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 CONTENTS
February 2017 Volume 22 Number 02 ISSN 1468-9340
03 Comment
05 World News
12 Asia's LNG drive
Ng Weng Hoong, Contributing Editor, explains why Asias big
four economies will continue to drive and dominate LNG
imports through 2030.
22 The threat is real
Roberto Parola, Linde, Germany, and Mike Hayes, Linde,
North America, explain why the oil and gas sector and
environmental bodies worldwide are pushing to combat the
threat of mercury.
31 A novel idea
Hammad Ahmad, ATG Plant Automation, Pakistan, evaluates
the recovery of natural gas through a novel hybrid between
a membrane and amine unit implemented at a gas facility in
Pakistan.
36 Power performance
John Specht, Shell Global Solutions International B.V.,
the Netherlands, and Pat Holub, HuntsmanCorp., USA,
profile two projects that helped a tail gas treatment unit
to improve its operability and lower operating costs, while
meeting tough emission requirements.
41 SRF: Behind the steel
Michele Colozzi, Simona Cortese, Lucio Molinari,
KT - Kinetics Technology S.p.A. (Maire Tecnimont Group),
Italy, and Michele Manzulli, Virtual Materials Group
Europe, Spain, examine sulfur recovery facilities and how a
recent technological development brings operators closer
to successful and efficient processing, engineering and
operation.
47 Understanding temperature profiles
Ralph H. Weiland and Nathan A. Hatcher, Optimized Gas
Treating Inc., USA, delve into the world of amine absorber
temperature profiles.
104 15 facts on...
51 Dropping the dead weight
Femke Schaefer, Bronswerk Heat Transfer B.V., the
Netherlands, explains how alternative design solutions
for shell and tube heat exchangers helped Persian Gulf
Petrochemical Company to reduce total weight and plot
space at the Bid Boland II gas processing plant in Iran.
55 Cunning cryogenics
Yousef Jarrah, YosukeKondo and Ryan Hirschsohn,
NikkisoCryoInc., USA, review the methods used to enhance
cryogenic pump performance and reliability.
61 Overhaul operations
Samuel Eccles, SPX FLOW, UK, describes the overhaul of a
pump for a critical diethylamine pumping process, exploring
the technological developments that helped to ensure a
successful project outcome.
67 Smarten up
Mantosh Bhattacharya, Petrofac, UAE, presents a blueprint
for smart rotating machines used in the oil and gas industry.
75 Give it a boost
Roy G. Milum, P. E., Petrotech, USA, examines the impact
of control system upgrades in gas processing facilities for
extraction efficiency improvement.
78 Better blending
Javier Araujo, Honeywell, Spain, discusses the increasing
global demand for lubricants and how moving to a modern
process of lubricant blending can ensure better control,
reduced downtime and increased output.
85 The economics of process analysis
Gregory Shahnovsky, ArielKigel and RonnyMcMurray,
ModconSystems, UK, discuss how the implementation of
online process analysers can improve refinery economics.
93 Signed, sealed, delivered
Mike Mulrooney and GoutamShahani, ShureLine
Construction, USA, examine process project design and
delivery for todays market.
99 The welding way
Mike J. Fletcher and RonA.Sewell, Huntingdon Fusion
Techniques, UK, present a modern weld purging solution
recently implemented at a major gas import facility in
Milford Haven, UK.
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 17
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COMMENT
CALLUM O'REILLY
EDITOR
B
efore President Donald Trump even
had time to settle into his new
surroundings in Washington D.C.,
the Republican administration had
published its America First Energy Plan onto the
White House website.
shale oil and gas revolution. The statement read: We must take advantage of
the estimated US$50 trillion in untapped shale, oil, and natural gas reserves,
especially those on federal lands that the American people own. The Trump
administration promises to use the revenues generated from energy production
to rebuild the countrys roads, schools, bridges and public infrastructure.
While the new US governments industry-friendly stance certainly makes
promising reading for producers, uncertainty persists for other areas of the
countrys energy industry. Proposed tax reforms remain a key area of interest,
especially legislation surrounding a mooted border adjustment tax. Under the
plan, exports would be exempt from income tax, while imports would be denied
such a deduction. This proposal could have a significant impact on the global
energy industry. According to a recent report from PwC, US companies that are
able to export a portion of their oil production, refined products, chemicals and
equipment would stand to benefit from such a tax.1 However, PwC warns that
companies that import oil for refining and processing activities would not be
able to deduct those expenditures, with the potential for significant short-term
economic disruptions.
The exact impact of such a tax policy remains uncertain. Indeed, PwC also
notes that many economists believe the border adjustment would strengthen
the value of the dollar and thereby lower the cost of imported products so that
there could be little or no net change in the after-tax cost of imports.
A policy that reduces taxes and regulations may also lead to falling US gas
prices, which could have a significant impact on the global LNG industry. A
number of US liquefaction projects are expected to start production over the
next couple of years, joining Cheniere Energys Sabine Pass terminal in Louisiana,
which also has additional capacity coming online. While the fall in oil prices in
recent years had reduced the competitiveness of US LNG for the Asian market,
Wood Mackenzies Senior Analyst Australasia, Saul Kavonic, warns that this
may not be the case for much longer: Any policies that Trump implements
lower taxes, less regulation, opening up more areas for drilling all imply more
production, which implies lower US gas prices, which means lower cash costs for
US LNG exporters, and lower spot prices in Asia.2
In this issue of Hydrocarbon Engineering, Contributing Editor,
Ng Weng Hoong, takes a closer look at the latest developments in the Asian
LNG market, with a particular focus on Australian exports (starting on p. 12).
