UNIT-I

Overview of LNG Industry

1. History of LNG industry

Natural gas liquefaction dates back to the 19th century when British chemist and
physicist Michael Faraday experimented with liquefying different types of gases, including
natural gas. German engineer Karl Von Linde built the first practical compressor refrigeration
machine in Munich in 1873. The first LNG plant was built in West Virginia in 1912 and
began operation in 1917. The first commercial liquefaction plant was built by East Ohio Gas
Company in Cleveland, Ohio, in 1941.The LNG was stored in tanks at atmospheric pressure.
The liquefaction of natural gas raised the possibility of its transportation to distant
destinations. In January 1959, the world's first LNG tanker, The Methane Pioneer, a
converted World War ll liberty freighter containing five, 7,000 barrel equivalent aluminum
prismatic tanks with balsa wood supports and insulation of plywood and urethane, carried an
LNG cargo from Lake Charles, Louisiana to Canvey Island, United Kingdom. This event
demonstrated that large quantities of liquefied natural gas could be transported safely across
the ocean.

Over the next 14 months, seven additional cargoes were delivered with only minor
problems. Following the successful performance of The Methane Pioneer, the British Gas
Council proceeded with plans to implement a commercial project to import LNG from
Venezuela to Canvey Island. After a major natural gas discovery in Algeria, the United
Kingdom and France signed contracts with Algeria in 1961 and 1962, respectively, and the
first commercial-scale LNG ―chain‖ with a liquefaction plant at Arzew, Algeria, and
receiving terminals in France and the UK, became operational in 1964.

During the 1960s and ’70s, liquefaction plants were built in Alaska, Libya, Brunei,
Abu Dhabi, and Indonesia, as well as Algeria. Import terminals were developed in Japan,
France, the United States, and Italy, later joined by terminals in Belgium, Spain, Taiwan, and
Korea.

The first exports of LNG from the U.S. to Asia occurred in 1969 when Alaskan LNG
was sent to Japan. The LNG market in both Europe and Asia continued to grow rapidly from
that point on. In 1999, the first Atlantic Basin LNG liquefaction plant in the western
hemisphere came on production in Trinidad. This event, coupled with an increase in demand

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for natural gas in the U.S. particularly for power generation and an increase in U.S. natural
gas prices, resulted in a renewed interest in the U.S. market for LNG. As a result, the two
mothballed LNG receiving terminals have been reactivated. Elba Island was reactivated in
2001. In October 2002, the Federal Energy Regulatory Commission (FERC) gave approval to
re-open Cove Point LNG facility in 2003. In April 2005 the world’s first offshore, ship-based
regasification facility was set in operation in the Gulf of Mexico by Excelerate Energy.

2. LNG VALUE CHAIN/ LNG SUPPLY CHAIN

Exploration
Transport by
and Liquefaction Shipping Regasification
pipeline
Production

2.1 Exploration and production:

Exploration and production is usually covered by agreements between the host

government and the energy companies. These agreements set out the terms under which
producers can explore for, develop, and produce oil and gas.

In the early days, natural gas was often discovered as a less desirable by product of
oil, but today exploration is increasingly aimed at the discovery of exportable gas reserves.
Gas is found onshore or offshore, as non-associated gas or as associated gas. The non-
associated gas can be dry—that is, nearly pure methane—or wet, containing higher-chain
hydrocarbons, such as propane, butane, and condensates.

When the gas is wet (i.e., contains condensates and LPG), these condensates may
need to be stripped out of the gas before it enters the liquefaction plant.

2.2 Liquefaction:

After the gas leaves the upstream production facilities, it is metered and transported
by pipeline to the liquefaction plant. Before the gas can be liquefied, it must be treated to
remove carbon dioxide, sulfur, mercury, and water, which can freeze or cause corrosion
inside the heat exchangers. Many heavier hydrocarbons are stripped out at this point, leaving
mainly methane and some light hydrocarbons. Essentially, the gas at this stage needs to be of
a quality that is saleable in the final market. Any heavier components removed in the plant
(e.g., condensate and LPG) are shipped and sold separately, creating additional revenue for
the project.

