LNG Philippines - Situationer


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LNG Philippines - Situationer

  1. 1. LNG Understanding: Liquefied Natural Gas [LNG REPORT 2012]
  2. 2. (LNG) - Report 2012Market Trends and Opportunities in the Philippines 1
  3. 3. a. Summary Key facts: LNG (Liquefied Natural Gas) is used mainly forheating, cooking and electricity generation; it also has  Liquefied natural gas is producedother industrial uses. by freezing methane to -260°F.  Being able to turn methane into a LNG facilities convert methane from gas into a liquid is creating global market forliquid that takes up much less volume. This allows the natural gas (methane) to replace the isolated markets that havetransport of LNG through ships to be more economical. historically defined the natural gasConsequently, LNG technology is closely associated with market.a global market for natural gas. There are few trading  As liquefaction and gasificationopportunities specifically related to liquefied natural gas, technologies become more energy efficient, LNG becomes moreLNG has a substantial effect on the structure of the gas efficient and more economical.market. On a smaller scale, LNG storage provides analternative to traditional natural gas storage facilities. There has been active LNG trade in the Pacific region for many years. However, the opening upof LNG regasification plants in the North American and European markets have provided a much largerconsumer base for LNG producers. This increased customer base allows aggressive investment intobetter liquefaction technology, in turn, spurring more demand. As a result, LNG is rapidly becoming amajor factor in natural gas trading after several decades of relative obscurity. 2
  4. 4. b. Liquefied Natural Gas (LNG) Natural gas reserves are found in reservoirs deep beneath the surface of the earth. Thesereservoirs are trapped or stranded in porous rock formations (i.e. sandstones, marine shales, etc.) andforms pockets of gas over crude oil deposits. They contain mainly carbon and hydrogen componentsfrom the remains of plants and animals that build up over million years ago at the bottom of the ocean.After a very long time of being buried deep beneath the earth, layers and layers of other sediments pileup and build up high pressure from these sediments and along with the heat from the core of the earthturns these organic materials forming reservoirs of crude oil and natural gas. These fossil fuels are thenextracted from marine shales in which they were deposited and from there they go into poroussedimentary rocks. 1 In its purest form, natural gas is colorless, odorless, tasteless, shapeless, and lighter than airtype of fossil fuel. It is gaseous at any temperature over -161C and for safety purposes a chemicalodorant, Mercaptan is mixed to it so that it can be smelled if there is a leak. 2 Natural gas is deemed to be an environmental friendly clean fuel, presenting significantenvironmental benefits when compared to other fossil fuels. The finer environmental qualities ofnatural gas over coal or oil are that it is neither corrosive nor toxic. Commercialized natural gas issulphur free, it doesn’t produce sulphur dioxide (SO2). Aside from this the level of nitrous oxide andcarbon dioxide emissions of natural gas is also lower compared to the other fossil fuels. According toEurogas emissions of natural gas are “40-50% less than coal and 25-30% less than oil.” 3 This helps tolessen problems of ozone layer, acid rain and greenhouse gases. In addition, its specific gravity of 0.60which is lower than air makes it very safe because it can dissipate or rise when there is a leak. Naturalgas is also a harmless source of energy when it is transported, stored and used. There are two forms of natural gas; one of these is liquefied natural gas (LNG), which is a form ofnatural gas when it is cooled to a temperature of approximately -260F at atmospheric pressure. Itweighs less than one half that of water and is odorless, colorless, non-corrosive, and non-toxic. Whenmixed with air it burns only in concentrations of 5%-15%, hence neither LNG nor its vapor can detonatein an unconfined environment. Given that LNG has less volume and weight it’s easier to be stored andtransported. 