LNG Basics2011

Petroleum Business Workshop1.0 Introduction to Petroleum Business

1.1 Fundementals of Oil Exploration1.2 Drilling and Production1.3 Commercial Aspects of Petroleum Industry

2.0 Ninewa Province

2.1 Hyydrocarbon Potential of Ninewah Province2.2 Risus Massa2.3 Laoreet Accumsan

3.0 Nulla facilisi. Etiam sed tincidunt ante

3.1 Nunc Aliquet Euismod Lorem Elementum3.2 Nulla Risus3.3 Euismod Nec Diam

What is LNG

• Natural gas predominantly methane CH4 that has been converted

temporarily to liquid form to ease of storage or transport.• Liquefied natural gas takes up to 1/600th the volume of natural gas

in the gaseous state.• It is odorless, colorless, non-toxic and non-corrosive.• Hazards include flammability, freezing and asphyxia (oksijen

yetersizliğinden boğulma).• Liquefaction process involves removal of certain compnents, such

as dust, acid gases, helium, water and heavy hydrocarbons which would cause difficulty in downstream.

• Condensed into aliquid at atmpspheric pressure (max. Transport pressure set around 25kPa/3.6psi) by cooling it to aproximately -162 oC (-260 oF).

• It can be transported by sphereically designed cryogenic sea vessels (LNG carriers) or cryogenic road tankers.

• Reduction in volume makes it much more cost efficient to transport over long distances where pipelines dont exist.

• Energy density of LNG is %60 that of diesel fuel.

A Typical LNG Process

1. First produced and transported to

a processing plant.

2. Purified by removal of condenses

such as water, mud, oil,other

gases like CO2 and H2S and solids

like mercurry.

3. Gas is cooled down in stages

untill it is liquefied.

4. Stored in storage tanks and is

ready to be loaded and shipped.

Basic Facts

• It can be regassified and distributed via pipelines as natural gas.

• It can be used in natural gas vehicles.

• Density is roughly 0.4kg/l or 0.5kg/l depending on temperature, pressure and composition compared to water 1kg/l

• The heat value depends on the source of gas and the process that is used for liquefaction.

• The higher heating value for LNg is estimated as 24MJ/l, the lower heating value for LNG is 21 MJ/l or 635 BTU/ft3

• Energy density is 2.4 times grater than that of CNG which makes LNG more economical to transport

• The energy density of LNG is comparable to propane (C3H8) or ethanol (C2H6O)but is %60 of diesel and %70 of gasoline.

propane ethanol

Production of LNG

• Treated to remove water (H2O), hydrogensulfide, carbondioxide (CO2) and other components that will freeze under the low temperature such as benzene (C6H6).

• LNG typically contains > 90% methane (CH4) and small amount of ethane (C2H6), propane (C3H8), buthane (C4H10) and some heavier alkanes

• Purification process can be designed to give about 100% methane

• Rare risk for LNG is RPT (rapid phase transition) which occurs when cold LNG comes into contact with water

• Important infrastructure is LNG plant consisting of one or more terrains each of which is independent for gas liquefaction

• Regassification terminals reheats the LNG and turns into gas

• Regasification terminals are usually connected to storage and pipeline distribution network to LDC (Local distribution companies)or IPP (independent power plants)

LNG Plant CountryProduction

(mmtpa)

Terrain 4 Trinidad and Tobago 5.2

SEGAS Egypt 5

Qatargas II Qatar 7.8 X 2

mmtpa: million ton per annum

benzene methane ethane buthane propane

LNG chain

LNG versus Pipeline Gas

• Pipelines have point to point rigidity

• LNG allow a better price competition

• LNG may be a better option if pipeline is;

• Long distance• Buyer has security of supply

concerns• Borders to be crossed• Single buyer cannot support a

purchase alone

LNG as a Market• All LNG plants are located in “stranted” areas not served by pipelines

• Construction of an LNG plant costs at least 1.5 billion/1mmtpa and receiving terminal cost 1 billion/1bcf/d throughput capacity and LNG vessels cost 0.2-0.3 billion USD

• Commercial development of LNG is a style called “VALUE CHAIN” where LNG suppliers first confirm sales to the downstream buyers and then sign 20-25 year contracts with strict terms and structures for gass pricing

• LNG liquefaction business has been regarded as a game of th erich, where only strong fianacial and political resources could get involved

• ExxonMobil, Shell, BP, BG Group, Chevron, Petramania, Petronas are active players

