Fundamentals about natural gas and LNG (Part 1)

LNG Tanker

By Abboud Zahr

The main part of natural gas (typically more than 90 percent) that the world consume every day for heating, producing electricity, etc. is methane. Almost all experts treat “natural gas” and “methane” as synonyms.

Only 30 percent of the gas consumed worldwide is exported, mostly via pipelines. Just one third of the exported gas, or about 10 percent of gas consumed every year, is shipped in liquid form, as LNG.

By comparison, more than 60 percent of oil is exported internationally. The problem is that it takes about a thousand times more methane by volume than oil to provide the same energy content. As a consequence, transporting natural gas is very expensive, and it becomes even more expensive the farther the distance to a final market.

Indeed, for much of its history, the transportation and distribution of natural gas could represent 80 percent of its industrial cost. The situation is better today, but the transportation and logistics of moving gas over long distances (generally more than 1,000 kilometers) still constitute much of its final cost, often about 50 percent. When the distance is longer than 2,000 kilometers, transporting gas via pipeline can become economically not viable.

Liquefying methane involves cooling it to -161°C, reducing its volume by about six hundred times. Liquefaction schemes usually involve the building of multiple plants in the same area. In the industry jargon, each plant is called a “liquefaction train”, or simply “train.”

Each operates independently. Internationally, capacity is indicated in millions of metric tons per year (Mtpa). Each ton equals about 1,380 million cubic meters or 48,700 million cubic feet, and has a heating value of approximately 52 million British thermal units (MBtu).

LNG capacity is normally referred to as “nominal” capacity, indicating the maximum annual liquefaction capacity of a plant. The seasonal demand for natural gas, which typically peaks during wintertime, and the purchase strategies of different buyers cause only part of the nominal capacity to be used each year. LNG economists usually assume a 75 percent utilization rate.

Liquefaction accounts for only about 30% of the costs of an LNG export plant. The plant also requires storage and loading capacity, refrigeration, power generation, natural gas treatment (acid removal, dehydration, etc.), pipelines, etc.

Several economists simply use “liquefaction costs” to indicate all these costs, but a more appropriate term would be “capacity costs.” They should be calculated against a ton of capacity.