LNG costs falling as demand climbs, says Phillips Petroleum executive

Sam Fletcher
OGJ Online

HOUSTON, Feb. 7 -- As world demand for liquefied natural gas grows, its costs are becoming cheaper through more efficient operations that reduce costs for both plants and marine tankers, said the head of LNG business development for Phillips Petroleum Co. at a natural gas storage meeting Thursday in Houston.

Competition among builders is driving down costs for both greenfield LNG plants and vessels, said Kevin Fabry, Phillips' manager for gas and LNG ventures, at the meeting organized by Ziff Energy Group of Calgary. The more efficient operations of larger plant trains also provide cost reductions, while operational changes can produce cost savings.

"LNG shipping has been inefficient in the past, with tankers going over loaded and coming back empty," Fabry said. Finding other cargoes for the return trip could help defray those costs.

The "recovery of LNG cold" for other industrial use could further drive down costs, said Fabry. LNG is liquefied at -260° F. Fabry said the Japanese have succeeded in "capturing" that sub-zero temperature for other commercial uses such as freezing fish.

World demand for LNG has grown in recent years at an annual rate of 10% to 120 tonnes/year, or 17 bcfd. It is expected to remain strong at 8%/year through 2005, with new markets developing in China, India, and Mexico, said Fabry.

However, he said, development of new LNG terminals will be "challenged" by public misperceptions and fears that triggered a 20-day ban by the US Coast Guard of LNG imports through Boston harbor to the oldest operating US terminal in the wake of the Sept. 11 terrorist attacks in this country (OGJ Online, Oct. 16, 2001). Similar concerns also caused local opposition to the reactivation of Cove Point, Md., LNG terminal that is scheduled this year, Fabry said.

Federal officials found no safety problems and authorized resumptions of LNG imports in both cases, he said.

Shipment and use of LNG is safer than the more volatile propane or other liquefied petroleum gas. The industry needs to do a better job of communicating that to the public, Fabry acknowledged.

Meanwhile, others are looking at new alternatives for transporting natural gas and storing it near or even at power plants and other industrial sites.

Glenn Kelly, president of Intragaz Inc., is looking at lining rock caverns with steel to provide natural gas storage capacity. That technology is feasible, although "there are still challenges facing it," he said.

Paul Britton, managing director of EnerSea Transport LLC, said his firm has completed preliminary engineering and economic studies for transport and above-ground scalable storage of compressed gas at plant sites.

That gas would be chilled to sub-zero temperatures to reduce pressure-requirements for the steel cylinders in which it would be stored, but not to the lower extremes required for LNG.

Transport vessels using that technology could be used to market stranded gas reserves that otherwise would be uneconomic. The storage facilities would help meet the peak demand of facilities in areas with limited pipeline capacity and alternative storage, Britton said.

Contact Sam Fletcher at samf@ogjonline.com

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