<"Oil Shale Development Imminent" The Oil Drum DrumBeat: June 19, 2006>

73 comments on A Megaproject list from the Oil and Gas Journal

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ThatsItImout on June 19, 2006 - 1:04am Permalink | Subthread | Parent | Comments top

The biggest hold up for LNG projects may be price.

Everyone was licking their chops at the prospect of getting into the LNG game at prices of more than $12.00 or $14.00 dollars per MM/BTU, but the dew has gone off the daisy at prices down in the $6.00 range.  This seems to cause some folks to notice what would seem to be a perfectly obvious condition of LNG:  It always has to compete against local pipeline gas first.

This is why the contracts are long term term in the LNG trade, and why the investment can only be undertaken at the lowest possible assumed prices.

Once you begin building (actually before, if you include all the legalisms) you are married to whatever market price you assumed would be in play for many years out in front.

The same situation is true of huge pipeline projects, and is why there has been so much vacilation on the Alaska nat gas pipeline.

It's a tricky business.  For LNG terminals and pipelines to make sense, the price has to stay high enough to pay for the venture to repay the investor but low enough not to destroy demand through "off shoring", conservation and alternatives.

The truth is, no one has any real idea how much natural gas we have.  There is stranded gas, coalbed gas, tight gas, unconventional gas, offshore gas, and gas still under moratoria for environmental reasons.

There is the problem of weather.  A few mild seasons in a row and the  fact that North America may be peaked means little with the price collapses for a half decade or more and it's your money tied up in a furloghed LNG terminal.

There is the problem of regulation.  What if the U.S. government simply threw open all moratoria areas?  There is the problem of substitution by LPG or GTL.

But.....

The opposite edge of the sword is always worrying.  After 4 or 5 easy winters, when nat gas stayed cheap, we could get hit with a back to back record winter, and consumption would skyrocket so fast that there would be no time to put in the LNG or the Alaska pipeline.  It would be too late.  And the United States and Canada could then face at least an economy threatening problem, at worst a life threatening one.

Darley can write.  Simmons can write.  Yergin can write.  The EIA and IAE can write.  The USGS can write.  But the truth is, it's a crap shoot.

Roger Conner  known to you as ThatsItImout

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AlanfromBigEasy on June 19, 2006 - 7:10am Permalink | Subthread | Parent | Comments top
The US is not the closest market for most LNG suppliers.  LNG tankers, unlike LNG trains and recieving terminals, can be easily redeployed "elsewhere".

But if the US is to recieve 10%, or even 6% of it's domestic NG from LNG. a significant, and expensive, expansion of the world LNG fleet is needed.  LNG tankers are several times more expensive per unit of energy than oil tankers (superinsulated containers with speciality steel and high quality construction).

When Spain was hit with a bad drought, they increased LNG imports on the spot market (which exists) and imported more from Algeria & Nigeria (I assume).  Shipping was not a major issue, they had extra capacity at their recieving terminals.  Italy et al made up for less LNG with more Russian gas and a profit.

If the US has a bad winter, a hot summer and then another bad winter, we will run into tanker shortages if we try to increase supply through the thin spot LNG market.

We may find LNG supplies, have enough capacity at LNG terminals but not have enough tankers to move very much LNG.

China will be buying Australian LNG.  In an emergency, we buy a cargo from China, but it will take four times as long for the cargo to get here.  Is China willing to delay three cargos worth "until the end of the contract" and resell one cargo to the US ?

IMO, the sudden demands of the US on the spot market will overwhelm spot shipping before we exhaust either spot LNG supplies or our limited recieving capacity.  Shipping will be the critical bottleneck for the US due to our location.

One "competive" advantage of Gulf Coast LNG terminals is that we are closer to Africa than New England terminals, and Florida has trouble with putting LNG terminals anywhere.

BTW, are their any West Coast LNG plans permited yet ?

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Whitehall on June 19, 2006 - 10:45am Permalink | Subthread | Parent | Comments top
The BHP terminal in the Santa Catalina Channel is very close to permitting.  The Mitsuibishi terminal in Long Beach is as good as dead - it was always a stupid idea from a safety perspective.

The Sempra terminal just south of the MExican border is under construction and has has for permits almost doubling capacity.

See this blog for the news:

http://calenergy.blogspot.com/

I generally keep an eye on these developments but I can't claim real expertise in the day-to-day.