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 Plants are usually set up as a number of parallel processing units, called trains, each of
which treats the gas and then liquefies it. The maximum capacity of each train is determined
by the size of the equipment, such as heat exchangers and gas or steam turbines, which drive
the compressors essential for the liquefaction process. Historically, parallel trains were
developed to enable the plant to continue operating when one of the trains was shut down for
maintenance or repair.

The liquefaction process equipment consists of compressors driven by steam or gas

turbines and heat exchangers, where heat from the incoming gas is transferred to refrigerant
gases (e.g., propane, ethylene, or mixtures ), which in turn transfer heat to an outside coolant
(air or water or a combination). In earlier plants, the compressors were largely driven by
steam turbines, but today, gas turbines are the standard compressor drivers.

The storage and loading facilities are an important part of a liquefaction plant. After
the gas is cooled to a liquid state, it must be stored in double walled and insulated tanks. The
tanks are designed to keep the LNG cold until it can be loaded on board LNG tankers. LNG
tanks are usually built with an inner tank of cryogenic nickel/steel, surrounded by several feet
of insulation and an outer tank constructed from prestressed concrete

The plant also needs a jetty and loading facilities that allow safe access for the LNG
tankers. LNG jetties have rigid loading arms, capable of handling the cryogenic temperatures,
that are connected to the ship’s manifold with special quick-disconnect couplings that can be
released in the event of an emergency.

2.3 Shipping:

LNG is transported by specialized ships, LNG carriers, with insulated double-hulled tanks,
designed to contain the cargo slightly above atmospheric pressure at a cryogenic temperature
of approximately (–169 0C).

The tank design ensures integrity of the hull system and provides insulation for LNG
storage. Because the insulation cannot prevent all external heat from reaching the LNG, some
of the liquid boils off during the voyage. LNG vaporization is not homogenous: components
with the lowest boiling point (nitrogen and methane) tend to evaporate more readily than
heavier components. This phenomenon is called ageing or weathering and its consequence is
that the LNG composition becomes heavier, and the heating value and Wobbe Index of LNG
increases over time.

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The boil-off gas (BOG), typically at the rate of about 0.10% to 0.15% of the ship volume per
day, must be removed to keep the ship’s tanks at a constant pressure.

2.4 Regasification:

LNG cargoes are discharged at regasification terminals (also called receiving or import
terminals) that are located in the overseas customer’s country. A terminal consists of one or
more berths, each with a set of unloading arms, LNG storage tanks, and vaporization
equipment to move the regasified LNG into the pipeline system. They may also include
facilities for loading LNG onto tanker trucks for road delivery.

2.5 Transport by pipelines:

After regasification, natural gas sent to the customers through the natural gas pipeline grids.

3. BASE LOAD LNG:

Base load LNG plant is a facility that can satisfy the minimum demand of that
location. Global liquefaction capacity grew at a similar rate in 2016 as in 2015, to reach
339.7 MTPA in 2017. This includes new projects such as Gorgon LNG, Australia Pacific
LNG and Sabine Pass LNG, as well as additional trains at Gladstone LNG (GLNG), and
Malaysia LNG (MLNG). Liquefaction capacity additions are poised to increase over the next
few years as 114.6 MTPA of capacity was under construction as of January 2017.

Base load LNG liquefaction technologies:

Liquefaction technologies of two and three cooling/refrigeration cycles are mainly

used mainly due to energy efficiency and low equipment sizing compared to the technologies
of one cooling/refrigeration cycle. Table below presents the currently available liquefaction
technologies according to the number of refrigeration cycles and refrigerants used.