4 Aside from LNG the other form of natural gas is compressed natural gas (CNG) which isnatural gas that is compressed to less than 1% of its volume at standard atmospheric pressure. Itsenergy density is approximately 42% of that of LNG. Natural gas is converted to liquid at standard atmospheric pressures by lowering itstemperature to -260°F. The process of liquefaction reduces the volume of the gas to 1/600th of itsgaseous form. This allows liquid natural gas (or liquefied natural gas) to be more compact and allowseasy storage and transportation when regular pipeline and storage facilities are not available. Due to the1 "Natural Gas." UNCTAD website. http://www.unctad.org/infocomm/anglais/gas/characteristics.htm (accessed September 10, 2011).2 "Overview of Natural Gas." NaturalGas.org website. http://www.naturalgas.org/overview/background.asp (accessed September 14, 2011).3 "Natural Gas." UNCTAD website. http://www.unctad.org/infocomm/anglais/gas/characteristics.htm (accessedSeptember 10, 2011).4 "What is LNG? : LNG." Hazira LNG and Port website. http://www.haziralngandport.com/whatislng.htm (accessed September 15, 2011). 3
  5. 5. difficulty in domestic production because of the “hard-to-extract” nature of natural gas, LNG isbecoming an economical alternative wherein cargo ships are able to transfer enough fuel at low costs ascompared to small-scale transportation to meet domestic and international energy demand. The natural gas industry is divided into the upstream and downstream section. The upstreamsection is responsible for exploration and production of natural gas. To be more specific it includes theexploration for potential underground or underwater gas fields, the drilling of exploratory wells andafterwards operating the wells that would retrieve and bring the raw natural gas to the surface. In thePhilippines, the only currently operating upstream plant is the Malampaya gas field in Batangas.Malampaya natural gas field extends up to Tabangao, Batangas wherein the raw natural gas or the wetsour gas from the wells is being processed. Here the impurities of the raw natural gas are being removedsuch as water, condensates, hydrocarbons, as well as other solid particles. On the other hand, the downstream section consists of the selling and distribution of naturalgas. It includes the different power stations such as the Ilijan, Sta. Rita, and San Lorenzo power plantsthat are responsible for the distribution of the natural gas industry to be used as energy for differentpurposes of electricity, transportation, household use, etc. The LNG market allows natural gas producers to monetize their investment. They can build anLNG liquefaction terminal, and then sign a long-term agreements and contracts to sell their productoverseas. Instead of sitting on a natural gas field that might or might not ever be worth something in thefuture, producers can build a pipeline to the nearest LNG terminal and ship their product as a liquid intoa major consumer market. This gets low cost producers access to the best consumer markets, and itprovides them with money to search for new suppliers. 4
  6. 6. i. LNG Composition Varies LNG Compositiona.) Lean LNG (e.g., Atlantic LNG, Trinidad) Nitrogen Composition: Methane Nitrogen (0%) Ethane Methane (96.8%) Propane Ethane (2.7%) Butane+ Propane (0.3%) Butane+ (0.1%)b.) Rich LNG (e.g., Oman LNG) Composition: Nitrogen (0.4%) Methane (87.9%) Nitrogen Ethane (7.3%) Propane (2.9%) Methane Butane+ (1.6%) Ethane Propane Butane+ 5
  7. 7. c. LNG ProcessThere are three main steps in the LNG process: liquefaction, transportation, and regasification. i. Liquefaction and Exporting. Liquefaction plants are located near regions where natural gas is produced. Short-range pipelines transfer the gas from wells to the liquefaction plant. The liquefaction plant cools natural gas down to -260°F, then loads it into storage containers for transfer to a specially designed tanker ships. Bringing natural gas to -260°F is an extremely energy intensive process. A considerable amount of energy is consumed during the liquefaction and subsequent reheating processes. From a climate perspective, the CO² emissions resulting from this processing has to be included in the greenhouse gas emissions of LNG as a fuel source. ii. Transportation. LNG tankers have to be specifically designed to handle extremely cold liquids and keep them installed. Even then, some