Liquefied Natural Gas Report 2015: Part 2

Liquefied Natural Gas Report 2015 Market Trends & Opportunities in the Philippines

Part 2

2015

Copyright © 2015 Capman Consulting – Strategic Human Resource Management 1

TABLE OF CONTENTS Chapter 2: Advantages of Liquefied Natural Gas II. Advantages of LNG

a. Advantages of LNG 1. Ease of Transport 2. Superb Quality 3. Safety 4. Flexibility 5. Sustainability

b. Raw Materials Sourcing c. Technological Requirements d. Investment Requirements


II. Advantages of Liquefied Natural Gas

a. Advantages of LNG Liquefied Natural Gas has a number of major advantages as compared to current sources of energy. The major advantages of LNG would be: its ease of transport, its superb quality, its safety, its flexibility of use, and its sustainability.

1. Ease of Transport – 1 Unit of LNG is equivalent to 600 Units of Natural gas. LNG thus occupies a very small amount of the initial natural gas volume; this allows it to be highly efficient in terms of transportation. Additionally, the chemical structure of LNG is much more stable as compared to traditional pipeline gas, giving it leverage to be transported anywhere in safety; it is stored at low pressures and its storage mass is light; delivery of natural gas in the form of LNG to mountainous or isolated regions is thus safer and more practical.

2. Superb Quality – LNG offers superior quality in comparison to normal pipeline gas. The reason for this is that LNG is much purer; it contains a higher concentrate of methane along with other beneficial energy contents. Methane is not a volatile organic compound. The purity of LNG and its high energy content, reduce the total amount of energy needed.

3. Safety – Any vapors linked with LNG will not explode in unconfined

environments. This means that if there is a gas spill, the LNG has little chance of causing an explosion. LNG requires a much higher ignition temperature than diesel, making it more difficult to auto-ignite and therefore safer. It also has extended flammability limits, allowing stable combustion at leaner mixtures. LNG contains no toxic or corrosive components. Due to its gaseous state, LNG has low cold-start emissions.

4. Flexibility- LNG has many various uses from residential to industrial. It is

suitable for consumer purposes such as process, steam recovery, heating and cooking in sectors like tourism, steel, paper and ceramic. One of its major benefits would be its ease in trade. Cargoes of LNG can be easily shipped across the globe to where they are needed, and there are some very competitive commercial terms. Liquefying and transporting gas is much cheaper than shipping natural gas through offshore or onshore pipelines.


5. Sustainability- LNG is not emission intensive like coal and is even capable of

replacing it. Due to the molecular structure of LNG, it will always result in lower particulate emissions than diesel. For example, diesel generally has more than 14 carbon atoms, while LNG has one carbon atom. LNG produces less greenhouse gas and toxic emissions than low-sulphur diesel. The sulphur levels in LNG are almost zero, meaning there are only very minor sulphate emissions. LNG also has a lower adiabatic flame temperature than diesel, leading to lower NOx (Nitrogen Oxide) emissions. When released to the atmosphere, LNG is much lighter than air and evaporates quickly.

b. Raw Materials Sourcing 1. Malampaya Gas Field

The Natural gas industry in the Philippines which specifically operates the

Malampaya Deepwater Gas-to-Power Project caters to exactly three areas in Luzon. The three power stations which are combined cycle gas turbine plants are condensed in the city of Batangas. One would be the 1,000-MW Santa Rita combined-cycle natural gas-fired power plant in Batangas located around a hundred kilometres south of Manila. It utilizes the natural gas extracted from the Malampaya Gas field which is offshore Northwest Palwawan. The St. Rita power station project was funded and subsidized by the First Gas Power Corporation (FGPC) in the country. Operations began in August of the year 2000, which was primarily sustained by liquid fuel. It was however replaced with natural gas in January 2002 as soon as it was available from the Malamapaya gas field.

Second would be the 500-megawatt San Lorenzo power station which is also financed by the FGP Corporations and located adjacent to that of the Santa Rita power plant in Batangas. Its operation began on the same year as when the Santa Rita plant replaced their fuel with natural gas. In order to materialize the success of both the Santa Rita and San Lorenzo project, a pipeline was constructed from Tabangao in order to create an on-shore transmission facility that would be able to transport Malampaya gas to both power stations.

