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Basics of Liquefied Natural Gas

Sep 8, 2008

As per BP Statistical Review 2008, natural gas contributes to 9% of India's energy basket. However, with greater availability and soaring prices of substitutes (crude oil), natural gas is set to gain greater importance going forward. Natural gas can be transported over long distances in pipelines or as liquefied natural gas (LNG) in ships across oceans. In this article, we shall examine the basics of LNG. What is LNG?
LNG is natural gas that is stored and transported in liquid form at atmospheric pressure at a temperature of -161 degree C. It mainly consists of methane. It is odorless, colorless, non-corrosive and nontoxic. It is a clear liquid, with a density of about 45% the density of water. Generally, LNG is measured in metric tons when it is a liquid, and in cubic feet when it is in its gaseous state.

Liquefaction reduces the volume by 610 times, making it more economical to transport between continents in specially designed ocean vessels. LNG technology makes natural gas available throughout the world.

What are the steps involved?
There are several steps involved in LNG life cycle including:

  • Exploration to find natural gas in the earth's crust and production of the gas for delivery to gas users. Most of the time natural gas is discovered during the search for crude oil.

  • Liquefaction to convert natural gas into a liquid state so that it can be transported in ships.

  • Shipping the LNG in special purpose vessels.

  • Storage and Regasification, to convert the LNG stored in specially made storage tanks, from the liquefied phase to the gaseous phase, ready to be moved to the final destination through the natural gas pipeline system.

When is LNG viable?
The economic crossover - the point at which transporting LNG via tanker is cheaper than transporting natural gas via pipelines - occurs at a distance of around 2,000 kilometers (Kms) for offshore pipelines and around 3,800 Kms for onshore pipelines.

How is LNG traded?
Russia, Iran, and Qatar together hold natural gas reserves representing more than 50% of the world total. They are the major suppliers of LNG. Consumers of LNG are nations that are deficient in domestic reserves of natural gas. For example, almost 100% of Japan's natural gas comes as LNG.

Shipping accounts for 10 to 30% of the delivered value of LNG (depending on the distance from the reserves to the market), compared with less than 10% for oil, because of the relatively high cost of manufacturing LNG tankers. In the conventional oil tanker market, most ships are built on speculation. This has not been the case in LNG where ships are generally used on dedicated routes for specific projects.

The vast majority of LNG is still traded through long-term contracts, despite an increase in short-term agreements. The availability of uncommitted LNG tankers is a key element in the development of LNG short-term market.

  • Also read - GAIL: What determines its tariffs?

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