of the liquid methane will convert back into gas. A small percentage of the natural gas will be lost in transportation for this reason. Faster journeys and cryogenic systems to refreeze the boiled-off gas can reduce these losses. iii. Regasification and Importing. Once LNG is transported, it must be turned back into gas before it is delivered to customer. This is usually done at a regasification plant. This plant transfers the liquefied natural gas from the tanker ships and stores it in specially designed containers to keep the LNG at low temperature until it is ready to be warmed up. After it is warmed up, it can be placed into a pipeline for delivery to customers. 6
  8. 8. iv. Three Main Business Variants of Liquefaction Plants Same participants throughout the supply chain – Avoids need to negotiate transfer price and gas qualities Qatar Gas, Rasgas, Sonatrach, NWS Australia, Darwin LNG – Qatari plants have taken this to complete integrated projects including import terminals in selected markets. UPSTREAM SHAREHOLDERS DARWIN LNGConocoPhillips 56.72%ENI Australia 12.04%INPEX 10.52%Santos 10.64% LIQUEFACTIONTokyo Electric 6.72% DARWIN LNGTokyo Gas 3.36% SHIPPING FOB Physical Supply Chain LNG Tokyo Electric Tokyo Gas Corporate Relationships SALES AGREEMENT Shareholdings BUYERS Tokyo Tokyo Electric Gas G 7
  9. 9. Liquefaction plant a separate profit company – Flexibility of ownership – Negotiated feedgas price – Main cost is purchase price of feedgas which is sometimes fixed as %age of LNG price Oman LNG, Atlantic LNG 1, Nigeria LNG, Malaysia LNG, etc Malaysia LNG (Dua) PRODUCTION UPSTREAM SHARING Petronas/ Sarawak Petronas: Owner Shell Sarawak Shell: Operator GAS SALES AGREEMENT Petronas 60% Liquefaction & Shell 15% Trading Mitsubishi 15% MNLG 2 Sarawak 10% LNG SALES AGREEMENTPetronas 62.44% Charter SHIPPINGGovernment 12.98% Parties MNLG 2Foreign Investors 15.64% (MISC)Public 8.95%Physical Supply ChainCorporate Relationships BUYERSShareholdings Kansai Toho Gas Tohoku Shizuoka Gas CPS Sendai Kogas Liquefaction plant as a cost center owned by theNOC or by producers – Tolling type model covers OPEX of plant, plus small margin 8
  10. 10. – Flexibility of ownership Indonesian plants, Atlantic LNG 2 ,3 & 4, Egyptian LNG , etc Atlantic LNG 2 & 3 UPSTREAM PRODUCTION BP, ECMA JV NCMA JVQUASI REPSOL BG 45.9% BG 50% Eni 17.3%TOLLINGAGREEMENT CVX 50% Veba 17.3% Petrotrin 16.9% LNG PLANT BP 42.5% BG 32.5% Repsol 25% Physical Supply Chain LNG Corporate Relationships SALES FOB BUYERS Gas Natural Distrigas Gas de Euskadi BG Repsol Tractebel Source: Gas Strategies 9
  11. 11. v. More and New Global LNG Players - All have different (and changing) positioning in the global LNG business NOCs - Algeria, Egypt - Qatar, Oman, AdgasIOCs - Indonesia, Malaysia- Total - Nigeria Atlantic Gas Players- Shell - Gazprom - BG- BP - GDF / Suez- ENI, Statoil - Distrigas- Exxon, Chevron - Stream- ConocoPhillips (GN/Repsol) - Botas GLOBAL LNG MARKET Utilities - EDF Asian Gas Players - Union Fenosa - Tepco, Tokyo Gas - Chubu, Osaka Gas,… - Iberdrola - Kogas - Endesa - Essent - CPC (Taiwan) - EON - CNOOC (Mainland) - Centrica - Petronet, Hazira (India) New Players - Cheniere, Sempra - Vitol - Goldman Sachs - Merril Lynch - Japanese Shoshas 10
  12. 12. d. Products and Services Natural gas can be used as both a fuel and as a raw material in manufacturing chemicals. As acommon fuel, used in households it may be burned in furnaces, used in water heaters, cooking stoves,and clothes dryers. On the other hand as an industry fuel, it is burned in kilns (special furnaces) whichare used in order to manufacture bricks and ceramic tiles. It may also function as a steam generator forwater boilers and a source of heat for glass and food production. Basically natural gas serves as a primerfor petrochemical engineering which are chemicals that are extracted from natural gas or petroleum.Petrochemicals are also used as a base in producing fertilizers, detergents, pharmaceuticals, plastics andthe like. In the Philippines natural gas is mostly used for power generation. Several power plants in thecountry such as the San Lorenzo Power Plant, Sta. Rita Power Plant, and the Ilijan Power Plant utilizesthis type of energy which gets its supply of natural gas from the Malampaya natural gas field. Aside fromthis, the transportation sector in the country is also using this type of energy. Its use is being promotedin the transportation sector for environmental purposes and to reduce the countrys dependence onimported oil thereby protecting the country from increasing oil prices around the world. CompressedNatural Gas fuelled buses in particular is an example of a public utility vehicle that runs on natural gasand a total of 41 Compressed Natural Gas buses are already operating in the country which run fromBatangas-Manila. 