COST OPTIMIZATION, THE CONTRACTORS APPROACH

OPTIMISATION DES COUTS, APPROCHE

DE LENTREPRENEUR
David A. Coyle
Chief Technology Engineer, LNG
Charles A. Durr
Technology Vice President, LNG
Don K. Hill
LNG Technology Manager
The M.W. Kellogg Company
Houston, Texas, U.S.A.

ABSTRACT
The contractor continuously works to improve existing and to develop new technologies
for the LNG industry, thus enabling the contractor to deliver the most cost effective projects
to it clients. In optimizing the project cost, a strong emphasis is placed on cost reduction. To
identify potential cost savings, a cost breakdown of an LNG plant is presented in this paper
along with a discussion of the major cost issues, including:

Process Technologies
Feed Stock Compositions
Number and Capacity of Liquefaction Trains
Design Margins
Site Selection
Plant Layout
Design and Engineering Specifications
Type and Number of Mechanical Drivers
Cooling and Heating Medium
Schedule (life cycle)

The objective of making significant cost optimization comes only from new methods
and new innovations. This paper discusses new methods and innovations with increased
emphasis on value enhancement or "cost optimization" rather than focus simply on cost
reduction. These methods will be discussed in this paper along with proven examples and will
detail new technology areas to explore with emphasis on areas from the above cost issues list.

7.31

Since the contractor takes on the completion and guarantee risk for a project, the
contractor must expend an appropriate engineering effort to ensure that the risks associated
with first-of-a-kind features are reduced to acceptable levels via risk management. The
contractor uses experience as the foundation for launching new ideas and uses proven
methodologies to maintain confidence in advancements. This paper discusses risk
management methods with examples of how to make these advances in technology that are
necessary for significant cost optimization.

RESUME
Lentrepreneur travaille continuellement dans le but damliorer les technologies
existantes et de dvelopper les technologies nouvelles pour lindustrie du GNL, permettant
ainsi lEntrepreneur de dlivrer les projets les plus rentables ses clients. En optimisant les
cots du projet, un effort important est accord la rduction des cots. Afin didentifier les
conomies potentielles des cots, une dcomposition des prix dune usine GNL est prsente
dans cet article ainsi que des commentaires sur les questions concernant les cots majeurs,
comprenant :
-

Procds technologiques
Composition du stock dalimentation
Nombre et capacit des trains de liqufaction
Marges de conception technique
Slection du site
Plan dimplantation des installations
Spcifications des plans et de lingnierie
Type et quantit des dispositifs dentranement mcanique
Moyens de refroidissement et de chauffage
Calendrier (cycle de vie)

Lobjectif de la ralisation des cots doptimisation significatifs vient uniquement de

mthodes nouvelles et de innovations nouvelles. Cet article examine les nouvelles mthodes
et innovations avec une accentuation sur la mise en vidence de la valeur ou optimisation
des cots au lieu de se focaliser simplement sur la rduction des cots. Ces mthodes seront
dveloppes dans cet article avec des exemples prouvs et dtailleront de nouveaux
domaines technologiques explorer avec une mise en vidence des sujets figurant dans la
liste des questions ci-dessus concernant les cots.
Puisque lEntrepreneur est en charge de la ralisation du projet et garantit les risques au
niveau du projet, il doit accord limportance approprie lingnierie afin de sassurer que
les risques associs aux nouvelles techniques spcialises soient ramens des niveaux
acceptables grce la gestion des risques. LEntrepreneur utilise son exprience comme base
pour le lancement de nouvelles ides et utilise des methodes prouves pour maintenir la
confiance dans les innovations.
Cet article sintresse aux mthodes de gestion des risques et fournit des exemples sur
le moyen de raliser ces progrs au niveau des technologies qui sont ncessaires la
ralisation dune optimisation des cots significative.

7.32

COST OPTIMIZATION, THE CONTRACTORS APPROACH

INTRODUCTION
The baseload LNG plant contractor is working in an industry which continues to grow
more competitive as gas reserves are targeted for the same demand markets. Not only must
LNG liquefaction projects compete against other LNG projects, but also against technologies
such as gas-to-liquids conversion and pipelines. Increasing competition leads to renewed cost
reduction efforts to minimize the delivered gas cost. At the same time plant owners must
maximize return on investment. Responding to these goals has led to applications of new
technology and continued study of further savings possibilities. The contractor, having
successfully bid and built baseload plants on a lump sum basis, is in a unique position to help
owners determine overall risks and returns, and optimize costs.

REDUCING LIFE CYCLE COST

A primary task during the early stages of project development is to define the overall
economic goals. Generally the objective is to maximize the rate of return, or to minimize the
plant life cycle cost, for the given project constraints on total cost, marketable product, or gas
reserves. It is useful to create a model to better understand the effects of different economic
trade-offs. This preliminary model does not have to be complex to provide useful information.
The model should, however, take into account any impact on revenues by using a net present
value (NPV), internal rate of return (IRR), or life cycle cost method.
For example, Figure 1 is a graph based on a simple IRR model for a conceptual LNG
plant. From this type of graph it is possible to state economic goals, such as:
-

Spend up to $20 MM for each 1% increase in LNG production.

Spend up to $6 MM for an additional day per year of plant availability.

