In the past, natural gas recovered during oil production was not marketed and therefore it was simply burned (flared) at the oil field. Limited quantities were utilized as an energy source. With the advent of new technologies, investments in pipelines and liquefied natural gas (LNG), it now is possible to collect and process natural gas so that far more of it can be used as an energy source than previously. However, transportation of gas is a very capital-intensive operation and limitations are placed by pipeline locations. Modern technologies ensure the safe transport of gas. The Belgian shipping company Exmar is one company that is specialized in this field. We were lucky enough to meet Bart Lavent, the Director Upstream Downstream of Exmar, who kindly took the time to answer our questions.
Q: First of all, where does natural gas come from?
Natural gas is a natural resource, a gaseous fossil fuel comprised primarily of methane. It can be found in oil fields, natural gas fields and in coal beds. Russia has the biggest known reserves, followed by Iran and Qatar. Although Qatar is a small country in size, it has the third largest gas reserves in the world. If you look to Europe (excluding Norway, because it is not a member of the European Union), you find the major gas reserves in the Netherlands and the United Kingdom. However, indigenous production of gas in the UK is on the decline, so more and more gas has to be imported to cover declining production in the face of growth in demand for natural gas in Europe. This brings new opportunities for liquefied natural gas, as pipeline capacity is limited and a long leadtime is required to construct new pipelines. Pipelines also have political, geographical and flexibility limitations.
Q: Can you tell us what liquefied natural gas is and how it is made?
Liquefied natural gas — or LNG — is natural gas that has been processed and then condensed into a liquid at almost atmospheric pressure by cooling it down to approximately -163 degrees Celsius. LNG is transported by specially designed cryogenic sea vessels and cryogenic road tankers; and stored in specially designed tanks. By this process; it becomes approximately 600 times smaller, and is easier to transport over long distances where pipelines do not exist, are difficult to build or just as an alternative. The major difficulty with the use of gas is transportation, so therefore LNG is very a good solution. It can then be used for heating, as raw material for industry or to produce electricity. It goes without saying that this whole value chain is very capital intensive.
Q: Is natural gas good or bad for climate change?
Natural gas is the cleanest fossil energy available. In order to comply with the Kyoto Protocol, many governments are promoting natural gas because it lowers the emissions of the country compared to other fossil energies.
It is true that there are renewable energies that produce no emissions, such as wind power. But these technologies have some disadvantages. For instance, you need back-up energy for wind turbines in case there is no wind. Due to its flexibility, the back-up energy often used for wind turbines is a gas-fired unit.
I do not believe that most renewable energies — such as wind energy — would be economically viable without the large subsidies paid by countries. I also believe that energy investment decisions should be made from a regional perspective and not from a national one. Some countries benefit from extraordinary geological or environmental situations which significantly lower the investment costs in wind power, hydro power or even geothermal units. Therefore, it is often better to invest in these countries where the costs are lower rather than merely adopting a national point of view.
Q: How does natural gas reach my home?
There are two means of transportation for reaching a country: via LNG (liquid) or via pipelines (gas). The choice of method depends on investment costs and political choices. It is then transported across the country in high-pressure pipe-lines and distributed into your home through low-pressure pipelines.
The main difference be-tween our company, Exmar, and other shipping companies is that we have developed, together with our partner Excelerate, a techno-logy where we carry out the re-gasification on board the ships. Normally, you have liquefaction plants, ships and then the re-gas facility on shore. We skip the last step. The ship is moored at a specially designed offloading buoy. The LNG is re-gasified on the vessel and injected into the national grids by means of a sub-sea pipeline.
By building the re-gasification plant on board our ships, we have the following advantages: 1. Flexibility: we can off-load the vessels directly into the national grids without using a costly re-gasification plant. For the price of building one traditional LNG terminal, Exmar can build up to seven re-gas buoy locations. 2. Fast time to market, because the infrastructure of Exmar is limited and therefore quickly put in place. The site in Teesside, UK, is a clear example of this. 3. Environmentally friendly: as the buoy is several kilo-metres away from the shore, our system does not harm the coastline in comparison with a traditional LNG terminal.
Q: If I understand correctly, when the ship arrives in harbour, you just discharge the gas directly.
We do not even need a harbour in order to download the cargo! The problem today is that nobody wants a large terminal on their coastlines. The coast is used for tourism and other activities, and a huge production plant is not a pretty sight. Therefore, our system allows us to unload our cargo far away from the coastline. What happens, in fact, is the following: the ship is docked to the buoy (which might be far from the shore), the liquid gas is re-gasified, injected into the offshore pipeline and sent to the shore.
