SPE DISTINGUISHED LECTURER SERIES is funded principally through a grant of the SPE FOUNDATION

SPE DISTINGUISHED LECTURER SERIES is funded principally through a grant of the SPE FOUNDATION The Society gratefully acknowledges those companies that support the program by allowing their professionals to participate as Lecturers. And special thanks to The American Institute of Mining, Metallurgical, and Petroleum Engineers (AIME) for their contribution to the program.

LNG Roaring Ahead Where Will it End? John Morgan John M. Campbell & Company Exclusive Provider of PetroSkills Facilities Training Headquarters Office 1215 Crossroads Blvd., Norman, OK 73072 USA (405) 321-1383 Office / (405) 321-4533 Fax / (303) 523-6797 Cell djm@jmcampbell.com / www.jmcampbell.com 2008 John M. Campbell & Co. and Other Copyright Holders All Rights Reserved

$7 Billion Entry Fee

Liquefied Natural Gas (LNG) 1. Allows gas to be sold from remote suppliers Indonesia, Middle East, Australia, Algeria, etc. to industrialized countries, Japan, Korea, Spain, UK and USA 2. The largest producer of LNG is Qatar. 3. Was Indonesia but gas reserves depleted 4. The largest market for LNG is Japan 5. International trade in 2007 was ~165mtpy (Equivalent to 217BCMa)

WHAT IS LNG 96% Methane 3% Ethane 1% 0.1% Propane Butane Pentane + LPG NGL LNG LPG Liquid Petroleum Gas NGL Natural Gas Liquids LNG Liquid Natural Gas

Example LNG Properties -162 o C [-235 o F] at atmospheric pressure Rich Lean nitrogen 0.3 0.5 methane 88.7 97.5 ethane 8.0 1.5 propane 2.0 0.5 butanes 1.0 - approx. kg/m 3 465 435 CV (higher) MJ/m 3 42 38.5

2004 LNG Journal & Reproduced with Permission An LNG Export Terminal with Multiple Expansions - Bontang, Indonesia

The Basic LNG Chain Gas Production LNG Production Shipping LNG Reception Gas Utilization

Common Engineering Units scf is the volume of gas at 14.7psi and 60 o F scm is the volume of gas at 101.3kPa and 15 o C 1MMscfd is 1,000,000scf/day 1m 3 = 35.3ft 3 Density of water = 1000kg/m 3 Molecular weight of air is 29 (28.97) Power 0.746kW = 1HP 1Btu is the energy required to raise the temperature of 1 lb water 1 o F 1Btu = 1.055kJ

Natural Gas Transportation Options 5000 1000 Pipeline LNG MMscfd 500 100 Gas-to-liquids 50 Electricity Uneconomic 0 1000 2000 3000 4000 5000 Distance to market, km

Nominal Gas Transportation Efficiency

Historical Development of LNG Trade Last 25 Years Projects grow from less than 1 mtpa to 4-6 mtpa New supplies to Japan, first imports to Korea, 1987, and Taiwan, 1990 Late 1990s present Slower growth in Asian LNG demand economic upsets Growth in LNG demand in Europe, USA and Caribbean New supply projects in Atlantic Basin and Middle East Today s LNG trade

LNG Industry Growth Historical Projected 5.5%/yr Source: CERA, CEDIGAZ

2005 Source NPC Demand is Met from Diverse Sources of Supply

LNG Imports Are Needed, but Face Obstacles 2005 Source NPC

The Basic LNG Chain Gas Production LNG Production Shipping LNG Reception Gas Utilization

The Contract Chain 1. Exploration licenses, production-sharing contracts 2. Gas sales to LNG Producer 3. LNG production joint venture agreement 4. Condensate/LPG production and sale 5. Government and local authority agreements 6. LNG sale and purchase agreement between LNG producer and LNG buyers

Gas Production Platform North Rankin A North-West Shelf Project, Australia 2005 LNG Journal & Reproduced with Permission

The Basic LNG Chain Gas Production LNG Production Shipping LNG Reception Gas Utilization

General Schematic Gas Liquefaction Terminal Pre-cooling and LPG Separation 2005 LNG Journal & Reproduced with Permission

Contaminants What s in gas (besides light hydrocarbons)? H 2 O CO 2 H 2 S S He N 2 Cl Hg As Waxes Asphaltenes etc. Sand Dinosaur Dust Lubricants Corrosion Inhibitors Mystery Stuff, etc.

