Trying to keep pace with LNG demand is pushing the building of both exporting and receiving facilities. Given what’s on the drawing board, global capacity could double by 2025, which is good news for project engineers.
The startup of the world’s first commercial liquefied natural gas plant having taken place at Arzew, Algeria, in 1964, means the global LNG industry is approaching its 50th birthday next year. Massive new LNG capacity is currently on the drawing boards, 350 metric million tons per year, according to a recent report from Ernst & Young, which, if built, would more than double current global capacity by 2025.
Building out capacity on that scale keeps engineering companies like Bechtel very busy, often in remote or logistically challenged areas, where they must bring a great deal of project management ingenuity to bear. LNG also appears to be a major growth industry in North America as judged by the approved and proposed building of import and export terminals, largely in and near the Gulf of Mexico, but also across other sections of the continent.
Scientists discovered that natural gas could be converted to a liquid by cooling it to –260°F in the late nineteenth century. The commercial demand for LNG did not emerge until the 1950s, when importing and exporting the fuel across oceans became necessary to satisfy growing demand. Since LNG takes one six-hundredth the volume of gas, the most economical way to import natural gas is to liquefy it and transport it on LNG tankers. The first LNG tanker went into operation in 1959. LNG can be re-gasified at a receiving terminal for use in heating, cooking, and fueling power plants.
Global natural gas demand has grown by 2.7% per year since 2000, according to Ernst & Young, but global LNG demand has risen by 7.6% per year over the same period. Future LNG demand is expected to be robust through 2020, at five to six percent per year through 2020 and two to three percent per year thereafter. The IEA (International Energy Agency) has forecast a growing role for natural gas in the world’s energy mix from 21% in 2010 to 25% in 2035, with natural gas being the only fossil fuel whose share is growing.
The strong LNG demand growth has been driven by Japan, South Korea and Taiwan as well as by other national energy strategies that seek to diversify supply, satisfy popular opposition to nuclear power, and displace coal for environmental reasons. China and India are expected to be the biggest future sources of additional LNG demand.
Constructing terminals for importing and exporting liquefied natural gas is a growth industry in North America. LNG import/export terminal capacity will surely double and is likely to triple in coming years.
There are currently 15-LNG import and export terminals operating in North America, but they are geographically concentrated. Three terminals are located in Massachusetts while six are huddled together on the gulf coast between Pascagoula, Miss., and Freeport Texas. Two others are located in Maryland and Georgia, one is in Puerto Rico, and three are located in Canada and Mexico.
Ten more terminals have been improved, including two, an import terminal in Manzanillo, Mexico, and an export terminal in Sabine, La., that are currently under construction. Three other approved terminals will be located offshore in the Gulf of Mexico, near Florida and Louisiana, while others will appear in Maryland, Texas, Louisiana, Quebec, and Baja California.
Moreover, there are currently 33 additional LNG terminals that have been proposed. Fourteen of these are located on the Gulf coast or offshore in the Gulf of Mexico. Others, if approved, would diversify the LNG geographical picture in North America, with terminals potentially popping up in Maine, New York, Oregon, Washington, and British Columbia.
Getting LNG capacity online is no easy task, especially when they are located in remote areas or places without well-developed logistics infrastructures. Bechtel Corporation has been active in building LNG capacity since the industry’s inception and recently received the go-ahead from Cheniere Energy to work on expanding an LNG project in Sabine, La.
Bechtel was instrumental, along with ConocoPhillips, in developing the optimized cascade process which streamlines the cooling of natural gas by refrigerating it in stages. The optimized cascade process was first used in Alaska, at the ConocoPhillips Petroleum Kenai plant built by Bechtel in 1969. Bechtel has also designed and/or constructed LNG facilities in Algeria, Indonesia, the United Arab Emirates, Libya, Egypt, Trinidad, Australia and Russia.