REFRIGERANTS
N ° of cycles Pure Pure+Mixed Mixed
APCI (SMR)
1 - - Black & Veath (PRICO II)
BHP (cLNG)

Shell (C3-MR)
Shell (DMR)
2 - APCI (C3-MR)
Axens-IFP (Liquefin)
Shell (PMR)

3 Conoco Phillips (POCP) APCI (AP-X) Statoil-Linde (MFC)

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 The current market of LNG technologies has been dominated by Air Products
Chemical Inc. (APCI) with nearly 80% of installed trains and Conoco Phillips (POCP) with
10%. However, in recent years Statoil-Linde alliance ventured into this industry with its
technological innovation MFC, with a plant being installed and operating in Snøhvit,
Norway. Meanwhile, Shell has put its version of the C3-MR technology, and has begun
operation of 2 trains of 4.8 MTPA each with its new DMR technology, implemented in
Russia.

4. DEVELOPING AN LNG PROJECT:

Getting LNG to market, by contrast, requires specialized facilities for liquefaction in

the exporting country and for regasification in the importing country, linked by a fleet of
specialized ships. Committing to an LNG export facility without having secured a buyer
(with import capacity) and adequate transport would represent an enormous risk. Historically,
LNG projects have been meticulously laid out from the gas field in the exporting country to
the gas distribution grid in the importing country.

The number of participants in an LNG project requires that the entire chain be secured
before the project is advanced. Participation in LNG projects is usually shared among two or
more entities, one of which may be the host government, often in the form of a national oil
company. The involvement of many participants lightens the burden on any single investor.

Capital expenditures for LNG projects are categorized as either upstream or liquefaction
costs.

4.1 Upstream costs:

Generally, wellhead and field production costs account for most of the upstream costs,
including flow lines and transmission networks. The characteristics of the field are obviously
important. Gas fields with high sulfur content or fields in remote areas can incur high
upstream expenditures.

Pipeline costs:

Pipelines are needed to deliver feed gas from the producing fields to the LNG plant.
Pipeline costs are highly site specific. A pipeline built through a flat, empty, seismically
inactive desert will be substantially less expensive than an offshore pipeline or a line built
across a mountain range. The number and capacity of compression stations needed along the

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pipe’s length also affect total cost. Generally, pipeline costs are between $1 million and $3
million per mile.

Liquefaction costs:

Liquefaction plant facilities typically represent an LNG chain’s most significant

capital investment. Technological advances and the application of economies of scale led to
substantial lowering in the unit capital investment levels for liquefaction. Unit costs for
grassroots projects fell from as high as $600 per ton of annual capacity to below $200 per ton,
with typical values falling in the range of $200–$350 per ton-year.

LNG storage tanks are another aspect of the downstream capital costs that are specific
to LNG projects. Storage facility costs are highly dependent on the liquefaction plant
location, the distance to market, the total production, and the choice of containment system.
In addition to the equipment needed for the LNG liquefaction and storage, the
downstream portion of the project encompasses the marine facilities needed for LNG
exportation. These facilities include the LNG jetty, to load ships, and the materials jetty, to
off-load construction and operations material.

Contracts

The sale and purchase agreement (SPA) is the commercial cornerstone of an LNG project.

Cost, Insurance and Freight (CIF) agreements, insurance and other costs are assumed
by the seller, costs associated with successful transit paid by the seller up until the goods are
received by the buyer.

Free on Board (FOB) contracts relieve the seller’s responsibility once the goods are
shipped. Once goods have passed the ship's rail, they are considered to be delivered into the
control of the buyer.

According to the duration

Long term contracts:

About 90% of the LNG traded is bought and sold under long-term contracts. In the
most simplistic view, the value of the trade is established by the quantities, price, and
duration of the LNG sales under the SPA. The other fundamental commercial considerations
in the SPA are the terms of sale FOB, CIF.