Some Mercury Levels Worldwide microgm/m3 Mercury kg/a South America 69 119 373 643 Far East 1 3 20 16 108 Far East 2 58 193 313 1,042 Far East 3 0.02 0.16 0.11 0.86 Groningen 180 972 Mid West P/L 0.001 0.1 0.01 0.54 Based on 4mtpy LNG production (600MMscfd)

Mixed Refrigerant LNG Process

The Liquefaction Heat Balance HEAT SINK 390MW NG 40C 60bar PROCESS 230MW LNG -162C 1bara POWER 160MW LNG Production 3.7mtpy (500tph) Based on a 3.7mtpy train

Centrifugal Compressors Horizontally Split Generally used in high volume/low pressure applications

Axial Turbine Blades

Overview of LNG Production Facilities Technologies Established Technologies ConocoPhillips (Optimized Cascade) APCI (Propane Precooled) New Process Technologies APCI (AP-X) Linde (MFC) Shell (DMR) IFP (Liquefin)

LNG Facility Comparison There are 80 operating trains with a total capacity of 197mtpy (2.5 mtpy/train) APCI C3MR (60) 152 mtpy 76.6% ConocoPhillips Optimised Cascade (9) 30mtpy 15.3% Shell C3MR(1) 4.2mtpy 2.3% Linde MFC (1) 4.2mtpy 2.1% Others (TEAL/SMR) (9) 7.3mtpy 3.7% There are 27 trains under construction with a total capacity of 137mtpy (5.1mtpy/train) APCI (14) 61mtpy 45% APCI AP-X (6) 47mtpy 34% ConocoPhillips Optimised Cascade (3) 10.5mtpy 7.7% Shell C3MR (2) 8.5mtpy 6.2% Shell DMR (2) 9.6mtpy 7.0%

ConocoPhillips Optimized LNG Process Courtesy ConocoPhillips Petroleum Company

Egypt Idku 2 Trains 3.4mtpy On stream in 2006 COP Optimised Cascade process Air cooled process Very long jetty Space for expansion

Darwin LNG: First LNG March 06

Atlantic LNG Train 4: 5.2mtpy from 8 Frame 5 GTs Started up in March 2006

Atlantic LNG Project Expansion Trinidad 2002 LNG Journal & Reproduced with Permission

Overview of LNG Production Facilities Trends Larger facilities Bigger Trains Bigger Turbines Reduce Environmental Impact CO 2 Produced with gas Developed by turbines NO x Marine Environment

Typical Project Schedule Greenfield LNG Export Project Year 0 1 2 3 4 5 6 7 8 9 10 Upstream Terminal Site study drilling and appraisal design construction selection acquisition, approvals prepn. LNG Plant study concept design FEED EPC - construction Shipping study shipping arrangements ship building Project Structure & Evaluation study negotiations -j.v. evaluation Markets analysis marketing, sales agreements first LNG exports Financing advice and analysis securing financing 2000 LNG Journal All Rights Reserved

190,000m 3 LNG Storage Tank

The Basic LNG Chain Gas Production LNG Production Shipping LNG Reception Gas Utilization

1959 The Methane Pioneer 2004 LNG Journal & Reproduced with Permission

LNG Carrier Fleet As at 1 January 2008 the Carrier Fleet was 250 ships, average age 13 years 400 ships in 2011 52% Membrane, 45% Moss, 3% others Small carriers 20-80,000m 3 Typical Carriers 125-145,000m 3 New very large carriers on order for Qatar long distance trades (205-265,000m 3 ). The order book is 142 ships Some Fleet owners now looking to replace older ships >35 years

One of the World s Smallest LNG Carriers The 19,100 m 3 Capacity Surya Aki

Partial Loading of LNG Cargoes Photo Courtesy of ABS

2002 LNG Journal & Reproduced with Permission A Typical Large-Size LNG Carrier The 135,000 m 3 Capacity Al Bidda

Qflex

The Basic LNG Chain Gas Production LNG Production Shipping LNG Reception Gas Utilization

Costs in an LNG Project Gas Gathering Liquefaction (1 train) Ships 5 @ $250 m Regasification TOTAL US$ 1.5 2.0 billion US$ 1.5 2.0 billion US$ 1.3 billion US$ 0.5 1.0 billion US$ 4.8 6.3 billion Could easily reach $7,000,000,000

Negishi Terminal, Japan : Single Containment Tanks (background) Inground Tanks (foreground) 2002 LNG Journal & Reproduced with Permission

US LNG Terminal: Elba Island

The Basic LNG Chain Gas Production LNG Production Shipping LNG Reception Gas Utilization

Seasonal Demand Pattern Europe & North America

Gas Markets 1. Residential & Commercial a. Heating demand highly seasonal (low load factor) b. No fuel switching capabilities 2. Industrial a. Fuel for factories, chemical plants, steel mills, etc. b. Power generation for factories, chemical plants, steel mills, etc. c. Chemical feedstock ammonia, methanol, GTL d. High load factor e. Fuel switching capability

Ship-to-Ship Transfer

Gas Markets Power Generation a. Combined cycle most popular GT + waste heat boiler Eff.~55% Low CO 2 emissions 7 8 tonnes/mw compared to 25 27 tonnes/mw for coal b. Higher load factor than residential & commercial c. Quick response to demand swings d. Summer demand higher than winter (A/C) e. Fuel switching capability

