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Liquefied natural gas
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Not to be confused with Natural Gas Liquids (NGL).
Liquefied natural gas or LNG is natural gas (Predominantly methane, CH4) that has been converted temporarily 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 liquefication process involves removal of certain components, such as dust, helium, water, and heavy hydrocarbons, which could cause difficulty downstream.
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Encyclopedia
Not to be confused with Natural Gas Liquids (NGL).
Liquefied natural gas or LNG is natural gas (Predominantly methane, CH4) that has been converted temporarily 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 liquefication 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 .
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% of that of diesel fuel.
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), 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; 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.
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.
Commercial aspects
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 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.
In the last years of 1990s and in early 2000s the LNG market shifted to Buyer Market but again from 2003-2004 market turned to a strong Seller Market. Therefore, 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.
Trade
LNG accounted for 7% of the world’s natural gas demand.
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 next years.
The projected growth in LNG in the base case is expected to increase at 6.7 percent per year from 2005 to 2020.
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.
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.
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, 170 MT in 2008 and it is forecasted to be increased to about 200 MT in 2009.
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
LNG pricing
Generally speaking there are three major pricing systems in the current LNG contracts;
- Oil indexed contract (Japan, Korea, Taiwan and China)
- Oil, oil products and other energy carriers indexed contracts (Continental Europe)
- Market Indexed Contracts (US and UK)
In an indexed price formula there can be following elements;
CP = BP + ß X
- BP = Constant Part or Base Price
- ß = Gradient
- X = Indexation
This is the pricing structure that has been widely used in Asian LNG SPAs, where Base Price 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.
Oil parity
In a very simple definition, oil parity defines the proximity of LNG price to crude oil price in terms of Boe.
Closer the price of LNG to crude oil means the higher oil parity and if price of LNG equates the price of crude oil in Boe terms then that is the full oil parity situation. In the case that LNG price exceeds the price of crude oil in Boe terms then the situation can be defined as broken oil parity.
If the parties agree on coefficient of 0.1724 for indexation then it will result to the full oil parity situation whereby the LNG in terms of Boe would have the same price of one barrel of crude oil.
However in most cases price of LNG is less the price of Crude oil in Boe terms and for the gradient part typical figures are 0.1485 or 0.1558, and price of crude oil usually denominated in JCC.
In 2009, in several spot cargo deals especially in East Asia, oil parity approached the full oil parity or even exceeds oil parity.
S-Curve
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.
Indexation
JCC and ICP
In most of the East Asian LNG contracts, price formula is indexed to a basket of crude imported to Japan called the Japan Crude Cocktail (JCC).
In Indonesian LNG contracts price formula is linked to Indonesian Crude Price (ICP).
Brent and other energy carriers
In the continental Europe the price formula indexation doesn’t follow the same format and it varies from contract to contract.
Brent Crude Price (B) , Heavy Fuel Oil Price (HFO), Light Fuel Oil Price (LFO), Gas oil Price (GO), Coal Price, Electricity Price and in some cases Consumer and Producer Price Indexes are the indexation elements of price formulas.
Price review
Usually there exists a clause allowing parties to trigger the price revision or price reopening in LNGSPAs.
In some contracts there are two options for triggering a price revision. regular and special.
Regular ones are the dates that will be agreed and defined in the LNGSPAs for the purpose of price review.
Special ones which are limited in numbers and can be triggered just for limited number of times.
Adverse changes in Market Conditions which lasts for long period of time is the most important event that can trigger the price review clause.
Cargo diversion
Based on the LNGSPAs, LNG is destined for pre-agreed destination(s) and diversion of this that LNG is not allowed.
However if Seller and Buyer make a mutual agreement then diversion of the cargoes is possible but subject to sharing the profits coming from such diversion.
It shall be noted that some in jurisdictions like European Union it is not allowed to apply the profit sharing clause in the LNGSPAs for any diverted cargoes inside the EU territories.
Quality of LNG
Natural gas and LNG quality are one of the important issues in the LNG business.
Any gas or LNG which is not conforming to the agreed specifications in the sale and purchase agreement would be regarded as “off specification” or “non specification” or “non conforming” gas or LNG.
The aims of quality regulations and the values they specify can be divided into three
categories:
1 - to ensure that the gas being distributed is non-corrosive and non-toxic. This explains the upper limits for H2S, total sulphur, CO2 and Hg content
2 - to guard against formation of liquids or hydrates in the networks, via maximum values for water and hydrocarbon dewpoints
3 - to allow interchangeability of the gases distributed, via limits on the variation range for parameters affecting combustion: content of inert gases, calorific Value, Wobbe Index, Soot Index, Incomplete Combustion Factor, Yellow Tip Index, etc.
