LNG – Green or Gangrene?

This blog discusses whether Liquefied Natural Gas is green or gangrene.  Natural gas is naturally a gas not a liquid – duh!   In order to liquefy the gas for easier transportation to far off markets, it is cooled to very low cryogenic temperatures and held within thermos type storage tanks.  In the process of liquefying the gas approximately 10% of the energy in the gas has to be used for the refrigeration.  The ships that transport LNG use approximately another 10% of the energy content of the gas to get the product to market.  Hence compared with natural gas in a pipeline in the USA, LNG landed in Japan has 120% of the carbon footprint.

Argonne National Labs states that the upstream production of natural gas emits 6.995 kg of CO2 per million BTU LHV and the actual burning of the gas emits 59.41 kg of CO2 per million BTU LHV.   Gas is sold on higher heating value (HHV) not lower heating value (LHV) and we use pounds in the USA.  Performing the math we have emissions of 132.2 pounds of CO2 per million BTU HHV and 146.4 pounds of CO2 per million BTU LHV for pipeline gas in the USA.  In Japan the LNG has emissions of 158.6 pounds of CO2 per million BTU HHV, and 175.7 pounds of CO2 per million BTU LHV.

The delivered price of natural gas at Henry Hub in the USA is approximately $3 per million BTU HHV.  The delivered price of LNG with the same heating content at a port in Japan is $12.40.  The extra $9.40 per million BTU accounts for the cost of liquefaction and the transportation of the LNG to Japan.   The Japanese and other LNG importers wish they had shale deposits and production like the USA. 

The LNG is expensive because of the complex supply chain but it is greener than burning coal or fuel oil to generate electricity.   The global trade of LNG is growing and many new liquefaction facilities are being built in countries with gas reserves.  Australia and the US are leading the charge to construct natural gas liquefaction facilities and there is also a considerable amount of activity in the LNG sector in Africa.  However the projects are now looking less promising and certainly less profitable given that oil prices have dropped and more competition has come to the LNG market.  Two years ago LNG landed in Japan was selling for $18 per million BTU.

A project at Curtiss Island in Queensland Australia has just come on line that cost $20 billion to build with a capacity of 8.5 million metric ton per year.  This project will hardly be profitable as the capital cost of the project far exceeded the original budget.  In fact many LNG projects have seen massive cost overruns, and one project in Angola was poorly designed and built it has failed to run and has to be rebuilt entirely.  It is the poster child of how not to design and build a LNG facility.

http://www.couriermail.com.au/news/queensland/huge-pay-rises-for-fifo-workers-buy-industrial-peace-at-curtis-island-lng-projects/story-fnihsrf2-1227026076307?nk=277ca98365c72aaadc9fd5ba2ce7a9c5

http://www.bloomberg.com/news/2014-06-17/total-s-disappointment-with-angola-lng-adds-to-output-gap.html

The owners of these and other LNG facilities probably wish they had selected more competent contractors for the engineering, procurement , and construction (EPC) of the projects but they are stuck with massive investments in locations where there is stranded gas.  As the stranded gas is useless at it source, the gas will be liquefied and transported to distant markets even if the profitability of the project is not as high as expected.  Several projects that are still in planning will now probably not get built.  One casualty of the “glut” of LNG is a project in Lavaca Bay Texas, that was cancelled this week.

http://fuelfix.com/blog/2014/12/31/excelerate-energy-puts-lavaca-bay-lng-on-hold/

From a green perspective the use of LNG is far greener than fuel oil or coal, but from an owners’ perspective the word LNG may be gangrene given the billions of greenbacks these projects have overrun and the many billions of expected profit that will not materialize.  Future LNG projects will get far better management of the EPC contractors, and Chevron has promised its shareholders to do exactly this after the Angola LNG debacle.

http://business.financialpost.com/2014/09/18/chevron-vows-to-use-lessons-learned-after-angola-lng-missteps/?__lsa=fc53-a7e0

My early career was spent in LNG and cryogenics so there may be a role for the green machine to help owners select and manage EPC contractors to yield better project results.  I think LNG is green and I have always said the best method to generate electricity that is fully dispatchable and affordable is using natural gas in a combined cycle power station.   Had Delaware and California not wasted money on Bloom Boxes and had they built combined cycle natural gas power stations the ratepayers in these states would be far happier and better served.   It is quite amazing how much money was wasted on mismanaged LNG projects and on Bloom Boxes.  In the end just like Chevron, we hope that public utilities commissions in Delaware and California also learn some lessons.  God knows how hard I have tried to teach them.