Spend up to $13 MM to reduce fuel consumption by 10%.

The converse is also true; if it is possible to cut $20 MM from the project cost while
impacting LNG production by less than 1% then the cost cutting measure should be
considered. These goals change from project to project, but performing this type of analysis
during the early development of a project helps to clarify important variables and put cost
cutting in proper perspective. Using such a model allows the contractor to optimize cost
cutting measures by balancing capital costs against net revenues.
However even when considering impact on revenues, reducing the capital cost of a plant
is still important. For a plant life of 20 years, the capital depreciation is about 5% of capital
expenditure (CAPEX) per year. Compare this figure against typical operating costs of 2-3%
of CAPEX per year and annual fuel costs of 1-2% of CAPEX, and it is clear that reducing
capital expenditure is critical to the project success. At the same time the LNG net revenues
are about 30-40% of CAPEX per year (about 0.1% of CAPEX for every day of production);
thus, maintaining high plant availability is still important.

7.33

Typical LNG Plant

Economic Model

Internal Rate of Return (%)

30.0%

25.0%

4 MMTPA
5 MMTPA

20.0%

6 MMTPA
15.0%

7 MMTPA
8 MMTPA

10.0%

5.0%
0.7

0.8

0.9

1.1

1.2

Capital Cost

Figure 1
To effectively cut costs one must first know where the greatest costs are found. Table 1
below indicates the cost breakdown of a typical LNG plant by process unit and by component
(i.e., equipment, bulk materials, and construction). Of course, there is no such thing as the
typical LNG plant because the plant design and cost is highly dependent on site.
In Table 1 the process units most affected by site include gas treatment, utilities and
offsites, and LNG storage and loading. The construction costs are also highly site specific and
depend on labor productivity and hourly rates in addition to construction methods such as
modular vs. stick built. Major cost issues are discussed in more detail below.
Table 1. Approximate LNG Plant Cost Allocation
(Basis: 6 to 7 MMTPA Grassroots Plant)
Percent of
Total Cost

Gas
Treatment

Liquefaction/
Refrig/N2
Reject

Fractionation

Utilities
&
Offsites

LNG
Storage
&
Loading

Total

Equipment

14

10

30

Bulk Materials

20

Construction

15

35

Misc

15

Total

12

32

27

24

100

Misc includes insurance, home offices costs, material freight & transport, etc.

7.34

Table 1 Basis and Site Adjustments

1)

Base CO2 concentration is 4%. For 10% CO2 the total Gas Treatment unit cost
increases from 12% of total to about 16%, and utilities increase from 27% to
30%.

2)

Fractionation cost is based on no LPG extraction. To extract propane and butane

products, increase fractionation cost by 10% (from 5% to 5.5%) and add $100150 per cubic meter of storage (double metal wall, single containment) or $200300 per cubic meter for full containment storage (concrete outer wall). The costs
per cubic meter are for the storage tanks only and do not include any additional
marine facilities, fire protection, etc.

3)

Utilities are based on gas turbine drivers and hot oil for process heat.

4)

LNG storage costs are based on 200,000 cubic meters of full containment storage
(the storage tanks are subcontracted, and most of the cost is in the construction
category). A single containment storage facility can be approximated by reducing
the construction figure from 15% to 11% for the storage and loading area.

5)

Construction costs are based on US Gulf coast labor rates and productivities. This
category includes design/supply/erect subcontracts, supply/erect subcontracts,
direct hire erection, field staff, and indirect support facilities.

PROCESS TECHNOLOGIES
The main process technologies in an LNG plant are the gas treating and liquefaction
technologies. The gas treating processes are highly dependent on feedstock composition and
are further discussed below. Liquefaction processes (i.e. cascade, mixed refrigerant, or
precooled mixed refrigerant) represent a large portion of the total facility cost, as shown in
Table 1. However the difference in cost from one technology to another is usually not a major
issue when considering the overall project cost.
Table 2 shows liquefaction unit equipment cost breakdown in more detail, including
refrigeration services, for a propane precooled process (the trends will be similar for other
types of processes). This table indicates that the major equipment costs are found in the
refrigeration machinery and heat exchangers. The refrigeration machinery costs are mainly in
the drivers, which are completely independent of the selected process; a Frame 7 gas turbine
is the same whether it is driving a single MR or cascade process.
The heat exchanger types and costs, on the other hand, do depend on the process yet the
dependence is not dramatic. The exchangers make up about 36% of the total liquefaction unit
equipment cost, and the liquefaction unit equipment cost is 14% of the total plant cost.
Therefore the maximum impact on overall cost the exchangers can have is about 14% x 36%
= 5%, and even this difference would require the exchangers for one process to have zero
cost which is highly unlikely. While there are differences in installation costs between different
exchanger types, the impact of exchanger installation on overall cost remains low.

7.35

Table 2. Liquefaction Unit Equipment Cost Breakdown

Item

% of Total Equipment Cost

Refrig. Machinery

58

Refrig. Aftercooling/Condensing &

Subcooling Exchangers

10

Chilling and Liquefaction Exchangers

26

Drums, Columns & Misc

Total

100

The process technology selection thus tends to be based on equipment and other factors
in addition to cost. Such factors include:

Safety At some sites the quantities of hydrocarbon liquid inventories may be a factor.

