Advances in technology change the face of LNG

April 1, 2004
Offshore technology promises to be the next step forward for a rapidly evol-ving and growing LNG industry.

LNG moves offshore

Kevin D. Keenan
King & Spalding International LLP (London)

Offshore technology promises to be the next step forward for a rapidly evol-ving and growing LNG industry. Until now, LNG primarily has been sold into captive markets under dedicated trades between onshore liquefaction and regasification facilities. But that is about to change.

The falling cost of LNG facilities and tankers and the rising demand for natural gas have increased LNG's popularity. Moving facilities offshore is the next big step in the process.

The winds of change

As worldwide gas demand increases, there is an equally increasing demand to monetize stranded gas reserves. The rising price of natural gas has helped to offset the high capital expenditure required for LNG infrastructure development and there is a growing desire to make expensive LNG infrastructure portable so it can be moved from place to place as reserves are depleted. Recent movements in this direction illustrate the potential impact offshore technology could have on the LNG trade.

Offshore LNG facilities provide options for monetizing more of the world's stranded gas reserves. In politically sensitive areas around the world, offshore facilities also mitigate the risk of sabotage. Furthermore, offshore facilities can, depending on the jurisdiction, significantly decrease the time required to obtain approval from relevant regulatory bodies. They also address the not-in-my-back-yard resistance to building new LNG terminals.

Offshore terminals have the potential to expedite the growth and maturity of the LNG industry and to accelerate the process of LNG becoming a true commodity.

Offshore regasification

Italy is Europe's third largest gas market, but most of its imported gas is transported by pipeline because of difficulties in siting land-based regasification terminals. As a result, project developers in Italy have led the way in developing static offshore regasification terminals.

Italian utility, Edison, along with majority stakeholders ExxonMobil and Qatar Petro-leum, expect to import LNG into an offshore regasification terminal to be built 17 km offshore Marina di Rovigo in the northern Adriatic Sea. Front-end engineering and design is already underway and an EPC contract award was to be made in March 2004, with completion and start-up scheduled for mid 2007.

Working with Italian engineering firm Saipem since June 2002, Golar LNG has joined forces with Italian developer CrossGas to develop a floating regasification terminal offshore Livorno. Dubbed the OLT (Offshore LNG Terminal) Toscana project, the CrossGas facility uses a standard Moss-type spherical LNG carrier and converts it to a permanently moored floating storage and regasification unit (FSRU). CrossGas believes that converting an existing LNG carrier into an FSRU solves the questions of safety and sea-worthiness with little difficulty, lead-time, and investment. Once the LNG carrier is reconfigured to store and regasify LNG, the only remaining technical issue is connecting to a pipeline to bring the gas to shore.

Elsewhere, some experts argue that in the next 10 years there could be as many as 20 offshore terminals built for the US market. Already, of more than 25 terminals proposed for the US market, eight are offshore. Among these are projects in California by BHP Billiton and Crystal Energy and in Mexico (Baja California) by ChevronTexaco. The remaining terminals, planned for the GoM, have been proposed by Shell, ExxonMobil, ChevronTexaco, Conversion Gas Import, and Excelerate Energy.

Making the US prospects even more attractive is the recently amended US Deepwater Port Act of 1974, which now gives the US Department of Transportation exclusive jurisdiction over offshore terminal approvals. The amendment also makes the once-vexing requirement that such terminals be operated as "common carrier" facilities inapplicable. Under the new legislation, developers of offshore facilities now enjoy the benefit of being able to bypass the "open access" requirement at the terminal. This change is in contrast to the requirement for open access, which continues to apply at the downstream pipeline component of all greenfield onshore facilities.

Excelerate Energy's EP Energy Bridge technology will be first deployed in the GoM, but it could theoretically be deployed in a number of locations worldwide.

EP Energy Bridge reportedly allows environmentally safe and cost-effective natural gas delivery to coastal areas at a lower cost than traditional shore-based regasification facilities. The ship-based LNG regasification system applies proprietary technology to regasify LNG onboard the ship for discharge through a subsea pipeline.