While the potential impact of a Trump presidency on the global LNG industry is
difficult to predict, it is undoubtedly a market to monitor closely in the months
and years ahead.
1. United States: Tax reform proposals would affect energy industry, PwC, (11 January 2017).
2. CHAMBERS, M., Trumps energy policy shake-up could threaten Australian LNG,
The Australian, (23 January 2017).
 WORLD NEWS
China | Barge-based FSRU undocks
W ison Offshore & Marine has
announced that the worlds
first barge-based floating storage
and regasification unit (FSRU) for
which the company provided
engineering, procurement and
construction (EPC) services for
Exmar has undocked from Wisons
dry-dock in Nantong, China.
Upon the undocking, topside
installation has been completed,
which paves the way for successful
delivery.
This is the first FSRU being built
in China and the facility is to
GE proposes investment in three
Nigeria |
refineries
N igerian National Petroleum
Corp. (NNPC) has announced
that General Electric (GE) has
proposed to invest in Nigerias three
refineries located in Port Harcourt,
Warri and Kaduna.
In a presentation to NNPC GMD
Dr. Maikanti Baru and his team, GE
stated that the companys teams of
partners, including its consortium
involving the engineering,
procurement and construction (EPC)
partners, off-takers, traders and
some financiers, would be engaged
in the initiative.
The NNPC quotes GE as stating:
We were involved in the tenders
Iran | Siemens receives major order
S iemens has announced that it has
received an order for 12
compressor trains from Hampa
Engineering Corp. for two onshore
natural gas processing plants in Iran,
which will be operated by Palayesh
Parsian Sepehr.
The order volume is in the 'high
double-digit million euro range', and
commercial operation is expected by
become the worlds first FSRU with
small scale storage capacity. The
FSRU barge has a regasification
capacity of 600 million ft3/d.
This is the second project on
which Wison and Exmar have been
cooperating, following the
Caribbean FLNG project.
By adopting a modularisation
strategy, the hull and topside
modules of the FSRU have been
fabricated simultaneously, which
reduced the safety risks, improved
the construction quality, and helped
to shorten the delivery schedule.
that started around last year, which
was subsequently withdrawn, but
our commitment to bringing the
refineries on-stream is still very
deep and we are very serious about
it. We propose that work
commences either with the Warri or
Port Harcourt Refinery as a pilot, as
we set a target to improve the
refinery capacity before the end of
2017.
A statement from NNPC adds
that GE also pledged its readiness
to work with the NNPC to make
production in the offshore fields
profitable for the benefit of both
companies and other stakeholders.
the end of 2018.
The 12 compressor trains will each
contain a Siemens STC-SV vertical
split compressor and will be used in
two natural gas processing plants. Of
the 12 trains, 10 are for the Mohr C2+
hydrocarbon recovery plant in Fars
Province, south central Iran.
The plant in Mohr will process
natural gas into C2+ hydrocarbons,
Trump clears
USA |
way for pipelines
U S President Donald Trump has
signed Presidential Memoranda
regarding the construction of both
the Keystone XL Pipeline and the
Dakota Access Pipeline.
The Keystone XL Pipeline is a
1100mile crude oil pipeline to
connect oil production in Alberta,
Canada to refineries in the US. A
statement from the White House
website said that construction and
operation of the pipeline, as well as
oil production and refining activities
related to it, would create tens of
thousands of jobs for US workers, as
well as enhance the countrys energy
security and generate significant
State and local tax revenues.
President Trump has also directed
the relevant Federal agencies
(including the Army Corps of
Engineers) to expedite reviews and
approvals for the remaining portions
of the Dakota Access Pipeline, which
is designed to carry approximately
500 000 bpd of crude oil from the
Bakken and Three Forks oil
production areas in North Dakota to
oil markets in the US.
Trump has also directed the
Secretary of Commerce to develop a
plan under which all new pipelines in
the US, as well as retrofitted, repaired,
or expanded pipelines, use materials
and equipment produced in the US,
to the maximum extent possible.
serving the domestic Iranian gas
market, while the long chained
hydrocarbons will be transported to
the Iranian coast 60km away. The
hydrocarbons will be further
fractionated at the Assaluyeh plant
in Bushehr Province. The plant in
Assaluyeh will produce feedstock for
the petrochemical industry, including
ethane, propane, and butane.
HYDROCARBON 5 February 2017
ENGINEERING
 WORLD NEWS
IN BRIEF
usa
LyondellBasell has announced
the completion of the ethylene
expansion project at the company's
Corpus Christi, Texas, US, site. The
project will double ethylene capacity
at the facility and completes the
company's multi-year plan to increase
annual ethylene capacity in the US by
2 billion lbs.
denmark
LiqTech International Inc. has received
a US$120 000 order for the company's
water treatment systems for flue gas
condensate. The order was received
from Tjreborg Industri A/S, a
Danish company that specialises in
the development and manufacturing
of equipment for power plants. The
system will be installed at Uldum
Varmevrk, Denmark.
oman
Coreworx has announced that its
interface management solution was
selected and implemented on a
US$3.6 billion petrochemical complex
project in Oman. The five year project
involves four major international
engineering, procurement and
construction (EPC) contracts from
several geographic regions.
usa
Praxair Inc. has signed a long-term
contract to supply hydrogen to
Marathon Petroleum Corp.s refinery
in Garyville, Louisiana, US. The
company will use the hydrogen to
support an ultra low sulfur diesel
project planned for 2018. The
hydrogen will be supplied through
Praxairs extensive Southeast Louisiana
pipeline network.
