In 2014, the cost-effectiveness of every aspect of LNG was brought into question when oil prices started to plummet, taking earnings from gas along with them. Part of the transformation that gas is now necessarily contemplating is to embrace smaller-scale LNG plants that can be built more quickly to produce earlier returns for lower capital outlay.
The scaled-down approach to LNG is gaining momentum, says a report by independent market analysts, Visiongain. Small Scale Liquefied Natural Gas Market 2016: Liquefaction, Regasification, Satellite Station …, poses that “Technological advancements, geographical considerations and new uses of LNG have all influenced the market for LNG infrastructure at a smaller scale.” It forecasts 2016 capital expenditure on infrastructure for small-scale gas production will be US$2.539 billion.
The potential for small-scale plants is to both grow the market for gas, and to shrink costs for massive projects now on the drawing board. Small-scale, LNG plants constructed from standard modules offer a cost-effective way to develop smaller gas fields and to supply the domestic market from positions on so-called stranded pipelines, particularly in remote areas; and they can be duplicated, indeed multiplied, to offer the same processing capacity as large plants.
DNV GL, international certification body and provider of independent advisory services to industry.Says James Brown, LNG and gas consulting manager at DNV GL, “The problem in the past has been that each solution has been tailor-made for each application. This inherently requires repeated effort to generate ideas from scratch. If the industry can develop more off-the-shelf solutions it will benefit from economies of scale to keep the cost per tonne of LNG down.”
How a standardised system can trump tailored solutions
The bespoke nature of gas operations to date has been driven by the variable composition of gas from different fields. Explains van Bueren, “No two projects ever have the same gas; some might have a lot more liquid hydrocarbon, some might have a lot more carbon dioxide, some might have a lot more water. When you’re spending upwards of $15 billion to develop a gas field, you want to recoup the cost to capital as quickly as possible. The best way to do that is to have the most efficient plant for that field, so you design the plant to suit the gas.” GE’s small-scale gas plants, he says, are highly efficient across the board, but can’t be as efficient as plants designed specifically for the composition of a particular field. That said, the reduction in capital expenditure upfront “is so significantly different that it can more than offset some small changes in efficiency in capital up front and faster builds”.
He says an off-the-shelf plant won’t work for every gas field, but that GE has designed comprehensive modelling software to assess the small-scale LNG plants within the context of each development’s whole supply chain. “We can sit down with the customer and say, ‘What’s your project? How long will it run for? How much gas do you need? What do you need in terms of storage? What’s the distance from the pipeline? What’s the price of the gas that you’re going to get?’ You put in all those variables and come up with the best answer for them. In some cases we tell them, ‘It’s not going to work, don’t spend any more time on it.’”
In others, the benefits kick in early and flow on and on. Standardised modules made up from off-the-shelf equipment require less bespoke training to operate, parts can be quickly and easily replaced and, when maintenance is required, an operation consisting of two or more small-scale plants won’t have to be powered down at once, causing an all-out outage—one plant can be powered down while the other(s) keep on trucking.
Growing new markets and distributed power
Transportation—trucks, rail and shipping—is a growing market for natural gas as the world seeks to tackle emissions by using cleaner fuels. Trucks running on LNG, for example, emit 20% less carbon dioxide than trucks running diesel. “Mining companies are looking to use LNG as an alternative to diesel in their trucks, and likewise in their locomotives that haul the iron ore from the mine site to the coast,” says van Bueren.
Most of Australia’s gas is processed for export, and developers of large gas fields derive little value in transporting LNG to relatively small users such as remote towns and mine sites. Says Brown, “Small-scale shipping carriers need to have special equipment to be able to take LNG from large-scale facilities. Part of the challenge with small-scale LNG has been that the big players have been unwilling or unable to contract with small volumes and on a flexible basis. Small scale is more of a hindrance to large scale than a benefit, because the economics are not as good and the small shipping carriers use up valuable berthing time.”
Gas pipelines, however, traverse parts of Australia in a way that makes it possible to position small-scale processing plants much closer to remote communities. Liquefaction of gas at such sites on the otherwise stranded (untapped) pipelines enables transportation of LNG by truck to remote towns and mine sites, where it is used to run heavy machinery or generate electricity.This system of delivery is called a virtual pipeline. One small-scale LNG plant at Karratha, for example, energises the West Kimberley region—the towns of Broome, Derby, Fitzroy Crossing and Halls Creek—with daily deliveries of LNG that run their gas-fueled power stations.
The LNG fuelled power plant at Karratha that supplys 27,000 customers in surrounding suburbs with power.
Brown believes that the greatest potential for small-scale LNG is in Southeast Asia: “GDP and population growth is forecast to be higher than elsewhere. Also there are stranded and dispersed populations in countries like Indonesia and Philippines where there are millions of people without access to electricity at present. The challenge with Southeast Asia is that there are also many barriers to introducing LNG power, as well as competition with coal, which is expected to grow faster than gas due to better economics and availability.”
That said, Brown adds that LNG has considerable environmental benefits over coal, and a much better safety record than oil and diesel.
Small LNG plants can also be beautiful for “smaller E&Ps, exploration and production companies that are forced to flare gas that they can’t monetise,” says van Bueren. Companies prospecting for and extracting other resources such as oil often also release natural gas; far from pipelines, it has no value, but in some instances, low-cost processing of that gas may be viable. The resulting LNG can be used to fuel site equipment and energy needs, and even the energy requirements of nearby communities.
Distributed power—power generated at or nearer the point of consumption vastly reduces the cost, complexities and inefficiencies of long-distance transmission or delivery. Small-scale LNG plants are one part of the solution to using natural gas resources efficiently, to fuel the planet’s growing energy needs.
Catch the GE Oil & Gas team this week (11-15 April) at LNG 18 in Perth.