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NEXANT ASSESSES LNG TECHNOLOGY TRENDS
New Study Examines Technology Improvements and Innovative Project Execution Strategies to Optimize LNG Business Performance
July 30, 2007---White Plains, NY---A newly released Nexant ChemSystems® Special Report—LNG: The Expanding Horizons of Liquefaction Technology and Project Execution Strategies—offers a comprehensive review, assessment, and comparison of the technical, commercial, and strategic elements that collectively frame the modern liquefied natural gas (LNG) business. Presenting the most recent industry trends in natural gas liquefaction technology and EPC execution strategies for international baseload LNG plants, the study provides an independent and informed basis for companies and governments to consider as they develop LNG projects to match particular circumstances and business strategies.
LNG MARKET. Conventional steam cracker feedstocks, whether derived from crude oil or from refinery products, have continued to increase in cost as compared with coal and remote natural gas-coal and natural gas being the feedstocks for acetylene production.
Since the first commercial overseas shipment in September 1964, the LNG business has grown to represent 25 percent of the worldwide cross-border natural gas trade. Although the Asia Pacific region is the largest market for LNG, accounting for 65 percent of global trade, LNG is becoming an important complementary source of gas supply in Continental Europe and the Americas where the market has long been dominated by pipeline gas supplies.
LNG SUPPLY. The world's production of LNG can be broken down into five principal supply regions: North and South America, Europe and Eurasia, Middle East, Africa, and Asia Pacific. Nexant's estimate of global LNG supply is projected to reach 250 million tons per annum (tpa) by 2010 and 505 million tpa by 2025.
DRIVERS FOR GROWTH. During the past two decades, the main drivers for the growth in LNG trade have been:
- Power generation—the electric power generation market accounts for the largest proportion of demand growth in the global gas market, driven principally by the advent of the combined cycle gas turbine (CCGT) technology.
- Liberalization—gas market liberalization in the major economies of the world has resulted in greater competition and favorable gas prices at parity with liquid hydrocarbons.
- Energy efficiency—the use of combined heat and power (CHP) systems has resulted in a significant improvement in industrial energy efficiency and cost base.
- Stranded gas monetization—the desire of gas surplus countries to monetize stranded gas resources and to have access to the most lucrative markets, which often requires long distance overseas transport.
The key challenge for the continued growth of global LNG trade is for industry to employ technologies and execution strategies that optimize all the segments of the LNG value chain, from supply source to the consumers. A critical review of industry's more recent achievements in the production of LNG in baseload plants is the main focus of Nexant's new report.
LNG VALUE CHAIN.A baseload liquefaction plant is the central component of the business value chain that links natural gas reserves to the end-users. Because liquefaction plays the central role in achieving optimum business performance, efforts to achieve greater efficiency and economies of scale in the design and execution of baseload plants have been among industry's primary objectives. Key technological questions are:
- Do mega-trains truly exhibit economies of scale when step-out in equipment sizing of the trains and associated infrastructures and reliability are considered?
- Is there a "sweet spot" with regards to liquefaction train size?
- How does the use of proven and unproven technology impact project execution and financing?
- How do characteristics, such as market size and resource endowment, impact the liquefaction technology selection process, as well as, the project execution strategies?
Notwithstanding the key role that technology has and will continue to play, in the current environment of surging costs and scarcity of skilled human resources, equally important are the contracting strategies employed for engineering and construction of baseload LNG plants to optimize project costs and schedules and reduce associated project risks. Key contractual issues are:
- Can contractual approaches effectively align project objectives with stakeholder needs?
- Can project execution approaches reduce cost and/or schedule?
- What are the risks and rewards?
INDUSTRY STUDY. The key elements of the Nexant study are:
- Overview of the global LNG markets and the commercial issues that drive and constrain future growth
- Assessment of the design philosophy and technology concepts that have evolved over time to improve process efficiency while meeting market and economic objectives
- Analysis of the technical and economical performance of liquefaction technologies and equipment components employed in large baseload liquefaction trains
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Review of the alternative LNG project execution strategies employed to optimize costs and project schedules and minimize associated project risks
TECHNOLOGICAL ADVANCEMENTS. The most recent technological innovations and considerations include:
- New and optimized versions of the cascade liquefaction process, the propane precooled mixed refrigerant process (C3-MR), and the dual mixed refrigerant (DMR) technology.
- Development of larger LNG liquefaction trains employing the parallel mixed refrigerant technology (PMR™) and the SplitMR® and Split Propane® technologies.
- Emergence of the mixed fluid cascade technology (MFC) and the new propane precooled mixed refrigerant with cold-end nitrogen expander cycle process (APCI-APX™).
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KEY STUDY RESULTS. Of the various liquefaction technologies described in this study, seven technologies met the screening criteria (commercially proven concept or comprised of commercially proven components capable of liquefying more that 4.5 million tpa of LNG in a single train) and were included in the comparative technical and economic analysis. This comparison includes the optimized cascade pure refrigerant technology and six mixed refrigerant technologies.
These technologies were analyzed for service in baseload LNG plants, using specifically selected criteria regarding train capacity, compression configuration and related components. To facilitate comparison, common assumptions were made regarding plant siting and feed gas price, composition, and pressure. For the baseload plants analyzed, the single train capacities range from 4.8 to 8.7 million metric tpa, which spans the size variability of the larger trains currently being considered.
Whereas there is clear evidence of economies of scale, the advantages of plant availability and thermal efficiency were found to be secondary to specific capital costs and potential plant construction delays. This provides a key conclusion - designing to higher capacity and capital cost control during project execution are critical to maximizing returns.
The results of the technical-economic comparison for an LNG export price of US$5.00/MMBtu are borne out by recent history as LNG project developers have been seeking liquefaction technologies that allow larger train sizes. However, the range of investment returns is relatively narrow and not all gas supply sources can sustain the larger train sizes.
Furthermore, the impact of the increase in capital cost and EPC schedule delays can eliminate the benefits of the application of a particular LNG technology. In the current environment of heavy project work loads and increasing costs, project owners and their contractors must increase collaboration and learn to predict and avoid spiraling lower levels of negative impact factors.
Due to their sheer scale, LNG projects are especially vulnerable to cost overruns and delays. As a result, project developers are seeking alternative strategies for contracting and implementing EPC services. The study discusses risk management techniques, compares the different lump sum and cost reimbursable contracts, and reviews execution approaches that industry is taking to enhance project performance, analyzing the critical factors that drive success.
For more information on this ChemSystems® Special Report, please visit www.chemsystems.com or contact: John Servello +1 713 982 5552 (e-mail: jservello@nexant.com)
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