February 2017 6 HYDROCARBON
ENGINEERING
USA | Sprague acquires storage assets
S prague Resources LP has announced
that its operating subsidiary, Sprague
Operating Resources LLC, has signed a
definitive agreement to purchase the
Springfield, Massachusetts, US, refined
product terminal assets of L. E. Belcher
Inc. for approximately US$20 million in
cash, subject to customary closing
adjustments.
Saudi Arabia | Petrotechnics solution chosen
P
etrotechnics has announced that
Accenture has selected its
Proscient solution for Saudi Aramcos
new Jazan refinery complex.
The solution will be implemented
as part of Saudi Aramcos integrated
manufacturing operations
management system (imoms) to
reduce risk, improve productivity and
lower costs.
The US$2.1 billion refinery, which
is scheduled for completion later this
year, will have the capacity to process
400 000 bpd of crude oil and
produce 80 000 bpd of gasoline,
250000 bpd of ultra low sulfur diesel
and over 1million tpy of benzene and
paraxylene products.
The imoms system is a
comprehensive set of 12 applications,
20 integrated solutions and
China | Sinopec awards contract and license
C hina Petrochemical Corp.
(Sinopec) has awarded DuPont
the license and engineering contract
for its STRATCO alkylation
technology. The new unit is to be
located at the existing Sinopec
Tianjin Company (TPCC) refinery in
the Tianjin Binhai New Area district.
The additional unit will improve the
quality of the existing refinery
The purchase consists of two
pipeline-supplied distillate terminals
and one distillate storage facility, with
a combined capacity of 295 000 bbls,
as well as L. E. Belchers associated
wholesale and commercial fuels
businesses.
The transaction is expected to
close within 30 days.
550processes encompassing risk
management, production
management and activity
management.
Proscient will deliver the PSORMS
capabilities within imoms to
proactively mitigate operational risk
and optimise the work schedule
dynamically and graphically. It will
facilitate the capture and
management of work permits,
real-time risk analysis, incident
reporting, emergency preparedness
and safety response, key performance
indicators (KPIs) and management of
change. Imoms and Proscient will
ensure that complex operational data
is transformed into meaningful
information to provide everyone with
the right information at the right time
to make the right decisions.
gasoline pool to ensure compliance
with the China V standard.
Construction of the new
7700bpd (300 000 tpy) alkylation
unit is expected to begin in early 2017
with TPCC aiming for start-up by late
2017 or early 2018. TPCC is the largest
oil refiner in North China with
primary crude oil processing capacity
of 15.5million tpy.
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 WORLD NEWS
IN BRIEF
azerbaijan
Axens has announced that SOCAR has
selected its AlphaButol technology for
the production of high purity 1-Butene
through ethylene dimerisation. The
technology will be installed at SOCARs
large GPC project in Azerbaijan. The GPC
project is a totally integrated grassroots
project, from natural gas processing to
the production of high value polymers
through the inclusion of an entire
petrochemical complex. The plant will
produce approximately 600 000 tpy
of polyethylene and 120 000 tpy of
propylene.
france
RasGas Co. Ltd has delivered its first
LNG cargo to the Dunkerque LNG
Regasification Terminal, on board its
Murwab LNG carrier. The LNG delivery is
under the Sales and Purchase Agreement
(SPA) signed between Ras Laffan Liquefied
Natural Gas Company (3) (RL 3) and EDF
in June 2016. Under the terms of the SPA,
RasGas will supply up to 2 million tpy of
Qatari LNG into Dunkerque.
worldwide
TechnipFMC has announced that it
is operating as a unified, combined
company following completion of the
merger of FMC Technologies and Technip.
The merger creates a global leader
in oil and gas projects, technologies,
systems, and services that will enhance
the performance of the worlds energy
industry.
usa
Additech has announced that it is set
to begin pilot market testing of a new
additive that has been engineered
specifically for diesel fuel. Pilot tests for
Additech Diesel Guard will be held at
eight retail locations across the US that
provide a cross-section of seasonal driving
conditions. This initiative recognises the
growth of diesel vehicles in the US.
February 2017 8 HYDROCARBON
ENGINEERING
USA | ExxonMobil & SGI renew partnership
T urning algae into a ubiquitous,
affordable and low emission
transportation fuel remains an
ambitious goal. However, Synthetic
Genomics Inc. (SGI), the LaJolla,
California, synthetic biology startup,
and ExxonMobil have announced
that they are renewing an agreement
to jointly research the use of algae
to make clean, low carbon energy.
The two companies first started
working together back in 2009.
Finland | Christmas ham to renewable diesel
L ast Christmas, 40 000 Finnish
households donated the waste
fat from their Christmas hams to
the charity campaign
'Kinkkutemppu', which translates
into 'ham trick'. From this waste fat,
Neste produced renewable diesel
at its Porvoo refinery for sale at
Neste stations.
The idea for the campaign
started from the Chemical Industry
Federation of Finland and attracted
a number of companies and
associations. Fat recycling containers
were placed all over Finland, mainly
at recycling points of Finnish
Packaging Recycling RINKI located in
Saudi Arabia | SNC-Lavalin contract extension
S NC-Lavalin Fayez Engineering
(SLFE), an engineering consultancy
partnership between SNC-Lavalin and
Dr Zuhair Fayez, has been awarded a
five-year extension to its existing
General Engineering Services Plus
(GES+) contract with Saudi Aramco.
