4 replies to this topic

[pjadams]

Hi,

I can see a lot of experts here. I have a general question to ask. To make use of a natural gas resource, should a owner build a methanol plant or a LNG terminal?

Chemically both options are possible. You can use methanol synthesis to make methanol from CH4 and water and sell CH3OH as a commodity. Or, use compression technology to liquify the natural gas and ship it to where it's needed, for example US. But my sense is that LNG plant is pretty simple to build and much more flexible. But I don't know how to estimate the construction costs.

Any expert can give me some reasoning here?

Thanks,
PJ.

[Art Montemayor]

PJ:

I was a Project Manger for developing LNG projects in 1976 for what was then the largest LNG company in the world with a fleet of nine LNG carriers carrying LNG into the USA. As you can imagine, one of my jobs was to be up to speed with respect as to what can be done with deposits of natural gas on a world-wide basis and how these compete with LNG for development of foreign natural gas deposits.

I did the Methanol option as well as the Ammonia and gas-to-liquids option more than a few times. Your question: "should a owner build a methanol plant or a LNG terminal?" is a rather naïve one and can't be answered without specific information and definition of scope. For example, WHICH owner are you referring to? – the owner of the gas reserves? If so, this often turns out to be a country with a socialist political program. As such, a lot depends on the local politics and the power structure. All of this has little to do with engineering and making a free market profit, so the conventional rules of doing business often takes a back seat.

Contrary to what you state, an LNG facility is NOT EASY TO BUILD. There are only a few engineering contractors that can really qualify for taking on an LNG engineering and construction contract. To be economical, an LNG facility has to be in the 1.0 billion Scfd capacity size. This is definitely a major, world-scale project that is measured in the billions of dollars to put together. Major world banks have to form consortiums in order to be able to finance such a ventrure. The engineering and construction phase must be proven and experienced in order to take no risks. This means that field-proven technology and experience must be acquired. This limits the playing field to a few world-scale firms willing to undertake such a venture.

In order to compete with the LNG revenue potential, the Methanol project must also be world-scale in size and scope. That also means specialization and huge amounts of monies. The risks are also high and few engineering firms qualify to undertake such an enterprise.

In order to start an LNG project going, one usually must obtain a "take-or-pay" type of sales contract. That simply means that the cash revenue is practically guaranteed – as long as the producer can deliver the product. This type of contractual arrangement is typically required in order to obtain the financing of the project. The lenders rightfully want to eliminate any risks that the cash flow will be interrupted due to a fall in market demand. They just want to make sure they get their billions back.

In order to estimate the capital cost of an LNG or Methanol plant on a world-scale size, you need to have a major, expert engineering company doing the basic and preliminary design. To do that, you are required to put up millions of dollars UP FRONT as front end engineering costs in order to begin to define the project cost-wise and in feasibility. This means you must run a certain risk once you invest this money. The project may not be possible, may be abandoned due to political decisions, or simply may not be approved by the parent country or the customer country. A number of things or factors may not work out. What I am saying is that this is the MAJOR LEAGUES in project development. This is not your ordinary, every-day method of developing projects or even of engineering them. If you don't have a firm hold on the monies, the gas sources, or the markets, you really don't belong in this league.

You (and many others) don't know how to estimate the construction costs because of what I've described above. But don't worry. Even if you could, no reasonable banker or financier would believe your figures anyway. They require field and historically proven engineering houses to furnish the credible calculated and tabulated estimates on a detailed level in order to obtain financing and submit them also to regulation agencies in both the supplier and buyer countries.

I could go on and on with many detailed explanations to your inquires on LNG and Methanol projects, but most of it would not be understood. You have to be involved in one of these projects to fully appreciate what is involved and how deep the waters are. Believe me, the waters are profoundly deep in this type of processing plants and projects. They are not for the faint of heart

[pjadams]

Art,

Not for faint of heart, indeed. Thank you, you have already answered part of question.

