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SCOT ULTRA POWERS PERFORMANCE
February 2017
Maximize your ROI - increase recovery and generate more products on site from your NGL plant.
Our standardized, modular plant is specifically designed for shale gas. With options for ethane and propane fractionation, you can deliver more products to your customer. A single plant, operating from 80 MM to 200 MMSCFD, provides a flexible solution that you can adjust to your business needs.
STANDARD-PLUS™ product line includes:
→ Inlet receiving and stabilization → Amine treating with acid gas flare → Dehydration and cryogenic plant → Residue gas compression → NGL product pumps → De-ethanizer → De-propanizer → Balance of plant utilities
Delivering flexibility for your dollar.
Linde Engineering North America [email protected] / www.leamericas.com
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Palladian Publications Ltd 2017. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copyright owner. All views expressed in this journal are those of the respective contributors and are not
necessarily the opinions of the publisher, neither do the publishers endorse any of the claims made in the articles or the advertisements. Printed in the UK. Uncaptioned images courtesy of www.shutterstock.com.
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CONTENTS
JOIN THECONVERSATION
THIS MONTH'S FRONT COVER
February 2017 Volume 22 Number 02 ISSN 1468-9340
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03 Comment05 World News12 Asia's LNG drive
Ng Weng Hoong, Contributing Editor, explains why Asia’s ‘big four’ economies will continue to drive and dominate LNG imports through 2030.
22 The threat is realRoberto Parola, Linde, Germany, and Mike Hayes, Linde, North America, explain why the oil and gas sector and environmental bodies worldwide are pushing to combat the threat of mercury.
31 A novel ideaHammad Ahmad, ATG Plant Automation, Pakistan, evaluates the recovery of natural gas through a novel hybrid between a membrane and amine unit implemented at a gas facility in Pakistan.
36 Power performanceJohn Specht, Shell Global Solutions International B.V., the Netherlands, and Pat Holub, Huntsman Corp., USA, profile two projects that helped a tail gas treatment unit to improve its operability and lower operating costs, while meeting tough emission requirements.
41 SRF: Behind the steelMichele Colozzi, Simona Cortese, Lucio Molinari, KT - Kinetics Technology S.p.A. (Maire Tecnimont Group), Italy, and Michele Manzulli, Virtual Materials Group Europe, Spain, examine sulfur recovery facilities and how a recent technological development brings operators closer to successful and efficient processing, engineering and operation.
47 UnderstandingtemperatureprofilesRalph H. Weiland and Nathan A. Hatcher, Optimized Gas Treating Inc., USA, delve into the world of amine absorber temperature profiles.
51 Dropping the dead weightFemke Schaefer, Bronswerk Heat Transfer B.V., the Netherlands, explains how alternative design solutions for shell and tube heat exchangers helped Persian Gulf Petrochemical Company to reduce total weight and plot space at the Bid Boland II gas processing plant in Iran.
55 Cunning cryogenicsYousef Jarrah, Yosuke Kondo and Ryan Hirschsohn, Nikkiso Cryo Inc., USA, review the methods used to enhance cryogenic pump performance and reliability.
61 Overhaul operationsSamuel Eccles, SPX FLOW, UK, describes the overhaul of a pump for a critical diethylamine pumping process, exploring the technological developments that helped to ensure a successful project outcome.
67 Smarten upMantosh Bhattacharya, Petrofac, UAE, presents a blueprint for smart rotating machines used in the oil and gas industry.
75 Give it a boostRoy G. Milum, P. E., Petrotech, USA, examines the impact of control system upgrades in gas processing facilities for extraction efficiency improvement.
78 Better blendingJavier Araujo, Honeywell, Spain, discusses the increasing global demand for lubricants and how moving to a modern process of lubricant blending can ensure better control, reduced downtime and increased output.
85 The economics of process analysisGregory Shahnovsky, Ariel Kigel and Ronny McMurray, Modcon Systems, UK, discuss how the implementation of online process analysers can improve refinery economics.
93 Signed, sealed, deliveredMike Mulrooney and Goutam Shahani, ShureLine Construction, USA, examine process project design and delivery for today’s market.
99 The welding wayMike J. Fletcher and Ron A. Sewell, Huntingdon Fusion Techniques, UK, present a modern weld purging solution recently implemented at a major gas import facility in Milford Haven, UK.
104 15 facts on...This month we give you 15 facts on Australia!
Shell introduces a step change in tail gas treating performance with SCOT ULTRA, based on a next generation family of highly selective solvents and a high activity, low temperature SCOT catalyst. Read the article in this issue to discover how SCOT ULTRA could help you to maximise performance with minimal investment.
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COMMENTCALLUM O'REILLYEDITOR
Before President Donald Trump even had time to settle into his new surroundings in Washington D.C., the Republican administration had
published its ‘America First Energy Plan’ onto the White House website.
The energy plan reiterated President Trump’s intention to “embrace the shale oil and gas revolution”. The statement read: “We must take advantage of the estimated US$50 trillion in untapped shale, oil, and natural gas reserves, especially those on federal lands that the American people own.” The Trump administration promises to use the revenues generated from energy production to rebuild the country’s roads, schools, bridges and public infrastructure.
While the new US government’s industry-friendly stance certainly makes promising reading for producers, uncertainty persists for other areas of the country’s energy industry. Proposed tax reforms remain a key area of interest, especially legislation surrounding a mooted ‘border adjustment tax’. Under the plan, exports would be exempt from income tax, while imports would be denied such a deduction. This proposal could have a significant impact on the global energy industry. According to a recent report from PwC, US companies that are able to export a portion of their oil production, refined products, chemicals and equipment would stand to benefit from such a tax.1 However, PwC warns that companies that import oil for refining and processing activities would not be able to deduct those expenditures, with the potential for significant short-term economic disruptions.
The exact impact of such a tax policy remains uncertain. Indeed, PwC also notes that “many economists believe the border adjustment would strengthen the value of the dollar and thereby lower the cost of imported products so that there could be little or no net change in the after-tax cost of imports.”