Under the contract, which
includes three one-year options to
extend, SNC-Lavalin will be invited
to bid on front-end engineering,
ExxonMobil and SGI will
continue to focus on how to coax
algae into producing more lipids.
The creation of these fats is critical
because they can serve as
feedstock that can be turned into
low emission fuels for
transportation. This means boosting
lipid production will be a major
step in turning algae into a
commercially successful energy
source.
conjunction with selected K-food
stores. Lassila & Tikanoja then
transported the fat to Honkajoki Oy
for treatment.
Neste used the collected ham
fat to produce 10 000 litres of
Neste MY renewable diesel at its
refinery. The Finnish Water Utilities
Association took part in the
campaign, reminding people not to
pour ham fat down the drain.
Neste donated the value of the
product to Hope, an association
which helps low income families,
and to Icehearts, a sports club that
aims to prevent social exclusion and
promote well-being.
detailed engineering and project
management services to support the
implementation of Saudi Aramcos
capital and sustaining capital
programmes in the Kingdom of
Saudi Arabia.
Projects will include refining and
petrochemical facilities, as well as
onshore oil and gas production and
processing facilities, and building
and infrastructure projects.
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 WORLD NEWS
DIARY DATES ACC | Speciality chemicals' volumes up
19 - 21 March
AFPM Annual Meeting T he American Chemistry
Council (ACC) has reported
that market volumes in US
San Antonio, Texas, USA
Tel: 202.457.0480 speciality chemicals rose 0.3% in
Email: meetings@afpm.org December 2016.
This follows an upwardly revised
26 - 30 March 0.5% gain in November 2016.
SOGAT 2017 Volumes have generally been
Abu Dhabi, UAE climbing since May 2016. All changes
Tel: +971 2 674 4040 in the data are reported on a
Email: nerie@domeexhibitions.com
three-month moving average
26 - 30 March (3MMA) basis. Of the 28 speciality
Corrosion 2017
chemical segments monitored,
Convention Centre, New Orleans, Louisiana, USA 17expanded in December,
Tel: 800-797-6223 10markets experienced decline and
Email: FirstService@nace.org
one was flat. During December, large
gains (1% and over) were noted only
in oilfield chemicals.
The overall speciality chemicals
volume index was stable on a
year-on-year (y/y) 3MMA basis. The
index stood at 105.4% of its average
2012 levels. This is equivalent to
3.30 million t. The downturn in the
oil and gas sector affected headline
volumes and weakness spread to
other segments. On a y/y basis,
there were gains among 19 market
and functional speciality chemical
segments.

28 - 30 March
StocExpo Europe API | Trump commitment to energy praised
Rotterdam, the Netherlands
Tel: +44 (0)20 8843 8835
Email: amy@stocexpo.com T he President and CEO of the
American Petroleum Institute
(API), Jack Gerard, has released a
the Keystone XL and the Dakota
Access Pipelines will help deliver
energy to American consumers and
29 - 30 March statement following President businesses safely and efficiently.
ARTC: Asian Refining Technology Conference Donald Trump's recent actions to "The US is leading the world in
Jakarta, Indonesia advance energy infrastructure the production and refining of oil
Tel: +971 4 435 6101 projects throughout the US. and natural gas and in the
Email: kay.mitchell@clarionevents.me "We are pleased to see the new reduction of carbon emissions,
direction being taken by this which are near 20 year lows. We
4 - 7 April
Gastech Conference & Exhibition
administration to recognise the look forward to working with the
Chiba City, Tokyo, Japan
importance of our nation's energy Trump administration on putting in
Tel: +44 (0) 203 772 6038 infrastructure by restoring the rule place policies to continue our
Email: info@gastechevent.com of law in the permitting process nation's energy leadership that will
that's critical to pipelines and other benefit American consumers and
9 - 12 April infrastructure projects [...] Critical workers, while protecting the
2017 GPA Midstream Convention energy infrastructure projects like environment."
Marriott Rivercenter, San Antonio, Texas, USA
Tel: (918) 493-3872
Email: cmyers@GPAglobal.org
EIA | Natural gas prices to rise
18 - 20 April

NISTM 19th Annual International Aboveground
Storage Tank Conference & Trade Show
Rosen Shingle Creek Hotel, Florida, USA
Tel: 011.813.600.4024
Email: mail@nistm.org
24 - 26 April
Sulphur World Symposium 2017
Dublin, Ireland
Tel: +1 202 293 9305
Email: kkurowski@sulphurinstitute.org
I
n its January 2017 Short-Term
Energy Outlook' (STEO), the
USEnergy Information
Administration (EIA) has confirmed
its expectations that the Henry Hub
natural gas spot price will average
US$3.55/million Btu this year,
compared to US$2.51/million Btu in
2016.
This price is expected to rise to
US$3.73/million Btu in 2018. The
higher prices will be attributable to
natural gas consumption and
exports exceeding supply and
imports, leading to lower average
inventory levels.
The EIA also confirmed that it
expects natural gas exports to
increase. Export growth in 2017 will
reflect additional capacity coming
online at Cheniere Energys Sabine
Pass LNG terminal in Louisiana.

February 2017 10 HYDROCARBON

ENGINEERING
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ADCA115315
 ASIA'S
LNG
DRIVE

Tokyo skyline, Japan.

February 2017 12 HYDROCARBON

ENGINEERING
Ng Weng Hoong, Contributing Editor, explains
why Asias big four economies will continue to
drive and dominate LNG imports through 2030.

