Understanding the Role of Liquefied Natural Gas; Part 1

Posted: February 19, 2012

This week's article is the first of a three-part series discussing liquified natural gas

There has been much recent interest and discussion about Liquefied Natural Gas (LNG) and the potential for the US to develop LNG export capacity. So it may be helpful to take a step back and gain a deeper understanding of what LNG is and how it’s produced.

What is LNG?  LNG is a clear liquid that forms when natural gas that has been chilled to around -260 degrees F. This shrinks the volume of the gas 600 times, making it more economical to transport to markets around the world. The reduction would be similar to reducing the volume of natural gas filling a beach ball into a liquid filling a ping-pong ball.

It’s important to understand the distinction between LNG as described above and CNG (compressed natural gas). CNG is natural gas that is compressed to a pressure of 2,900 to 3,600 psi to enhance storage capacity – especially in vehicles as a transportation fuel. However CNG remains in a gaseous state during its entire production chain.

LNG Production  The LNG production chain consists of three major steps as outlined below.

• Liquefaction – Liquefaction to convert natural gas to a liquid state so that it can be transported in ships. Plants with the capacity to liquefy 250 billion cubic feet of gas (Bcf) annually are common around the globe today. Costs of liquefaction can range from $1.50 to $2.00 per mcf.

• Shipping – Moving LNG on purpose-build tankers around the globe. The average LNG tanker can hold 3 Bcf of gas or the equivalent lifetime production of a fair-to-average shale gas well. One shipload of LNG can provide nearly 5 percent of the U.S. average daily demand for natural gas, or enough energy to heat more than 43,000 homes for a year. Shipping costs can vary from $0.30 to $0.90 per mcf.

• Regasification – A controlled process of converting LNG from a liquid back to a gas so that it can be moved through the domestic natural gas pipeline transportation network. Regasification can add $0.30 per mcf to the cost of LNG. Thermal energy (heat) is required to regasify the LNG. This heat may be obtained either from heat exchange with seawater or from the combustion of a portion of the natural gas in the process. Nearly two-thirds of the regasification plants throughout the world seawater as their base heat source.

Total costs of liquefaction, shipping and regasification could add up to $2.10 per mcf on the low end to $3.20 per mcf on the high end. Add to this the base cost of the natural gas commodity, currently around $3.00 per mcf in the US. Bringing the total cost of delivering US produced LNG to Europe or Asia to $5.00 to $6.00 per mcf. To put this in perspective, natural gas in the UK is currently trading around $8.00 per mcf and in excess of $15.00 per mcf in Japan.

Next week:  Regulation and US imports and exports of LNG

Written by Dave Messersmith, Penn State Extension Educator, Wayne County and member of the Marcellus Education Team