in October 1999. Expansion plans for a third train, similar in design to the first two, had been announced, while longer-term plans for adding two larger trains were being studied, said Avidan.
Several planned LNG projects were facing delays as 1999 drew to a close. They included Australia`s Darwin II, Bayu-Undan, and the Gorgon projects, Indonesia`s Tangguh project, Russia`s Sakhalin projects, and Yemen`s project.
References
1."LNG Report," OGJ, June 2, 1997, p. 49.
2.Bergamaschi, P., Rosati, V., Collins, A., and LaSeur, H.S., "Offshore LNG Receiving Terminal in the Adriatic," OMC99, Mar. 24-26, 1999, Ravenna.
3."East Asia: The Energy Situation," US Energy InformationAdministration,August1999. (http://www.eia.doe.gov/emeu/cabs/eastasia. html)
4.Houston, M., and Redding, P., "The Atlantic LNG project - A case study," SMI Energy Conference, Jan. 26, 1999, London.
5.Avidan, A., "LNG technology in support of market development," Hydrocarbon Engineering, April 1998.
6.DiNapoli, R.N., and Yost, C.C., "LNG plant costs: present and future trends," LNG 12, May 4-7, 1998, Perth.
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Tokyo Gas-TEPCO LNG receiving terminal, Sodegaura, Japan. Photo courtesy of Poten & Partners Inc., New York.
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PT Badak LNG plant, Bontang, Indonesia. Photo courtesy of Poten & Partners Inc., New York.
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Three 140,000 cu m LNG storage tanks serve Qatar`s Ras Laffan Liquefied Natural Gas Co. (RasGas) complex, which was inaugurated in late 1999. On the right are two completed Train 1 tanks, on the left the nearly complete Train 2 tank. The tanks are located on the northern side of the harbor (Fig. 1).
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At the RasGas LNG plant in Qatar is the utilities area (foreground); center, from left, Train 1, Train 2; and to the right space for additional trains (Fig. 2).
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The KOGAS LNG SK Summit was the first vessel to carry a cargo of LNG from the RasGas plant in Qatar. The cargo arrived in Korea in September 1999 (Fig. 3).
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