A
sias big four economies of China, Japan, India and South Korea
will continue to dominate the regions LNG markets over the
next 15 years, according to a recent study by the Oxford
Institute for Energy Studies (OIES).1
Under a slow growth scenario, the OIES expects the big fours
combined LNG imports to increase at an annual rate of 1.72% from
208.3billion m3 in 2015 to 269.1 billion m3 in 2030. In a fast growth
scenario that more than doubles the annual import rate to 3.66%, the
four countries will purchase a total of 357.2 billion m3 in 2030. Most of
the imported LNG will be consumed domestically.
Asias other current LNG users, Taiwan, Singapore, Thailand, Malaysia
and Pakistan, imported a combined 29.7billion m3 of the fuel last year,
just slightly more than Chinas 29.2 billion m3. OIES expects the next wave
of LNG users in Bangladesh, Vietnam and Indonesia to import between
36.4billion m3 and 58.2 billion m3 in 2030.
Combined, the LNG imports of these eight smaller Asian economies
will grow by an astonishing annual rate of between 9.5% and 12.5%
through 2030. These projected rapid growth rates are due largely to their
low starting base of 29.7 billion m3 in 2015.
Given the big fours slower growth prospects, OIES expects their
combined share of Asias LNG imports to decline from 87.5% in 2015 to
between 67% and 70% in 2030. Conversely, the combined share of the

HYDROCARBON 13 February 2017

ENGINEERING
 Table 1. Asias low and high LNG import scenarios (billion m3) Japans LNG imports over the next 15 years. The
slow growth scenario sees imports decline from
Low growth scenario High growth scenario
115.7 billion m3 in 2015 to 80.6billion m3 in 2030,
2015 2020 2025 2030 2020 2025 2030 while the fast growth case calls for a surge to
Japan 115.7 86.0 86.5 80.6 124.6 124.7 120.3 120.3 billion m3.
China 27.2 54.0 46.0 75.0 79.0 66.0 105.0
India 19.9 30.0 50.0 66.0 36.0 60.0 79.2
China
Unlike Japan, China has far greater choice in
South Korea 45.5 44.8 45.8 47.5 46.9 49.6 52.7
sourcing for its natural gas supplies. It is able to
Subtotal 208.3 214.8 228.3 269.1 286.5 300.3 357.2 import natural gas through its growing pipeline
CAGR: 2015 to 1.72% 3.66% links with Central Asia and Myanmar, and LNG
2030 (15 years) through a network of import terminals along its
Low growth scenario High growth scenario eastern coastline. China is also boosting
Taiwan 19.7 20.3 21.6 22.9 22.4 26.8 32.1 domestic production by tapping its substantial
conventional and coalbed methane (CBM)
Singapore 2.8 6.6 10.7 13.8 6.9 11.4 14.9
reserves, alongside plans to process coal into
Thailand 3.7 11.0 20.4 22.5 13.9 26.8 31.2 natural gas. Beijing has set a target to raise its
Malaysia 2.1 3.7 5.0 6.2 3.7 5.0 10.7 annual domestic gas production to between
Pakistan 1.4 10.0 14.0 14.0 12.0 16.0 26.0 400 billion m3 and 420 billion m3 by 2020, up
Bangladesh - 4.0 8.0 18.0 6.0 16.0 26.0 from 138 billion m3 in 2015, according to BP.2
The OIES study said China must step up
Vietnam - - 4.4 9.1 - 5.7 11.4
reforms of its natural gas market to boost
Indonesia - - - 9.3 - 4.9 20.8 consumption of the clean burning fuel to replace
Subtotal 29.7 55.6 84.1 115.8 64.9 112.6 173.1 oil and coal. Despite the collapse in energy prices
CAGR: 2015 to 9.50% 12.47% since mid-2014, LNG and piped natural gas
2030 (15 years) remains more costly than oil and coal.
Low growth scenario High growth scenario Citing consultant Wood Mackenzie, the OIES
noted that China currently faces an annual
Total 237.9 270.4 312.3 384.9 351.6 412.9 530.1
oversupply of 18billionm3 of natural gas, and
CAGR: 2015 to 3.26% 5.49%
should look to boost the fuels use for
2030 (15 years)
transportation.
Source: Oxford Institute for Energy Studies (OIES) Given Beijings commitment to cleaning up
the countrys heavily polluted cities, the OIES
smaller eight economies will rise from last years 12.5% to expects Chinas LNG imports to rise from 27.2 billion m3 in
between 30% and 33%. 2015 to between 75 billion m3 and 105 billion m3 in 2030.

Japan
Japan will remain the regions biggest importer and
consumer, despite Chinas rapidly rising appetite for the
fuel, according to the OIES study.
As the worlds largest LNG importer, Japan will also be
one of the industrys biggest wild cards amid the countrys
uncertain energy outlook and Tokyos push to revive the
use of nuclear energy that once generated 30% of the
countrys electricity. The public does not trust official
assurances over the safety of nuclear energy following
extensive damage to the giant Fukushima plant from the
combined earthquake-tsunami tragedy of March 2011. The
plant is still leaking radiation into the Pacific Ocean, with
repairs far from complete and the government refusing to
comment on the subject.
Since Fukushima, Japan has boosted LNG imports to
replace about half of the nuclear feedstock needed to
generate approximately 30% of the countrys electricity.
LNG will likely remain the main fuel of choice ahead of oil
and coal, even if Tokyo succeeds in boosting nuclear s
share of the projected electricity mix to 20 22% by 2030,
according to the Institute of Energy Economics Japan.
