LNG stands for Liquefied natural gas. It is natural gas that has been cooled to the point that it condenses to a liquid, which occurs at a temperature of approximately - 161°C and at atmospheric pressure.
Transport: Liquefaction of natural gas reduces the volume by approximately 600 times, making it more economical to transport between continents in specially designed ocean vessels. Over long distances, traditional pipeline transportation systems would be less attractive economically. Often, due to geo political compulsions pipelines are not feasible. LNG technology makes natural gas available in places where natural gas is not available in great quantities and pipelines are not feasible.
Storage: Liquefaction also provides the opportunity to store natural gas for use during high demand periods in areas where geologic conditions are not suitable for developing underground storage facilities. In regions where pipeline capacity from supply areas can be very expensive and use is highly seasonal, liquefaction and storage of LNG occurs during off-peak periods in order to reduce expensive pipeline capacity commitments during peak periods.
The LNG value chain (excluding pipeline operations) typically consists of exploration and production, liquefaction, shipping, re-gasification and storage. The components of the LNG value chain have been elaborated below in the following paragraphs.
Exploration and Production ("E&P"): Exploring for natural gas deposits is a high-risk and high cost endeavor. Typically, natural gas is discovered during the search for oil. The activities under E&P extend from exploring, drilling and assessing new sources for hydrocarbon reserves; executing projects for development of those reserves; planning and running production operations to ultimately decommissioning when the operation has run its course.
Liquefaction: Feed gas comes to the liquefaction plant from the production field. The contaminants found in produced natural gas are removed to avoid freezing up and damaging equipment when the gas is cooled to a temperature -161°C. The feed gas is also filtered of all impurities and is ready to meet pipeline specifications at the delivery point. The liquefaction process can be designed to purify the LNG to almost 100 percent methane. The liquefaction process entails cooling the clean feed gas by using refrigerants.
The liquefaction plant may consist of several parallel units arranged in a sequential manner (which is why they are called LNG trains). The natural gas is liquefied for shipping at a temperature of approximately -161°C. By liquefying the gas, its volume is reduced by a factor of 600, which means that LNG at -161°C uses 1/600th of the space required for a comparable amount of gas at room temperature and atmospheric pressure.
Shipping: LNG tankers are double-hulled ships specially designed and insulated to prevent leakage or rupture in an accident. LNG is stored in a special containment system within the inner hull where it is kept at atmospheric pressure and -161°C.
Storage and re-gasification: In order to return LNG to a gaseous state, LNG is received at re-gasification plant. LNG is pumped first to a double-walled storage tank, at atmospheric pressure, and then pumped at high pressure through various terminal components where it is warmed in a controlled environment. The LNG is warmed by passing it through a heat exchanger using seawater to warm up the gas. The vaporized gas is then regulated for pressure and enters the pipeline system as natural gas. Finally, residential and commercial consumers receive natural gas for daily use from local gas utilities or in the form of electricity.
The share of LNG in global gas production is increasing. In recent years the share of LNG in worldwide gas production has grown to 9 %.
The global LNG market is characterized by excess demand relative to available supplies. This situation is only expected to aggravate as several countries have made high investments in LNG trains in the past and now wants to wait before increasing investment or they have put a stop on export development as domestic demand is increasing.
The global LNG market is characterized by an overcapacity of regasification compared to liquefaction. The average utilization load-factor of a liquefaction plant is approximately 90% whereas for regasification terminals this is around 40%.
Traditionally, LNG-production was sold in long-term contracts. However, as more LNG comes on stream and demand for LNG increases, there is a tendency to sell some LNG in contracts of intermediate or short-term duration.
In the recent past LNG producers contract less of the output in fixed long term Contracts in order to profit from market opportunities. In this way much of the new supplies becoming operational worldwide can be considered as 'flexible'.
As LNG markets develop, short-term trading is also developing. In addition, if the arbitrage opportunities taken by integrated companies that can divert flows within their overall portfolio are included, the flexibility of LNG trading are enhanced.
LNG markets can largely be divided into Asia, Europe and the US.
Within Asia the biggest importers of LNG are Japan and South Korea. Since both countries have no natural sources of energy and very little prospects of pipelines, LNG is vital for their economies. Typically these markets are able to pay the highest price for LNG as they value “security of supply” the highest.
The fastest growing markets within Asia are India and China propelled by rising standards of living and concerns for the environment.
Europe has a number of sources of natural gas which include Russia, the North Sea and other sources .In Europe, Spain and France are the biggest consumers of LNG although the UK is one of the fastest growing consumers in recent times.
The US is the world’s biggest consumer of energy. It consumes approximately a quarter of all natural gas produced across the world. It has an extensive network of pipelines all across the country and natural gas is traded in a transparent manner. However LNG constitutes a minuscule percent of the natural gas consumption .The main reason is production of natural gas from unconventional sources such as Shale gas. A large percentage of LNG available today was originally meant for the US but with the increase in volumes of Shale gas, this LNG is now being diverted to other profitable markets such as Asia and Europe.