A policy that reduces taxes and regulations may also lead to falling US gas prices, which could have a significant impact on the global LNG industry. A number of US liquefaction projects are expected to start production over the next couple of years, joining Cheniere Energy’s Sabine Pass terminal in Louisiana, which also has additional capacity coming online. While the fall in oil prices in recent years had reduced the competitiveness of US LNG for the Asian market, Wood Mackenzie’s Senior Analyst Australasia, Saul Kavonic, warns that this may not be the case for much longer: “Any policies that Trump implements – lower taxes, less regulation, opening up more areas for drilling – all imply more production, which implies lower US gas prices, which means lower cash costs for US LNG exporters, and lower spot prices in Asia.”2
In this issue of Hydrocarbon Engineering, Contributing Editor, Ng Weng Hoong, takes a closer look at the latest developments in the Asian LNG market, with a particular focus on Australian exports (starting on p. 12). While the potential impact of a Trump presidency on the global LNG industry is difficult to predict, it is undoubtedly a market to monitor closely in the months and years ahead.
1. ‘United States: Tax reform proposals would affect energy industry’, PwC, (11 January 2017).2. CHAMBERS, M., ‘Trump’s energy policy shake-up could threaten Australian LNG’,
The Australian, (23 January 2017).
WORLD NEWS
February 2017HYDROCARBON ENGINEERING
5
USA | Trump clears way for pipelines
US President Donald Trump has signed Presidential Memoranda
regarding the construction of both the Keystone XL Pipeline and the Dakota Access Pipeline.
The Keystone XL Pipeline is a 1100 mile crude oil pipeline to connect oil production in Alberta, Canada to refineries in the US. A statement from the White House website said that construction and operation of the pipeline, as well as oil production and refining activities related to it, would create tens of thousands of jobs for US workers, as well as enhance the country’s energy security and generate significant State and local tax revenues.
President Trump has also directed the relevant Federal agencies (including the Army Corps of Engineers) to expedite reviews and approvals for the remaining portions of the Dakota Access Pipeline, which is designed to carry approximately 500 000 bpd of crude oil from the Bakken and Three Forks oil production areas in North Dakota to oil markets in the US.
Trump has also directed the Secretary of Commerce to develop a plan under which all new pipelines in the US, as well as retrofitted, repaired, or expanded pipelines, use materials and equipment produced in the US, to the maximum extent possible.
Iran | Siemens receives major order
Siemens has announced that it has received an order for 12
compressor trains from Hampa Engineering Corp. for two onshore natural gas processing plants in Iran, which will be operated by Palayesh Parsian Sepehr.
The order volume is in the 'high double-digit million euro range', and commercial operation is expected by
the end of 2018.The 12 compressor trains will each
contain a Siemens STC-SV vertical split compressor and will be used in two natural gas processing plants. Of the 12 trains, 10 are for the Mohr C2+ hydrocarbon recovery plant in Fars Province, south central Iran.
The plant in Mohr will process natural gas into C2+ hydrocarbons,
serving the domestic Iranian gas market, while the long chained hydrocarbons will be transported to the Iranian coast 60 km away. The hydrocarbons will be further fractionated at the Assaluyeh plant in Bushehr Province. The plant in Assaluyeh will produce feedstock for the petrochemical industry, including ethane, propane, and butane.
Nigeria | GE proposes investment in three refineries
Nigerian National Petroleum Corp. (NNPC) has announced
that General Electric (GE) has proposed to invest in Nigeria’s three refineries located in Port Harcourt, Warri and Kaduna.
In a presentation to NNPC GMD Dr. Maikanti Baru and his team, GE stated that the company’s teams of partners, including its consortium involving the engineering, procurement and construction (EPC) partners, off-takers, traders and some financiers, would be engaged in the initiative.
The NNPC quotes GE as stating: ‘’We were involved in the tenders
that started around last year, which was subsequently withdrawn, but our commitment to bringing the refineries on-stream is still very deep and we are very serious about it. We propose that work commences either with the Warri or Port Harcourt Refinery as a pilot, as we set a target to improve the refinery capacity before the end of 2017.’’
A statement from NNPC adds that GE also pledged its readiness to work with the NNPC to make production in the offshore fields profitable for the benefit of both companies and other stakeholders.
China | Barge-based FSRU undocks
W ison Offshore & Marine has announced that the world’s
first barge-based floating storage and regasification unit (FSRU) – for which the company provided engineering, procurement and construction (EPC) services for Exmar – has undocked from Wison’s dry-dock in Nantong, China.
Upon the undocking, topside installation has been completed, which paves the way for successful delivery.
This is the first FSRU being built in China and the facility is to
become the world’s first FSRU with small scale storage capacity. The FSRU barge has a regasification capacity of 600 million ft3/d.
This is the second project on which Wison and Exmar have been cooperating, following the Caribbean FLNG project.
By adopting a modularisation strategy, the hull and topside modules of the FSRU have been fabricated simultaneously, which reduced the safety risks, improved the construction quality, and helped to shorten the delivery schedule.
WORLD NEWSIN BRIEF
February 2017 HYDROCARBON ENGINEERING
6
Saudi Arabia | Petrotechnics solution chosen
Petrotechnics has announced that Accenture has selected its
Proscient solution for Saudi Aramco’s new Jazan refinery complex.
The solution will be implemented as part of Saudi Aramco’s integrated manufacturing operations management system (imoms) to reduce risk, improve productivity and lower costs.
The US$2.1 billion refinery, which is scheduled for completion later this year, will have the capacity to process 400 000 bpd of crude oil and produce 80 000 bpd of gasoline, 250 000 bpd of ultra low sulfur diesel and over 1 million tpy of benzene and paraxylene products.
The imoms system is a comprehensive set of 12 applications, 20 integrated solutions and
550 processes encompassing risk management, production management and activity management.
Proscient will deliver the PSORMS capabilities within imoms to proactively mitigate operational risk and optimise the work schedule dynamically and graphically. It will facilitate the capture and management of work permits, real-time risk analysis, incident reporting, emergency preparedness and safety response, key performance indicators (KPIs) and management of change. Imoms and Proscient will ensure that complex operational data is transformed into meaningful information to provide everyone with the right information at the right time to make the right decisions.