5 This bus program is known as “Natural Gas Vehicle Program for Public Transport”.For more information on the uses of Natural Gas, refer to Appendix Section 4. e. LNG Supply and Value Chain i. LNG Imports vs. LNG local use There are three major sorts of LNG activities: 1. International gas supply: method of transporting natural gas large distances around the globe for bulk gas supply. 2. Local onshore use: natural gas transported in liquid form around a country usually in special road tankers for local gas distribution or use as vehicle fuel. 3. Seaborne fuel: new market developing. ii. LNG Supply Chain:5 Jacob, Don. Interview by author. Personal interview. Department of Energy , August 10, 2011. 11
  13. 13. The Supply Chain normally consists of 4 links: 1. Upstream: field development, production, processing and transportation to the coast 2. Liquefaction (& export): the natural gas is cooled to its liquid state (LNG) and stored 3. Shipping: LNG shipping tanker transportation to market in another country 4. (import &) Regasification: the LNG is stored and then the liquid gas is returned to its gaseousform. iii. Conventional Feedgas 12
  14. 14. iv. Key Project Decisions and VariablesFour key project decisions that have to be considered: a.) Markets: geographically, where? b.) Customers: who? c.) LNG Price: how much? d.) Contact Strategy: risk profile? Some key variables at stake: a.) Liquefaction plant: - How big? - Process selection? - How many trains? b.) Ships: - Ownership or chartered? - How many? - What size? c.) Storage tanks: - How many? - How big?v. LNG Project: Terminologies Feasibility: initial investigations and considerations Pre-FEED: more detailed considerations and calculations FEED: exhaustive Front End Engineering Design study FID: Final Investment Decision (to proceed with project or not) EPC: Engineering, Procurement and Construction contract (main build contract) Commissioning: first LNG from liquefaction or through import regasification De-Bottlenecking: enhancing performance of existing, operational plant after several years of operation.vi. LNG Projects – Typical Timeline for an LNG Project in the U.S.A. Source: http://www.oregonlng.com/pro_timeline.php 13
  15. 15. vii. Liquefaction Plants – Basic commercial models Gas Ownership Model (take price risk but not volume risk) Service Model (provide service and charge tolling fee) 14
  16. 16. f. Product Process To locate deposits of natural gas, exploration geologists search for geologic regions containingthe ingredients necessary for the formation of natural gas: organic-rich source rock, burial conditionssufficiently severe to generate natural gas from organic material, and rock formations that can traphydrocarbons.6 When a geologic formation that may hold natural gas is identified, usually but not always in asedimentary basin, wells are drilled into the formation. If a well goes into porous rock containing asignificant reserve of natural gas, pressure within the porous rock may force the natural gas up to thesurface. Typically, the pressure eventually declines until the natural gas must be pumped to the surface.7 Once natural gas has been extracted from the ground, it is usually transported by pipeline to arefinery, where it is processed. Natural gas is processed in an extraction unit to remove the non-hydrocarbon compounds, especially hydrogen sulfide and carbon dioxide. Two processes used for thispurpose are absorption and adsorption. 8 Absorption uses a liquid that absorbs the natural gas and impurities and disperses themthroughout its volume. In a process known as chemisorption, the impurities react with the absorbingliquid. The natural gas can then be stripped from the absorbent, while the impurities remain in theliquid. Common absorbing liquids are water, aqueous amine solutions, and sodium carbonate. 