The weak US gas processing economic environment may increase the cost of imported LNG, as LNG importers are forced to process imported LNG volumes in order to meet US pipeline specifications.
The growing interest in importing LNG into North America is driven by the hemisphere's high natural gas prices relative to other regions of the world, a situation created by imminent and long-term shortages of domestically produced natural gas.
Purvin & Gertz estimates that, even with increased gas imports from Canada, the US will need more than 3.1 tcf/year of natural gas by 2010. Imported LNG will need to make up much of this shortfall.
In response to additional LNG demand, around the world as well as in the US, and due to the abundance of stranded gas reserves, new liquefaction plants have been built throughout the world, greatly increasing the volumes of LNG available for world trade.
Historically, much of this LNG has gone to Western Europe or to the Far East. But the US is becoming a larger player in these LNG markets, especially as a spot trade has developed around the world and additional liquefaction capacity has been built in the Atlantic Basin.
To serve the US market, proposals for more than 30 new regasification terminals were advanced in 2003, even though over the past several months, many have been cancelled due to permitting issues.
Nevertheless, the likelihood of new terminals is very high. Purvin & Gertz expects several projects will come to fruition along the US Gulf Coast and Baja California, with lower expectations for projects along the West Coast.
US gas pipeline specifications, however, require generally lean (methane-rich) gas supplies. Much of the newly available LNG has a relatively high content of LPG, which may have to be removed from the gas stream to meet US pipeline-quality specifications The decision on removal of the gas liquids depends on several complex and interacting economic and operational factors.
For overseas gas producers, where local markets for LPG do not exist and additional capital expenditures would be required for removing and processing the LPG, it can be more economical to leave the liquids in the LNG stream. Also, there may be transportation cost advantages associated with moving the LPG with the LNG in some circumstances.
Such arrangements do not cause problems for buyers that are using the LNG as a power-generation fuel, as in Japan, but hydrocarbon dewpoint and calorific-value specification problems may arise where the gas is distributed more widely to a range of end users, as is expected for the LNG imported into the US.
Significant NGLs
The increase in new terminals, additional LNG imports, and pipeline- quality specifications poses an interesting challenge for the North American natural gas processing industry. Some LNG available for import has a heat content as high as 1,160 btu/cu ft. Most US pipelines have specifications limiting the heat content of the natural gas to between 1,080 and 1,100 btu/cu ft, while a few have a limit as low as 1,050 btu/cu ft.
Thus, removing the LPG from the LNG stream provides both an opportunity and a challenge for the industry. In some cases, recoverable gas liquids can be as high as 3.5 gal/Mcf (GPM) of gas. This equates to recoverable liquids as high as 80,000 b/d for an LNG regasification terminal with a sendout capacity of 1 bcfd with a heat content of 1,160 btu/cu ft. Imported LNG could prove to be a new source of gas liquids and could be a boon for underutilized gas processing facilities located near the proposed import terminals.
The additional equipment required for new gas processing facilities can add more than $150 million to the capital required for construction of the regasificattion terminal. The potential LNG importers are interested in importing and selling the regasified natural gas and may not be interested in being in the gas processing business.
Processing options, challenges
But imported LNG also has some unique characteristics that can make it attractive for gas processing.
It is free of many of the contaminants normally associated with gas processing, such as H2S and CO2 because these are removed before liquefaction. Since the imported LNG does not contain these components, the gas processing facilities that need to be built downstream of a receiving terminal need not include processes to remove these contaminants.
Also, some LNG streams may have particularly high concentrations of valuable components, such as isobutane. As a result of transportation-cost advantages, some gas producers may even choose to spike additional LPG into the LNG, provided the receiving terminal can economically separate the components into specification-quality streams or the consumer can tolerate the spiked LNG.
This may even prove an economical method to import additional feedstock for petrochemical operations in the US.
But the challenge for gas processors is how to remove these liquids economically in the current environment.
Over the past year, the high price of natural gas has driven US gas processing economics into uncharted negative territory.
Historically, the values of the NGL components of the gas stream (ethane, propane, and butane) have been higher when these products are sold as gas liquids vs. leaving the components in the natural gas stream. In the past year, the reverse has been the case, and gas processors have attempted to leave the products in the gas because they are not economical to recover.
Pipeline operators have been concerned about the changing gas composition, as there are safety and operational implications of the changes.
Gas specification concerns will continue to haunt the import of additional LNG into the US. With the inversion of gas processing margins as a result of recent high natural gas prices, many pipelines have issued operational flow orders (OFO) to help alleviate already high-btu gas entering their systems.
Many gas plants have reduced their liquids recovery, increasing the heat content of gas leaving these plants. This practice in turn increases the possibility of condensation of liquids in the pipeline, which pipelines are seeking to avoid by issuing these OFOs that force gas processors to continue removing liquids, at least to some level.
The disagreement between processors and pipeline operators as to what constitutes "safe" levels has caused friction between the parties.
This situation has driven the US Federal Energy Regulatory Commission to ask the industry to help sort out concerns about gas quality and "interchangeability" (OGJ, June 14, 2004, p. 69). There needs to be a simple, clear, and consistent set of gas-quality specifications that allows gas processors to remove enough liquids to ensure safe operations of the pipeline, but at the same time retain enough flexibility to respond to changing economic conditions.
This is hampered by different pipelines having different specifications and is especially problematic when gas moves from one pipeline to another, if these pipelines have different specifications.
In other words, gas that is perfectly acceptable to one pipeline may be rejected when it moves to another pipeline, due to these differing specifications.
This issue concerns almost all parts of the gas value chain: producers, processors, LNG importers, transmission pipelines, LDCs, and end users, each of whom has a stake in ensuring the issue is handled fairly and equitably, while ensuring that North America's future energy needs are met. End users want and need additional gas supplies; LNG importers, transmission companies, and LDCs want to be able to supply this gas, and and gas processors want to meet their customer's requirements.
Given the current shortfall in the market, agreement on a common set of specifications will allow the US to maximize gas supplies and ensure that LNG imports are not burdened in ways that add significant cost to the imported price of LNG.