USA | Sprague acquires storage assets
Sprague Resources LP has announced that its operating subsidiary, Sprague
Operating Resources LLC, has signed a definitive agreement to purchase the Springfield, Massachusetts, US, refined product terminal assets of L. E. Belcher Inc. for approximately US$20 million in cash, subject to customary closing adjustments.
The purchase consists of two pipeline-supplied distillate terminals and one distillate storage facility, with a combined capacity of 295 000 bbls, as well as L. E. Belcher’s associated wholesale and commercial fuels businesses.
The transaction is expected to close within 30 days.
usaLyondellBasell has announced the completion of the ethylene expansion project at the company's Corpus Christi, Texas, US, site. The project will double ethylene capacity at the facility and completes the company's multi-year plan to increase annual ethylene capacity in the US by 2 billion lbs.
denmarkLiqTech International Inc. has received a US$120 000 order for the company's water treatment systems for flue gas condensate. The order was received from Tjæreborg Industri A/S, a Danish company that specialises in the development and manufacturing of equipment for power plants. The system will be installed at Uldum Varmeværk, Denmark.
omanCoreworx has announced that its interface management solution was selected and implemented on a US$3.6 billion petrochemical complex project in Oman. The five year project involves four major international engineering, procurement and construction (EPC) contracts from several geographic regions.
usaPraxair Inc. has signed a long-term contract to supply hydrogen to Marathon Petroleum Corp.’s refinery in Garyville, Louisiana, US. The company will use the hydrogen to support an ultra low sulfur diesel project planned for 2018. The hydrogen will be supplied through Praxair’s extensive Southeast Louisiana pipeline network.
China | Sinopec awards contract and license
China Petrochemical Corp. (Sinopec) has awarded DuPont
the license and engineering contract for its STRATCO® alkylation technology. The new unit is to be located at the existing Sinopec Tianjin Company (TPCC) refinery in the Tianjin Binhai New Area district. The additional unit will improve the quality of the existing refinery
gasoline pool to ensure compliance with the China V standard.
Construction of the new 7700 bpd (300 000 tpy) alkylation unit is expected to begin in early 2017 with TPCC aiming for start-up by late 2017 or early 2018. TPCC is the largest oil refiner in North China with primary crude oil processing capacity of 15.5 million tpy. A World of Solutions
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COMPLETE SOLUTIONS FOR YOUR REFINERY CHALLENGESToday’s Refinery Challenges
� Processing tight oil � Managing stringent sulfur limits � Monetizing orphan streams � Upgrading residuals
CB&I’s Comprehensive SolutionsCB&I’s broad portfolio of both refining and petrochemical technologies, combined with our execution expertise, will help you maximize processing flexibility and achieve margin benefits in the widest range of scenarios.
We are with you through every stage of the process plant life cycle, from feasibility studies to identifying plant optimization and upgrade solutions, through technology selection, full-scope EPFC, commissioning and start-up.
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COMPLETE SOLUTIONS FOR YOUR REFINERY CHALLENGESToday’s Refinery Challenges
� Processing tight oil � Managing stringent sulfur limits � Monetizing orphan streams � Upgrading residuals
CB&I’s Comprehensive SolutionsCB&I’s broad portfolio of both refining and petrochemical technologies, combined with our execution expertise, will help you maximize processing flexibility and achieve margin benefits in the widest range of scenarios.
We are with you through every stage of the process plant life cycle, from feasibility studies to identifying plant optimization and upgrade solutions, through technology selection, full-scope EPFC, commissioning and start-up.
PROCESS PLANNING AND DEVELOPMENTLICENSED TECHNOLOGIES AND CATALYSTSFULL-SCOPE EPFC SERVICESPROJECT MANAGEMENT AND CONSULTINGAFTERMARKET SERVICES
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WORLD NEWSIN BRIEF
February 2017 HYDROCARBON ENGINEERING
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USA | ExxonMobil & SGI renew partnership
Turning algae into a ubiquitous, affordable and low emission
transportation fuel remains an ambitious goal. However, Synthetic Genomics Inc. (SGI), the La Jolla, California, synthetic biology startup, and ExxonMobil have announced that they are renewing an agreement to jointly research the use of algae to make clean, low carbon energy. The two companies first started working together back in 2009.
ExxonMobil and SGI will continue to focus on how to coax algae into producing more lipids. The creation of these fats is critical because they can serve as feedstock that can be turned into low emission fuels for transportation. This means boosting lipid production will be a major step in turning algae into a commercially successful energy source.
azerbaijanAxens has announced that SOCAR has selected its AlphaButol® technology for the production of high purity 1-Butene through ethylene dimerisation. The technology will be installed at SOCAR’s large GPC project in Azerbaijan. The GPC project is a totally integrated grassroots project, from natural gas processing to the production of high value polymers through the inclusion of an entire petrochemical complex. The plant will produce approximately 600 000 tpy of polyethylene and 120 000 tpy of propylene.
franceRasGas Co. Ltd has delivered its first LNG cargo to the Dunkerque LNG Regasification Terminal, on board its Murwab LNG carrier. The LNG delivery is under the Sales and Purchase Agreement (SPA) signed between Ras Laffan Liquefied Natural Gas Company (3) (RL 3) and EDF in June 2016. Under the terms of the SPA, RasGas will supply up to 2 million tpy of Qatari LNG into Dunkerque.
worldwideTechnipFMC has announced that it is operating as a unified, combined company following completion of the merger of FMC Technologies and Technip. The merger creates a global leader in oil and gas projects, technologies, systems, and services that will enhance the performance of the world’s energy industry.
usaAdditech has announced that it is set to begin pilot market testing of a new additive that has been engineered specifically for diesel fuel. Pilot tests for Additech Diesel Guard will be held at eight retail locations across the US that provide a cross-section of seasonal driving conditions. This initiative recognises the growth of diesel vehicles in the US.
