Judy Clark
Associate Editor
HOUSTON, May 4 -- The marine transport of compressed natural gas (CNG) is poised to become a promising solution for destranding natural gas in areas where reserves will not support the cost of LNG development, said panel members at an Offshore Technology Conference breakfast Tuesday in Houston. The session represented the first OTC program dedicated solely to the emerging CNG transport and storage technology.
"LNG technology took about 50 years to become established, but now people are beginning to recognize that LNG doesn't solve all the gas supply problems around the world," said panel chairman Paul S. Britton, managing director of Houston-based EnerSea Transport LLC. "A new industry is being developed to fill that need," he said.
"Developers have been working on (CNG) concept systems over the last 5-10 years," said Britton. "This industry is really starting to take shape."
Breakthroughs in technology and advanced engineering designs as well as governmental support differentiate today's emerging CNG systems from earlier economic failures, panel members said.
EnerSea Transport is creating one of a number of CNG transport concepts under development. Britton indicated that an announcement concerning the first commercial CNG marine project utilizing its Volume Optimized Transport and Storage (Votrans) CNG system could be expected in late second or early third quarter of this year. He said feasibility studies are under way in South America and in Atlantic Canada and that first project approval is expected in first quarter 2005. "It [CNG marine transport] is something that's going to happen," he said.
Advantages, drawbacks
Because CNG is pressurized and does not have to absorb costs associated with liquefaction and regasification, it is more suited for mid-size supply environments and markets within a 500-3,500 mile application. "About 2,500 miles is the sweet spot for CNG," said panelist Matthew D. Palmer, project manager, CNG, for ChevronTexaco Global Gas, who emphasized the high correlation between investment cost and distance traveled.
Palmer said CNG can alleviate gas-constrained liquids production, can be capital cost effective in deepwater applications, and can serve as an early production system for later LNG development. "CNG offers an attractive value proposition to everybody along the value chain, which is absolutely necessary for it to work," he said.
CNG also can be useful for fast track projects, in transporting associated gas from remote areas, in deepwater areas unsuitable for pipelines, and in emerging gas economies, especially high-risk environments such as Libya, Britton said.
Along with its promise, however, are associated risks, said Matthew R. Simmons, president and CEO of Houston-based Simmons & Co. International, who reviewed the history of natural gas as a fuel and the problems inherent in its transportation, putting CNG in the context of gas price and demand. Instability of gas prices and the inability to predict what the prices will be was paramount among the risks, both for LNG and for CNG, he said. "It's difficult to pin down the cost of gas; it's a moving target," he said.
He said that 35% of wellhead gas used for LNG gets consumed by the time LNG is basically regasified, "so, if you're going to take one of these large-scale NG projects and amortize it over 30 years, I would argue that the owner of that had better be sure they've lined up a 30 year supply. And it's not just a 30 year bcfd, it's a 30 year 1.35 times that."
The cost to create usable gas also is on the rise, he said. Even though many in the industry believe LNG transportation costs will decrease with the learning curve, "no one mentions that the cost of steel would triple," which would increase the cost of LNG terminals and could double or triple the cost of offshore platforms, Simmons said.
"There isn't, in my opinion, any silver bullet," he added, saying that all sources have to be tried. "Never put all your energy eggs in one basket. . . . The role of CNG is not the answer, but it's an important additional answer. The promise is great; the risk is awful; and everything has to work," he said, including conventional natural gas, deepwater gas, tainted gas, coal bed methane, coal gasification, LNG, and now CNG, which can be added "as one of the real bullets to make this thing work."
Company support
ChevronTexaco's Palmer also said there were still some risks: that falling LNG costs could erode CNG's niche, that steel is costly—"likely a temporary blip"—that financing of the first ships would be difficult because applications would first have to be proved, particularly loading and unloading, which are dynamic rather than static and need more development. However he added: "We don't think this is something that is going to be prohibitive."
Palmer said on the positive side that 80-90% of assets are redeployable, which changes the risk factor; that regulatory issues are being addressed; and although there is a public perception of CNG as a danger, CNG actually would eliminate energy footprints, and companies could carve the message in a positive way to overcome public misconceptions and keep the momentum going.
Palmer said ChevronTexaco made a decision a couple of years ago to place a major focus on natural gas and commercialize its stranded gas, which would be critical to the strategy of its business plan. "ChevronTexaco believes it is not a question of 'if' CNG will come together but 'when and how,'" and it will probably be sooner rather than later, he added.
Regulatory momentum
Regulation follows innovation, said William J. Sember, vice-president for energy development at the American Bureau of Shipping, which currently is building a regulatory framework for CNG carrier safety. He said the standards were not complete, but ABS has developed guidelines for CNG containment systems and the hull propulsion system and marine system, which he said were "fairly well in place," all issues that had to be addressed in the early stages of development.
ABS Tuesday released its Guidance Notes for Building and Classing Ships Carrying Compressed Natural Gas to assist designers and operators on practical applications. Building on the International Gas Code of the International Maritime Organization, the guideline identifies acceptable methodologies for vessels carrying CNG, which is transported at pressures of 150-250 bar.
ABS is using existing industry standards and those of other agencies as a starting place for CNG standards and inspection criteria. There currently are at least five different concepts for CNG delivery that are in various degrees of design approval, he said.
About 80-90% of CNG project investment is in the ship, Sember said. Consequently he advised CNG investors to put enough money up front in the design, which normally is only 5% of cost, because "the design might have 70% of influence on the project."
Sember, in a related aside, said that of 150 LNG carriers now in operation, 50% are more than 10 years old, and 40% are probably over 20 years old. However, there are 60 LNG carriers now under contract and 60-100 more are predicted to follow those. Also 125 oil FPSOs (floating production, storage, and offloading vessels) are operating. "So you can see there are big changes taking place in the energy business right now."
CNG R&D testing center
Rounding out the panel was Axel Meisen, president and vice-chancellor of St. John-based Memorial University of Newfoundland, home of the new Centre for Marine CNG—the world's first research and development center for large-scale CNG marine transport and storage technology. Nine industry companies, including Maritimes & Northeast Pipeline, are sponsoring the world-class, not-for-profit research and testing center in cooperation with the university, ABS, the Gas Technology Institute, and the Province of Newfoundland and Labrador Mines and Energy.
In addition to industry membership and support, the center has a Canadian government-funded $6 million (US) for an initial 5 year program. The center will serve as a forum for international CNG standards development (although it will not set those standards, Meisen said) and as a facility for testing CNG transport and storage components. It has a large-scale motion table pitch and roll simulator to test the effect of shipboard motion and other facilities for gas analyses and for testing and modeling dynamic loading and offloading operations as well as chilling and heating processes.
Meisen said the center would provide its first forum for information exchange June 22-24 in St. Johns.
Contact Judy Clark at [email protected]