Plant Availability Availability is the number of days per year the plant operates.
Availability is a function of planned maintenance downtime in addition to the unscheduled
shutdowns. The planned maintenance downtime in a gas turbine driven plant is usually
controlled by gas turbine maintenance. Unscheduled downtime (or loss of production) is
caused by unforeseen difficulties such as heat exchanger leaks, flow maldistribution,
machinery trips, amine foaming, utility outage, and liquid carryover.

Maintainability Ease of maintenance can be impacted by heat exchanger type and

insulation systems (i.e. polyurethane foam, foam glass, or perlite).

Operability Operability is dependent on the stability of the process and machinery, and
also on the complexity and number of the control loops.

Driver Selection In addition to the relatively high capital costs, the drivers represent
a major part of the plant availability and operating costs. Gas turbine scheduled and
unscheduled downtime accounts for about 60 % of the total plant downtime. The trend
in LNG plants is towards larger gas turbines, but some owners prefer using smaller gas
turbines running in a parallel arrangement to improve plant availability.

OFFSHORE LNG PLANTS

There is a growing interest in production of LNG offshore, either in a floating production,
storage and offloading (FPSO) facility, on a platform, or on a gravity based structure (GBS).
This environment is characterized by expensive real estate and special safety considerations.
For offshore plants the following factors in addition to those mentioned above apply:

Footprint Processes with smaller footprints are directionally easier to lay out on an
offshore facility.

Safety As with onshore facilities, the size and location of hydrocarbon liquid
inventories must be considered. Consequences of leaks relative to the accommodation
area is also an important part of the safety evaluation.
7.36

Marine motions Consider the ability of the process and equipment to handle motions
on floating facilities. Special designs may be necessary to achieve high availability.

Flaring Another factor in marine facilities is the difficulty of flaring. Processes and
equipment which result in low flare rates are easier to handle in marine environments. To
reduce flare rates, one possible practice is to increase design pressures on the critical
circuits to reduce or eliminate the operating case scenarios. High integrity pressure
protection systems have also been applied in offshore production facilities.

FEEDSTOCK COMPOSITION
The main cost drivers in the feed gas composition are acid gases (CO2 and H2S). High
amounts of CO2 in the feed gas result in large acid gas removal units and larger utility duties
for heat and cooling. Selecting the optimum process is the best way to reduce acid gas
removal costs. The selection process must account for feed gas contaminants such as
mercaptans, methanol, corrosion inhibitors, etc., while minimizing utility usage and capital
costs.
In many cases amine units such as MDEA, MEA, Sulfinol or hot potassium carbonate are
the most cost effective choices. Where CO2 concentrations are on the order of 15% or
higher, unconventional processes such as membranes or cryogenic separation may be
considered. When considering membranes, feed gas pretreatment upstream of the membranes
to remove contaminants must be part of the evaluation. In one recent evaluation the feed gas
pretreatment cost approached the cost of the membranes.
The LNG product specification typically limits H2S concentration to about 4 ppmv, and
total sulfur to about 25 ppmv. If high sulfur concentrations are present in the LNG plant
feedstock then the acid gas removal unit must also remove the sulfur components. In this
regard, mercaptans usually cause special problems; the acid gas removal process often does
not remove the mercaptans completely and the drier mol sieve following acid gas removal
finishes the task of mercaptan removal. Sulfinol is one solvent, however, which is capable of
removing mercaptans to sufficiently low levels and thus has been selected at some high sulfur
feed gas sites.
Another cost reduction concept is to remove mercaptans with a cryogenic process
followed by mol sieve treating [1]. The advantage of this method is that the stream treated
with mol sieves is a small LPG stream instead of the entire LNG train feedstock. This method
uses the scrub column separation step to wash down mercaptans in addition to the usual
heavy hydrocarbons. The mercaptans then go overhead in the fractionation unit deethanizer,
depropanizer, and debutanizer columns where they can be combined into a single small stream
for convenient treatment.

7.37

NUMBER AND CAPACITY OF LNG TRAINS

The trend in LNG plants towards larger train sizes continues as a way to save costs by
increasing economy of scale, as indicated in Figure 2. Trains capable of 3.3 MMTPA are
currently being constructed and train sizes in the 4.5-5.0 MMTPA range are being
proposed.[2].

3.00
2.00
1.00

1999

1996

1994

1989

1984

1982

1978

1973

1970

0.00
1963

Train Capacity
(MMTPA)

