Characteristics of the LNG Value Chain
Report 2006.TL.7079, Transport Engineering and Logistics.
LNG is the Liquid form of the Natural Gas (methane), which is used for
cooking, heating homes, generating electricity and as a raw material to
manufacture a wide variety of products. Liquefied Natural Gas (LNG) is
natural gas that has been cooled to a temperature of around -161°C at
atmospheric pressure. Liquefaction reduces the volume of the gas by
approximately 600 times, thereby making it more economical to transport
between continents with specially designed ocean vessels. Generally, it is
accepted that intercontinental transportation of gas through traditional
pipelines is only realistic and feasible for distances smaller than 3000 km.
Thus, LNG technology makes natural gas available throughout the world. The
aim of this report is to present an overview of the LNG value chain.
The major stages of the LNG value chain consist of: Exploration and
Production, Liquefaction, Shipping, Storage and Regasification, and
Distribution. The latest technical developments in both the LNG
shipbuilding- and containment industry feature economically very promising
innovations. There exist four different types of LNG facilities: export
(liquefaction) terminals, import (regasification) terminals, peak-shaving
facilities and satellite storage facilities, each with a special utility
within the natural gas network.
The LNG market is not as flexible as the world oil market. The complexity
and accompanied high costs of LNG transportation technology still make it
relatively expensive to move the commodity physically over long distances.
Therefore, most exporters have developed a unique trade, in which they sign
long-term commitments with regional importers, letting no external
influences on the contract rates. Nevertheless, small shifts in sources and
destinations are slowly providing a basis for the more competitive
short-term LNG market.
Although the USA has the largest number of LNG facilities in the world,
there has been no significant involvement with importing LNG, since the
close-down of two of the four LNG importing terminals in the late 70's.
Demand for natural gas as a clean energy source, has reached record heights
in the USA. By investing in new LNG import terminals, the USA can reduce the
growing gap between supply and demand of natural gas. For over 40 years, the
USA has already used LNG in its domestic gas network for peak-shaving purposes.
The gained operating and safety experience will help reintroduce LNG
The Netherlands own the largest natural gas reserves in Western Europe
(Slochteren/Groningen) and are a major gas exporter to the rest of Northwest
Europe. However, unforeseen production shortages in the current production
fields, predict that the country is going to suffer a shortage in natural
gas supplies within the coming 5 years. Natural gas will have to be imported
from gas fields lying far from Europe. LNG transportation has now become
cheap enough to compete with long distance pipelines. Building LNG import
terminals is a viable option for the Netherlands to maintain their position
as a natural gas distributor. At present, three LNG import terminals are
planned to come online by 2010.
Public opposition to on-shore LNG import terminals has led project
developers to consider offshore LNG import terminals. However, designing
secure mooring arrangements for offloading LNG during harsh sea conditions
has been, and still is a significant engineering challenge. New ways to
store LNG are being explored that would help shorten the time and cut the
costs of creating LNG storage space: Salt Caverns are already a proven
medium for hydrocarbon storage.
The overview of the LNG value chain was presented in this report. LNG has
acquired the role of creating intercontinental bridges between natural gas
markets. While helping fulfil this role, the various types of LNG terminals
and facilities have gained irreplaceable utilities within the gas
distribution networks. The newest LNG carriers are amongst the most complex
transportation ships afloat. Economies of scale and new technologies have
reduced operational costs drastically. However, compared to oil, it is still
relatively costly and operationally complex to move LNG physically over long
distances, which makes the LNG market less flexible than the world oil
market. Nevertheless, LNG, once considered a rare energy commodity, has now
changed the traditional, regional isolation of the gas industry. The demand
for LNG is growing faster in the Atlantic Basin than in the Pacific
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