30 september october 2006l

The Mackenzie Valley Pipeline project recently floated the idea of using lique-fied natural gas as an alternative to the

pipeline project, which is experiencing ever-increasing capital cost estimates (between $8 billion and $9 billion) and numerous regulatory delays. Alaska gas faces even more daunting obstacles with a project cost now conservatively estimated at $25 bil-lion (U.S.), and forecast to come on-stream between 2015 and 2018.

This article highlights a few of the options currently available to the gas industry for remote or stranded gas reserves (not physical-ly or economically accessible by conventional pipelines). The three most prevalent options are: LNG (liquefied natural gas), CNG (com-pressed natural gas) and GTL (gas to liquids).

lIquefIed natural gas

LNG became commercial in the 1970s with the development of the Moss storage spheres, enabling an increase in ship size to the current standard of 135,000 DWT (3.0 Bcf per ship). LNG involves cooling the gas to -260°F at atmospheric pressure, allowing 600 cubic feet of gas to be condensed to one cubic foot. This typically requires a two-step refrigeration process and cryogenic steel. Receiving and regasification facilities are also required at the delivery site.

Project size has increased over the years to where new LNG liquefaction projects pro-cess 750 MMcf/d in one process train. To generate a modest 15% ROI on a $3.5-billion to $4-billion investment requires 8 Tcf pro-ducing over a 40-year project life. Obviously reservoirs of such size are limited in number.

A stunning array of LNG liquefaction projects has proceeded since 1995, most

notably in Trinidad and Tobago, Australia and Nigeria. The next tranche of LNG sup-ply is about to come on-stream from future projects in Qatar and Iran. Despite this rapid growth there is limited future supply of res-ervoirs and fields sufficiently large enough to continue rapid LNG growth. Presently the world has only 154 Tcf of proven reserves in fields 5 Tcf or larger.

With LNG capital costs rising rapidly, the cost to land and regasify LNG in North America for new projects has risen to more than $2.75 per Mcf using the above metrics. Import of LNG into North America has run into regulatory delays and project cancella-tions time and time again due to local oppo-sition to construction and supply constraints.

ComPressed natural gasCNG is a fairly simple process whereby

gas is compressed to about 3600 psig, result-ing in a compression ratio of 220:1. Because of the high pressure, very thick steel cyl-inders or coils are required. An option is to use fiber-reinforced steel, reducing the weight considerably but also several times more costly than steel.

Also of note, compression in countries with high ambient temperatures presents a challenge to cooling the gas from the compressors.

Due to the weight of the ships and limited carrying capacity per ship, CNG trades are limited to a maximum of 3,200 kilometres. CNG has the advantage of scalability, allow-ing smaller gas trades to take place.

gas to lIquIdsGTL uses the Fischer-Tropschf conversion

process developed by Germany in the 1930s. Gas is processed at high pressure and tem-

perature, converting methane into a complex multi-chain hydrocarbon molecule. The mod-ern process ends up with an extremely clean diesel fuel. Shell produces and markets GTL diesel in Europe as a blending fuel in regular diesel, commanding a premium to regular diesel.

GTL, however, is not a panacea. The pro-cess is extremely complex and costly, result-ing in the loss of over 40% of the natural gas in the process. The largest GTL project, currently under construction in Qatar, is esti-mated to cost $9 billion for a 120,000 barrel-per-day plant ($75,000 per Bbl/day). Waste process water, contaminated by alcohols, solids and particulates, which is unusable for any other use, will be about 180,000 Bpd. GTL is only economic in reservoirs larger than 5 Tcf assuming the cost of the natural gas is zero.

In summary, there are options to the rela-tively simple pipeline collection of gas, but they are never cheap and have their share of regulatory hurdles, requirements for large gas reserves and ability to negotiate a low price for the gas supply.

Other options are being pursued by indus-try, but most are in the early stages of devel-opment. Some of these options bear monitor-ing as they might be capable of accessing remote and stranded gas reserves that are not suitable for LNG, CNG or GTL.

Calgary-headquartered Gas Processing Management Inc. has seven principals, all professional engineers with more than 25 years’ experience. Seated, from left: John Kingsbury, Pat Forrest and Dave Esau. Back, from left: Bart Van Schaayk, Ib Moller, Les Maxwell and Ben VanRootselaar.o

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– AlternAtiveS to conventionAl PiPelineS?by gas Processing Management inc.

lNG, CNG & GTl