LNG Train Time Line

Year
Figure 2
Train size is limited by proven equipment sizes and manufacturer capabilities, but within
a single train it is still possible to have parallel units where required and obtain the overall
economy of scale benefits. Parallel units within one train can also serve the purpose of
providing increased reliability in a single train plant.
Another concept which can reduce plant life cycle cost is to treat the refrigeration systems
as utilities. Increasing the size of the main refrigeration drivers improves economy of scale,
but one disadvantage is the amount of scheduled downtime required for maintenance. To get
around this the plant can have spare refrigeration compressors tied into each LNG train, with
the spares located to minimize the cost of the large diameter piping runs.
A related concept is to use very large (such as Frame 9) gas turbine generators for power
generation, and use electric motors for the refrigeration compressor drivers [3,4]. This
concept improves plant availability because motors rarely need maintenance and the power
generation configuration provides enough sparing to enable gas turbine maintenance to be
done without interrupting LNG production. The improved plant availability may justify the
added cost of the power distribution required. Also, if a given site is located where electric
power is in demand the plant can sell exported power to improve economics.
Some projects have a market which demands increased LNG deliveries some years after
initial production. In such cases the contractor can minimize the life cycle cost by minimizing
preinvestment, that is, spending only what would be needed to satisfy the initial demand and
then expanding the capacity later. This can be accomplished by building an additional train at
a later date or debottlenecking the original process units. This has the effect of delaying
expenditures for more capacity until they are needed; the process units may have a small
7.38

amount of preinvestment for the higher capacity, but the utility systems (which are normally
several parallel units anyway) can have the required additional units purchased and installed
in the future.
Another concept along the same lines is to build a train for a lower initial capacity that is
easily expanded to a higher capacity at a later date. One way this is accomplished is by
delaying portions of the heat rejection equipment (e.g., propane condensers) purchases until
the higher process efficiency is required. The compressor head required during the low
capacity operation is therefore higher than during high capacity operation, and despite lower
throughput the power required is about the same as high capacity operation. Thus the process
conditions change between the high and low capacity cases, but the compressors are designed
to operate under both sets of conditions. Depending on the capacity differences some
compressors may require new rotors and diaphragms, but the casing size is not changed. A
capacity increase of about 30% (from 3.5 to 4.5 MMTPA) is possible using this concept.

DESIGN MARGINS
Design margins are normally provided to positively prove the plant is producing the
required quantity of LNG. A contractor uses margins to cater for uncertainties related to
technical data and performance measurement. These uncertainties are real, and a plant
designed without the margins may face the prospect of unresolved questions on whether the
desired LNG quantity is being produced. However, excessive margins and margins on top of
margins are to be avoided. Thus early in the project development phase it is important for the
contractor and owner to agree upon and minimize the design margins to minimize the plant
cost while still meeting the overall project objectives.
The contractor should be allowed a measurement tolerance margin in order to be able to
assign responsibility if the plant performance is not as predicted. The process licensor,
equipment manufacturers, and contractor will be unable to resolve who is at fault if plant
performance is short but all system components are within measurement tolerances of
required performance. The design margin for power is normally obtained by applying derating
factors to the gas turbine drivers. Some of the derating factors are real and do not count as
margins, others can be considered as design margins which decline over time:
Fixed Factors

Variable Factors

Site Humidity and Altitude

Inlet/Outlet Pressure Drop Losses
Compressor Power Margin (API)

7.39

Air Compressor Fouling

Ageing (Non-recoverable losses)

The compressor power margin is usually based on the API 617 standard of 4%. However
the compressor manufacturer can also be told to guarantee power with a zero positive
tolerance. Since the manufacturers are able to predict power better than 4%, in a competitive
bidding situation the zero tolerance criteria will usually provide a 1-2% margin of comfort for
the plant owner to make delivery guarantees. The air compressor fouling is a derating factor,
and although it is shown as a variable factor the fouling occurs so quickly that the factor
could be considered as a constant 2% derating instead of the average of a varying
0-4%.
The ageing factor is normally taken to be 4%, which is actually an average. Ageing occurs
rapidly during the first year and then slows as the major turnaround is approached after six
years of operation. Even after the major turnaround the ageing loss is not completely
recovered; continuous operation at high temperature causes the casing to become oval, and
the wider clearances which result reduce the power output. An operator should expect to
recover only half of the ageing loss unless the entire casing is replaced.
Some plant owners are able to reduce the cost of the plant by sharing the ageing deration
with the contractor. The contractor is allowed to use the margin to pass the performance test,
yet the guaranteed plant LNG production is based on aged gas turbine performance. Thus the
4% ageing margin on power enables the contractor to save costs by avoiding margins on
other equipment such as exchangers.

SITE SELECTION
Site selection has a major impact on overall plant cost, and generally involves striking the
best balance between several competing factors. Factors to be considered are soil conditions,
contour and topography, marine bathymetry, water supply, existing infrastructure, and
distance from the natural gas source to the plant. The ideal site would have:

stable soil conditions

flat topography but with a steep drop offshore for minimum jetty length

abundant fresh water supply

existing roads and construction dock capable of handling equipment on the order of 300500 tons
a location close to the gas supply

The site containing all of these desirable features at one location probably does not exist.
In a typical site selection exercise the contractor evaluates several possible sites, putting
estimated costs against each of the parameters above and minimizing the life cycle cost.