9 Adsorption is a process that concentrates the natural gas on the surface of a solid or a liquid inorder to remove impurities. A substance commonly used for this purpose is carbon, which has a largesurface area per unit mass. For example, sulfur compounds in natural gas collect on a carbon adsorbingsurface. The sulfur compounds are then combined with hydrogen and oxygen to form sulfuric acid(H2SO4), which can be removed.10 When the impurities have been removed in the extraction unit, the natural gas is transported toa processing plant, where compounds such as ethane, propane, butane, and other substances areseparated and removed for different uses.After being processed it is then transported to the users thru pipelines which includes both onshore andoffshore, as a liquefied natural gas thru LNG vessels and LNG trucks, and lastly it is also transported ascompressed natural gas thru CNG vessels and multiple accumulator transport system. 116 NaturalGas.org." NaturalGas.org. http://www.naturalgas.org/naturalgas/processing_ng.asp (accessed July 24, 2011).7 Ibid8 Ibid9 Ibid10 Ibid11 Ibid 15
  17. 17. Figure 1.Natural Gas ProcessSource: Department of Energy g. Producing LNG by Liquefaction In order for liquefaction process to take place, the raw feed gas supply which comes from aproducing must first be clean and dry. The raw feed gas is scrubbed of dirt and hydrocarbon liquidswhich are entrained, and then treated in order to eliminate trace amounts of two common natural gascontaminants. These contaminants are hydrogen sulfide and carbon dioxide. The gas is then cooled topermit the water to condense and then further dehydrated so as to get rid of the small amounts ofwater vapor. The mercury must be removed at this stage if it is present in the feed gas. Next, the cleanand dry gas may be filtered before the process of liquefaction begins. To make sure that the liquefactionis an efficient process, the gas must consist mostly of methane with only small amounts of lighthydrocarbons. 12 Liquefaction occurs via the cooling of gas using heat exchangers. In these vessels, gas flowingthrough aluminum tube coils is exposed to a compressed hydrocarbon-nitrogen refrigerant. As therefrigerant vaporizes, heat transfer is achieved, cooling the gas in the tubes before it is restored to thecompressor. The liquefied natural gas is pumped to a storage tank that is insulated where it remainsthere until it can be loaded onto a tanker. 1312 The Department of Energy. "Liquefied Natural Gas: Understanding the Basic Facts." Department of Energy. http://www.fe.doe.gov/programs/oilgas/publications/lng/LNG_primerupd.pdf (accessed August 28, 2011).13 Ibid 16
  18. 18. Liquefied Natural Gas molded in each train which has a temperature of about 260°F, is thentransferred to insulated tanks designed for storage at atmospheric pressure. Even if heat is added, thetemperature of boiling LNG at atmospheric pressure remains constant, providing that the gas vapour orLNG steam is removed. The boil off gas, which is about 0.15 percent of the volume per day, fuels theliquefaction facility, LNG transport ships and receiving terminals where the LNG is regasified. 14 At the liquefaction plant, LNG is transferred from storage tanks to the ship through pumpswhich are specially constructed and jointed loading pipes devised to withstand the very low or cryogenictemperatures necessary for liquefaction. Figure summarizes the process of LNG liquefaction.15 Figure 2.Components of an LNG Liquefaction Plant Source: US Department of Energy14 Ibid15 Ibid 17
  19. 19. h. Preparing LNG for Use by Regasification At a satellite installation or a marine terminal, pumps transfer LNG from storage tanks towarming systems. In the warming systems, the liquid quickly returns to a vaporized state. 16 Ambient temperature systems utilize heat from surrounding air or from seawater in order tovaporize the cryogenic liquid. On the other hand, above-ambient temperature systems add heat throughburning fuel in order to indirectly warm the LNG through intermediate fluid bath. The natural gas is thenset for delivery into the network of transmission and distribution of pipelines for usage by industries,residential consumers or nearby power generation plants. 17Figure 3.Components of Liquefied Natural Gas (LNG) Source: US Department of Energy16 Ibid17 18