Given the unpredictability of the countrys energy
plan, the OIES has issued a wide ranging forecast for
India
India is Asias only major economy to register a
significant shrinkage in its natural gas market over the
last few years. According to BP, Indias natural gas
consumption fell from 61.5 billion m3 in 2010 to
50.6 billion m3 in 2015. Domestic production also fell
sharply from 49 billion m3 to 29.2billionm3 over the
same period.
The OIES study attributes the consumption decline to
'abruptly falling domestic production' caused by
government policies and regulations that discourage
private investments. At the same time, India has made
little progress in expanding and utilising its LNG import
infrastructure as it continued to rely on cheaper coal as
feedstock for power generation.
The OIES criticised Indias energy policy as being
'unfocused' in its 'expedient handling' of gas price reforms
and the governments 'wishful thinking' for a bigger role
for solar and wind energy.
The report noted that there appears to be an
acceptance that coal will provide for the main growth for
power generation and no specific policy for natural gas.
As a result, Indias natural gas market will continue to face
an uphill struggle to grow.

February 2017 14 HYDROCARBON

ENGINEERING
Latest News
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 The Indian government is hardly dispelling the
impression that it has adopted a lukewarm attitude
towards natural gas. At a conference in New Delhi in
November, OilMinister Dharmendra Pradhan stated that
he expected the industry to invest a mere total of
US$20 billion to develop the countrys natural gas fields,
spread over the next five to seven years.
Asia
Despite the generally bright outlook for Asias gas
demand, the OIES study notes that the regions market
still faces challenges from volatile energy consumption
growth and uncertainties over the energy mix.
Following last years international agreement in Paris
to combat climate change, governments throughout Asia
must take steps to reduce greenhouse gas emissions,
promote energy efficiency and conservation, and increase
the use of renewables.
While an indicative share for gas in the energy mix is
often included in policy documents, competition with
cheaper coal in the power sector is an open issue, which
requires a more robust policy framework than generally
exists at present, OIES noted.
As such, policy makers must help LNG shed its current
status as a premium fuel. The study suggests that the
industry can play a key role by de-linking the fuels import
price to oil, and to re-market LNG as a replacement for
coal in Asias search for a lower carbon future.
LNG market: breakdowns and reforms
Asias LNG story is not just about growth. Just as
compelling is the restructuring of the regions markets
brought on by surplus production capacity, pricing
competition, the rise of spot trading, slowing demand
growth and geopolitical manoeuvring.
This is good news for both the future of the industry
and the regions energy market, as the LNG trade has long
been dominated by a handful of players, according to
Australian consultant Grenatec. The distorted results are
now on display: bloated construction costs in Australia,
environmental degradation in the Great Barrier Reef,
overcharged buyers in Japan and uncounted carbon
emissions everywhere.
To the horror of insiders, LNG oversupply has enabled
the rise of an active spot market. It is stripping the veil
from this overpriced mis-invested industry. A painful
economic process of adjustment has several years and
bankruptcies to run, Grenatec noted.
An intra-Asia LNG industry would not have taken
root had proper economics applied from the start,
according to the Sydney-based company. It believes that
natural gas pipelines are the better, cheaper and longer
lasting option as the existing intra-regional LNG trade,
based on fixedprice long-term contracts, has
fundamental flaws.
Renewables are rapidly achieving cost parity with
natural gas, undermining the rationale for grossly
expensive, single purpose bespoke infrastructure.
By ignoring or excluding the high cost of LNGs carbon
emissions, the industry has masked the fuels poor
February 2017 16 HYDROCARBON
ENGINEERING
investment economics. Adding carbon prices to LNGs
lifecycle emissions raises costs dramatically. Faced with
this problem, the LNG industry excluded carbon
emissions and their costs as irrelevant. They will not be
irrelevant for long, Grenatec stated.
Reforms to the global carbon market over the next
five years will lead to much higher prices that will expose
the LNG industrys poor carbon economics.
Grenatec also criticised the industry for having
persuaded governments to accept the high cost of
investing in LNG infrastructure instead of gas pipelines.
For intra-regional transport of natural gas, pipelines are
a better deal on both economic and technology grounds
[] That bet is now going wrong. The result is an
albatross industry. The evidence: an oversupplied
regional Asian LNG market in which spot market prices
have fallen so low they now more than offset financial
penalties of failing to honour long-term delivery
contracts.
In turn, this is breaking down the industrys preferred
sinecure of long-term pricing, which have deliberately
excluded the carbon cost and the advantageous
multi-fuel advantages of pipelines. The current mayhem
will mark the evolution of a regional LNG spot market
priced on demand pull signals generated by consumers
instead of supply-push factors favouring producers. That
is the market Asia should have gotten all along, Grenatec
continued.
The consultant predicts that some LNG shipping
capacity and upstream natural gas production will be
mothballed, as is already happening in Australias overbuilt
LNG export hub of Gladstone in Queensland state.
Billions in write downs will follow in time. This will lead
to revised calculations about the LNG markets economic
value. That in turn will lead to consideration of alternative
delivery methods for natural gas that are less capital
intensive and less vertically integrated.
Grenatec described the ideal new system as enabling
natural gas to be pulled into the market as needed, in
response to demand, instead of pushed into the market
by companies with expensive infrastructure to pay off.
The company faults the industry for having created the
problem of vertical integration. LNG producers mine the
gas, build the shipping facilities and ships. They have bet
the farm on everything going right with all three all the
time.