• Natural gas market is about 60% of crude oil market (measured on heat equivalent basis) which LNG forms a small but rapidly growing part

• There has beem too much discussion regarding the creation of OGEC equivalent of OPEC

• LNG counted for the 7% of the Worlds natural gas demand

• 1995-2005 the LNG trade increased for 7.4% / year

• 2005-2020 the LNG trade projection increased by 6.4% / year

• By the end of 2007• There are 15 LNG exporting countries where the fisrt 3 exporters are Qatar (28MT), Malasia (22MT), Indonesia (20MT)

• There are 17 LNG importing countries where the first 3 impoters are Japan (65 MT), South KOrea (34MT), Spain (24MT)

CountryLNG

Million tons

Japan (2005) 58.8

South Korea (2005)

22.1

Taiwan (2004)

6.8

Spain (2006) 8.2

Trade • LNG accoutns for the 7% of the Worlds natural gas demand

• From 1995 to 2005 the trade of LNG increased at a rate of 7.4%/year

• Projected growth in LNG in the base case is expected to increase at 6.7%/year from 2005 to 2020

• By the end of 2007 there were 15LNG exporting countries and 17LNG importing countires

• LNG trade volumes increased from 140MT in 2005 to 158MT in 2009and will increase about 300MT in 2012

• 6 new plants will come in to market

• Northwest Self Train 5:4.4 mtpa

• Sakhalin II: 9.6 mtpa

• Yemen LNG: 6.7mtpa

• Tangguh:7.6mtpa

• Qatargas:15.6 mtpa

• Rasgas Qatar:15.6 mtpa

COUNTRIESEXPORTS

MTIMPORTS

MT

Qatar 28 -

Malaysia 22 -

Indonesia 20 -

Japan - 65

South Korea - 34

Spain - 24

LNG Liquefaction Terminals

• Natural gas market is 60% of the crude oil market of which LNG forms a small but rapidly groving part

• Japan, South Korea, Spain, France, Italy and Taiwan impoert large volluems of LNG due to their shortege of energy

• Japan imported 58.6 million tons of LNG representing some %30 of the LNG trade around the World in 2005

Liquefaction Terminals

Contractural Terms• Trade of LNG is by signing a Sale Purchase Agreement (SPA) between supplier and

receiving terminal and signing a Gas Sale Agreement (GSA) between receiving terminal and end user

• Most of the contracts are DES or ex ship holding the seller responsible for the transport of the gas

• Buyer may prefer to ensure reliable and stable supply however contracts with FOB term increased

• FOB= Freight on Board: which party pays for which shipment and loading costs

• Under such terms the buyers who often owns a vessel or sign a long term charter agreement with independent carriers is responsible for the transport

• LNG purchasing agreement is a long term contract and flexible with both in price and volume

• If the annual quantity confirmed with the contract then the buyer is obliged to take and pay for it or even pay when not take (TOP)

• Oil index contract used in Japan, Korea, China

• Oil, oil products and other energy indexed contract are used in Continental Europe

• Market indexed contracts are used in UK and US

• Formula:

CP=BP + X

Where BP: base price (constant part)

: gradient

X: indexation

Contractural Terms_cont

• Oil parity is the LNG price that would be equal to that of crude oil on a barrel of equivalent basis

• If LNG price > price of crude oil in boe terms then called “broken oil parity”

• In most cases LNG price < crude oil price in boe terms

• Coefficient of 0.1724 result in full oil parity

• S-Curve: where the price formula is different above and below a certain oil price to dampen the impact of the high oil prices on the buyer and the low oil prices on the seller

• JCC: Japan Crude Cocktail : in most of the East Asian LNG contracts the price formula is indexed to a basket of crude importer to Japan

• ICP: Indonesian Crude Price: In Indonesian LNG contracts the price formula is linked to

• In Europe the LNG price formula indexation does not fallow the same format. It varies from contract to contract. Brent crude price B, heavy fuel oil price HFO, low fuel oil price LFO, gas oil price GO, coal price, electricity price and in some cases consumers and producers price index are the indexation elements of the price formula

• Usually there exists a clause allowing the prices to trigger the price revision or price reopening in the LNGSPAs.

• In some contracts there are two options for triggering the price revision: regular and special. In regular there are set dates that will be agreed and defined in LNGSPA for the purpose of price review.