PLANT LAYOUT
Plant layout is an important aspect of cost, schedule and accessibility. Keeping the piping
runs short reduces the amount of straight run piping and supports, but if plot is reduced too
much then more fittings are required. More fittings tend to increase piping costs and the tight
spaces resulting from short pipe runs reduce accessibility for maintenance. Thus the
7.310

contractor must optimize the plot keeping in mind safety, maintenance, and low cost. Besides
reducing footprint, other layout related cost savings are possible:

Run pipeways first, not pipes; straight pipe is not expensive but fittings and valves are

Keep equipment as close to the pipe rack as possible to avoid additional structural
supports

Try to keep nozzles on the pipe rack side of equipment to simplify piping access

Use low level pipe racks where possible to save costs

Consider using precast concrete structural supports

DESIGN PRACTICES AND ENGINEERING SPECIFICATIONS

Design practices and engineering specifications impact every aspect of the plant, and thus
represent an opportunity for significant cost savings. Cost saving exercises often focus on
equipment because the potential cost savings in equipment are relatively easy to identify.
However, just as important are the cost savings related to bulk materials. After all, as
indicated in Table 1, within the process trains the bulk materials have a cost similar to the
equipment. No single item is likely to save a large percentage of costs, but taken together
many small savings can add up to a sizable total.
Attached to this paper, Table A-1 is a listing of previously published cost saving concepts
[5-14]. A successful contractor will have a database of these concepts and more to be
proposed in the right situation. The cost savings concepts presented in Table A-1 are only
some of those that are possible, and the list encompasses both design practices and
engineering specifications.
One example from Table A-1 is cryogenic valve specifications. Both ethylene plants and
LNG plants have valves in cryogenic service, but the LNG plant valve specifications are
typically much more stringent. In past LNG plants the valve specifications have required
radiography and cryogenic testing where the valve holds helium pressure while submerged
in a liquid nitrogen bath. Furthermore, the LNG service valve casings were also radiographed.
The ethylene plant valves on the other hand are basically off the shelf stainless steel valves.
The facilities required for performing such tests tends to limit the number of vendors
which are able to bid on cryogenic valves, thus the cost of testing and the limited vendors
both tend to increase the cost. A recent comparison of 4-300# RF gate valves made of 304
SS indicates that the ethylene plant valve was $1280 while the LNG plant valve was $2600
(exclusive of testing which would be done on only one of the purchased 4"-300# RF gate
valves). Before changing LNG plant cryogenic valve specifications however, a survey of the
ethylene industrys experience with the less stringent valves would be in order.
Also attached at the end of this paper is Table A-2, which summarizes key project
decisions related to standards and specifications. The owner requirements with regard to the
standards and specifications for the design, procurement and construction of an LNG project
have a large impact on the plant cost. Because of the large quantities of expensive materials

7.311

involved, small increases in technical requirements result in significant additions to the

installed cost.
At the start of an LNG project a comprehensive document is prepared to provide a
detailed definition of the design and operation of the plant, including requirements imposed
on the safety, quality, operability and reliability of the plant. This document essentially fixes
the plant cost, for EPC contractors who receive this document for lump sum bidding of the
EPC phase can only influence plant cost via efficiencies in execution technology and risk
tolerance. These influences are small compared to the influence of project specifications on
plant cost. Thus preparing and completely understanding the cost impact of a well thought
out project specification document is imperative. Cost differences between LNG projects built
to date can clearly be attributed to specification differences, market differences and site
specific differences with the latter two being essentially out of the owner's control.
Project specifications are usually dictated by the owner technical specialists and
engineering departments. Typically, owner technical specifications are the product of many
years of evolution, covering multiple types of processes and plants. These "generic"
specifications may contain requirements in excess of accepted minimum international
standards. Given the large quantity of expensive equipment and bulk materials in an LNG
plant, even small excesses in technical specifications can have a significant cost impact.
This underscores the need in an LNG project to critically examine the technical
specifications that are to be applied. It must be emphasized that these excesses may be
justified and the resultant increase in capital costs accepted by the owner based on his
emphasis on ease of operation, safety, risk aversion and the like. The issue is not one of
trimming specifications but one of understanding all the consequences of the specifications
and accepting the resultant capital cost.

MAJOR PROCESS DRIVER SELECTIONS

The cost of the main process drivers per unit of power is important, but even more
important is annual LNG production. LNG plants are generally designed to the limit of the
main process drivers, thus the process driver selected has a major influence on the ultimate
capacity of the plant. Because of the large fixed costs in LNG plants such as LNG storage and
marine facilities which are independent of LNG production within a certain range, increasing
LNG production improves overall economics. Thus if one driver selection makes more LNG
than another, the selection making more LNG will have better economics, assuming that the
reserves and market can support the additional production.
Table 3 is a summary of published gas turbine data for several GE models. The industrial
Frame 5, 6, and 7 are currently used in LNG service. The Frame 9 and aero-derivative LM2500+ and LM-6000 have yet to be used in LNG service.
With respect to availability, it may be preferable to use parallel smaller drivers instead of
a large single driver to maintain high availability. With the large single driver LNG production
is halted completely while the driver is maintained, but with multiple smaller drivers the
production continues at a reduced rate. Thus the facility as a whole is more fully utilized with
the smaller drivers even though the total driver cost is higher. This concept is especially
7.312

applicable in a single train facility, where there is no opportunity to stagger maintenance

cycles between two trains.

