Recent Developments and Technologies for Cost Effective Gas Monetisation

Page 1 of 11

Recent Developments and Technologies for Cost Effective Gas Monetisation

Mark Taylor* & Paul Martin Advantica Ashby Road Loughborough, LE11 3GR United Kingdom Tel +44 (0)1509 282773 Fax +44 (0)1509 283080

* Author to whom correspondence should be addressed

Introduction Advantica is part of NationalGridTransco Plc and through its long-term involvement with BG Group and the Transco LNG storage sites Advantica has developed significant expertise in gas transportation and storage technologies. For example, Advantica has led the development of the BG Hydrate transportation technology, and has developed compact reforming technology and ANG technology. In addition Advantica continues to provide support to BG on its proposed import terminal at Pipavav in India and the Tangguh LNG project in Indonesia. Advantica is very active in providing gas transportation technology development and consultancy services to the oil and gas industry and utilising this technology background. This paper reviews the alternative methods available for the monetisation and transportation of gas reserves. Overview

mk:@MSITStore:E:\congress.chm::/UMB1500.htm

2/24/2004

Recent Developments and Technologies for Cost Effective Gas Monetisation

Page 2 of 11

Stranded gas can be defined as "gas that cannot currently be economically brought to market by conventional means", e.g. by pipeline. Over half of the world's gas reserves are stranded. These reserves include associated gas in oil fields and gas fields with no market either because the field is remote or too small to enable profitable development. Associated gas, and to a lesser extent gas/condensate fields, almost always have several advantages over dry gas fields. In these cases the value of the oil, NGLs or LPG that can be exported alongside the gas based product assists the field economics rather than relying solely on the gas production. Where production costs are entirely borne by liquids sales, associated gas can be considered to have zero production cost and hence zero value. With the increase in environmental legislation to prevent the flaring of gas in many countries, associated gas can then be considered to be a liability. There are two main potential markets for stranded gas: Firstly, conventional natural gas markets, where gas is used as a high quality, clean fuel for pipeline distribution to domestic and commercial users, for power generation or as an industrial chemical feedstock (for example methanol, hydrogen or ammonia production). Technologies that either currently or potentially can deliver remote gas into this market include: LNG High strength pipelines Compressed and adsorbed natural gas Natural gas hydrates.

Secondly, as liquid products - these may be either as a clean liquid fuel, as a replacement or supplement to automotive diesel or as a high value speciality product in the waxes and lubricants industries. The automotive fuel market is potentially a huge consumer of gas feedstocks with the increasingly stringent standards for the emissions of pollutants by vehicles offering new

mk:@MSITStore:E:\congress.chm::/UMB1500.htm

2/24/2004

Recent Developments and Technologies for Cost Effective Gas Monetisation

Page 3 of 11

opportunities. However, the traditional oil refiners have not stood still and are developing new hydrotreating and fuel upgrading technologies to meet the demands being set by the new regulatory frameworks. The speciality products market with its high value is small and is expected to remain small.

Technologies that can deliver remote gas into these markets include: Gas to liquids conversion via Fischer-Tropsch synthesis Methanol/dimethyl ether synthesis.

Each of these technologies is considered below. LNG LNG is unmistakably the leading technology for the supply of gas from remote fields to either traditional gas distribution markets or to the smaller developing markets. At present there is a plethora of proposed LNG liquefaction plant developments either as new greenfield projects like Tangguh or plant expansions, for example Atlantic LNG's trains 2 and 3 in Trinidad. This profusion of projects should produce increased competition and further drive down liquefaction plant costs. The LNG industry has been attempting to reduce the cost of liquefaction plants for many years with varying degrees of success. Many of the recent projects such as Oman and Qatar have made inroads in cost reduction. Probably the most successful project in this regard has been Atlantic LNG's Trinidad plant that has managed to reduce capital investment / through-life cost by 30% compared to the industry norm. This has been achieved by

mk:@MSITStore:E:\congress.chm::/UMB1500.htm

2/24/2004

Recent Developments and Technologies for Cost Effective Gas Monetisation

Page 4 of 11

use of functional specifications for equipment design. use of vendor design margins with no project specific margins added. simplified control system design. formal value engineering and brainstorming processes. reliability analysis to determine selection and redundancy of key equipment items, e.g. gas turbines.

dual FEED for competitive EPC bid generation.