Finland | Christmas ham to renewable diesel
Last Christmas, 40 000 Finnish households donated the waste
fat from their Christmas hams to the charity campaign 'Kinkkutemppu', which translates into 'ham trick'. From this waste fat, Neste produced renewable diesel at its Porvoo refinery for sale at Neste stations.
The idea for the campaign started from the Chemical Industry Federation of Finland and attracted a number of companies and associations. Fat recycling containers were placed all over Finland, mainly at recycling points of Finnish Packaging Recycling RINKI located in
conjunction with selected K-food stores. Lassila & Tikanoja then transported the fat to Honkajoki Oy for treatment.
Neste used the collected ham fat to produce 10 000 litres of Neste MY renewable diesel at its refinery. The Finnish Water Utilities Association took part in the campaign, reminding people not to pour ham fat down the drain.
Neste donated the value of the product to Hope, an association which helps low income families, and to Icehearts, a sports club that aims to prevent social exclusion and promote well-being.
Saudi Arabia | SNC-Lavalin contract extension
SNC-Lavalin Fayez Engineering (SLFE), an engineering consultancy
partnership between SNC-Lavalin and Dr Zuhair Fayez, has been awarded a five-year extension to its existing General Engineering Services Plus (GES+) contract with Saudi Aramco.
Under the contract, which includes three one-year options to extend, SNC-Lavalin will be invited to bid on front-end engineering,
detailed engineering and project management services to support the implementation of Saudi Aramco’s capital and sustaining capital programmes in the Kingdom of Saudi Arabia.
Projects will include refining and petrochemical facilities, as well as onshore oil and gas production and processing facilities, and building and infrastructure projects.
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Advanced compressor technologies for LNG and natural gas applications
More Information
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Visit Howden at Gastech 4-7 April 2017 – Hall 2, Booth 19-125 Learn about our range of custom-designed compression products:• Centrifugal compressors • Reciprocating compressors • Screw compressors • Turbo blowers and compressors
Howden has more than a century’s experience in gas compression equipment, with unique skills and an unmatched reputation.
In areas where toxic, corrosive or unstable gases present added complications, we have solutions for your compression challenges. In any sector, in every application where reliability and round the clock operation is of crucial importance – Howden innovation and technology keeps the world’s industries running.
www.howden.com © Howden Group Ltd. All rights reserved. 2017
Advanced compressor technologies for LNG and natural gas applications
More Information
For compressor sales, service and support, or to find out how Howden compressor products can meet the challenges of your compression project email: [email protected]
Visit Howden at Gastech 4-7 April 2017 – Hall 2, Booth 19-125 Learn about our range of custom-designed compression products:• Centrifugal compressors • Reciprocating compressors • Screw compressors • Turbo blowers and compressors
Howden has more than a century’s experience in gas compression equipment, with unique skills and an unmatched reputation.
In areas where toxic, corrosive or unstable gases present added complications, we have solutions for your compression challenges. In any sector, in every application where reliability and round the clock operation is of crucial importance – Howden innovation and technology keeps the world’s industries running.
WORLD NEWS
February 2017 HYDROCARBON ENGINEERING
10
ACC | Speciality chemicals' volumes up
The American Chemistry Council (ACC) has reported
that market volumes in US speciality chemicals rose 0.3% in December 2016.
This follows an upwardly revised 0.5% gain in November 2016. Volumes have generally been climbing since May 2016. All changes in the data are reported on a three-month moving average (3MMA) basis. Of the 28 speciality chemical segments monitored, 17 expanded in December, 10 markets experienced decline and
one was flat. During December, large gains (1% and over) were noted only in oilfield chemicals.
The overall speciality chemicals volume index was stable on a year-on-year (y/y) 3MMA basis. The index stood at 105.4% of its average 2012 levels. This is equivalent to 3.30 million t. The downturn in the oil and gas sector affected headline volumes and weakness spread to other segments. On a y/y basis, there were gains among 19 market and functional speciality chemical segments.
EIA | Natural gas prices to rise
In its January 2017 ‘Short-Term Energy Outlook' (STEO), the
US Energy Information Administration (EIA) has confirmed its expectations that the Henry Hub natural gas spot price will average US$3.55/million Btu this year, compared to US$2.51/million Btu in 2016.
This price is expected to rise to US$3.73/million Btu in 2018. The
higher prices will be attributable to natural gas consumption and exports exceeding supply and imports, leading to lower average inventory levels.
The EIA also confirmed that it expects natural gas exports to increase. Export growth in 2017 will reflect additional capacity coming online at Cheniere Energy’s Sabine Pass LNG terminal in Louisiana.
API | Trump commitment to energy praised
The President and CEO of the American Petroleum Institute
(API), Jack Gerard, has released a statement following President Donald Trump's recent actions to advance energy infrastructure projects throughout the US.
"We are pleased to see the new direction being taken by this administration to recognise the importance of our nation's energy infrastructure by restoring the rule of law in the permitting process that's critical to pipelines and other infrastructure projects [...] Critical energy infrastructure projects like
the Keystone XL and the Dakota Access Pipelines will help deliver energy to American consumers and businesses safely and efficiently.
"The US is leading the world in the production and refining of oil and natural gas and in the reduction of carbon emissions, which are near 20 year lows. We look forward to working with the Trump administration on putting in place policies to continue our nation's energy leadership that will benefit American consumers and workers, while protecting the environment."