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Spot contracts:

Spot transactions are increasingly being carried out under so-called master
agreements. Master agreements contain many of the same provisions as SPAs, although they
tend to be less elaborate, covering only a limited number of cargo deliveries and limited time
periods.

LNG tanker contract:

The charterparty contract addresses the transportation service. It is a contract between

one party, the charterer (or shipper), and the vessel’s owner by which they agree to the terms
and conditions under which the charterer has the right to use the owner’s tanker. The LNG
trade was based on long-term SPAs, which in turn required that the shipping capacity be
locked in under long-term time charters, for the duration of the SPA.

4.2 Shipping costs:

Shipping costs were, until the late 1990s, the most opaque of all costs in the LNG
chain. Some observers went as far as to describe them as black boxes, into which revenues
disappeared with no clear understanding of how or where they were subsequently distributed.
Many LNG tankers were owned by the shareholders in the liquefaction plant (Australia’s
NWS project and Brunei), chartered from independent owners (Bontang and Arun), or owned
by affiliated state companies (Sonatrach). Charter rates for vessels of the size 150,000 m3
have generally been in the range of $55,000–$60,000 per day.

4.3 Receiving terminals:

The last leg of the chain is the import terminal. Traditionally, import terminals were
owned by utilities in the importing countries and were operated as integrated components of
the utilities’ networks. As such, their commercial terms were generally not ascertainable on a
stand-alone basis. However, as a part of the utility, the terminal was included within the rate
base and its costs and return were included within the rates charged by the utility to its
customers.

5. WORLD SENARIO OF LNG INDUSTRY

At the end of 2016, 92 liquefaction plants and 110 regasification terminals are available
worldwide. The key features of global LNG lndustry is given below.

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Global Trade: Global LNG trade set a new record, in 2017 reaching 258 million tonnes
(MT). This marks an increase of 13.1 MT (+5%) from 2015, the continued addition of supply
in the Pacific Basin, primarily in Australia, as well as the start of exports from the United
States Gulf of Mexico (US GOM) enabled this increase. Demand growth was same in Asia;
China, India, and Pakistan added a combined 13.0 MT in incremental LNG demand.

Liquefaction plants: Global liquefaction capacity grew at a similar rate in 2016 as in 2015,
to reach 339.7 MTPA in 2017. This includes new projects such as Gorgon LNG, Australia
Pacific LNG and Sabine Pass LNG, as well as additional trains at Gladstone LNG (GLNG),
and Malaysia LNG (MLNG). Liquefaction capacity additions are poised to increase over the
next few years as 114.6 MTPA of capacity was under construction as of January 2017.

Regasification Terminals: Global regasification capacity increased to 794.6 MTPA by the

end of January 2017, primarily supporhis stands in contrast with 2015, when capacity was
driven by floating regasification projects in emerging markets: Egypt, Jordan, and Pakistan.
A combined eleven projects are under construction in China and India, countries that
displayed the strongest LNG demand growth.

Floating Regasification: Two floating storage and regasification units (FSRUs) located in
the United Arab Emirates and Turkey reached commercial operations by January 2017,
boosting global FSRU capacity to 83.0 MTPA. Floating regasification infrastructure was also
added in Colombia and Malta but neither had begun commercial operations by January 2017.

LNG Fleet: At the end of 2016, there were a total of 439 LNG tankers in the global LNG
fleet, either actively trading or sitting idle available for work. Of these vessels, 23 are
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currently chartered as FSRUs and three are chartered as floating storage units.

Top five LNG exporting countries

Exporting country Exports in MT

Qatar 77.2
Australia 44.3
Malaysia 25
Nigeria 18.6
Indonesia 16.6

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Top five LNG importing countries

Importing country Imports in MT

Japan 83.3
S. Korea 33.7
China 26.8
India 19.2
Taiwan 15

6. INDIAN SENARIO OF LNG INDUSTRY

Petronet LNG Ltd has set up its first LNG terminal at Dahej in- Gujarat with the
capacity of 15 million metric tons per year. Capacity of Dahej Terminal will expand to
17.5 million tons per year till 2019. Another terminal with capacity 5 million tons per year is
commissioned in Kochi (Kerala) and started its operations in August 2013. Petronet LNG is
planning to set up its third LNG terminal with capacity 5 million tons per year probably in
gangavaram, Andhra Pradesh.

