Gas producers who've traveled around the country poking holes in the ground know that the flavor of what they get varies from basin to basin; some gas is wetter, some has a higher heat content, etc. Over the years since the manufactured gas industry evolved into the natural gas industry, consumers -- residential, industrial, process, power generation -- and their equipment have grown accustomed to the flavor of gas most prevalent in their particular region. One industry expert described this as an "accident of history."
As the industry evolves to include an expanded pipeline network that moves gas farther and to different places, unconventional production, and liquefied natural gas (LNG), America's gas business has moved from regional markets to a continental market and is poised to join a global gas market with compatibility challenges for domestic and international supplies alike. As the United States and Europe compete for global LNG they also are developing quality standards for gas that will meet their needs without shutting them out of the international market in which Asia is an established player.
The global gas market is growing at a rate of 2.5-3%/year, said Edgar Kuipers, director of market access for Shell North America LNG. But the role of LNG in the global gas market is growing at 10%/year, he told attendees at Platts second annual Gas Interchangeability and Quality Forum in Houston Tuesday. The evolution from regional markets to a global one is well under way as LNG's share of global gas grows from 4% in 1990 to a projected 15% in 2020. "What started off as a regional industry is becoming truly global," said Kuipers.
Over the next decade or so, the capacity of producing regions will undergo "dramatic changes," said Hal Miller, managing director of Galway Group. Particularly in the Pacific basin look for production to "increase dramatically." As the industry adds new LNG trains the United States and United Kingdom can look forward to potentially more supply as LNG from newer trains is more geared toward these markets than legacy trains that targeted Asian markets with hotter LNG, explained James Jensen, of Jensen Associates.
That's good news for the United States as currently two-thirds of the world's productive capacity yields LNG that is outside of quality specifications needed for U.S. consumption. The LNG is too "heavy," said Miller. Heat-rich LNG can sometimes be thinned with nitrogen but not always. The real heavy LNG will require the stripping of natural gas liquids, Miller said, primarily along the Gulf Coast.
"There's going to be a growth in ethane production in the U.S. and the chemical industry is going to love it," said Miller.
While the Federal Energy Regulatory Commission has set guidelines for the U.S. gas industry to follow in establishing quality/interchangeability standards (see Daily GPI, June 16), Miller said he is skeptical that a policy solution is the answer to the industry's global gas compatibility challenges. "But there will be commercial solutions that will allow the U.S. to take part" in the global market.
Based on 2005 statistics, Asian markets account for about 65% of global LNG consumption, with Europe second at 25% and the United States in third at 10%, said Koichi Kimura, general manager Tokyo Gas Co. Ltd. The Japanese burn about 65% of their LNG for power generation, with nearly all of the rest going to local distribution companies. The Japanese market is well accustomed to accepting "hot" LNG cargoes, and judging from Kimura's comments at the Platts conference it would seem they don't want to see global supplies mellowed for U.S. or other markets.
"Interchangeability is attractive but not the only factor that defines attractiveness," Kimura said. "LNG with artificially lowered heating value and higher price is not rational."
And Shell's Kuipers advised that even in a buyer's market it's wise to keep the range of specification for acceptable LNG cargoes as broad as possible.
That is the strategy being taken by the European Union where the European Association for the Streamlining of Energy Exchange (EASEE-gas) has recommended common business practice for gas quality specifications at 80-some cross-border points in Europe. That means that LNG entering any of 14 EU member states will be required to meet the same standards at any entry point. The specifications established by EASEE-gas are said to accommodate the entire range of potential global LNG supply.
Gas standards within each member country are still the province of that country's government, but there is an effort under way to push the EASEE-gas standards downstream to the end-user within each country, said Wim Groenendijk, EASEE-gas executive director. "The last word has not been spoken about this," he said.
For the United Kingdom the next step on the path to standards evolution is to bring the country's standards more in line with those of Europe. "They are at the periphery of the EU," said Groenendijk. "They are in a different position than, for example, Germany." Jensen noted that the U.K. has a "very tight" range of specification for LNG. Its chief competitor for LNG cargoes is Spain.
Groenendijk noted that Russia's Gazprom is a member of EASEE-gas; however, quality/interchangeability issues between Gazprom and its markets -- where hydrocarbon dewpoint seems to be the only factor of concern -- have less urgency than elsewhere in Europe. "Most of the issue is in the northwestern Europe and around the Mediterranean."
That desire for flexibility in the gas stream is not just a demand from the global LNG market; it's also a request from the small domestic gas producer.
Michael Wallen is vice president of NGAS Resources, a small Appalachian Basin producer, founded in 1984, and holder of 75 Bcfe of proven gas reserves. NGAS supplies one area LDC and also ties into the Tennessee Gas system, injecting 20 Mcf/d at a null point from where the gas can flow either east or west. Lately some have complained about the Btu content of NGAS supply.
Cutting the NGAS stream to an 1,100 Btu content is economically unfeasible. Stripping out 5-6% of his total throughput to meet a pipeline standard can't be done, Wallen said, at least not economically. As the industry ponders standards for gas quality/interchangeability, "let's just remember to work with the local producers," said Wallen, who noted that he's just one of hundreds of small fry.
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