DIARY DATES19 - 21 MarchAFPM Annual MeetingSan Antonio, Texas, USATel: 202.457.0480 Email: [email protected]
26 - 30 MarchSOGAT 2017Abu Dhabi, UAETel: +971 2 674 4040Email: [email protected]
26 - 30 MarchCorrosion 2017Convention Centre, New Orleans, Louisiana, USATel: 800-797-6223Email: [email protected]
28 - 30 MarchStocExpo EuropeRotterdam, the NetherlandsTel: +44 (0)20 8843 8835Email: [email protected]
29 - 30 MarchARTC: Asian Refining Technology ConferenceJakarta, IndonesiaTel: +971 4 435 6101Email: [email protected]
4 - 7 AprilGastech Conference & ExhibitionChiba City, Tokyo, JapanTel: +44 (0) 203 772 6038Email: [email protected]
9 - 12 April2017 GPA Midstream ConventionMarriott Rivercenter, San Antonio, Texas, USATel: (918) 493-3872Email: [email protected]
18 - 20 AprilNISTM 19th Annual International Aboveground Storage Tank Conference & Trade ShowRosen Shingle Creek Hotel, Florida, USATel: 011.813.600.4024Email: [email protected]
24 - 26 AprilSulphur World Symposium 2017Dublin, IrelandTel: +1 202 293 9305Email: [email protected]
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INTEGRATED EPFCAPPLIED INNOVATIONFluor is the industry benchmark in applied innovation and continues to drive solutions to improve capital efficiency and execution certainty. Fluor's integrated Engineering, Procurement, Fabrication, Construction (EPFC) approach provides clients with the ability to streamline processes, improve interface management, integrate fabrication and construction into the design and build strategy with the benefits of risk reduction, schedule advancement and cost certainty.
Innovative technology such as Fluor's proprietary 3rd Gen Modular ExecutionSM, where modularization drives the layout of facilities resulting in significant plot size reduction and relocation of field hours to a modular yard, integrates seamlessly as part of the EPFC solution.
Fluor is a global leader in integrated EPFC, providing clients with comprehensive solutions, global reach and proven expertise to build complex capital projects safely, on budget and on schedule.
Layout.indd 1 22/09/2016 14:08
www.fluor.com©2015 Fluor Corporation
3rd Gen Modular Execution is a service mark of Fluor.
ADCA115315
INTEGRATED EPFCAPPLIED INNOVATIONFluor is the industry benchmark in applied innovation and continues to drive solutions to improve capital efficiency and execution certainty. Fluor's integrated Engineering, Procurement, Fabrication, Construction (EPFC) approach provides clients with the ability to streamline processes, improve interface management, integrate fabrication and construction into the design and build strategy with the benefits of risk reduction, schedule advancement and cost certainty.
Innovative technology such as Fluor's proprietary 3rd Gen Modular ExecutionSM, where modularization drives the layout of facilities resulting in significant plot size reduction and relocation of field hours to a modular yard, integrates seamlessly as part of the EPFC solution.
Fluor is a global leader in integrated EPFC, providing clients with comprehensive solutions, global reach and proven expertise to build complex capital projects safely, on budget and on schedule.
Layout.indd 1 22/09/2016 14:08
February 2017 12 HYDROCARBON ENGINEERING
ASIA'S LNG DRIVE
ASIA'S LNG DRIVE
Tokyo skyline, Japan.
February 201713HYDROCARBON ENGINEERING
Ng Weng Hoong, Contributing Editor, explains why Asia’s ‘big four’ economies will continue to drive and dominate LNG imports through 2030.
sia’s ‘big four’ economies of China, Japan, India and South Korea will continue to dominate the region’s LNG markets over the next 15 years, according to a recent study by the Oxford Institute for Energy Studies (OIES).1
Under a slow growth scenario, the OIES expects the big four’s combined LNG imports to increase at an annual rate of 1.72% from 208.3 billion m3 in 2015 to 269.1 billion m3 in 2030. In a fast growth scenario that more than doubles the annual import rate to 3.66%, the four countries will purchase a total of 357.2 billion m3 in 2030. Most of the imported LNG will be consumed domestically.
Asia’s other current LNG users, Taiwan, Singapore, Thailand, Malaysia and Pakistan, imported a combined 29.7 billion m3 of the fuel last year, just slightly more than China’s 29.2 billion m3. OIES expects the next wave of LNG users in Bangladesh, Vietnam and Indonesia to import between 36.4 billion m3 and 58.2 billion m3 in 2030.
Combined, the LNG imports of these eight smaller Asian economies will grow by an astonishing annual rate of between 9.5% and 12.5% through 2030. These projected rapid growth rates are due largely to their low starting base of 29.7 billion m3 in 2015.
Given the big four’s slower growth prospects, OIES expects their combined share of Asia’s LNG imports to decline from 87.5% in 2015 to between 67% and 70% in 2030. Conversely, the combined share of the
A
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smaller eight economies will rise from last year’s 12.5% to between 30% and 33%.
JapanJapan will remain the region’s biggest importer and consumer, despite China’s rapidly rising appetite for the fuel, according to the OIES study.
As the world’s largest LNG importer, Japan will also be one of the industry’s biggest wild cards amid the country’s uncertain energy outlook and Tokyo’s push to revive the use of nuclear energy that once generated 30% of the country’s electricity. The public does not trust official assurances over the safety of nuclear energy following extensive damage to the giant Fukushima plant from the combined earthquake-tsunami tragedy of March 2011. The plant is still leaking radiation into the Pacific Ocean, with repairs far from complete and the government refusing to comment on the subject.
Since Fukushima, Japan has boosted LNG imports to replace about half of the nuclear feedstock needed to generate approximately 30% of the country’s electricity. LNG will likely remain the main fuel of choice ahead of oil and coal, even if Tokyo succeeds in boosting nuclear ’s share of the projected electricity mix to 20 – 22% by 2030, according to the Institute of Energy Economics Japan.
Given the unpredictability of the country’s energy plan, the OIES has issued a wide ranging forecast for
Japan’s LNG imports over the next 15 years. The slow growth scenario sees imports decline from 115.7 billion m3 in 2015 to 80.6 billion m3 in 2030, while the fast growth case calls for a surge to 120.3 billion m3.
ChinaUnlike Japan, China has far greater choice in sourcing for its natural gas supplies. It is able to import natural gas through its growing pipeline links with Central Asia and Myanmar, and LNG through a network of import terminals along its eastern coastline. China is also boosting domestic production by tapping its substantial conventional and coalbed methane (CBM) reserves, alongside plans to process coal into natural gas. Beijing has set a target to raise its annual domestic gas production to between 400 billion m3 and 420 billion m3 by 2020, up from 138 billion m3 in 2015, according to BP.2
The OIES study said China must step up reforms of its natural gas market to boost consumption of the clean burning fuel to replace oil and coal. Despite the collapse in energy prices since mid-2014, LNG and piped natural gas remains more costly than oil and coal.