Lastly would be the 1,200-megawatt Ilijan power station which is owned by NAPOCOR and operated by the Korea Electric Power Corporation or KEPCO, through a local company called KEPCO Ilijan Corporation (KEILCO). The Ilijian power plant construction began on March 15, 1999 and on October 2001 natural gas from


Malampaya was already flowing to Ilijan, hence commencing operations on June 5, 2002. 2. Libertad Gas Field

The Libertad Gas field is located in Northern Cebu. It was discovered in the

1950’s but wasn’t really fully developed unlike the Malampaya Gas Field in Northern Palawan. There are total of 7 wells drilled on the area and one of these well tested positive for gas. In 2004, a feasibility study was conducted by the Forum Energy Plc, a UK firm to find out the best option for the development of the field. The outcome of the study proposed a development plan using 3 gas to electricity generators with a maximum of 3 MW which will be developed by DESCP, a leading provider of petroleum and geothermal products and services in the country. An agreement with a local company was signed in 2009 to generate power on site.

Power production is anticipated to begin in 2011 with the Forum Energy Plc

targeting to begin natural gas production towards the end of the year which will power a one megawatt power plant. Under the SC40 the Liberatad gas field is anticipating commercial production in the fourth quarter of the present year. 3. San Antonio Natural Gas-Fired Power Plant

The San Antonio Natural Gas-Fired Power Plant is the first natural gas facility in the

Philippines and it is located in San Antonio, Echague, Isabela. It is covered by SC37 and was created through the help of the Canadian International Development Agency (CIDA) who donated a gas generator as well as other environmental and technical assistance. The 3 megawatt power plant began in 1994 and a total of 10,000 households in the towns of Echague, San Agustin, Jones, and part of Santiago City, Isabela are using electricity from the said plant.

As of July 31, 2008, the plant closed down because reserves were completely used

up. PNOC Exploration Corp decommissioned the plant after 14 years since it can’t longer supply the right amount of gas to keep the power plant running. It generated a total of 187.48 gigawatt-hours of electricity through its lifetime and the well produces 3.54 billion cubic feet of natural gas.


c. Technological Requirements

1. Innovations Technological advancements in both exploration and production in the natural gas industry paved the way for the industry to increase the supply of natural gas to meet the rising demand. These technologies enable the process of extracting natural gas as well as distribute it to end users to be more efficient, safe, and effective. An example of which is the fact that these new exploration techniques and vibrational sources signify minor dependence on explosive thereby lessening its impact on the environment. Some examples of these recent technological innovations to be used for the exploration and production of natural gas include the following: 1

2. 3D and 4D Seismic Imaging Provides a three dimensional model of the subsurface layers. 4D images on the other hand add time as a dimension which enables those who explore natural gas to know how the subsurface characteristics change over time. It allows natural gas to be identified easily; place wells more effectively, reduce the number of dry holes drilled, reduce drilling costs, and cut exploration time. As a result this leads to both economic and environmental benefits.2

3. CO2 Sand Fracturing This technique of increases the flow rate of natural gas and oil from underground formations by using a mixture of sand proppants and liquid CO2 to fracture formations hence enlarging the crack thru which natural gas and oil flow. With this technique there are no leftovers from the fracturing process that must be removes hence it allows increased recovery of natural gas and oil, it also doesn’t damage the deposit, generates no below ground wastes, and protects groundwater resources.3

4. Coiled Tubing A long, flexible, coiled pipe string which lessen the cost of drilling, provide a smaller drilling footprint, faster rig set up, and reducing the time normally needed to make drill pipe connections.4

1 "Natural Gas and Technology." NaturalGas.org website. http://www.naturalgas.org/environment/technology.asp (accessed September 22, 2011). 2 Ibid 3 Ibid 4 Ibid


5. Measurement While Drilling

This system enables gathering of data from the bottom of the well while it is being drilled which permits the drilling teams as well as the engineers to know the exact nature of the rock formations faced by the drill bit. This then improve drilling efficiency and accuracy in the process which lessens the chance of formation damage and blowouts.5

6. Slimhole Drilling Slimhole drilling allows drilling a slimmer hole on the ground to extract natural gas and other oil deposits. This type of drilling requires at least 90% of a well must be drilled with a drill but less than six inches in diameter- the normal well uses drill but as large as 12.25 inches in diameter. This then provides a method of economically drilling wells in new areas, drilling deeper wells in existing fields, and providing an efficient means for extracting more natural gas and oil.6 Technology Used in the Philippines

The Malampaya Deep Water Gas-to-Power Project utilizes a state – of – the art deep water technology to take out natural gas and condensate from the sea floor. This technology consists of sub-sea facilities, a shallow water production platform, an underwater pipeline, a catenary-anchored leg mooring buoy, and an onshore processing gas plant.7

7. Subsea Facilities The subsea facilities on 820 – meter water depth collect and regulate the flow of the liquids and gas from the reservoir. From the center manifold, the wet gas is then transferred to the production platform. 8

