The LNG supply chain

What is LNG ?

LNG, which stands for Liquefied Natural Gas, is natural gas that has been converted to a liquid state by cooling to below -163°C. In this form, it occupies 600 times less space than before cooling, while retaining the same calorific value. This makes transport much easier.

Setting up a LNG chain requires investment in several types of facility:

– Exploration, to detect deposits of natural gas (which are generally discovered during oil exploration operations) and extraction/production

– Storage then liquefaction, to convert the natural gas from “gaseous” to “liquid” form in which it can be transported by tanker

– Transportation by special vessels called LNG tankers

– Storage then regasification, to restore the natural gas to its gaseous form, in which it can be transmitted through pipelines for consumption by end customers.

The differents steps of a LNG supply chain

 

The history of LNG

Natural gas liquefaction was developed in the 19th century by the British chemist and physicist Michael Faraday, who experimented with liquefying several gases, including natural gas. The first liquefaction plant was built in the United States in 1917. The first commercial operation began in 1941, again in the US. In January 1959, a former World War II cargo ship was converted into a tanker, the Methane Pioneer, to carry LNG between Lake Charles (Louisiana, USA) and Canvey Island (UK). Long-distance LNG transportation had become a reality. The 7 deliveries made in the following 14 months suffered only minor technical problems. Following this success, the British Gas Council decided to set up a commercial route between Venezuela and Canvey Island. In 1964, the UK became the first LNG importer, and Algeria the first exporter. Subsequently, several countries became interested in this new supply technique, including France, which built its first LNG terminal at Le Havre in 1965 (dismantled in 1989). The terminals of Fos-Tonkin (1972), Montoir-de-Bretagne (1980), Fos-Cavaou (2010) and Dunkerque (2016) are all part of the strategy to diversify national and European natural gas supplies.

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Share of LNG among the total of natural gas imports in France in 2014

Worldwide, there are currently 26 liquefaction terminals in 16 countries, and 95 regasification terminals in 33 countries. Furthermore, there are plans for several both liquefaction and regasification terminals: if some of these projects  will never be built, other are under construction.

 

The LNG supply chain

A LNG supply chain is made up of 4 interdependent segments: exploration/production, liquefaction, transportation and regasification. Each of these segments has its own specific industrial processes and involves specific rules and participants.

1. Exploration – production

At the heart of this essential activity, specialists analyse geological structure to identify areas that may contain hydrocarbons. They carry out special tests, such as seismic analysis, to confirm their initial assessments. Drilling is undertaken when there is a high probability of discovering gas (or oil). If the well is viable (after a series of tests, measurements and additional drilling), it can go into production.

2. Liquefaction

The natural gas extracted from the deposit is filtered and purified, so as not to damage equipment during the conversion from gas to liquid, and in order to meet the specifications of the importing regions. This means that the liquefaction process produces a natural gas with a methane content close to 100%. Liquefaction plants often consist of several installations arranged in parallel, called “liquefaction trains”. The liquefaction process reduces the volume of gas by a factor of around 600, in other words 1 cubic metre of LNG at -163°C has the same energy content as 600 cubic metres of “gaseous” gas at ambient temperature and atmospheric pressure. The density of LNG is around 45% that of water.

3. LNG transportation

LNG tankers are double-hulled ships specially designed to prevent hull leaks and ruptures in the event of accident. The LNG is stored in tanks (generally 4 to 5 per tanker) at a temperature of -163°C and at atmospheric pressure. There are currently 3 types of LNG carrier, each corresponding to a different tank design: membrane tanks, spherical tanks and IHI Prismatic tanks. In 2009, carriers with membrane tanks accounted for more than 60% of world LNG transportation capacity, and more than 85% of orders. This is so far the only technology which allows the construction of large capacity carriers such as the Q-flex (210,000 cu. m.) and Q-max (260,000 cu. m.) vessels.

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Interior of a membrane type tank in an LNG carrier (Source: GTT)

 

4. Storage and regasification

Once received and offloaded, the liquefied natural gas is returned to cryogenic storage tanks – usually varying in capacity from 100,000 to 160,000 cubic meters, depending on the site – where it is kept at a temperature of -163°C prior to regasification. Regasification consists of gradually warming the gas back up to a temperature of over 0°C. It is done under high pressures of 60 to 100 bar, usually in a series of seawater percolation heat exchangers, the most energy efficient technique when water of the right quality is available. An alternative method is to burn some of the gas to provide heat. On its way out of the terminal, the gas undergoes any treatment processes needed to bring its characteristics in line with regulatory and end-user requirements. Its heating value, for example, may be tweaked by altering nitrogen, butane or propane content or blending it with other gases.

 

Exporting and importing countries

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The LNG importing countries can be divided into 2 markets: the Atlantic Basin and the Pacific Basin. The Pacific Basin comprises countries along the Pacific and in South Asia (including India). The Atlantic Basin covers Europe, North and West Africa and the Atlantic coast of the American continent.

The Pacific Basin market emerged in the 1990s, at a time when demand in some Asian countries increased significantly (mainly Japan and South Korea). LNG represented an alternative to oil, and the goal was to maintain security of supply even at relatively high cost. The Atlantic Basin market emerged later in the 1990s, for reasons of security of supply and also in anticipation of a fall in some countries’ domestic reserves.

We can note that there are less and less exporting countries. Thus, in 2015 there were 17 exporting countries whereas there were 19 in 2014.

LNG exports (Source: IGU “2016 World LNG Report”)

 

In contrast to the declining number of exporters, the number of importers is growing. In 2015, there were 34 LNG importing countries. Although it tends to import lower LNG quatities, Japan remains the world’s biggest LNG importer, followed by South Korea. The reason is that those countries – just like a great part of Asia-Pacific region –  are extremely dependent on LNG for their gas consumption.

LNG imports (Source: IGU “2016 World LNG Report”)