The more viable strategy would call for an
independent party to build, operate and maintain an open
access, common carrier, multi-fuel pipeline. Financing of
natural gas transport should be kept separate from the
economics of upstream production and downstream
marketing.
A pipeline would provide access to all buyers and
enable transport prices to change in response to demand.
This is already happening in the US, where a common
carrier merchant pipeline network at Henry Hub is already
available to all buyers at spot market prices. The future
of global energy markets lies in networks such as this.
They have proved themselves in telecommunications (the
internet), electricity (Europes increasingly integrated
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 Table 2. Australias LNG exports
Australias LNG exports FY15 FY16 %
(forecast)
Volume (million t) 37 51 39.6
Value (AUS$ million) 16 557 23 357 41.1
Source: Department of Industry and Science
grids) and now natural gas (the US merchant pipeline
system), Grenatec noted.
Furthermore, just in time inventory management
lowers the albatross of idled, high fixed cost investments
such as long construction lead time LNG facilities that
are under utilised once finished. The only winners of that
game are construction contractors. This, in turn, generates
much better price signals than the 20 year lock in, the
model favoured by LNG producers on the grounds that
such certainty is required to justify a large initial
investment.
Australia
LNG exports
Thanks to expanded plant capacity and higher commodity
prices, Australia expects its earnings from LNG exports to
surge by 41.1% to AUS$23.4 billion in the current fiscal year
to 30 June 2017.
According to the Australian government's Department
of Industry, Innovation and Science, Australias domestic
LNG production will rise by 39.6% from 37 million t in the
last fiscal year to 51 million t in FY16.3 The additional
production at the Gorgon project off the cost of Western
Australia, and new capacity starting up on the east coast,
will boost the countrys LNG export earnings from
AUS$16.6 billion in FY15.
LNG contract prices, under which most Australian
LNG is sold, are forecast to increase in line with oil prices.
Higher export volumes will be driven by the addition of
around 15 million t of LNG export capacity, bringing total
operational capacity to around 66 million t by mid-2017,
according to the Department of Industry, Innovation and
Science.
The outlook for Australias LNG industry has been
lifted significantly by the recovery in the fuels global
trade after recent years of flat to negative growth.
Consultant Wood Mackenzie also endorsed the
positive outlook for Australias LNG sector with the
prognosis that it will remain sufficiently competitive to
attract at least US$20 billion in investment over the next
decade. In the face of continuing weakness in commodity
prices, the company stated that Australia has some of the
worlds most progressive fiscal regimes for the oil and gas
industry, taxing operators purely on profits for offshore
production. This means Australias tax take rises for more
profitable projects, but falls when they are less
profitable.
But it warned that future investments into the sector
could still be jeopardised if Australias federal and state
governments attempted to make major fiscal changes
without proper consultation. The recent wave of
February 2017 18 HYDROCARBON
ENGINEERING
Australian LNG projects are forecast to deliver relatively
low returns, well below the returns that Qatari projects
have realised.
The silver lining in the continuing LNG supply glut is
that it is fuelling the growth in the fuels global trade.
According to the Department of Industry, Innovation and
Science, the global LNG trade will increase by 7% in 2016
and by another 10% in 2017 to reach 285 million t.
Growth will be driven by demand in emerging Asia and
Europe and supported by a major expansion of LNG
export infrastructure in Australia and the US.
CBM to drive gas production
Australias gas production is seen growing by more than
26% from nearly 61 million t in FY15 to 77 million t in FY16.
Most of the new supplies, derived from the countrys rich
CBM reserves, are being processed into LNG for export to
Asia.
Graeme Bethune, CEO of consulting firm EnergyQuest,
attributed Australias LNG surge to several major projects
producing above nameplate capacity. For October,
Bethune counted 65 export cargoes, weighing a combined
4.3million t, compared with the previous months export
of 61 cargoes weighing 4 million t.
There was a particularly strong performance by LNG
projects on the west coast, Bethune said. Western
Australian projects in October shipped 2.4 million t
(36cargoes), up from 2.2 million t (33 cargoes) in
September. Woodsides Pluto project shipped seven
cargoes in October, up from five cargoes in September.
Chevron ramped up its Gorgon project to sell an
additional cargo in October while rival ConocoPhillips
added two cargoes to make it five. Offsetting these gains,
Bethune said two of the three Gladstone plants on
Queenslands east coast exported 24 cargoes in October,
down from 25 in September. One of the plants, operated
by upstream firm Santos, made a breakthrough sale by
exporting Australias first LNG cargo to Mexico.
Curtis Island's LNG plants in full flow
Curtis Island on Australias Queensland state has become
the countrys main LNG hub, with the full operation of
six trains on its three export-oriented projects.
Costing a total of US$57 billion, the three have a
combined nameplate capacity of 25.3 million t, or just
over 38% of the countrys total of 66 million t.
Australia Pacific LNG (APLNG) became the largest
operator on Curtis Island with the October startup of its
second train that lifted its capacity to 9 million tpy.
Queensland Curtis (QCLNG) two trains have a combined
annual capacity of 8.5 million t, while Gladstone (GLNG)
is the smallest producer with 7.8 million t. The Curtis
Island plants were built mostly to supply LNG to Asia.
The US$18.5 billion APLNG is jointly owned by
Australias Origin Energy (37.5%), the US ConocoPhillips
(37.5%) and Chinas Sinopec (25%). QCLNGs first train is
equally owned by Shells BG subsidiary and Chinese state
firm CNOOC, while the second train is 97.5% owned by
BG, with Japans Tokyo Gas holding the remaining 2.5%.