In the case of off-spec gas or LNG the buyer can refuse to accept the gas or LNG and the seller has to pay liquidated damages for the respective off-spec gas volumes.
The quality of gas or LNG is measured at delivery point by using an instrument such as a gas chromatograph.
The most important concerns about gas quality are about the sulfur and mercury contents and heating value.
Due to the sensitivity of liquefaction facilities to sulfur and mercury elements, the gas being send to liquefaction process shall be accurately refined and tested in order to assure the minimum possible level of existence of these two elements before entering the liquefaction plant, hence there is not much concern about them.
However, main concern would be the Heating value of gas.
Usually natural gas markets can be divided in three markets in terms of Heating Value:
- Asia (Japan, Korea, Taiwan) where gas distributed is rich, with an GCV higher than 43 MJ/m3(n), i.e. 1,090 Btu/scf,
- the UK and the US, where distributed gas is lean, with an GCV usually lower than 42 MJ/m3(n), i.e. 1,065 Btu/scf,
- Continental Europe, where the acceptable GCV range is quite wide: approx. 39 to 46 MJ/m3(n), i.e. 990 to 1,160 Btu/scf.
There are some methods to modify the heating value of produced LNG to the desired level.
For the purpose of increasing the Heating Value.
- Injecting Propane and Butane is proved solution.
For the purpose of decreasing Heating Value.
- Nitrogen Injecting.
- Extracting Butane and Methane are proved solutions.
Blending with gas or LNG can be other solutions; however all of these solutions while theorically are viable but can be costly and even logistically difficult to manage in large scales.
Cost of LNG plants
For an extended period of time, design improvements in liquefaction plants and tankers had the effect of reducing costs. As recently as 2003, it was common to assume that this was a “learning curve” effect and would continue into the future. But this perception of steadily falling costs for LNG has been dashed in the last several years.
The construction cost of green-field LNG projects started to skyrocket from 2004 afterward and has increased from about $400 per ton of capacity to $1000 per ton of capacity in 2008.
The main reasons for skyrocketed costs in LNG industry can be discribed as follows;
1- Low availability of EPC contractors as result of extraordinary high level of ongoing petroleum projects world wide.
2- High raw material prices as result of surge in demand for raw materials.
3- Lack of skilled and experienced workforce in LNG industry.
4- Devaluation of US dollar.
Recent Global Financial Crisis and decline in raw material and equipment prices is expected to cause some decline in construction cost of LNG plants, however th extent of such a decline is still unclear.
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. 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. 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. 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:
- 1944, 20 October. The East Ohio Natural Gas Company experienced a failure of an LNG tank in Cleveland, Ohio. 128 people perished in the explosion and fire. The tank did not have a dike retaining wall, and it was made during World War II, when metal rationing was very strict. The steel of the tank was made with an extremely low amount of nickel, which meant the tank was brittle when exposed to the extreme cold of LNG. The tank ruptured, spilling LNG into the city sewer system. The LNG vaporized and turn into gas, which exploded and burned.
- 1979 October, Lusby, Maryland, at the Cove Point LNG facility a pump seal failed, releasing gas vapors, which entered and settled in an electrical conduit. A worker switched off a circuit breaker, igniting the gas vapors, killing a worker, severely injuring another and causing heavy damage to the building. National fire codes were changed as a result of the accident.
- 2004, 19 January, Skikda, Algeria. Explosion at Sonatrach LNG liquefaction facility. 27 killed, 56 injured, three LNG trains destroyed, 2004 production was down 76% for the year. A steam boiler that was part of a liquefaction train exploded triggering a massive hydrocarbon gas explosion. The explosion occurred where propane and ethane refrigeration storage were located.
Seaborne LNG transport tankers (including their loading terminals) have not had a major accident in over 47,000 voyages since the first test cargo in 1959. There have, however, been several incidents with LNG carriers, but with only minor spills.
Storage
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.
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
LNG is transported in specially designed ships with double hulls protecting the cargo systems from damage or leaks. There are several special leak test methods available to test the integrity of an LNG vessel's membrane cargo tanks.
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
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
External links
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- From the National Alternative Fuels Training Consortium
- LNG Safety
- Advocating Government Adoption of LNG Industry Standards
- World LNG Industry Standards
- Konstantin Simonov's speech at LNG 2008. April 23, 2008.
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Other Sources
tp://www.eia.doe.gov/oiaf/analysispaper/global/index.html The Global Liquefied Natural Gas Market: Status and Outlook] - (Adobe Acrobat *.PDF document)
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- - (Adobe Acrobat *.PDF document)
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