Although natural gas is abundant, more than one-third of global reserves are classified as stranded. To monetize this resource, economic ways to transport the gas must be found. Options, including marine and terrestrial pipelines, and volume reduction alternatives such as liquefied natural gas (LNG) and compressed natural gas (CNG), can be considered. For offshore transportation of natural gas, pipelines become challenging with increasing water depth, difficult underwater terrain, and transportation distance.

LNG, an effective means of long-distance gas transport, accounts for about 25 percent of the world’s gas movement. But LNG projects require large investments along with substantial natural gas reserves, and are only economically viable for long distances, e.g., 2,500 miles or longer. CNG technology provides an effective way for short-distance gas transport. The technology is aimed at monetizing offshore reserves that cannot be produced because of pipeline unavailability or prohibitive LNG costs. This article provides an overview of the three most common natural gas transmission technologies and evaluates their technical and economic aspects. Economic evaluations include total cost estimates, transportation costs for a range of gas export volumes, and the given market distance.

The global consumption of natural gas has been increasing at a very rapid pace. In 2006, estimated natural gas consumption worldwide was over 100 trillion cubic feet, a 60 percent increase over the past 20 years and a 27 percent increase over the last 10 years. By 2030, the Energy Information Administration predicts an increase to almost 190 tcf annually, or 27 percent of the world’s predicted total energy demand, up from today’s 23 percent.

One reason for the bullish natural gas forecast is that the cost of power generation using natural gas without government subsidies is 50 percent less than with coal, when considering conventional environmental abatement, let alone CO2 emissions. These factors have led to predictions showing a big jump in the amount of gas used for power generation, going from 5.23 tcf in 2000 to 9.39 tcf in 2020 (in the U.S. alone, an increase of 80 percent, according to the EIA). Similar trends are seen in developing parts of the world such as Southeast Asia. This projected increased consumption of natural gas has raised the specter of supply shortages in the U.S. and elsewhere.

For all of these reasons, transporting the gas from offshore reserves and overseas sources has generated considerable and renewed interest.

Of the world’s proven reserves of about 6,000 tcf, more than 2,000 tcf are considered “stranded,” meaning they are either too small to justify the investment to develop an LNG project or build a pipeline, or too far away from markets to make exploitation economically feasible. We will first briefly discuss LNG technology, and then compare it to the obvious alternative, pipelines, and then to what we think is an eminently attractive alternative, CNG.

LNG

At present, natural gas is transported primarily through pipelines and LNG, with pipelines accounting for 75 percent and LNG making up the rest (EIA, 2007). The cryogenic process shrinks natural gas to just 1/600th of its normal volume, allowing large quantities of gas to be moved by specialized tanker ships over long distances. The production and storage of LNG is usually conducted in onshore facilities. The major components of the value chain include: 1) natural gas production; 2) the liquefaction process (the cascade cycle being the most common technology) in which the pretreated natural gas becomes liquefied at approximately -260ºF; 3) transportation; 4) re-gasification; and 5) distribution. Although LNG technology is widely used and will continue to grow for large-scale long-distance transport of natural gas by ship, it is capital-intensive and requires very large reserves near the facilities to achieve acceptable returns on capital invested.

The liquefaction plant for 0.5 to 1 billion cubic feet per day of natural gas is the most expensive unit in LNG production, at $750 million to $1.25 billion – nearly 50 percent of the total investment. Offloading the LNG requires special facilities, namely a regasification terminal, at about $500 million depending on terminal capacity. In addition, LNG tankers are complex and expensive. Assuming the use of newly built LNG transport ships, the unit cost of shipping ranges from $0.41 to $1.50 per million Btu for distances from 500 to 5,000 miles. Overall, the total investment for LNG can range from $1.5 billion to $2.5 billion, depending on market needs and the number of ships required.

Pipelines

In determining the most economic transportation method for a given supply route, distance and the volumes transported are the key factors to consider. Figure 1 show that for short distances, pipelines – where feasible – are usually more economical. LNG is more competitive for long-distance routes, since overall costs are less affected by distance. For large deliveries (around 1 tcf per year), the transport of gas by high-pressure pipelines is competitive. For long distances, LNG appears competitive for capacity below 1 tcf per year. For Middle East supply to Europe for instance (between 4,500 and 6,000 miles), the LNG allows a cost saving of up to 30 percent with respect to pipeline technology. Therefore, LNG could be preferred for the exploitation of relatively small fields for long-distance transportation. In practice, however, LNG projects do not often compete directly against pipeline projects for the same supply route. Competition to supply a given market is usually among different supply sources, either via pipeline or LNG. For example, Trinidad LNG competes against Algerian gas supplied through the Maghreb pipeline to Spain.

