What Makes a NaturalWhat Makes a Natural Gas Marketplace Work?

July 9-13, 2007AccraAccra

TOPIC I:Resource & Infrastructure

Investment for Delivery

Key value chain components

Physical InfrastructurePhysical Infrastructure

GatheringGathering• Removal of basic sediment & water • Collection through field and gathering lines for g g g

removal of free liquids and extraneous materials• Gas may also be sweetened with chemical agents

to neutralize sulfur compounds and carbon dioxideto neutralize sulfur compounds and carbon dioxide• From 2 inches to 24 inches in diameter• Higher pressures than transmission lines—up to g p p

2160 psi (≈150 bar)• Generally, feed gas processing facilities

ProcessingProcessing• Liquefy the heavier molecules that occur in

the gas stream in orderthe gas stream in order• to make the gas production marketable and

safe for pipelines, and• to increase profits from the lease (non-

methane molecules are marketable)• “Wet” gas contains a higher proportion of

larger molecules as well as oil condensate as opposed to ”dr ” gasas opposed to ”dry” gas.

Natural Gas ProductsNatural Gas Products

Pipeline TransportationPipeline Transportation

• Line pipe—high strength carbon steel—seamless or welded (>24-inch) ~$25,000 per inch-kmSt i t t ll i l t d d• Strict metallurgical standards (dictated by API in the US)Pi j i t ld d t th• Pipe joints are welded together

• Pipe Coating—Fusion Bond Expoxy (FBE) Used to preventExpoxy (FBE)--Used to prevent external corrosion

LNG TransportationLNG Transportation

• Liquefaction allows moving of gas at one sixth the volume to distant markets

• Gas from LNG can be moved by pipeline or used o ed by p pe e o useddirectly for power generation or truckingg g

LNG Value ChainLNG Value Chain

EXPLORATION &PRODUCTION LIQUEFACTION SHIPPING REGASIFICATION

& STORAGE

$0.5-$1.0/MMBtu $0.8-$1.20/MMBtu

$0.4-$1.0/MMBtu $0.3-$0.5/MMBtu

TOTAL = $2.00 - $3.70Greatest variability is in upstream feedstock for liquefaction and shipping distance.

Sources: Industry (estimates exclude some O&M and tax costs)

Gas-to-liquidsGas to liquids

• GTL allows natural gas to be transported and used as liquid (as an alternative to middle distillates)

• Capital costs for GTL plants have been declining from roughly $50,000 per barrel of dec g o oug y $50,000 pe ba e ocapacity to the $20,000 range.

• O&M costs have been estimated as low asO&M costs have been estimated as low as $5 per barrel.

Compressor StationsCompressor Stations• The compressor or pumping

station is the “engine” that boosts (pressure and moves gas (1,300

psi ≈ 90 bar)• Typically installed every 40 to 100

il d di b fmiles - depending on number of compressors & HP, and diameter of pipe and volume to be movedSt ti l t i ll h li id• Stations also typically have liquid separators in the form of scrubbers, strainers or filter separatorsseparators.

Metering & RegulationMetering & Regulation• Metering Stations are the “cash

register” of the industryg y--Orifice meters--Turbine meters--Ultrasonic meters--Ultrasonic meters--Positive displacement meters

• Regulation serves to reduce pipeline pressure to an acceptable level for pdistribution and end use

OperationsOperations• Mainline valves spaced 5 to

20 miles apart depending20 miles apart depending on population density and safety codesy

• Allow isolation of pipeline segments for maintenance

d iand emergencies

Operations• Supervisory Control and Data

Acquisition (SCADA) is a communication system to monitor andcommunication system to monitor and control certain equipment on the pipelineT it ti t t fl• Transmits operating status, flow volumes, pressure and temperature data from compressor stations, M&R facilities and valves to a gas control facility for daily operations

• Facilitates nominations schedulingFacilitates nominations, scheduling procedures, allocations & billing

Operationsp• Integrity Assurance

--Aerial PatrolsPipeline Markers--Pipeline Markers

--Damage Prevention Program--Cathodic Protection--Pipeline Pigging--Leak Detection Surveys

DistributionDistribution

• From citygate to customers via small-diameter pipe (<12-inch)• Traditionally steel, but increasingly polyethylene y g y p y y

(PE) or high density PE (HDPE) • $370 per 100 ft for 4-inch, $760 per 100ft for 6-inch

• ~3 psi of pressurization • Mercaptan (NG is odorless)Mercaptan (NG is odorless)• Metering & billing

50% of end user price (U S )• ~50% of end-user price (U.S.)

Distribution meteringDistribution metering

• Residential & small commercial meters (~5 psig) cost about $125-175– Remote sensor another $160

• Industrial meters (~175 psig) cost anywhere from $1,000 to $6,000from $1,000 to $6,000– Additional cost of $1-2,000 on related items

Storage• Gas storage supplements

pipeline deliverability in peak demand winterpeak demand winter periods

• Generally, storage fieldsGenerally, storage fields are depleted reservoirs, aquifers or salt caverns

• In distribution regions, there are smaller LNG storage facilities used forstorage facilities used for “peak shaving”

TOPIC I:Resource & Infrastructure

Investment for Delivery

Investment considerations

Where is Natural Gas Used?Where is Natural Gas Used?