Citing consultant Wood Mackenzie, the OIES noted that China currently faces an annual oversupply of 18 billion m3 of natural gas, and should look to boost the fuel’s use for transportation.
Given Beijing’s commitment to cleaning up the country’s heavily polluted cities, the OIES
expects China’s LNG imports to rise from 27.2 billion m3 in 2015 to between 75 billion m3 and 105 billion m3 in 2030.
IndiaIndia is Asia’s only major economy to register a significant shrinkage in its natural gas market over the last few years. According to BP, India’s natural gas consumption fell from 61.5 billion m3 in 2010 to 50.6 billion m3 in 2015. Domestic production also fell sharply from 49 billion m3 to 29.2 billion m3 over the same period.
The OIES study attributes the consumption decline to 'abruptly falling domestic production' caused by government policies and regulations that discourage private investments. At the same time, India has made little progress in expanding and utilising its LNG import infrastructure as it continued to rely on cheaper coal as feedstock for power generation.
The OIES criticised India’s energy policy as being 'unfocused' in its 'expedient handling' of gas price reforms and the government’s 'wishful thinking' for a bigger role for solar and wind energy.
The report noted that “there appears to be an acceptance that coal will provide for the main growth for power generation and no specific policy for natural gas.” As a result, India’s natural gas market will continue to face an uphill struggle to grow.
Table 1. Asia’s low and high LNG import scenarios (billion m3)
Low growth scenario High growth scenario
2015 2020 2025 2030 2020 2025 2030
Japan 115.7 86.0 86.5 80.6 124.6 124.7 120.3
China 27.2 54.0 46.0 75.0 79.0 66.0 105.0
India 19.9 30.0 50.0 66.0 36.0 60.0 79.2
South Korea 45.5 44.8 45.8 47.5 46.9 49.6 52.7
Subtotal 208.3 214.8 228.3 269.1 286.5 300.3 357.2
CAGR: 2015 to 2030 (15 years)
1.72% 3.66%
Low growth scenario High growth scenario
Taiwan 19.7 20.3 21.6 22.9 22.4 26.8 32.1
Singapore 2.8 6.6 10.7 13.8 6.9 11.4 14.9
Thailand 3.7 11.0 20.4 22.5 13.9 26.8 31.2
Malaysia 2.1 3.7 5.0 6.2 3.7 5.0 10.7
Pakistan 1.4 10.0 14.0 14.0 12.0 16.0 26.0
Bangladesh - 4.0 8.0 18.0 6.0 16.0 26.0
Vietnam - - 4.4 9.1 - 5.7 11.4
Indonesia - - - 9.3 - 4.9 20.8
Subtotal 29.7 55.6 84.1 115.8 64.9 112.6 173.1
CAGR: 2015 to 2030 (15 years)
9.50% 12.47%
Low growth scenario High growth scenario
Total 237.9 270.4 312.3 384.9 351.6 412.9 530.1
CAGR: 2015 to 2030 (15 years)
3.26% 5.49%
Source: Oxford Institute for Energy Studies (OIES)
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The Indian government is hardly dispelling the impression that it has adopted a lukewarm attitude towards natural gas. At a conference in New Delhi in November, Oil Minister Dharmendra Pradhan stated that he expected the industry to invest a mere total of US$20 billion to develop the country’s natural gas fields, spread over the next five to seven years.
AsiaDespite the generally bright outlook for Asia’s gas demand, the OIES study notes that the region’s market still faces challenges from volatile energy consumption growth and uncertainties over the energy mix.
Following last year’s international agreement in Paris to combat climate change, governments throughout Asia must take steps to reduce greenhouse gas emissions, promote energy efficiency and conservation, and increase the use of renewables.
“While an indicative share for gas in the energy mix is often included in policy documents, competition with cheaper coal in the power sector is an open issue, which requires a more robust policy framework than generally exists at present,” OIES noted.
As such, policy makers must help LNG shed its current status as a premium fuel. The study suggests that the industry can play a key role by de-linking the fuel’s import price to oil, and to re-market LNG as a replacement for coal in Asia’s search for a lower carbon future.
LNG market: breakdowns and reformsAsia’s LNG story is not just about growth. Just as compelling is the restructuring of the region’s markets brought on by surplus production capacity, pricing competition, the rise of spot trading, slowing demand growth and geopolitical manoeuvring.
This is good news for both the future of the industry and the region’s energy market, as the LNG trade has long been dominated by a handful of players, according to Australian consultant Grenatec. “The distorted results are now on display: bloated construction costs in Australia, environmental degradation in the Great Barrier Reef, overcharged buyers in Japan and uncounted carbon emissions everywhere.”
To the horror of insiders, LNG oversupply has enabled the rise of an active ‘spot market’. “It is stripping the veil from this overpriced mis-invested industry. A painful economic process of adjustment has several years and bankruptcies to run,” Grenatec noted.
An intra-Asia LNG industry would not have taken root had ‘proper economics’ applied from the start, according to the Sydney-based company. It believes that natural gas pipelines are the ‘better, cheaper and longer lasting option’ as the existing intra-regional LNG trade, based on fixed price long-term contracts, has ‘fundamental flaws’.
Renewables are rapidly achieving cost parity with natural gas, undermining the rationale for ‘grossly expensive, single purpose bespoke infrastructure’.
By ignoring or excluding the high cost of LNG’s carbon emissions, the industry has masked the fuel’s poor
investment economics. “Adding carbon prices to LNG’s ‘lifecycle’ emissions raises costs dramatically. Faced with this problem, the LNG industry excluded carbon emissions and their costs as irrelevant. They will not be irrelevant for long,” Grenatec stated.
Reforms to the global carbon market over the next five years will lead to much higher prices that will expose the LNG industry’s poor carbon economics.