Figure 1: Comparison of the cost of transporting gas via
line as opposed to using LNG; it assumes a 1 tcf/year
city (Source: ENI)

LNG technology is well established and continues to be improved. New LNG projects need approximately 0.5 to 1 bcf per day of gas throughput to justify the investment. A typical single-train LNG plant would require about 600 million cubic feet per day for 20 years, which translates to about 5 tcf of gas reserves. Hence, for a two-train project (i.e., 1.2 bcf per day) 10 tcf of gas reserves would be required. Such demand limits the potential suppliers of LNG.

LNG may provide greater energy diversity. There may ultimately be as many as three dozen countries with the potential to export LNG. (By comparison, there are less than 10 major oil exporters, and most of them are located in the Persian Gulf.) While LNG plants currently dominate the global gas trade, CNG should play a role in satisfying small-demand markets and monetizing small reserves.

CNG

New developments are under way using dedicated gas carriers to transport CNG, thereby monetizing stranded gas reserves and creating new markets where pipelines and LNG deliveries are not practical. Depending on the operating pressure and temperature, CNG reduces gas volume by about 200 (compared to the 600-fold decrease for LNG). CNG maintains natural gas in a gaseous state at pressures between 1,200 and 3,500 psi.

Compared to the billions needed for LNG projects, CNG facilities are far cheaper. A CNG plant with loading facilities, including compressors, pipelines, and buoys, costs $30 million to $40 million. CNG ships, with chiller and fluid displacement on-board, cost up to $230 million. The number of ships required for a certain transport distance depends upon the loading rate, voyage distance, and time required for a ship to make the complete cycle of loading, transporting, unloading, and returning. Therefore, the required CNG ship numbers will increase as the transportation distances increase.

Figure 2: Cost components for a typical CNG project
(Source: Stenning and Cran, 2000)

Figure 2 shows the cost components for a typical CNG project. One of the main attractions is that the bulk of the investment is in movable assets. To illustrate how the number of ships impacts the transport cost, an analysis of an actual project is presented in Figure 3. It shows that for a relatively short distance (less than 2,000 kilometers) and relatively small ship capacity (650 mmcf), the number of ships affects the transport cost considerably.

Figure 3: Cost analysis for different CNG ship numbers,
Qatar to Jamnagar, 1,952 km CNG project (Source:
Economides et al., 2005)

CNG has a unique capability to match fields with markets. LNG is typically constrained by requiring high volumes (greater than 500 mmcfd) matched with large demand, such as in the U.S. However, CNG technology can be used readily for the transportation of gas from smaller and marginal fields with throughputs of 100 mmcfd, for example. In general, key drivers for CNG technology are:

- Increase in global gas demand/price
- Sufficient net-back to producer
- Anti-flaring regulations
-Accepted CNG process/pricing

Additionally, the simplicity of the system provides low initial capital commitment to initiate gas flow. It is easily scalable by adding ships and additional loading facilities to increase gas deliveries. The flexibility of the system also allows ships to be re-deployed to other production areas or markets when they are no longer needed.

To further assess the CNG concept’s economic viability, it must be compared to LNG and pipeline alternatives. Figure 4 shows how the three concepts relate to each other economically over a broader range of capacities. It appears that the pipeline concept will match the CNG costs at transportation volumes of about 750 mmcfd. Beyond this, pipelines become the economical choice. For the LNG concept to match the pipeline or CNG economics, either larger volumes or longer distances (that is, 1,500 to 2,000 miles) have to be considered.

Figure 4: Modest volume transportation cost comparison
for LNG, pipelines, and CNG (Wagner and Amott, 2002)

Figure 5 is part of a comparative cost study of sea-going natural gas transportation technologies that was presented by Subero et al. (2004). The study analyzed the available data on capital, operating, and shipping costs for proposed, conceptual, and actual gas-transport costs. Integrating these data into an economic model, the comparative attractiveness of different sea-going natural gas transportation methods (including CNG, LNG, and sub-sea pipelines) was presented. The results, examining several volumes of gas and distances, supported the notion that CNG projects are better suited for shorter distances, such as 1,000 to 2,500 km, while LNG is better suited for longer-distance projects. Sub-sea pipelines, on the other hand, are appropriate for much shorter-distance natural gas transportation, that is, less than 500 km. (However, if the subsea terrain is too rough, pipeline transport is not possible.)