SCHEDULE
Considering the time value of money and the amount of resources required for baseload
LNG plants, reducing schedule is a worthwhile effort. Delaying a $2 billion expenditure one
month at an interest rate of 10% is worth about $16 MM, thus there is clearly incentive to
reduce schedule or at least delay expenditures as much as possible for items off the critical
path. Possibilities for reducing schedule are as follows:

Use single containment LNG storage instead of double or full containment

Table 3. GE Gas Turbine Data
Frame 5
M5382C

Frame 6
M6511B
(PG6551B)

Frame 7
M7121EA

Frame 9
PG9171E

LM2500PE

LM6000P

ISO
Power
Rating
(kW)

28,340

37,800
(39,160)

88,200

123,400

22,800

44,090

Cost
(US$/kW
FOB)

151

155

131

182

212

207

Number
of Shafts

Footprint
(sq.
meter)

51

53

73

100

14

11

Mass (kg)

116,800

138,300

165,600

267,000

30,000

40,000

Limit shop testing of compressors (full load string testing on one string only)

Design structural steel and piping such that long lead equipment can be installed after the
bulk materials are in place (all nozzles on pipe rack side, for example).

Use modularized piping and insulation systems

7.313

RISK MANAGEMENT
Cost savings and technical innovations go hand in hand. The challenge when applying new
technology is to achieve the expected cost savings despite a lack of proven experience or a
limited track record. This outcome is possible using risk management techniques, where the
true amount of risk is determined and active steps are taken to obtain a successful outcome.
The usual risk management program usually begins by identifying prototype/unproven
equipment proposed for the project. If the project is sufficiently innovative, appointing a risk
manager on a full time basis is warranted. In LNG plants where the stakes are especially high,
even one or two new developments justify special attention to risk.
The risk manager, with input from engineering and construction groups, determines areas
of high risk. Below are some examples of factors leading to high risk in technology and
execution:

Site located where soil conditions are highly variable

Climate makes heavy construction difficult (snow, mud, etc.)

Process conditions are outside of proven or tested technical data correlations

Process stream physical properties are outside of proven processing experience (for
example, near-critical pressures make vapor and liquid densities closer than previous
experience and increase the risk of successful vapor-liquid separation).

Feedstock to the plant is not well sampled and highly variable

Equipment type is in service for the first time (a recent example is cryogenic liquid
expanders)

Equipment capacity or physical size is larger than previously installed

Once the above factors are identified the next step is to plot a course of action to
minimize the risk. Such actions may include:

Perform more sampling of soil conditions and/or feed gas.

Initiate laboratory tests of technical and physical data.

Test equipment in shop at new conditions.

Perform surveys of owners taking similar risks to determine if those owners have made
any design or operating improvements (for the liquid/vapor density ratio example above,
find out what devices might have been used in a similar service, and the degree of success
using the given device).

Complete extra computer analyses using tools such as dynamic simulations and
computational fluid dynamics.

Project execution can also be changed to minimize site related risk. If weather and climate
makes construction unpredictable, then modular construction can reduce risk. With modular
construction the modules are constructed in a shop with controlled conditions, and only the
final part of the construction effort must be accomplished in the more difficult environment.
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The process design can also take high risk factors into account, by selecting processing
steps which are more forgiving. For example, one project may have some gas wells containing
sulfur compounds while most of the gas is sulfur free (though carbon dioxide is present). In
this case there is a risk of receiving gas with sulfur at a future date. An acid gas removal
solvent and molecular sieve combination can be selected which would be capable of removing
sulfur if the sulfur later shows up. The purchased equipment would be minimized and selected
to handle only the carbon dioxide but the system would be designed for additional circulation
of solvent if required for sulfur removal in the future.
When designing the process around such risks, the engineer must always keep in mind the
consequences if the worst case scenario does occur. By doing so the magnitude of the risk
is more clearly defined. In some cases the remedy may be relatively inexpensive, such as
adding a drum or internals for better vapor/liquid separation. In other cases the remedy might
be the expensive installation of more rotating equipment and supporting utilities to replace
a primary process driver which does not perform as intended. Identifying the fallback position
for the worst case scenario enables the contractor to determine the extent of effort needed to
manage the risk.

LNG TERMINAL COST REDUCTION

Reduced costs and shorter engineering and construction schedules are important for LNG
receiving terminals just as they are for the liquefaction facilities. The need to reduce costs and
shorten schedules for LNG terminals is increasing as the owners of these facilities shift from
the large gas and utility companies to independent power producer (IPP) owner/operators.
Not only are multiple IPPs competing for the same markets, these producers must evaluate
multiple competing opportunities in different locations and countries. To satisfy these needs,
LNG terminal designs and the associated costs must be prepared in a timely manner.
To identify significant potential cost savings, a contractor should breakdown the cost of
an LNG receiving terminal and identify major issues for the given site. To facilitate cost
estimation and evaluating design options, the terminal has been subdivided into logical
modules or blocks, such as:

LNG Storage
Jetty Head
Jetty Trestle
Pipe Yards
Boil Off Gas Recovery
LNG Pumping

LNG Vaporization
Power Generation
Utilities
Safeguarding Facilities
Building and Infrastructure
Instrumentation and Electrical

A simplified breakdown by modules is given in Table 4 below for a terminal designed

for 4 MMTPA sendout (6 MMTPA maximum). The terminal has 3 x 90,000 m3 storage
capacity and a jetty approximately 500 meters long.