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nth on June 19, 2006 - 4:49pm Permalink | Subthread | Parent | Comments top
You stated:
"If the US has a bad winter, a hot summer and then another bad winter, we will run into tanker shortages if we try to increase supply through the thin spot LNG market."

Where are you seeing tanker shortages?
After reading a wall street journal article pointing to a glut of tanker ships, I have yet to see the tanker situation change.  Every LNG production facility being built have corresponding tanker ship orders being placed.  There are also some tanker operators who have order ships for the spot market.  From all evidence available now, the tanker market is not the bottleneck, but the LNG exporters are the bottleneck.  Delays in getting production to start and other production delays are really hurting the tanker operators.

I will say this: tanker builders need a long lag time between orders and delivery, so it is possible that LNG producers accelerate their production beyond tanker transportation capacity.  Nevertheless, we are not seeing that now nor in the near future.  You must be looking at the long term to state that LNG tankers are the bottlenecks.

You stated:
"China will be buying Australian LNG.  In an emergency, we buy a cargo from China, but it will take four times as long for the cargo to get here.  Is China willing to delay three cargos worth "until the end of the contract" and resell one cargo to the US ?"

This is assuming a lot or you got countries mixed up.  The last I heard, China has not sign any major deals for LNG from Australia.  You must be thinking of Japan who is the largest importer of Aussie LNG based on signed contract at the moment.  I do believe China is a wild card, but as of now, China does not have the market conditions to pay for expensive LNG that US, Japan, and Europe are currently paying.

My review of the news that is available to me is much different than yours.  My conclusion is that the bottleneck is with LNG production and the lack of natural gas at these sites.  At least, this is the bottleneck for the next 3-4 years.  

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Whitehall on June 19, 2006 - 5:03pm Permalink | Subthread | Parent | Comments top
One question I still have is how much spot market in LNG exists today and how long would a transition take?

I've supposed that almost all LNG traded today is on fixed contract.  There may be some on spot markets but the amount is small.  Anyone have figures as to spot as percentage of total LNG trade?

Last winter, US LNG terminals ran at well below capacity even with $15/mmBTU prices at Henry Hub and the US still lost ship loads to other countries (Spain?)  I read one story of a tanker from Trinidad being diverted from our Gulf Coast to Europe mid-voyage.

If demand is outstripping supply, I'd expect liquefaction plant developers to get full take-or-pay contracts with very little open to selling spot. Given the perishablity of a tanker load of LNG, transport routings are also closely calculated in development.  Unlike oil, LNG depletes in transit as it boils off making travel time a critical economic factor.

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nth on July 7, 2006 - 1:03pm Permalink | Subthread | Parent | Comments top
No one trades LNG.  The market is simply if you want to buy, you approach a LNG facility and order it.  Then you order a tanker to ship it for you.

You just have to hope that some government agency keeps track of LNG to get your stats.

To further boost my claims, LNG trains are coming online slowly and very costly.  Getting welders have been very difficult and if anyone seen how LNG trains are put together, you will know how much pipes you need to put together.

I am curious to know where all the natural gas is coming from to fill up all these LNG trains under construction.  If these LNG trains are not in full production, there are no way in hell we will have LNG tanker shortages.  It is faster to built a tanker than a train.  It is even harder to find enough gas to keep the train in full operations.

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tom deplume on June 19, 2006 - 6:20pm Permalink | Subthread | Parent | Comments top
150 years ago a telegraph cable was strung across the North Atlantic connecting Europe and North America. After 150 years of technological improvements I question why a nat gas pipeline is out of the debate?
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Whitehall on June 19, 2006 - 7:10pm Permalink | Subthread | Parent | Comments top
Answer:  flow resistance.

A gas pipeline loses pressure as the flow rate increases.  In fact, the flow is trans-sonic.  That means that to push gas through a long pipe, one has to start with a high pressure to get meaningful gas out the other end.  The longer the pipe for a given flow rate, the higher the pressure and the thicker the steel.

To keep wall thickness within economic bounds, land pipelines use booster pumps along the line to make up the pressure drop and keep the gas flowing.  Often a pipeline will be constructed and then uprated later with the addition of more booster pumping stations.

A 2,000 mile long pipeline without booster pumps would require extraordinary amounts of steel or else flow little gas.  Alternately, building booster pumps 20,000 feet underwater (and maintaining them) is as of yet an unmet challenge.