Beside the ecological concerns mentioned above, re-gas terminals require huge capital investments. With the Exmar system, developed with its partner Excelerate, it’s much cheaper — you only need one vessel to serve different markets. One day the vessel is active in the United States, some days later it can be serving the United Kingdom. In order for a gas producer to be active in two markets, he needs to build two terminals, but by using our product he will be able to serve two markets. It introduces a great deal of flexibility into the market.
Q: What are the constraints on natural gas in Europe? Is it the supply of gas or is it the pipeline network?
There are a couple constraints all through the value chain from production to distribution. If the market needs more gas, you need to enhance the entire system. For instance, in Europe you see two main evolutions: on the one hand, indigenous production is rapidly decreasing (UK, Germany, etc.); on the other hand, the consumption of natural gas is rising due to all kinds of political decisions (Kyoto, nuclear phase-outs, etc.). This leads to a rapidly expanding gap between supply and demand. The question now is: who is going to fill this gap?
Large investments are needed to bring gas from Russia or Qatar to Europe. 1. New pipelines are under construction (like the Baltic Sea Pipeline). 2. LNG offers a global advantage and flexibility in the market place, therefore there are investments in liquefaction terminals, cryogenic ships and re-gasification plants. A lot of new terminals are being created. Some people argue that these terminals will not be used as there is not enough gas to fill them. Our system costs only one-seventh of the total cost of a terminal, and you have more flexibility. To give you an example: in the Netherlands there are three competing projects. It can be questioned whether a relatively small country like the Netherlands needs three LNG projects! We will see in a couple of years what happens.
Q: What plans are there for developing the pipeline network?
I believe there are two main projects. 1. Construction of new pipelines I think the biggest one is the one under the Baltic Sea which will link Russia immediately with Europe, because it will land in Germany. In that way, it will by-pass certain countries and bring diversification to supply routes for Russian gas.
2. LNG terminals and regasification vessels
Europe wants to be less dependent on Russian gas, so they want to purchase gas from other countries. Therefore, LNG is perfect. By building new entry points into European markets, the gas can come from different sources (e.g. Trinidad, Qatar, Nigeria, Egypt).
Q: How long will supplies of natural gas last?
The latest edition of the BP energy report (the reference in this matter) shows that there is still about sixty-five years of reserves. However, there are a lot of sources that are not yet used or not yet discovered, so I think there will be enough gas for our children and even our grandchildren.
Q: What do the ships that carry LNG run on?
The boil-off of the LNG is used as energy to run the LNG vessel. As you know, this is the cleanest fossil fuel. Alternatively, the vessel can use heavy fuel like conventional vessels.
Q: What do you think is the energy of the future? In fifty years?
Well, I do not have my crystal ball with me! From a personal point of view, I think that gas will still be around. Nuclear energy technology will hopefully have advanced so that we can use even more of that. Renewables will, of course, continue to expand.
Q: Do you feel that LNG will make natural gas a global commodity?
That’s a really good question! When there were no pipelines, you had to build pipelines from the producing country to the consuming country. The consumer was linked to the producer and vice versa. So, if the market price went down the producer did not have any other solution than to bring his own price down to maintain his production. This is still valid on certain markets today. For instance, market prices in the UK are different from those on the European continent and the United States. Why is this still the case? Simply because certain producers cannot ship their gas to the United States if their pipelines are going elsewhere. So gas was not like oil — a global market. Then along came LNG. A lot of people believe that in the future LNG will have the same price everywhere. If you have an LNG ship sailing towards the UK, and the price is lower there than in the USA, the ship can just change course and go to the USA. This was illustrated in the winter of 2005/2006.
Yes, I believe that there will be one global price on the gas commodity, but for this to happen we need more entry points in different countries. If you cannot access the markets, the price will remain high, so you need more access. Thanks to the technology of Exmar and its partner Excelerate, we can rapidly increase the number of entry points and contribute to a global gas market.
Q: From what you are saying, your company is not trading gas?
No, not at all. We are a transportation service provider for the LNG market. In order to be able to trade gas between the UK and Japan, our customers need LNG vessels and sufficient entry capacity in the USA and Japan. That’s the reason why our system brings value-added, because with limited investment costs our customers can be active in different markets.
However, we are also working with developing countries that still do not have any gas facilities. Our techniques enable them to start up. If you need to start from scratch, you need consumers, terminals, grids and pipelines. So what we do is to bring a ship which lays offshore the whole time like a storage tank, just feeding gas into the grid. The ship offers a continuous flow thanks to a shuttle vessel that sails between the producing country and the storage vessel and then performs a ship-to-ship transfer. Due to the fact that we are charging a monthly rent, the country does not have to invest upfront, but can steadily develop its market. There are limited costs for the country in question.
This is very interesting, in particular for developing countries with coastlines. Due to high oil prices, lots of countries want to develop a natural gas portfolio in order to be less dependent on oil. Exmar offers a flexible solution. One ship can carry the annual consumption of about 200,000 people.