Bechtel’s project for Sakhalin Energy, the developer of oil and gas fields on Sakhalin, a large island just off Russia’s Pacific coast and just north of Japan, is an example of how difficult an undertaking such a project can be from a logistics standpoint. Bechtel built an onshore oil and gas processing facility for the Sakhalin II oil and gas fields in the Sea of Okhotsk which came online in 2006.
Getting to the Sakhalin II site is itself an ordeal, noted Andrey Polunin, Bechtel’s project director. “First there is a nine-hour flight from Moscow to Yuzhno-Sakhalinsk,” he said, “then a 14 hour ride on a train and three hours in a four-wheel-drive vehicle over difficult roads before finally arriving at the project site.”
Because Sakhalin is remote and sparsely populated, little equipment and personnel are available locally. But the single biggest obstacle is the weather, which alternates between freezing in winter and wet during the thaw. Between October and May, 30 people are assigned to do snow removal, 24 hours a day. The thaw during spring and summer brings slippery conditions and marine cyclones, during which wind gusts can exceed 50-miles per hour.
“Since the ice prevents deliveries of any heavy-lift items in the winter, sea delivery windows are tight,” said Polunin. “Since it takes three months to deliver a part, one missing piece of equipment can cause a whole season’s delay. During the summer beach landings, equipment was collected at a marshaling yard in South Korea, and 4,128-tons were delivered by tugboat and ocean-going barges.” Once the facility was completed, it began to produce 48 million cubic meters per day of gas which produces 9.6-million tons of LNG yearly at two plants 400 miles to the south.
Another Bechtel project, in Angola, on Africa’s west coast, also began with a deficit of infrastructure. “Soyo, Angola, offered minimal cargo and materials receiving facilities, vendors, and skilled labor,” said Polunin. “We worked with authorities to build a new dock and to expedite shipments through customs. We developed extensive training for local craft workers and a global recruiting program for positions that could not be filled locally.” Bechtel provided 25 hours of training for each of the 8,000 local craft workers the company hired.
As oil and gas deposits are discovered and developed in more and more difficult places on the planet, the experience of these projects will lead the way,” said Polunin.
Bechtel recently received a notice to proceed from Cheniere Energy Partners on the third and fourth sections, known as liquefaction trains of the Sabine Pass liquefaction project, located adjacent to the Sabine Pass LNG terminal, in Louisiana. Of the $5.9 billion in financing required to proceed on the project, $1.5 billion came from the Export-Import Bank of Korea and the Korea Trade Insurance Corporation, an indication of South Korea’s leading role in absorbing additional LNG supplies.
Construction on Trains 1 and 2 began last August and is now 30 percent complete. Construction on Trains 3 and 4 will start immediately. The First LNG from the facility is expected to be delivered in 2015. Cheniere soon expects to file an application with the Federal Energy Regulatory Commission, the primary federal agency which regulates LNG, for the construction of a fifth and sixth train.
U.S. current law requires an export license from the Department of Energy to export LNG. Exporting LNG to a nation with a free trade agreement with the U.S. is usually approved without modification or delay. The DOE has more latitude in modifying the terms and in stipulating conditions for applications to export to non-FTA countries.
Six of the 19 countries with which the U.S. has FTAs—Canada, Mexico, the Dominican Republic, Chile, Singapore, and South Korea—currently import LNG. Twenty companies have submitted applications for export of U.S. liquefied natural gas. Sixteen of these have been approved for FTA countries, but only one application, from Cheniere’s Sabine Pass Liquefaction LLC, has received approval for export to non-FTA countries.
Ernst & Young expects that China and India will be the biggest sources of additional LNG demand in coming years. China’s latest five-year plan calls for the share of gas in the energy mix to double to eight percent by 2015, with a longer-term goal of 10 percent by 2020. China has ambitions to develop its own shale gas resources but will still require significant LNG imports to meet its demand.
Over 30 countries have proposed plans to build or add LNG import and re-gasification capacity, with many of those countries new to the LNG market, according to Ernst & Young. Current global re-gasification capacity could increase by one-third by 2020 and the number of countries with import capacity could double.