GE GAS TURBINES H-Technology 400-480 MW combined cycle output Firing at 2600 F, 1430 C 23:1 compressor, 18 stages 4 stage turbine 60% combined cycle efficiency

Example Heating Values Japan Power Plant USA - Florida UK 36 38 40 42 44 46 48 50 MJ/m3 Adapted from: Bramoulle, Morin and Capelle, LNG Quality and Market Flexibil Challenges and Solutions, LNG 14, Doha, Qatar 2004

Examples of Sales Gas Specifications Quality Water Content Dew Point H 2 S Total S USA 4-7lb H2O/MMscf 32 o F at 1000psi 0.25-1gr/100scf (4-16ppm vol) 5-20 gr/100scf (20-100 ppm vol) Canada -10 o C at 7000kPa 65mg/std m 3 6-23 mg/m 3 (0.25-1 1 gr/100scf) Europe -8 o C@ 70barg 5mg/m 3 23-115 mg/m 3 30mg/m 3 UK -10 o C@ 85barg 4mg/m 3 50mg/m 3 CO 2 2-3% 2% 2.5 mole% 2.0 mole% N 2 2-3% Typically not specified Typically not specified 5 mole% O 2 0.1% 0.4% 0.01 mole% 0.001 mole% Hydrocarbon Dew Point +15 o F @ 800psia -10 o C @ Specified pressure -2 o C@70barg -2 o C@85barg Wobbe Index Typically not specified Typically not specified 13.6-47.2-15.8kWh/m 3 51.4MJ/m 3 Gross Heating Value 1000-1200 1200 btu/scf 37-45 MJ/std m 35-39 39 mj.m 45 MJ/std m 3 3 8.4-13.1 36.9- kwh/m 3 42.3MJ/m 3

Gas Interchange Diagram Adapted from A Guide to the Gas Safety (Management) Regulations 1996 Guidance on Regulations Health & Safety Executive. Crown Copyright (UK) 1996 Non Methane components %

Commercial Trends 1. Rapid increase in capital cost 2. More competition, more risk-taking. Global supply strategies 3. Building ships/terminals in advance of firm supply/sales contracts. Merchant facilities 4. Increasing power generation market 5. Regional market trends a. Asia. Liberalization of existing markets. India. China. b. Europe. Open access. Market related prices. LNG and pipeline supplies. c. Americas. USA more terminals? Price volatility. d. Central/South America. 6. Market niches: small-scale supply projects, reception, satellites.

Flex LNG concept SPB type Cargo Containment Flat deck to mount process plant

LNG Roaring Ahead Where Will it End?

3. Effect on Marine Environment Use of air coolers Reduce Environmental Impact 1. Reduce CO2 Inject Produced CO2 Install most efficient drivers Cogeneration Larger Turbines Electric Motor Drivers 2. Reduce NOx Install Clean-burn technology

UK Gas Supply and Demand

World LNG Trade 2005 LNG Journal & Reproduced with Permission

Some of Today s Challenges in LNG..Many Permits for US Imports Crews for LNG Carriers LNG quality variations Security Materials and Staffing

Melkoya Island

StatoilHydro Snøhvit Plant Europe's first LNG export facility Capacity 4.2mtpy Linde MFC process First shipment 20 th October 2007 140km tie-back to subsea templates CO 2 sequestration

THE END Thank You!

Bontang Train B Incident April 1983

Natural Gas Reserves/Consumption 1. Russia (Gazprom) 26.6%) 14.7% 2. Iran (NIOC) 14.9%) 56% 3.2% 3. Qatar (Qatargas) 14.3%) 0.6% 4. Saudi (Saudi Aramco) 3.8% 2.5% 5. UAE (Adnoc) 3.4% 1.5% 6. USA 3.0% 23.0% 7. Nigeria (NNPC) 2.9% 8. Algeria (Sonatrach) 2.5% 0.9% 9. Venezuela (PDVSA) 2.4% 1.1% 10. Iraq (INOC) 1.8% 11.Indonesia 1.5% 1.3% 12.Australia 1.4% 0.9% 13. Malaysia 1.4% 1.3% 14.China 1.3% 1.7% 15.Norway 1.3% 0.2% 16. ROW 17.5% 37.1% Courtesy BP Statistical Review 2006

Prices in 2006 (7) ($/MMBtu) Japan 7.14 EU 8.77 UK 7.87 USA (HH) 6.76 Oil 10.66 (20) Current Prices 10-15

Costs in an LNG Project Gas Gathering Liquefaction (1 train) Ships 5 @ $180 m Regasification TOTAL US$ 1 1.5 billion US$ 1 1.5 billion US$ 0.9 billion US$ 0.5 billion US$ 3.4 4.4 billion Could easily reach $5,000,000,000