LNG TERMINALS IN INDIA

1. RGPPL LNG Terminal, Maharashtra,5 MMTPA (Integrated with its own Power
Plant)
2. Dahej Terminal, Petronet LNG Ltd, Gujarat - 15 MMTPA
3. Hazira Terminal, Shell Ltd, Gujarat - 3.6 MMTPA
4. Kochi Terminal, Petronet LNG Ltd. - 5 MMTPA
5. Mundra Terminal , GSPC LNG Ltd. - 5 MMTPA

PROPERTIES OF LNG:

1. Chemical composition:
The chemical composition of natural gas is a function of the gas source and type of
processing. It is a mixture of methane, ethane, propane and butane with small amounts of
heavier hydrocarbons and some impurities, notably nitrogen.

Example composition of LNG (mol %):

1. Methane (C1 ) – 85-90 %

2. Ethane (C2 ) – 3-8 %

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 3. Propane (C3 ) – 1-3 %
4. Butanes (iso-C4 and n-C4 ) – 1-2 %
5. Pentanes (iso-C5 and n-C5 ) – 0-2 %
6. Nitrogen (N2 ) – 0-2 %

2. Boiling point:
The boiling point of pure water at atmospheric pressure is 100°C (212 °F). The
boiling point of LNG varies with its basic composition, but typically is -162°C (-259 °F).

3. Density and Specific Gravity:

Density is a measurement of mass per unit of volume and is an absolute quantity.

Because LNG is not a pure substance, the density of LNG varies slightly with its actual
composition. The density of LNG is between 430 kg/m3 and 470 kg/m3. LNG is less than half
the density of water; therefore, as a liquid, LNG will float if spilled on water.

Specific gravity is a relative quantity. The specific gravity of a liquid is the ratio of
density of that liquid to density of water (at 15.6°C). The specific gravity of a gas is the ratio
of the density of that gas to the density of air (at 15.6°C). Any gas with a specific gravity of
less than 1.0 is lighter than air.

Under ambient conditions, LNG will become a vapour because there is no place on
earth with a temperature of -162°C (-259 °F). LNG vapours at the boiling point temperature
(-162°C) and atmospheric pressure have a relative density of about 1.8, which means that
when initially released, the LNG vapours are heavier than air and will remain near the ground
until it is diluted and dispersed by warm air. Normally specific gravity natural gas at 15°C is
0.554

4. Flammability limits

This ―Flammable Range‖ is the range of a concentration of a gas or vapour that will
burn if an ignition source is introduced. The limits are commonly called the "Lower
Flammable Limit" (LFL) and the "Upper Flammable Limit" (UFL). Typical flammability
limits of LNG (in air by volume) is 5.3% and 14%.

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 5. Auto-ignition temperature:

Auto-ignition temperature, is the lowest temperature at which a gas or vapour in air

(e.g., natural gas) will ignite spontaneously without a spark or flame being present. This
temperature depends on factors such as air-fuel mixture and pressure.

The precise auto ignition temperature of natural gas varies with its composition. If the
concentration of heavier hydrocarbons in LNG increases the auto ignition temperature
decreases. Typical auto ignition temperature of LNG is 595°C.

Properties of LNG:

1. Chemical formula: CH4

2. Boiling Point: -162°C
3. Liquid Density: 426kg/m3
4. Gas Density (25°C): 0.656 kg/m3
5. Specific Gravity (15°C): 0.554
6. Flammability Limits (in air by volume): 5.3% to 14%
7. Auto Ignition Temperature: 595°C

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