Some have claimed that Trinidad has special factors, which have enabled very low capital costs to be achieved; this has a degree of truth but BP, BG and partners have identified significant cost reductions over the initial design by applying the same techniques to the Tangguh project. Cost savings on the Trinidad project were largely achieved by improving the contractor relationship and tackling methods and standards of working. Savings in equipment costs can also be achieved by developing new technologies and initiating cost reduction strategies for example, Within the industry, a range of new marine facility designs are emerging which include new loading arm designs, alternative jetty materials, improved construction methodologies and single point moorings. Storage tank designers are investigating alternative NDT methods, insulation systems and re-examining basic design features such as top entry. Marine facilities and their costs are highly project specific. Advantica has been investigating the costs of designing and building fixed piled jetties, considering both the civils and the piping and expansion joint systems. This has suggested several beneficial changes in jetty specification and contracting strategy that BG is now using on the current generation of LNG projects.

mk:@MSITStore:E:\congress.chm::/UMB1500.htm

2/24/2004

Recent Developments and Technologies for Cost Effective Gas Monetisation

Page 5 of 11

Advanticas work on storage tank design is less well advanced but several ideas are being pursued that have the potential to reduce material costs or reduce the construction schedule. The first of these concepts is being discussed with component manufacturers for possible inclusion in the Pipavav tank construction programme. In an attempt to address all of the fixed cost issues simultaneously the LNG industry has embraced the challenge of taking the whole liquefaction terminal offshore. The development of floating and offshore liquefaction plants has seen a recent renaissance after a lull in activity since the idea was first examined in the 1970's. Spearheading this movement in the late 1990s was been Mobil with their "concrete doughnut" concept and BHP with their gravity base design for the Bayu-Undan field. The advantage of offshore LNG facilities is that they avoid the costs of platforms and pipelines to onshore facilities. The economic attractiveness of offshore LNG will therefore depend on the individual circumstances of the field location, water depth, distance from shore, etc. FPSOs will be appropriate for many fields particularly those in deeper waters. Gas to Liquids Fischer-Tropsch (FT) Gas to Liquids technology is ready for implementation. Both the Shell Middle Distillate Synthesis (SMDS) and Sasol Slurry Phase Distillate (SSPD) processes have operated successfully at commercial scale, Exxon's AGC-21 and the Rentech GTL process have operated at demonstration scale, whilst BP and ConocoPhillips have just completed construction of their demonstration FT facilities. Sasol has reached agreement over building a 30,000 BPD plant in Qatar and ChevronSasol are vigorously pursuing a GTL project in West Africa. It is only be a matter of time before one of the numerous new commercial GTL proposals currently being studied gets the go ahead, and plant construction commences. While there are no significant technical barriers to the onshore application of FT, there are certainly economic barriers. With major fluctuations in oil prices and the general economic downturn in recent

mk:@MSITStore:E:\congress.chm::/UMB1500.htm

2/24/2004

Recent Developments and Technologies for Cost Effective Gas Monetisation

Page 6 of 11

years, the ability to raise commercial finance to fund a new technology such as GTL may be restricted. With a capital cost in the widely quoted range $25-30,000 per bpd and typical feed gas cost of $0.50/mmBtu, figures frequently used in the industry, a plant producing a "syncrude" product commanding little more than the prevailing crude price will not be economically viable with a crude price of $15/bbl or lower. One way to overcome the economic challenges is to produce higher value products. These can include high value speciality products such as waxes, lubricant basestocks and chemical feedstocks, ultra clean distillate fuels or fuel blending components and "alternative" fuels. For example, at the $15/bbl crude price considered above, the corresponding diesel price would be around $19-20/bbl and FT diesel blend stock could be anticipated to command a price of around $21/bbl, based on the generally predicted premium of $1-2/bbl over refinery diesel prices. At this price level, a GTL project begins to look economically attractive. Alternative fuels and speciality products would command higher prices still, but by their nature speciality products have only a small market which would quickly become saturated. GTL Cost Reduction In addition to seeking a higher value for the products, the economics of GTL can be enhanced by further reductions in capital costs. The development of advanced FT catalysts and reactor systems has had a significant impact on the cost of the process. Today there is considerable attention being focused on cost reduction of the syngas generation stage (including the air separation plant, where required), which represents the major slice of total capital cost of an FT based GTL plant. Developments in this area include the advanced steam reformer concept under development by BP/Kvaerner and the development by two consortia (BP Chemicals, Praxair, Sasol and Statoil in one; Air Products, BP, ChevronTexaco, McDermott, Norsk Hydro and academic partners in the other) of ceramic membrane reactor systems for combined air separation and natural gas partial oxidation. While the development of a ceramic membrane will require considerable resources and effort and