Grenatec also criticised the industry for having persuaded governments to accept the high cost of investing in LNG infrastructure instead of gas pipelines. “For intra-regional transport of natural gas, pipelines are a better deal on both economic and technology grounds […] That bet is now going wrong. The result is an albatross industry. The evidence: an oversupplied regional Asian LNG market in which spot market prices have fallen so low they now more than offset financial penalties of failing to honour long-term delivery contracts.”
In turn, this is breaking down the industry’s preferred sinecure of long-term pricing, which have deliberately excluded the carbon cost and the advantageous multi-fuel advantages of pipelines. “The current mayhem will mark the evolution of a regional LNG spot market priced on ‘demand pull’ signals generated by consumers instead of ‘supply-push’ factors favouring producers. That is the market Asia should have gotten all along,” Grenatec continued.
The consultant predicts that some LNG shipping capacity and upstream natural gas production will be mothballed, as is already happening in Australia’s overbuilt LNG export hub of Gladstone in Queensland state. “Billions in write downs will follow in time. This will lead to revised calculations about the LNG market’s economic value. That in turn will lead to consideration of alternative delivery methods for natural gas that are less capital intensive and less vertically integrated.”
Grenatec described the ‘ideal new system’ as enabling natural gas to be ‘pulled’ into the market as needed, in response to demand, instead of ‘pushed’ into the market by companies with expensive infrastructure to pay off. The company faults the industry for having created the ‘problem’ of vertical integration. “LNG producers mine the gas, build the shipping facilities and ships. They have bet the farm on everything going right with all three all the time.”
The more viable strategy would call for an independent party to build, operate and maintain an open access, common carrier, multi-fuel pipeline. Financing of natural gas transport should be kept separate from the economics of upstream production and downstream marketing.
A pipeline would provide access to all buyers and enable transport prices to change in response to demand. This is already happening in the US, where a common carrier merchant pipeline network at Henry Hub is already available to all buyers at spot market prices. “The future of global energy markets lies in networks such as this. They have proved themselves in telecommunications (the internet), electricity (Europe’s increasingly integrated
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grids) and now natural gas (the US merchant pipeline system),” Grenatec noted.
Furthermore, ‘just in time’ inventory management lowers the albatross of idled, high fixed cost investments – such as long construction lead time LNG facilities that are under utilised once finished. The only winners of that game are construction contractors. This, in turn, generates much better price signals than the 20 year lock in, the model favoured by LNG producers on the grounds that such certainty is required to justify a large initial investment.
Australia
LNG exportsThanks to expanded plant capacity and higher commodity prices, Australia expects its earnings from LNG exports to surge by 41.1% to AUS$23.4 billion in the current fiscal year to 30 June 2017.
According to the Australian government's Department of Industry, Innovation and Science, Australia’s domestic LNG production will rise by 39.6% from 37 million t in the last fiscal year to 51 million t in FY16.3 The additional production at the Gorgon project off the cost of Western Australia, and new capacity starting up on the east coast, will boost the country’s LNG export earnings from AUS$16.6 billion in FY15.
“LNG contract prices, under which most Australian LNG is sold, are forecast to increase in line with oil prices. Higher export volumes will be driven by the addition of around 15 million t of LNG export capacity, bringing total operational capacity to around 66 million t by mid-2017,” according to the Department of Industry, Innovation and Science.
The outlook for Australia’s LNG industry has been lifted significantly by the recovery in the fuel’s global trade after recent years of flat to negative growth.
Consultant Wood Mackenzie also endorsed the positive outlook for Australia’s LNG sector with the prognosis that it will remain sufficiently competitive to attract at least US$20 billion in investment over the next decade. In the face of continuing weakness in commodity prices, the company stated that Australia has some of the world’s most progressive fiscal regimes for the oil and gas industry, taxing operators purely on profits for offshore production. “This means Australia’s tax take rises for more profitable projects, but falls when they are less profitable.”
But it warned that future investments into the sector could still be jeopardised if Australia’s federal and state governments attempted to make major fiscal changes without ‘proper consultation’. “The recent wave of
Australian LNG projects are forecast to deliver relatively low returns, well below the returns that Qatari projects have realised.”
The silver lining in the continuing LNG supply glut is that it is fuelling the growth in the fuel’s global trade. According to the Department of Industry, Innovation and Science, the global LNG trade will increase by 7% in 2016 and by another 10% in 2017 to reach 285 million t. “Growth will be driven by demand in emerging Asia and Europe and supported by a major expansion of LNG export infrastructure in Australia and the US.”
CBM to drive gas productionAustralia’s gas production is seen growing by more than 26% from nearly 61 million t in FY15 to 77 million t in FY16. Most of the new supplies, derived from the country’s rich CBM reserves, are being processed into LNG for export to Asia.
Graeme Bethune, CEO of consulting firm EnergyQuest, attributed Australia’s LNG surge to several major projects producing above nameplate capacity. For October, Bethune counted 65 export cargoes, weighing a combined 4.3 million t, compared with the previous month’s export of 61 cargoes weighing 4 million t.
“There was a particularly strong performance by LNG projects on the west coast,” Bethune said. “Western Australian projects in October shipped 2.4 million t (36 cargoes), up from 2.2 million t (33 cargoes) in September. Woodside’s Pluto project shipped seven cargoes in October, up from five cargoes in September.”
Chevron ramped up its Gorgon project to sell an additional cargo in October while rival ConocoPhillips added two cargoes to make it five. Offsetting these gains, Bethune said two of the three Gladstone plants on Queensland’s east coast exported 24 cargoes in October, down from 25 in September. One of the plants, operated by upstream firm Santos, made a breakthrough sale by exporting Australia’s first LNG cargo to Mexico.
Curtis Island's LNG plants in full flowCurtis Island on Australia’s Queensland state has become the country’s main LNG hub, with the full operation of six trains on its three export-oriented projects.
Costing a total of US$57 billion, the three have a combined nameplate capacity of 25.3 million t, or just over 38% of the country’s total of 66 million t.
Australia Pacific LNG (APLNG) became the largest operator on Curtis Island with the October startup of its second train that lifted its capacity to 9 million tpy. Queensland Curtis’ (QCLNG) two trains have a combined annual capacity of 8.5 million t, while Gladstone (GLNG) is the smallest producer with 7.8 million t. The Curtis Island plants were built mostly to supply LNG to Asia.
