Basics of Liquefied Natural Gas (LNG)

=Basics of Liquefied Natural Gas (LNG)=

Natural gas is a hydrocarbon composed almost entirely of methane (CH4). It can be transported over distances via pipelines or across the ocean as Liquefied Natural Gas (LNG). In 2011, the share of natural gas in total primary energy supply (TPES) was 21.3% out of a total supply of 13,113 mtoe

LNG reduces the volume of gas 600 times making it more economical to transport over long distances where pipelines are not feasible or where other constraints may exist. Liquefaction and specially designed vessels allows natural gas to be transported throughout the world.

=LNG Value Chain=

Exploration & Production
The LNG value chain starts with the exploration and production of gas reserves either onshore or offshore. In 2013, world proved natural gas reserves were estimated at 6,845 trillion cubic feet (tcf)

LNG Liquefaction
Once produced, gas is transported via pipelines to a liquefaction facility where it is purified and liquefied. Each liquefaction unit is referred to as a train. A typical LNG facility processing 1 billion standard cubic feet per day (bscfd) will produce approximately 7.3 million tonnes per annum (mtpa). Heavier hydrocarbons must be removed and sent for further processing to be marketed as natural gas liquids (NGLs). Hydrogen sulphide, carbon dioxide, mercury and any moisture must also be removed to meet LNG specifications and prevent fouling of the equipment. The gas is then cooled to -160°C.

The processing cost of liquefaction plants will vary depending on the composition of inlet gas. Commercial arrangements are either tolling or merchant. In merchant plants, profit is made from the upstream while in tolling plants; profit is made from the fixed tolling fee paid by gas suppliers. Risk sharing and how the LNG price is shared between the upstream and LNG will be different.

In the tolling structure, the upstream gas supplier sells LNG to the final customer and pays a processing fee to the plant owners (in most cases the government). The fee will be relatively low but guaranteed return on capital to the plant. The liquefaction cost will entail a capacity reservation charge and an operating cost charge.

In the merchant structure the upstream receives a fixed percentage of the FOB LNG price. This will involve a more complicated commercial arrangement. This structure introduces some risk since it will be based on the LNG price which can vary considerably.

LNG Shipping
LNG vessels are specially designed double-hulled ships where the inner hull is kept at atmospheric pressure and cryogenic temperature (-256 F). Some of the fuel is used to maintain these low temperatures in a process known as "boil-off." This usually accounts for about 0.1-0.15% of the cargo per day. In addition, some LNG is usually left in the vessel to keep tanks cold when ships are being reloaded. This is called the heel.

Most ships have a spherical (Moss) design or membrane design. The typical LNG vessel has a capacity of approximately 125,000-138,000 cubic meters which will provide about 2.6-2.8 billion standard cubic feet (bcf) of natural gas.

Storage & Regasification
Regasification refers to the process by which LNG is reconverted to a gas for distribution to consumers. The regasification terminal consists of a receiving facility, LNG storage tanks, vaporizers and a metering and send-out facility. Terminal costs include storage costs, capacity cost for buyers reserving capacity at the terminal to regasify LNG, fuel cost for vaporisers and other operating and maintenance costs.

Capital Cost
Liquefaction and shipping costs account for the majority of LNG capital costs.

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