PJ.

[pjadams]

A few facts:

(1) Whenever is possible, NG pipeline is the most economical approach to deliver NG to the destination.

(2) But, pipeline may not be possible in every location. Or in some cases the cost is prohibitive. The average cost for a pipeline is $1 Million per mile. Imagine to build a pipeline of 1000 miles long!

(3) In this case, LNG comes to help. The largest LNG facility is at Qatar, followed by Trinidad, Tobago (5.2 mm Metric tons/y). The good thing about Liquidified NG is that it occupies only 1/600 volume of natural gas. But you need to cool it down to -260 deg. F. LNG facility takes 1.5 billion$ to make per 1 mmT/y capacity; receiving terminal takes 1 b$ per 1 bcf/d capacity (bcf = billion cubic ft, I don't know why they can not be consistent with the units). And the vessel takes 0.2 - 0.3 billion$ to build. Because the cost is so high, only the IOCs (international oil companies) can do it. Usually they secure the demand, sign the contract to fix the price for 20 years before they jump in.

See Wikipedia:
http://en.wikipedia.org/wiki/LNG

(4) For methanol synthesis, for a mega plant, 5000 T/D, the plant takes 0.5 Billion$ to build. That is the most economical way to do it, taking advantage of sizing effect. It takes 5 - 10 years to build. But if you don't have that many $$ in your pocket, you can build smaller plant, but it won't be cost effective, burn more NG. For instance, for a 100 T/D plant, the fuel consumption of NG is 30% more on per unit methanol production.

(5) The best approach is to use IGCC, which means integrated gasification with combined cycle. Oh, the IGCC is taking coal gasify it to syngas (CO and H2) then you can generate electricity, produce substitute NG and make commodities such as ammonia and methanol. You can use NG instead of coal, it's even cleaner.

Please also check on:
http://www.deltastat...ergy271102a.htm

Please add your opinions, everybody.

PJ.

[pjadams]

Just add one more twist:

The economics depends on the quantity of the reserve. For instance, some expert suggested:

Generally it will depend on the amount of gas reserves available. LNG is most economic for large reserves ie > 2 TCF (trillion cubic ft). Methanol is a good solution for 1-3 TCF. Anything less is a good candidate for supply to local industry or power as noted. It also depends on your distance to market of course - no need to make LNG if a pipeline will do.

Methanol economics are pretty good at the moment but as noted subject to a lot of volatility and who knows by the time you actually build a plant.

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Another expert claims, if you are small player, don't try the fancy stuff, it's going to be expensive:

NG to LNG process technology is not widely available and costly and energy-intensive with no commesurate benefits. Technology provider will walk away with all the money.

Instead, try something simple, managable. If the reserve is in a location close to the habitats, go to the gas turbine, generate electricity. Or remote area, try methanol, deliver cost is low. See below:

Whole world is seeking this product and you have a pleasant problem of the availability of NG.

The solution is quite simple. Just use it on gas turbines, producr electric power and transport power at high voltages to reduce the I2R losses. Please focus on this singular process and nothing else. If the qty is copious, this is the best solution. If the source is remote, this is the best solution.

If the qty. is abundant, the second best solution is - to use the same as such in Fertiliser industry.

If the qty. is small, go for Hydrogen or Methanol conversion. Methanol's demand is not much. You will have problems of marketing. Hydrogen as a fuel is not very popular due to the safety constraints.

GTL is proven but then the Multinationals who have the technology will take away all the benefits as technology fee, JV participation, Maintenance cost, Spares, etc. etc. They have not allowed any one else to come up in the past except themselves. If you go to any of them, it means you have surrendered your country's independence and resources to them.

So, don't think too much. Go for Power Generation. Which Gas Turbine will depend on what each of the manufacturer will offer to you. Go for the closed system that utilises more efficiently the available NG as compared to the Open Cycle. Don't waste money and time. Go ahead and all the best.