• Residential uses: cooking, water heating, space heating and/or cooling.

• Commercial uses: space heating, water heating, d liand cooling.

• Transportation uses: CNG, LNG as fuel (~2.5 illi hi l ld id )million vehicles worldwide)

• Power generation: Steam, simple cycle, combined cycle micro turbines fuel cellscycle, micro turbines, fuel cells

End Use Equipment & A li tiApplications

Commercial chilling and dehumidifying • absorption chillers provide cool air by evaporating a refrigerant like water orevaporating a refrigerant like water or ammonia - best suited to cooling large commercial buildings, like office towers and shopping malls.

A Desiccant Unit Atop the Park Hyatt Hotel Washington D C

• desiccant systems cool by reducing humidity in the air - cooling this dry air requires much less energy than it would to cool humid air Hyatt Hotel, Washington D.C.cool humid air.

Distributed GenerationDistributed Generation

• With technological advancements, there is a trend towards what is known as 'distributed generation'

l t f i di id l ll i d l t i– placement of individual, smaller sized electric generation units at residential, commercial, and industrial sites of use.industrial sites of use.

– small scale power plants, which are primarily powered by natural gas, operate with small gas turbine or combustion engine units, or natural gas fuel cells.

DG optionsDG options

A micro turbine

A ll lA small-scale conventional turbine

A Fuel Cell Cogeneration PlantCogeneration Plant

Combined heat & powerCombined heat & power• CHP systems have applications both in large centralized power plants, and in distributed generation settings.

• Cogeneration systems have applications in centralized power plants, large industrial p p , gsettings, large and medium sized commercial settings, and even smaller residential or commercial sites.

• The key determinant of whether or not combined heat and power technology would be of use is the nearby need or purpose forbe of use is the nearby need or purpose for the captured waste heat.

Where is Natural Gas Used?Where is Natural Gas Used?

• Industrial uses: • base ingredients for such varied products as plastic,

fertilizer, anti-freeze, pharmaceuticals and fabrics• pulp and paper metals chemicals petroleum refining• pulp and paper, metals, chemicals, petroleum refining,

stone, clay and glass, plastic, and food processing • waste treatment and incineration, metals preheating , p g

(particularly for iron and steel), drying and dehumidification, glass melting, food processing, and fueling industrial boilersfueling industrial boilers

Industrial usesIndustrial uses

• Feedstock for methanol, fertilizer, other petrochemical and chemical

• Industrial drying and burners (steel bu e s (s eemanufacturing)

• Cold captured from LNG forCold captured from LNG for electronics

Pipeline EconomicsPipeline Economics• Costs associated with pipeline construction

depend on many factorsdepend on many factors. – the cost per mile increases with the pipe size.

• construction on land using a 12-inch pipeline costs about $300,000 per mile while using a 42-inch pipeline costs almost $1.5 million per mile.

– costs increases if the pipeline goes through p p g gresidential areas, or there are roads, highways and rivers on the way.

t d d t l ti t i l ti– costs are dependent on location, terrain, population density, or other factors (for instance, different labor and tax laws in different countries).

Pipeline CostsPipeline Costs

• The most important are material and labor costs -70 to 80% of the total construction cost both onshore and offshore. S i i i i i• Surveying, engineering, supervision, administration and overhead, telecommunications equipment freight taxes regulatory filing feesequipment, freight, taxes, regulatory filing fees, interest, contingencies (all covered under Miscellaneous). )

• Right-of-way (R.O.W.) and damages

Estimated Pipeline Construction Costs per Mile and % of Total: Onshore

1995-1996 2000-2001 % Change

Material $274,210 (31%) $279,565 (21%) 2%

Labor $422 610 (47%) $571 719 (44%) 35%Labor $422,610 (47%) $571,719 (44%) 35%

Miscellaneous $154,012 (17%) $344,273 (26%) 124%

R.O.W. and Damages

$48,075 (5%) $120,607 (9%) 151%

Total $898 907 $1 316 164 38%Total $898,907 $1,316,164 38%

Source: Oil & Gas Journal, Pipeline Economics Survey, various issues.

U S $1 illi / il $6 8 illi / il i bU.S. average: $1 million/mile, $6-8 million/mile in urban areas

Estimated Pipeline Construction CostsEstimated Pipeline Construction Costs per Mile and % of Total: Offshore

1995-1996 2000-2001 % Change

Material $684,604 (42%) $413,995 (16%) -40%

$ $Labor $527,619 (33%) $1,537,249 (60%)

191%

Miscellaneous $396,394 (25%) $510,271 (20%) 29%Miscellaneous $396,394 (25%) $510,271 (20%) 29%

R.O.W. and Damages

$3,201 (0%) $116,898 (4%) 3,552%

Total $1,611,818 $2,578,413 60%

Source: Oil & Gas Journal, Pipeline Economics Survey, various issues.

CEE High, Mean and Low C t ti C t E ti tConstruction Cost Estimates

CEE pipeline cost estimates for t lnatural gas