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ThatsItImout on June 19, 2006 - 7:24pm Permalink | Subthread | Parent | Comments top

Tom,

I think people here at TOD will accuse me of being technically optimistic to a fault  (some would say a HUGE fault! :-), but I have to say, that yes, a Transatlantic pipeline is out of the debate.  Stringing a cable from a spool on the back of an ocean liner is small game compared to the construction and repeating the repressuring of the pipeline at regular interval....it would require repeating stations with compressors and power sources sitting on the bottom of the deep oceans...technically, we're good, but we just ain't that damm good!  (don't we wish though...)

What is interesting however is the variety of ideas that are in play to move natural gas....here's one that has actually been explored by the Defense Department as far back as the 1950's....

Suppose you built larger than Hindenburg size airships.....and fill the supporting bladder with natural gas.....it is lighter than air by enough to be bouyant, since it is mostly hydrogen....Then you simply tow a couple of the balloons  with one powered airship.....with the weather satellites and good communication, you could steer above and around really rough weather (it would be at least as safe as a deep offshore oil rig in a hurricane!) and move the gas without liquification. :-)  

The balloons would have to be VERY LARGE to move enough to make it worth it,but if the airship is well designed aerodynamically, for examle, as a "delta
 type shape, they would be very stable.....

The Russians once had an even more radical approach....they were going to fill "floater" balloons with natural gas, and release them into the high altitude....then whenever winds carried them somewhere that had a market for gas, or close enough to it, the customer would send a plane up to capture and retrieve the balloons!  With GPS and electronic I.D., the customer would then be billed for the balloon!

And people call me an optimist!  :-)

Roger Conner  known to you as ThatsItImout

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wkwillis on June 19, 2006 - 7:32pm Permalink | Subthread | Parent | Comments top
The Russians once had an even more radical approach....they were going to fill "floater" balloons with natural gas, and release them into the high altitude....then whenever winds carried them somewhere that had a market for gas, or close enough to it, the customer would send a plane up to capture and retrieve the balloons!  With GPS and electronic I.D., the customer would then be billed for the balloon!
Roger Conner  
****************
That's thinking outside the box!
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Jon Kutz on June 19, 2006 - 7:53pm Permalink | Subthread | Parent | Comments top
"I think people here at TOD will accuse me of being technically optimistic to a fault  (some would say a HUGE fault! :-), but I have to say, that yes, a Transatlantic pipeline is out of the debate.  Stringing a cable from a spool on the back of an ocean liner is small game compared to the construction and repeating the repressuring of the pipeline at regular interval....it would require repeating stations with compressors and power sources sitting on the bottom of the deep oceans...technically, we're good, but we just ain't that damm good!  (don't we wish though...)"

Just to try to think a bit outside the box, why not 'float' the cross ocean pipeline say about 30 to 50 meters below the surface. An electrical power cable running with the pipeline would power the booster pumps. All servicing would be at relatively easy to get at depths? Probably wouldn't take any more materials than building a bunch of tanker ships?

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ThatsItImout on June 19, 2006 - 8:57pm Permalink | Subthread | Parent | Comments top

O.K., Jon, I hand over my optimists title belt to you, at least for now....:-), that's actually pretty good, in particular if the route was correctly chosen...(would a polar route make sense?)....interesting stuff!  I am sure we could sign the Brits up for a station on the line!  :-)

Roger Conner  known to you as ThatsItImout

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Donal on June 20, 2006 - 3:54pm Permalink | Subthread | Parent | Comments top
Where I usually swim, there is a loose lane line. It doesn't take much wave action to send it halfway into my lane.  Thinking of that, I'm wondering how you will keep the ocean currents, which do affect water below the surface, from distending your transAtlantic gas duct for miles north and south. Not to mention storms.
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nth on July 11, 2006 - 2:42pm Permalink | Subthread | Parent | Comments top
What kind of flow rate you want these pipelines to be?
Would there be enough gas on either side to justify this?

I think if cost was not an issue then yes, technically, engineers will come up with a solution, but it will be damn expensive.

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NC on June 19, 2006 - 9:06am Permalink | Subthread | Parent | Comments top
Excellent assessment of the issues around NG when the supply and demand are so close to equal.    

My understanding is that historically there was always a surplus supply ready to bring to market.  Inexpensive field development allowed lots of supply to be on hand if needed.  Now all new sources cost an arm and a leg to develop.  No guarantee of ROI unless price stays high, so many aren't developed.

Doesn't this situation guarantee that prices will stay high going forward?  As many people state the era of cheap energy is over.

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73 comments on A Megaproject list from the Oil and Gas Journal

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