mk:@MSITStore:E:\congress.chm::/UMB1500.htm

2/24/2004

Recent Developments and Technologies for Cost Effective Gas Monetisation

Page 7 of 11

take several years to complete, it has the potential to make a major impact on the cost of syngas generation. It will be interesting to see which consortium is first to commercialise the technology. Advantica has been developing compact reformer technology in the form of a compact steam reformer and a catalytic partial oxidation (CPO) reformer for natural gas to syngas conversion. CPO differs from the adiabatic reforming process currently available from Haldor-Topsoe and others in that there is no burner or combustion zone within the reactor; the reactions between natural gas, oxygen and steam are entirely catalytic. This simplifies the reactor internals, eliminates the potential for carbon formation within the reactor and allows stable operation with fluctuating feed rates and compositions. While the compact steam reformer using solgel technology to coat the surfaces of a compact fusion bonded heat exchanger to achieve high heat transfer fluxes The impact of further capital cost reduction on GTL economics is significant. If the capital cost can be reduced to $20,000 per bpd, then the product price at which the GTL begins to look favourable drops to $20/bbl or lower. For an ultra-clean FT diesel blend stock, $20/bbl should be achievable even at the most pessimistic crude oil price forecasts. For associated gas applications the GTL plant does not have to be economically attractive as a standalone facility. The GTL plant is facilitating oil production, and what is of concern is the economics of the overall field development. If a potential GTL plant results in a more favourable positive economic projection for the field than gas reinjection (if reinjection is an option), then GTL would be the preferred option - once there is confidence in the technology offshore. New Technologies So far in this paper the two leading technologies for monetising stranded gas reserves have been discussed. These are however, not the only potential technologies. For liquid markets there has been a fuel grade methanol market for some considerable time and dimethyl ether (DME) has been proposed as an alternative. In the gas market there has been, so far, little alternative to pipes and LNG, however

mk:@MSITStore:E:\congress.chm::/UMB1500.htm

2/24/2004

Recent Developments and Technologies for Cost Effective Gas Monetisation

Page 8 of 11

that position is now changing with two new concepts, natural gas hydrates and compressed natural gas (CNG), being re-evaluated or proposed on a serious basis for the first time. The following sections will overview these technologies and describe Advantica's hydrates transportation process in more detail.

Methanol and DME In addition to the conversion of natural gas to hydrocarbons via Fischer-Tropsch, conversion to methanol or its derivative DME is a potential option for stranded/associated gas reserves. The disadvantage that methanol and DME have when compared with FT is that the products do not integrate with existing distillate fuels or their distribution infrastructure. For offshore associated gas, the option of commingling the products with the produced crude oil is not available, indeed, for DME, the product is not really a liquid at all - it is a vapour at ambient conditions and must be handled and transported in similar fashion to LPG. While methanol can be more easily transported, the market for additional methanol as a chemical feedstock does not exist, and establishing methanol or DME as a mainstream fuel along side gasoline and diesel would require considerable time and effort, and meet with considerable resistance. A dedicated, long term market for methanol or DME, such as a power plant would need to be secured before a project could go ahead, as is the case with LNG. Compressed and Adsorbed Natural Gas Compressed natural gas (CNG) has been proposed as a method of bulk gas transportation for many years but has never yet been able to fulfil its potential as the result of poor economics. The liquefied petroleum gases (LPG) trades continue to use pressurised ships to transport propane and butane at pressures up to 9 bar, a business that started in the early 1950's. However, the recent trend in this