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Table 4. Receiving Terminal Cost Breakdown in Percent of Total Cost

Cost Elements

Jetty*

LNG
Storage*

Sendout

Utilities

General
Facilities

Total

Equipment

5.7

3.6

Bulk Materials

3.3

2.4

1.9

Construction

9.2

6.8

1.9

Misc

5.3

3.2

0.6

Total

11.0

45.1

23.5

16.0

4.4

100

* - Subcontract, breakdown not provided.

The impacts of various options within a module must be discussed with the owners, such
as the contribution of additional land area needed for lower cost single containment tanks
versus the cost of full containment tanks that can be sited closer together. Opportunities to
improve economics using cold utilization should also be explored. Cold utilization can be
especially effective when LNG receiving terminals are integrated with power plants.
The use of these building blocks allows for a rapid design and cost estimation, which can
be used to evaluate alternate sites and design options. A clear and thorough understanding
of the various options early in the design process will lead to fewer regrets later.

SUMMARY
The contractor must always be looking for ways to turn technical challenges into
opportunities for cost savings. Several cost savings concepts are presented above, and the
contractor should maintain a data base of cost saving ideas - an idea rejected at one site may
be just the answer for another. New technical innovations also reduce costs. The contractor
must be innovative in addition to staying abreast of the latest developments in equipment,
materials, and project execution. The contractor also plays the important role of evaluating
new technologies to ensure the new benefits outweigh the risks. The contractors ability to
perform these functions will be a key part of a growing LNG industry made more attractive
by lower costs.

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Table A-1
Design Practices and Engineering Specification Cost Saving Concepts
Acid Gas Removal
Concept

Cost
Impact

Use plate and frame type of exchangers for lean-rich exchanger service.

Low

Use improved gas treating processes such as cryogenic distillation,

formulated solvents, mixed solvents, membranes, etc. For natural gases with
high acid gas content.

Med

Integrate acid gas removal and dehydration steps into a single adsorbent bed.
For natural gases with low acid gas content.

High

Use of solvents that can handle high acid gas loading and are energy efficient.
For natural gases with low acid gas content.

Med

Use air-cooling for the solvent regenerator overhead condenser, and mount
this air-cooler atop the regenerator column. For natural gases with low acid
gas content.

Med

Reduce absorber diameter by using proprietary trays or structured packing.

Low

Dehydration & Mercury Removal

Use regenerable mol sieves for dehydration & mercury removal in a common
vessel.

Med

Integrate the heat duty for drier regeneration with gas turbine exhaust.

Low

Reduce size of dryer beds by deeper precooling & shorter cycles.

Low

Liquefaction
Selection of a liquefaction process that is simpler and/or has fewer pieces of
equipment. Efficiency can be a secondary consideration.

High

Use gas turbines & optimize their selection.

High

Use electric motor drives for the major compressors with power supply via
gas turbine generators.

Med

Use plate fin exchangers in place of S/T or spool-wound exchangers.

Med

Use of innovative heat exchanger designs to improve operation.

Low

Use cryogenic liquid expanders.

Med

For high pressure feed gases, use turbo expanders to let down pressure.

Med

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For high pressure feed gases that are acid gas free and have little heavies,
reduce refrigeration power by liquefying the natural gas at supercritical
pressure.

Med

For high nitrogen feeds, use a nitrogen column instead of a straight flash.

Med

Fractionation
Small refrigeration unit dedicated to the columns only.

Low

Import refrigerant for the columns.

Low

Storage & Loading

Use larger & fewer tanks.

High

Avoid unnecessary LNG storage capacity.

High

Selection of tank type (single vs. full containment).

High

Use larger & fewer LNG loading pumps.

Med

Use a less conservative storage tank boil-off system design.

Med

Reduce loading line size.

High

Flare the ship loading vapor

Low

Combine the flash gas vapor with the boil-off gas compressor.

Med

Use pre-stressed concrete wall instead of embankment design for LNG tanks.

Med

Utilities & Offsites

Purchase nitrogen instead of on-site generation.

Med

Use a slip stream from the gas turbine inlet air compressor for instrument air
use.

Med

Use waste heat from gas turbine exhaust.

Low

Reduce the number of spared equipment in power generation.

High

Simplify the flare and liquid disposal systems.

Med

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Project Execution
Improve project execution techniques.

High

Relax design standards & specifications.

High

Maximize the design & supply scope of vendor items.

Med

Develop multifunctional equipment to reduce equipment count & piping.

LowMed

Take steps to minimize rework.

Med

Delay the installation/construction of non critical infrastructure items until

after the plant is completed and operating.

Med

Consider core in shell arrangement for propane chillers.

Low

Evaluate if suitable for modular construction. Adopt modular engineering

techniques.

MedHigh

Use the latest (client approved) computer tools and document management.

Low

Invest heavily in the FEED package so that all major technical & equipment
decisions are made early in the project.

MedHigh

General
Investigate smaller LNG plants for specific projects.

Med

Take maximum advantage of economy of scale. Build larger & fewer trains.

High

Promote competition in the manufacture of specialized equipment such as

spool-wound & printed exchangers, liquid expanders, etc.

MedHigh

Promote the development & use of innovative designs and concepts for plant,
equipment and materials.

MedHigh

Allow more flexibility in LNG sales contracts.

Med

Use enhanced vessel internals to reduce diameter of large drums.

