2.8.1STORAGE
At both liquefaction, and receiving and regasification facilities LNG can be stored. Since temperature and pressure are directly proportional to each other, the tanks used to store LNG have to keep the liquid cold and independent of pressure. This is done in insulated double-walled tanks, specifically made to hold LNG. If the vapors are not released, the pressure and the temperature within a tank will keep on rising. To keep the temperature constant (auto-refrigeration) the boil-off gas (BOG) is allowed to escape the tank, and is then collected to be used as fuel or cooled down again (National Grid, 2014). In other words, as long as auto-refrigeration is done, LNG can be stored as long as desired. The cost however, would be depending on the fuel price and the lack of storage for further supply or production of LNG.
As there are several kinds of storage tanks to choose from, the decision of which to use is usually based on the land available and cost (Durr et al., 2005). All of them have secondary spill containments, which defines the primary difference between the single, double, and full containment. The secondary containment ensures that any leak or spill is fully contained and isolated from any public near an onshore LNG plant. Tank capacities of 140 000 – 160 000 m3 are common, but the industry has started using up to 200 000 m3 storage tanks (Durr et al., 2005).
2.8.2TRANSPORTATION
Pipelines vs. LNG
Energy distribution is an extremely important component in the petroleum value chain.
Natural gas is considered abundant; however more than one-third of global reserves are classified as stranded (Energytribune, 2007). In order to monetize these resources, economic ways of distributing are necessary.
For offshore transportation of natural gas, pipelines are the most common. However, for longer distances, e.g. between regional markets, pipelines are too costly. The general
guideline is that LNG-transportation breaks even with onshore pipelines at 3200 km and with offshore pipelines at 1600 km (Durr et al., 2005).
Figure 2.4: Gas transportation costs (Durr et al., 2005)
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In determining the most economic transportation method for natural gas, distance and volume are key factors to consider. LNG is more competitive for long-distance routes compared to a pipeline, as overall costs are less affected by distance. Supplying natural gas form Middle East to Europe through LNG allows a cost saving of up to 30% measured up against pipelines.
LNG rarely competes directly with pipelines because of economic-zones and field size, which also comes into play in the evaluation of distribution.
LNG shipping
The shipping of LNG is very much alike onshore storing, except on a vessel. Just as the storage tanks, the ships have insulation to limit the amount of evaporates. This BOG is sometimes used as a supplement fuel for the carrier. Today, the “standard” cargo size for LNGCs is considered to be around 155 000 m3 (GIIGNL, 2013). However, a LNG vessel’s size can be much larger. Qatargas has in recent years pioneered the development of LNG carriers, with sizes up to 266 000m3 (Qatargas, 2014b). In 2013, the ships ordered had an average capacity of 165 000 m3 (IGU, 2014). Today, the majority of LNG ships have been designed to carry LNG either in spherical tank (Moss sphere design) or in geometric
membrane tanks (membrane design). This technology is also be used for floating storage and regasification units (FSRU), described later under 2.9 Technological developments
Using larger ships improves the economies of scale, as they will be able to transport the same planned quantity in fewer trips. However, not every facility can receive larger ships.
Modifications to the facility can be done at a fairly low cost, but the water depth could create troubles. If the water is to shallow, the cost jumps are based on the geographical contours and condition, and site location (Durr et al., 2005).
Transportation is a critical component of the LNG supply chain. Being part of an extensive long-term planning, carriers are usually built specifically for a project, and could almost be referred to as a floating pipeline. Increased spot and short-term trade has led to some players designating a small number of LNGC specifically for LNG spot cargo trade. The cost of shipping a LNG cargo is determined by very physical scrutiny of logistics and constraints.
The shipping costs also influence the global gas flows and pricing dynamics heavily. This means that they are the key driver of the potential value created by moving gas between
different locations, and the level of price spreads between regions in the global gas market.
Over the last two years the shipping costs have played a particularly important role in decision making about cargo diversion to markets with higher prices, as global gas prices diverged post Fukushima. The latest publication about the LNG industry by GIIGNL (2013) supports this, and says that both short- and mid-term charter rates remained high during 2012 (just as in 2011), at around 120 000 USD/day and as much as 150 000 USD/day for a conventional carrier of 155 000 m3. The costs are also a key to understanding to what extent global prices will converge in the future.
After the increase of short-term contracts and spot trades, the demand for LNG shipping capacity can be broken down into two main drivers (Timera Energy, 2014):
1. LNG volume – Higher LNG demand is causing a higher demand for shipping capacity
2. Average travelling time and the proportion of ballast voyages. With a higher number of LNG voyages we get a higher proportion of ballast voyages, requiring more shipping capacity to move a given volume of LNG
In other words, the LNG shipping capacity and shipping charts are fairly correlated with LNG supply and demand, which again are affected by global events. Costs in the LNG shipping industry are expected to be linked to the price for natural gas, if the increased capacity of vessels matches demand for LNG. If there is a surplus of vessels the shipping capacity is likely to go down because of increased competition between shipping companies. Vice versa if there is a vessel deficit, which is expected to increase shipping cost due to more competition for shipping volume.
Globally the LNG fleet consisted of 357 vessels1 at the end of 2013, while the order book contained 108 vessels. Most of these were ordered in 2011 and 2012 in the anticipation of a higher demand for LNG transportation, following the Fukushima nuclear disaster. In addition, the cyclically weak new-build prices led to a burst of orders LNG projects or LNG off-taker charters instead of signing premium charter deals. Although the fear of a shipping supply glut
1 Includes only those above 18 000 m3
reduced this speculative ordering, an excess supply is expected to put a downward pressure on the charter rates in 2014 (IGU, 2014).