Figure 5: As can be seen from the figure: under 500 km,
pipelines are the most attractive option; between 500 and
1,500 km, CNG is the best; and for longer distances, LNG
takes over (Subero et al., 2004)

On a global basis, CNG is rapidly being recognized as a natural gas transportation solution for certain stranded gas reserves, markets, and associated gas production. CNG technology may have the potential to challenge LNG transportation for some niche markets, namely from short distances and small markets.

As can be seen from Figure 6, CNG compares favorably with LNG and pipelines for the given transportation distance and the range of capacities. The modularity, scalability, and flexibility of CNG transport give it additional advantages in this particular case over the pipeline and LNG alternatives. CNG can start with much smaller initial volumes than either the pipeline or the LNG alternative, and can grow incrementally to meet demand by simply adding ships. It should however be noted that while pipelines and LNG have been proven either as concepts or technologies, CNG is still awaiting its first commercial application. Nevertheless, in light of the system’s simplicity, and the engineering efforts spent to resolve major technical issues and develop reliable cost estimates, it is believed that CNG technology is now ready for commercialization.

Figure 6: Economic volumes and distances for the transportation
of stranded gas reserves (Stephen and Cano, 2004)

No major CNG projects are currently operating, but recent developments in the ability to economically ship large volumes of gas, and ongoing work in engineering designs, suggest that the technology is on the verge of commercial application. Stenning and Cran (2000) developed CNG technology for large-scale use, based on coiled, 6-inch diameter pipes. (See the accompanying story in this section by Lyndon Ward of Sea NG Corporation, page 26.)

The pipes are coiled to make a carousel weighing 445 tons, each with 16 km of pipe. A CNG carrier with a capacity of 9 million standard cubic meters needs 108 carousels, for a total length about 1,710 km. Stenning and Cran presented transport costs for CNG and LNG assuming 4.1 bcm annual capacity, typical for a one-train LNG plant. The CNG costs were estimated at well below. For a transport distance of 1,710 km, for example, the LNG transport cost was about $2.5 per million Btu, while the CNG cost was about $1.5 per million Btu.

One factor in the choice between CNG and LNG is the pace of the project deployment. Typically LNG projects require at least 4 to 5 years from the planning stage to the delivery of the first cargo. CNG projects can be commissioned in a period of 30 to 36 months, from the project design, to planning and construction of the required infrastructure, to delivery of the first cargo. Clearly, CNG technology would be preferable for quick applications and monetization of reserves with smaller volumes, and for which LNG or pipelines are not viable options.

It is apparent that CNG is highly competitive with LNG for the conditions considered in this study. Although LNG’s strong point is in its capability to transport larger volumes of gas each trip, its inability to market stranded reserves makes CNG attractive for smaller reserves and smaller users.

LNG is more suitable for long-distance transport projects. Considering present market prices of natural gas and LNG’s advantage in transporting larger volumes, LNG stands a better chance over the distances between Australia and Indonesia, Nigeria and the U.S., or any of those countries and Japan or the huge emerging market of China. However, CNG would be an obvious option for the distance from Russia’s Pacific coast to Japan and China, from Algeria and Libya to Europe, from Atlantic Canada, to the U.S. northeast, and from Cook Inlet to the U.S. northwest. Even announced and potential projects such as Trinidad to the U.S., Venezuela to the U.S., and especially, North Africa to Europe, should seriously consider CNG instead of LNG.

One way of applying the CNG technology is in conjunction with LNG (Dunlop and White, 2003). It can work as a complement to an LNG project, because CNG can serve as a temporary solution for reserves that can eventually support such a project. Such an application monetizes the reserves earlier, thus accelerating cash flow and economic investment. Meanwhile, the production behavior can prove CNG viability to support a long-term LNG project. Also, CNG provides the option of a fallback in case the LNG project fails, and is far more flexible in response to unforeseen market fluctuations.

In summary, it appears that offshore CNG transportation of gas is economically viable, with the one drawback being the smaller volume of gas transported. Based on present concepts, LNG transports two to three times as much gas as CNG. The main advantage of CNG is the low cost at which it can be transported over distances of up to 2,500 miles. CNG’s ability to market small reserves is an additional benefit. The technology has a wide scope of commercial application, potentially linking major markets such as North America, Japan, China, and Europe.