Low

Consider above ground electrical cabling to reduce costs & facilitate site
preparation.

Med

To minimize the cost of depressuring consider design for no repressuring

while cold.

Med

Re-evaluate cryogenic valve specifications.

Med

Review fireproofing of structural steel.

Med

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Consider eliminating spare relief valves and minimizing other valves within
the operating units.

Med

For S/T exchangers, consider TEMA C instead of TEMA R for some

services.

Low

Use hot oil instead of steam in all heat exchangers.

Med

Design common facilities for AGRU, dehydration, and fractionation areas.

High

Use magnetic bearings & dry gas seals in compressors.

Med

Table A-2
Project Specification Philosophies

Plant life, availability/ reliability requirements

Design margins required minimum production rates, operation under extreme
weather conditions
Equipment sparing philosophy especially in the utility area
Source of fire water/configuration of firewater pumps
Spill containment arrangement
RV philosophy, including spares
Philosophy for block valves & control valve bypasses
Choice of gate vs. ball valves
Deluge system philosophy
Flanged vs. welded connections
Details of LNG tank design (type of outer tank, insulation system, foundation system,
hydrotest requirements, tank internals, etc)
Choice of SS vs. 9% Ni for cryogenic vessels
Choice of metallurgy for cryogenic pipes
Instrument philosophy (extent of gas detection, alarms, redundancy, combining major
systems, etc.)
Extent of DCS interface with ship navigation and mooring system
Philosophy regarding Local (field) Instrument Rooms, Analyzer houses and need for
blast resistance
Philosophy regarding Factory Test for major instrument systems
Types of pipe rack: precast concrete vs. steel
Use of elevated structures to reduce plot area
Philosophy/design with regards to bimetallic transition joints
Design requirements for cryogenic pipe supports
Expansion loops vs. bellows
Extent of paving/roads
Trenches/ditches--concrete lined, crushed stones?
Foundation material selection vis vis soil characteristics
Drainage philosophy
Underground vs. above ground electrical cables
Electrical cable trays: type of design

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Philosophy regarding vendor packages--"customize" to project requirements vs.

accept "standard vendor package"
Extent of vendor documentation, especially for package items
Performance riskaccept standard vendor risk or require more risk to be taken by
vendor
Extent of testing/inspection for equipment and materials
Certification and traceability of materials for critical equipment: are vendor standards
acceptable?
Need for cryogenic design approval test for cryogenic valves
Type of insulation: PUF vs. foamglas
Extent of insulation, insulation thickness and density
Choice of materials for underground pipes
Fire proofing philosophy
Prefabrication vs. field installation of buildings
Philosophy on pneumatic vs. hydrostatic testing
Extent and applicability of local codes/regulations (e.g., noise, emissions, waste
disposal, etc.)
Extent of plant infrastructure (clinic, recreation, canteen, transportation, etc.)
Requirements for "local content" in terms of materials and labor
Restrictions on material sourcing country, vendor qualifications
Risks and liabilities to be imposed on contractors

REFERENCES CITED
1.

C. Durr, F. de la Vega, Method for Removing Mercaptans from LNG, U.S. Patent
Number 5,659,109

2.

V. Perez, W.E. Hauhe, J.A. Freels, K.Davis, C. Durr, The 4.5 MMTPA LNG Train A Cost Effective Design, Twelfth International Conference on Liquefied Natural Gas,
1998.

3.

M.W. Kellogg Study - LNG Plant Driver Study, Sept. 1996.

4.

I. Aoki and Y. Kikkawa, LNG Plant Combined with Power Plant, Second Doha
Conference on Natural Gas, 1997.

5.

C.A. Durr and R.R. Tarakad, Modular Engineering in LNG Plant Design,
GASTECH86, 1986.

6.

C.A. Durr and F.F. de la Vega, Cost Reduction in Major LNG Facilities, 17th World
Gas Conference, 1988

7.

R. Klein Nagelvoort and P.J.A. Tijm, Cost Reductions in LNG Export Facilities, 14th
World Petroleum Congress, 1994.

8.

D.A. Coyle, C.A. Durr, F.F. de la Vega, D.K. Hill and C. Collins, LNG Plant Design
in the 1990's, GPA Convention, 1995.
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9.

I. Aoki and Y. Kikkawa, Technical Efforts Focus on Cutting LNG Plant Costs, Oil and
Gas Journal, July 3, 1995.

10. C-H. Chiu and F.W. Richardson, Project Challenges of a Baseload LNG Plant,
GASTECH93, 1993.
11. J.D.T. Bernard, Considerations Leading to a No Steam, No Cooling Water, Base Load
LNG Plant, LNG8, Session II, 1986.
12. R. Klein Nagelvoort and E. Kennedy, Development and Expansion of LNG and LPG
Export Projects, 19th World Gas Conference, 1994.
13. J. Tarlowski, C. Collins, F.F. de la Vega, Developments in the Design of LNG Import
Terminals, GASTECH93, 1993.
14. A.O. Fredheim and R.S. Heiersted, Possibilities for Cost Reduction in Base-Load LNG
Plants, Eurogas Conference, 1996.
15. P. Tijm, E. Stanton, and R. Klein Nagelvoort, Liquefied Natural Gas: Reducing Costs,
June 1995.

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