• LNG id destinated to a pre agreed destination and diversion of LNG is not allowed

• If the seller and buyer make a mutual agreement then the diversion of the cargoes is possible but subject to the sharing of the profits coming from such diversion

• In Europen Union Jurisdiction it is not allowed to apply the profit sharing clause in LNGPSAs for any diverted cargoes in EU territories.

Quality of LNG

• The most important isseu in the LNG business is the quality of the LNG

• Any gas which does not conform agreed specifications in the SPA is regarded as “off specification” or “off quality” gas or LNG

• Quality regulations is for:

• To ensure that the gas distributed ,s non corrosive and non toxic which means it is below the upper limits of H2S, CO2 and Hg content

• To guard against the formation of liquids or hydrates in the networks through maximum water and hydrocarbon dewpoints

• To allow interchangeability of the gases distributed; content of inert gas, calorific values, Wobbe index, Soot index, Incomplete Combussion Factor, Yellow Tip index

• In case of off spec gas or LNG the buyer can refuse to accept the LNG or gasand seller has to pay the liquidated damdges for the respective off spec gas volumes

• The quality of the gas or LNG is measured at delivery point by using an instrument such as gas chromotograph

• The heating value of gas divides the market into three• Asia (Japan, Korea, Taiwan) where gas distributed is rich with an GCV >

43MJ/m3

• UK and US where distributed gas is lean, with a GCV usually < 42 MJ/m3• Contienental Europe ehre the acceptable GCV range is quiet wide~29 to

46MJ/m3

Quality of LNG_cont

• For th epurpose of increasing the heating value injection of propone and butane is a slution

• For th epurpose of decreasing heating value ntrogen injection and extracting butane and methane are proved solutions.

• Wobbe index: indicator of the interchangeability of fuel such as natural gas, liquified petroleum gas and town gas and is frequently defined in the specifications of gas supply and transport utilities

• Iw= Vc / Gs

• Where Iw= wobbe index

• Vc is higher heating value or calorific value

• Gs is the specific gravity

• Soot index is the a linear measurement that measures the extent to which the oil has become contaminated by fuel sootan unwanted by product of combussion

• The dewpoint is a saturation temperature

• Heating value of a substance usulally fuel or food is the amount of heat released during the combussion of a specified amount on it

Cost of LNG Plant

• Construction of a green field LNG projects increased from about 400$ / ton of capacity to 1000$ / ton of capacity

• Ongoing petroleum projects• High raw material prices as a result fo surge in demand for raw materials• Lack of skilled workforce for LNG• De evaluation of US dollar

• 4 liquefaction process available• C3MR (~APCI: air products and chemicals incorporation)• Cascade: designed by Conocophilips• Shell DMR• Linde

• By the end of 2012 it is expected that there will be 100 liquefaction trains on stream with a total capacity of 297.2 mmtpa

• Majority use either APCI or Cascade

• APCI technology used in 86 trains out of 100 on stream and under construction witha total capacity of 243 mmtpa

• Cascade technology is used in 10 trains witha total capacity of 36.16 mmtpa,

• Shell DMR used in 3 trains witha total capacity of 13.9 mmtpa

• Linde- Statoil process is only in 1 trains with 4.2 mmtpa

LNG Storage and Transportation• Storage tanks are fully containment type, prestressed concrete outer

wall and high nickel steel inner tank with extremely efficient insulation between walls

• Pressure in cylindrical design storage tanks are low < 10kPa

• Sometimes underground tanks are used for storage

• Smaller quantities <700m3 may be stored in horizontal or vertical vacuum jacketed pressure vessels. These tanks may be at pressure from < 50kPa to over 1700kPa

• LNG must be kept cold to remain in a liquid independent of pressure

• Despite insulation there will be inevitably be some heat leakage into the LNG resulting in vaporization of LNG

• This boil off gas acts to keep the LNG cold

• The boil off gas typically compressed and exported as natural gas or is re liquefied and returned to storage

• Industry practice is to store the LNG as a boiling cryogen which is the liquid stored at its boiling point for the pressure at which it is stored

• As the vapor boils off heat for the phase change cools the remaining liquid

• Insulation is very efficient so only a relatively small amount of boil off is necessary to maintain temperature. This is called auto-refrigeration

• Boil off gas from land based LNG storage tanks is usually compressed and fed to natural gas pipeline networks

• Some LNG cariers use boil off gas for fuel

• LNG is transported is a specially designed ships with double hulls protecting the cargo system from damage or leak

• LNG is transported usign both tanker , truck, railway, seagoing vessels and pipelines

Gas Supply By Region

LNG Chain