mk:@MSITStore:E:\congress.chm::/UMB1500.htm

2/24/2004

Recent Developments and Technologies for Cost Effective Gas Monetisation

Page 9 of 11

industry has been to move towards refrigerated, non-pressurised ships. For the gas industry, transportation pressures need to be considerably higher (about 200 bar) than for LPG as natural gas is a product, which must compete against cheap alternative fuels. The cost of constructing pressure vessels to withstand these pressures has always been prohibitively expensive. The Williams Company has approached the pressure vessel problem from another direction, the pipeline. A pipeline is, after all, a very long, thin pressure vessel. By coiling a series of pipes Williams has produced a compact pressurised gas storage system, called Coselle, suitable for ships. Pipelines are a tried and tested technology that are manufactured in bulk and therefore offer lower costs per unit volume of storage than pressure vessels together with an increased level of safety. Considerable work has so far been performed to examine the mechanical performance of the pipe coselles. Development of the technology is at an advanced stage and its regulatory classification requirements have been established. The limitations identified so far for the application of the Coselle process largely concern the design and operation of the ships. The current ship design can carry about 300 MMscf, about a seventh of the capacity of a 250,000 m3 LNG carrier. There are a number of alternatives ideas to Coselle, including Enersea (and partners Kline and Hyundai) with their Votrans pressurised gas cylinders concept and TransCanada with the GTM module that uses composite pipes. Natural Gas Hydrates The transportation of stranded gas as natural gas hydrates is a technology with considerable potential for exploiting small markets. In the process, stabilised gas from the field would be converted to a hydrates slurry by a physical process in a series of reactors at 60-90 barg and 4-10C. The slurry is then dewatered, chilled and depressurised before being stored as a cold solid at atmospheric pressure. From storage, the cold solid would be transferred to a ship and transported to the receiving terminal where the hydrate would be regasified by adding hot water. Unlike GTL offshore, this is a simple physical process with unit operations very close to those for which offshore experience already exists, for example separation, chiller units, water pumps, etc.

mk:@MSITStore:E:\congress.chm::/UMB1500.htm

2/24/2004

Recent Developments and Technologies for Cost Effective Gas Monetisation

Page 10 of 11

Although chilling is required at several points within the process route the temperatures required are much closer to ambient than for a corresponding LNG plant and this significantly improves the economics. In energy consumption terms the hydrates process has a conversion efficiency (gas to transportable product) very similar to LNG and substantially better than for gas to liquids. Advantica has actively explored the opportunity offered by natural gas hydrates. A number of studies ranging from feasibility, economic, laboratory through to a pilot plant investigation has led Advantica to the conclusion that the technology can have a major impact in commercialising low volumes of stranded reserves. A target price for regasified gas of $2 - $2.5 / MMBtu compares favourably with the economics of LNG transportation at low volumes. A key to the hydrates process is the dewatering stage which has been successfully demonstrated by Advantica in the laboratory. Advantica has the world's largest hydrates production pilot plant and the next stage towards commercialisation is the integration of the dewatering technology at pilot scale. At this stage of process development, Advantica is actively looking at an industry collaboration. Conclusions The ability to develop remote and stranded gas fields depends heavily on identifying a suitable market for the products. There are two clear product market areas; gas and liquids, which are almost completely independent of each other. Competition between the monetisation route, be it LNG or gas to liquids is limited to the price that the product can demand in its market, the capital investment required for project development and whether other gas fields are competing for the same market. There are many stranded gas reserves but relatively few markets. The transportation of gas as LNG has appeared to be a mature technology with many plants operating world wide with well understood technology. However, in recent years there has been considerable downward pressure on gas prices and this has encouraged a large amount of technological and commercial innovation in order to reduce costs.

mk:@MSITStore:E:\congress.chm::/UMB1500.htm

2/24/2004

Recent Developments and Technologies for Cost Effective Gas Monetisation

Page 11 of 11

Gas to liquids still requires the construction of a fully commercial fuels based project. Shell and Sasol have moved a long way towards this goal but their plants remain "subsidised" by the production of speciality products. If either the LNG or fledging gas to liquids market does not continue to innovate and drive down costs there are several new technologies waiting in the wings that will enter the market. The pick of these new technologies, CNG and natural gas hydrates, are gas based and have the potential to displace smaller LNG trades within the next 5 to 10 years.

mk:@MSITStore:E:\congress.chm::/UMB1500.htm

2/24/2004