LNG and Its Significance in the Energy Industry
Posted: January 4, 2016
Liquefied natural gas, or LNG, is formed through a process called liquefaction, where methane, the main constituent of natural gas, is cooled to -260 degrees F forming a liquid. At this point the original volume has been reduced by 600 times, which allows large volumes to be economically shipped worldwide in specially designed tankers overseas. LNG can also be moved and utilized domestically in a more localized fashion for distributed power generation or for a transportation fuel in marine, locomotive, and long haul trucking applications. LNG has been produced and shipped for over 50 years and has an impressive safety record. When in its liquefied form, LNG is not explosive as there is not enough oxygen present for it to burn, which is counter-intuitive to what many people might have concerns about.
To form LNG, natural gas is sourced from the transmission pipeline grid and processed at a liquefaction facility, such as the new units (referred to as “trains”) being constructed currently at Dominion’s Cove Point plant on the western shoreline of the Chesapeake Bay in MD. Owners of these new facilities will charge a fee or a “toll” for the methane to be converted to LNG, so that the buyer can then transport it by ship. Beyond this toll, which allows investors to recover the cost of building the facility, there are additional costs to the buyer to source the gas, transport it to the liquefaction unit, and shipping charges to the final point of usage.
Sales of LNG exported from the U.S. present another opportunity to utilize the growing volumes of natural gas being developed in our nation. This is particularly true with the advent of increasingly large supplies of shale gas seeking new markets and utilization options in North America. With significant numbers of older coal plants being decommissioned for a number of reasons, natural gas is seen as a low cost, low carbon option to backfill regional baseload power generation requirements, often in tandem with renewables, which can be intermittent by their very nature. Along with new power generation, there are emerging options for industrial uses of natural gas and increasing numbers of residential heating conversions taking place. But even with those evolving uses of gas, export of LNG has become an option that was not even considered commercially viable six or seven years ago.
As of November 2015, six new liquefaction facilities have been permitted by FERC and licensed for the export of LNG by the Department Of Energy (DOE), allowing over 10 billion cubic feet/day to be shipped from locations mainly on the Gulf Coast, with Cove Point being the sole location on the East Coast, and the only one with direct access to Marcellus and Utica shale gas production in the Appalachian Basin. These LNG export licenses give upstream producers expanding options to market their product to new buyers globally, including to the many countries where the U.S. doesn’t have a Free Trade Agreement in place. The first shipment of LNG is expected from Cheniere Energy’s Sabine Pass Louisiana facility in the first half of January 2016. This will be the beginning of the U.S. moving from non-participant status, to holding the title to third largest exporter of natural gas by 2020, behind Qatar, and the expected leader, Australia.
(Next week, part two will discuss the global LNG market and the US role.)
Tom Murphy is Director of Penn State’s Marcellus Center of Outreach and Research (MCOR). With 29 years of experience working with public officials, researchers, industry, government agencies, and landowners during his tenure with the Outreach branch of the University.
His work has centered on educational consultation in natural resource development, with an emphasis specifically in natural gas exploration and related topics. He lectures globally on natural gas development from shale, the economics driving the process, and its broad impacts including landowner and surface issues, environmental aspects, evolving drilling technologies, critical infrastructure, workforce assessment and training, local business expansion, resource utilization, financial considerations, and LNG export trends.
In his role with MCOR, Tom provides leadership to a range of Penn State’s related Marcellus research activities and events. Mr. Murphy is a graduate of Penn State University.