Australian upstream firm Santos is the operator of the
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 US$18.5 billion GLNG plant, with a 30% stake that it
co-owns with Malaysian state-owned Petronas (27.5%) and
South Koreas Kogas (15%).
At the official startup of APLNGs second train, CEO
Page Maxson said the company was producing enough
LNG to meet both domestic and export requirements.4
As the largest producer of natural gas in eastern
Australia, we are underpinned by a world class coal seam
gas resources position. We currently provide
approximately 25% of domestic gas to the east coast
market, with sufficient reserves to meet both LNG and
domestic demand, Maxson said.
Tapping Canadas oil and gas reserves
Woodfibre LNG
Asias ambitious plans to tap Canadas rich oil and gas
reserves have crash-landed as spectacularly as they had
risen just a few years ago. From a list of 20 proposals, only
one is expected to start shipping LNG to Asia from a
dedicated export plant in 2020, according to
Vancouverbased owner and operator Woodfibre LNG Ltd.
The Canadian-registered firm announced its
investment decision in November after receiving approval
from parent Pacific Oil & Gas Ltd, which is owned by the
Singaporebased Royal Golden Eagle Group (RGE group)
of companies. RGE is controlled by Indonesian tycoon
Sukanto Tanoto.
Located 7 km southwest of Squamish town near
Vancouver on the coast of British Columbia (B.C.)
province, the CAN$1.6 billion plant has already sold off
the bulk of its annual 2.1 million t. Woodfibre said it
expects to start work next year on what, it claims, will be
the worlds cleanest LNG plant.
The project represents a small but vital victory for
B.C.Premier Christy Clark, who, in 2013, had set an
ambitious target to secure five export-oriented LNG
plants that she said would add CAN$1 trillion to the
provincial economy. This is no longer realistic following
the collapse of global energy prices from mid-2014. LNG
prices in Asia have fallen from a peak of more than
US$20/million Btu in 2011 and 2012 to just over US$6
now.
Of the 20 proposals submitted by international oil
and gas companies, only Woodfibres has cleared the final
investment decision (FID) stage. Malaysian state energy
firm Petronas, Shell, Exxon and Chevron are among the
major players likely to face a long wait from shareholders
to approve their proposals.
Petronas
In contrast to Woodfibre, Petronas is struggling to meet
Canadian expectations that it will complete its proposed
CAN$36 billion PNW LNG project in northern B.C.
Malaysian Prime Minister Najib Razak captured world
headlines in 2013 when he announced Petronas' LNG
vision in B.C. that would have required an investment sum
exceeding 10% of his countrys GDP in a single stand-alone
project. In an attempt to keep the proposal alive, the
company and the Canadian government have each issued
February 2017 20 HYDROCARBON
ENGINEERING
conditional approvals for the construction of pipelines
and an export processing terminal near the port of
Prince Rupert.
In September, Ottawa gave its approval for the
construction of the CAN$11 billion terminal provided
Petronas fulfils an incredible 190 conditions, including
several related to protecting the environment and marine
life in the Prince Rupert area.
The onus is now on the Malaysian firm, as it earlier
had told Canada that it would proceed with the
investment only if regulators approved tax incentives and
the projects environmental assessment. With those two
approvals out of the way, Petronas must make its next
move.
In conceiving PNW LNG, Petronas had targeted to
make the projects FID in late 2014 and to start up the
export terminal in 2018. However, the collapse in oil and
gas prices since mid-2014 has forced the firm to consider
scaling back and selling off the bulk of its 62% stake in
the project, which will require another CAN$25billion in
upstream assets, pipelines and support infrastructure.
Petronas Canada venture began in 2012 with its purchase
of Calgary upstream firm Progress Energy for
CAN$5.9 billion. After announcing plans for the
integrated PNW LNG project, it progressively sold off
small stakes to Chinas Sinopec (10%), China Huadian
(5%), Indian Oil Corp. (10%), Japan Petroleum Exploration
(10%) and PetroleumBrunei (3%).
After the last sales to the two Chinese firms in
April2014, Petronas said it was still looking to pare down
its stake. With Brent crude prices down from nearly
US$110/bbl to approximately US$50 at the time of
writing, Petronas has found no takers for its remaining
PNW LNG stake.
Conclusion
Canadas inability to meet its original target to become a
major LNG supplier by 2020 will be greeted with relief by
other suppliers. This is due to the fact that Asias LNG
market will likely remain oversupplied through at least the
next five years. Agreeing with Grenatecs conclusion of a
global LNG glut, Wood Mackenzie noted that the industry
is facing record overcapacity. It forecasts that the world
will possess 262 million t of LNG in 2016, up sharply from
197million t in 2014. A further 18 projects with a
combined capacity of 110 milliont are due to come on
stream by 2020.
"All this translates into LNG supply becoming more
responsive to price than its ever been. Competition
means buyers can ask for more (discounts), said Wood
Mackenzie. The result will be a larger, more flexible and
liquid LNG market.
References
1. ROGERS, H.V., 'Asian LNG Demand: Key Drivers and Outlook', The
Oxford Institute for Energy Studies (OIES), (April 2016).
2. 'BP Statistical Review of World Energy', BP, (June 2016).
3. Australian Government Department of Industry, Innovation and
Science, https://industry.gov.au/Pages/default.aspx
4. 'Australia Pacific LNG second train starts production', Australia
Pacific LNG, https://www.aplng.com.au/content/dam/aplng/
media-release/2016/10102016%20Media%20Release%20
APLNG%20Train%202%20FINAL.pdf
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