The US$18.5 billion APLNG is jointly owned by Australia’s Origin Energy (37.5%), the US’ ConocoPhillips (37.5%) and China’s Sinopec (25%). QCLNG’s first train is equally owned by Shell’s BG subsidiary and Chinese state firm CNOOC, while the second train is 97.5% owned by BG, with Japan’s Tokyo Gas holding the remaining 2.5%. Australian upstream firm Santos is the operator of the
Table 2. Australia’s LNG exports
Australia’s LNG exports FY15 FY16 (forecast)
%
Volume (million t) 37 51 39.6
Value (AUS$ million) 16 557 23 357 41.1
Source: Department of Industry and Science
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US$18.5 billion GLNG plant, with a 30% stake that it co-owns with Malaysian state-owned Petronas (27.5%) and South Korea’s Kogas (15%).
At the official startup of APLNG’s second train, CEO Page Maxson said the company was producing enough LNG to meet both domestic and export requirements.4
“As the largest producer of natural gas in eastern Australia, we are underpinned by a world class coal seam gas resources position. We currently provide approximately 25% of domestic gas to the east coast market, with sufficient reserves to meet both LNG and domestic demand,” Maxson said.
Tapping Canada’s oil and gas reserves
Woodfibre LNGAsia’s ambitious plans to tap Canada’s rich oil and gas reserves have crash-landed as spectacularly as they had risen just a few years ago. From a list of 20 proposals, only one is expected to start shipping LNG to Asia from a dedicated export plant in 2020, according to Vancouver-based owner and operator Woodfibre LNG Ltd.
The Canadian-registered firm announced its investment decision in November after receiving approval from parent Pacific Oil & Gas Ltd, which is owned by the Singapore-based Royal Golden Eagle Group (RGE group) of companies. RGE is controlled by Indonesian tycoon Sukanto Tanoto.
Located 7 km southwest of Squamish town near Vancouver on the coast of British Columbia (B.C.) province, the CAN$1.6 billion plant has already sold off the bulk of its annual 2.1 million t. Woodfibre said it expects to start work next year on what, it claims, will be the world’s cleanest LNG plant.
The project represents a small but vital victory for B.C. Premier Christy Clark, who, in 2013, had set an ambitious target to secure five export-oriented LNG plants that she said would add CAN$1 trillion to the provincial economy. This is no longer realistic following the collapse of global energy prices from mid-2014. LNG prices in Asia have fallen from a peak of more than US$20/million Btu in 2011 and 2012 to just over US$6 now.
Of the 20 proposals submitted by international oil and gas companies, only Woodfibre’s has cleared the final investment decision (FID) stage. Malaysian state energy firm Petronas, Shell, Exxon and Chevron are among the major players likely to face a long wait from shareholders to approve their proposals.
PetronasIn contrast to Woodfibre, Petronas is struggling to meet Canadian expectations that it will complete its proposed CAN$36 billion PNW LNG project in northern B.C. Malaysian Prime Minister Najib Razak captured world headlines in 2013 when he announced Petronas' LNG vision in B.C. that would have required an investment sum exceeding 10% of his country’s GDP in a single stand-alone project. In an attempt to keep the proposal alive, the company and the Canadian government have each issued
‘conditional’ approvals for the construction of pipelines and an export processing terminal near the port of Prince Rupert.
In September, Ottawa gave its approval for the construction of the CAN$11 billion terminal provided Petronas fulfils an incredible 190 conditions, including several related to protecting the environment and marine life in the Prince Rupert area.
The onus is now on the Malaysian firm, as it earlier had told Canada that it would proceed with the investment only if regulators approved tax incentives and the project’s environmental assessment. With those two approvals out of the way, Petronas must make its next move.
In conceiving PNW LNG, Petronas had targeted to make the project’s FID in late 2014 and to start up the export terminal in 2018. However, the collapse in oil and gas prices since mid-2014 has forced the firm to consider scaling back and selling off the bulk of its 62% stake in the project, which will require another CAN$25 billion in upstream assets, pipelines and support infrastructure. Petronas’ Canada venture began in 2012 with its purchase of Calgary upstream firm Progress Energy for CAN$5.9 billion. After announcing plans for the integrated PNW LNG project, it progressively sold off small stakes to China’s Sinopec (10%), China Huadian (5%), Indian Oil Corp. (10%), Japan Petroleum Exploration (10%) and PetroleumBrunei (3%).
After the last sales to the two Chinese firms in April 2014, Petronas said it was still looking to pare down its stake. With Brent crude prices down from nearly US$110/bbl to approximately US$50 at the time of writing, Petronas has found no takers for its remaining PNW LNG stake.
ConclusionCanada’s inability to meet its original target to become a major LNG supplier by 2020 will be greeted with relief by other suppliers. This is due to the fact that Asia’s LNG market will likely remain oversupplied through at least the next five years. Agreeing with Grenatec’s conclusion of a global LNG glut, Wood Mackenzie noted that the industry is facing record overcapacity. It forecasts that the world will possess 262 million t of LNG in 2016, up sharply from 197 million t in 2014. A further 18 projects with a combined capacity of 110 million t are due to come on stream by 2020.
"All this translates into LNG supply becoming more responsive to price than its ever been. Competition means buyers can ask for more (discounts),” said Wood Mackenzie. “The result will be a larger, more flexible and liquid LNG market.”
References1. ROGERS, H.V., 'Asian LNG Demand: Key Drivers and Outlook', The
Oxford Institute for Energy Studies (OIES), (April 2016).2. 'BP Statistical Review of World Energy', BP, (June 2016).3. Australian Government Department of Industry, Innovation and
Science, https://industry.gov.au/Pages/default.aspx4. 'Australia Pacific LNG second train starts production', Australia
Pacific LNG, https://www.aplng.com.au/content/dam/aplng/media-release/2016/10102016%20Media%20Release%20APLNG%20Train%202%20FINAL.pdf
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