The ship, a specially fitted LNG tanker called an LNG regasification vessel (LNGRV), connects to the subsea pipeline infrastructure through a commonly used offshore buoy and turret system that has proven itself in a number of deployments worldwide, including the harsh climate and operating conditions of the North Sea. As the LNGRV arrives at the unloading site, the buoy is pulled into a receiving cone and connected to the ship. The LNG is regasified aboard the ship, with the vapor discharged through the buoy into the subsea pipeline.

The first of two newbuild LNGRVs is to be delivered at Daewoo Shipbuilding & Marine Engineering's South Korean shipyard later this year.

If Excelerate Energy is able to capitalize on this technology, the effects on the industry could be considerable. The LNGRV can move from buoy to buoy, offloading natural gas directly into an established pipeline grid, which will dramatically reduce the costs and lead-time traditionally associated with bringing LNG to new markets.

Offshore liquefaction

Although offshore liquefaction has been discussed by a number of industry heavyweights over the years, Shell first took the lead in pursuing it with the Greater Sunrise field in the Timor Sea, in the Kudu field off Namibia, and at its NnwaDora field off Nigeria.

While the proposed Greater Sunrise offshore facility has yet to make it off the drawing board due to disputes among equity participants as to the best way to get almost 9 tcf of gas to market, the East Timor government renewed its campaign in late January 2004 in support of Shell's assertion that an offshore facility in the Timor Sea is the most cost-effective approach – the alternative being a 500-km pipeline to a shore-based facility in Darwin. Greater Sunrise partners were in January of this year reportedly close to making a final decision on the offshore option. If Greater Sunrise does not come to fruition, it will likely be a question of site-specific economics, not of technological viability.

Although Shell's Kudu development off Namibia was canceled because of insufficient reserve findings, the company's Nigerian offshore project has escaped that fate. A development team made up of representatives from Shell, Statoil, and Nigerian National Petroleum Co. are investigating offshore LNG development possibilities for NnwaDora. The Statoil-led development team began work in August 2003 and expects to conclude investigations in November 2004.

Shell achieved another first with its announcement at the World Petroleum Con-gress in September 2002 of a "breakthrough technology" that reportedly combines FPSO with floating LNG technology to allow development of small offshore fields. The floating oil and natural gas (FONG) technology was developed specifically for deepwater fields with high gas-to-oil ratios where re-injection of associated gas is cost prohibitive.

A European consortium made up of Bouygues Offshore, MW Kellogg, Chantiers de l'Atlantique, Fincantieri, FMC Europe, Gaz Transport & Technigaz, Bureau Veritas, Registro Italiano Navale, and Institut de Recherches de la Construction Navale completed a study in late 2002 that reportedly demonstrates the technical feasibility of offshore LNG technology across the LNG value chain (from liquefaction through loading, unloading, storage, and regasification). The study, called the Azure R&D Project, also received support from Shell, Total AS, Chev-ronTexaco, and ConocoPhillips.

At least three classification societies have undertaken independent studies of offshore LNG technology to date. Among those three, the American Bureau of Shipping (ABS) published its Guide for Building and Classing Offshore LNG Terminals in December 2003. ABS's publication is a strong indication that both applications of the technology are well on their way toward implementation.

Clearly, offshore liquefaction has no shortage of conceptual proponents.

The future

Offshore regasification will soon be a reality. The first two EP Energy Bridge vessels are under construction in South Korea. Construc-tion is imminent on the Marina di Rovigo facility in Italy's Po River delta. Projects like CrossGas's OLT Toscana facility and a host of offshore regasification facilities proposed in the US show tremendous promise.

It is also likely that offshore liquefaction will be successfully deployed. However, with the ongoing uncertainty at Greater Sunrise and with Shell's decision not to proceed with offshore development in Namibia, the timing of deployment is uncertain.

The future looks bright and, although there are issues yet to be addressed on both ends of the offshore LNG value chain, the LNG industry appears on the brink of a new era of growth fueled in large measure by the advent of offshore liquefaction and regasification technologies.

Acknowledgement

The author would like to thank David Lang, of King & Spalding LLP (Houston), for his valuable assistance in preparing this article.