8. Production Platform The initial processing of natural gas occurs at the offshore production platform wherein water and condensate are separated from the gas. After such process, the gas is dried and transported through the underwater pipeline.9

5 Ibid 6 Ibid 7 "Technology ." MALAMPAYA. http://malampaya.com/?page_id=5 (accessed July 24, 2011). 8 Ibid 9 Ibid


9. CALM Buoy

The CALM Buoy or the Catenary Anchored Leg Mooring buoy is the component by which tankers recover condensate which was separated from the gas. 10

10. Subsea Pipeline The 504 – kilometer, 24- inch diameter subsea pipeline carries natural gas from the offshore production platform to the onshore processing gas plant located in Batangas. The pipeline route design avoided those regions that are environmentally –sensitive and the areas with cultural importance. 11

11. Onshore Gas Plant The final landing site is the onshore processing gas plant which is located in Batangas. At this site, the gas goes through a final treatment in order to meet the requirements before delivering it to the customers. 12

12. Power Stations As mentioned in the preceding paragraph, there currently exist three combined-cycle gas turbine plants. Such turbine plants are supplied with the processed natural gas to produce a combined 2,700 megawatts (40%) of power for Luzon. These three combined – cycle gas turbine plants are the 1,000MW Sta. Rita power station, the 500 MW San Lorenzo power stations and the 1,200 MW Ilijan power station.13

d. Investment Requirements As stated in the Department of Energy’s PEP for 2002 until 2011, Php 1.9 billion

(at constant prices) is the expected investment requirement for the implementation of different projects and programs of all the energy sub-sectors over the 10 year project of the DOE. Significant amount of capital investment from the private sector is expected, as it is consistent with the national policy thrust towards the liberalization and privatization and private-dominated environment for all sectors of the economy. Likewise, the private sector will contribute Php. 1.6 billion or 85.1 percent of the total required investment while the government, on the other hand, has to provide counterpart funding that yields to Php 280 billion. The capital-intensive sectors, power

10 Ibid 11 Ibid 12 Ibid 13 Ibid


and energy resource development, will together provide account for Php 1.3 billion or 70% of the required investment. The rest of the required investment which summed to Php. 564.5 billion will be necessary to fund identified programs and projects in electrification, new and renewable energy, downstream, environmental protection and energy efficiency.

The activities in resource development which are dominated by the private sector; will be requiring an estimate of Php. 497.8 billion for the implementation of the programs of the oil, gas, hydropower, geothermal and coal sub-sectors.

Of the overall estimate, 58.7 percent of the whole funding will be necessary for the production of oil and gas from Nido, Cadlao, and San Antonio, Matinloc and Malampaya oil and gas fields. Within the next five years, Galoc Oil Field and the Libertad Gas Field are likely to come on stream.

On the other hand, the Department of Energy is eyeing at least $5 billion in fresh investments to fully develop the country’s downstream natural gas industry. It would be used to construct 423 kilometers of transmission and 504 sq. km. of distribution pipelines. Priority projects include a 140-km pipeline from Bataan to Manila (BatMan 2); 40-km Edsa-Taft loop; 35 km from Sucat to Malaya; 40 km from Batangas to Cavite (BatCave); 35 km from Rosario to Biñan (RoBin); 100 km from Batangas to Manila (Batman 1); and the 30-km Calaca-Spurline (CatLine). It would also include the greenfield power plant projects that could generate a combined 3,000 MW and power plant conversion projects that could generate some 600 MW. Aside from this, investments are also needed for 10,000 units of compressed natural gas vehicles, refilling stations, mother stations and conversion kits to drive the development of the natural gas industry for the transport sector. 14

Conversely, several firms from China, Australia, Italy, Hong Kong, and South Korea are interested in investing in the country’s natural gas industry. These foreign companies which includes the First Pacific Capital, and Energy World from Australia; ENN Energy Holdings from China; Synergy International of Hong Kong; ENI-Saipem of Italy; and SK Engineering and Construction Co. Ltd., Korean Western Power, BW Ventures and Hyundai Merchant Marine, all from South Korea; as well as GN Power Ltd of the Netherlands are interested in either building a liquefied natural gas (LNG)

14 Amy Remo . "Foreign companies interested in PH natural gas projects." Philippine Daily Inquirer, (2011). http://business.inquirer.net/5450/foreign-companies-interested-in-ph-natural-gas-projects (accessed September 16, 2011).


terminal, or a gas fired power plant in the country. Aside from these, local firms are also expressing interest. This includes Abacus Consolidated Resources as well as the Lopez-led First Gen Corp.15

15 Ibid

Liquefied Natural Gas Report 2015: Part 2

Engineering

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