A
report on – “ Middle East – India – Gas Pipe Line ”
Deepwater
Route
Presentation
By
Fox
Group of Companies
The Fox
Consultancy Services – is the consultant – for – Indo –Iran – Gas
Pipeline –
Under Deepwater Route. The top team contributors for this job are listed below.
Without them the task would have been very difficult to complete. The team was
headed by – Mr. Saryu Prasad Yadav and J.L. Jerath. Project – Key team members
are :-
|
Mr. Vineet
Pewal
|
Country Head
– Oil & Gas, Fox Petroleum Limited and Blooming Infratech Private limited
|
|
Dr. Archana
Jain
|
Director- Fox Petroleum Limited; Fox Oil & Gas
Limited, Fox Construction Limited, Blooming Infratech Private Limited, Fox
Petroleum FZC, UAE.
|
|
HE. Dr.
Abdullah Saleh Obeid Al Dhabari
|
Major Sponsor
from Iran & Director of Al Duqam Energy LLC, Oman & Fox Oil & Gas
Limited
|
|
Ms. Sakshi
Yadav (Structural Engineer)
|
Independent
Director - Fox Petroleum Limited; Fox Oil & Gas Limited, Fox Construction
Limited, Blooming Infratech Private Limited, Fox Petroleum FZC, UAE. Fox
Petroleum USA Co.
|
|
Ms. Pria
D’Souza
|
Project
Support – Chief Consultant – International Liaison – with Companies
|
|
Mr. K. K.
Vohra
|
Consultant –
Report Generation, Fox Consultancy Services
|
|
Mr. Saurabh
Chakraborty
|
Consultant –
Report Generation & Data Modeling - Fox Consultancy Services
|
|
Ms. Iola
Edwards
|
CEO, Fox
Petroleum USA Corporation
|
|
Mr. Mata Din
Sharma
|
Co-Ordinator,
Fox Consultancy Services
|
|
Mr. Anil
Naiyar
|
Pipeline
& LNG, Fox Consultancy Services
|
|
Mr. Venkat
|
Marine
Information, Fox Consultancy Services
|
|
Mr. Sanjeev
Tyagi
|
Cost
Analysis, Fox Consultancy Services
|
|
Mr. Amit
Kumar
|
Presenter,
Fox Consultancy Services
|
|
Mr. Sanjay
Goel
|
Engineer
Consultant- transportation, Fox Consultancy Services
|
|
Mr. J. L.
Jerath
|
Environmental
Consultant - Fox Consultancy Services
|
|
Mr. S. K.
Singh
|
Engineer –
Power Division, Fox Consultancy Services
|
|
Mr. Saryu
Prasad Yadav
|
Director -
Project Planning & Execution; Fox Petroleum Limited, Fox Construction Limited,
Fox Oil & Gas Limited, Blooming Infratech Private Limited, Fox
Consultancy Services.
|
|
Mr. Binod
Kumar, IPS
DIG, Silchar
Range
|
Taken Verbal
Advises on – Security of Pipeline and Staff.
|
|
Mr. Deepak
Kedia, IPS
|
Taken verbal
advises on – Security Measures and Guidelines on stabilizing security
network.
|
|
Mr. Manish
Jain
|
Engineer
NTPC; Taken Verbal Advises from him about the Gas requirement of NTPC and
India.
|
|
Musab
Ruknudin
|
Director –
UAE- Middle East Liaison
|
Fundamentals :-
Pipelines generally transport natural gas at a lower cost than LNG over
distances up to around 2100Km. Approximately 2000 Trillion Cubic Feet of
Natural Gas in the Gulf States and Iran lies less than 2000Km from the Gujarat
coast. Transport of Iranian gas through FPL Proposed Pipeline to anywhere in
India lying to the South and West of Jaipur (approximately) is a shorter route
than for the same allocation of gas transported to the same place overland. SO
why haven't numerous gas pipelines from the Middle East to Western India been
built over the last 30 years?
ANSWER:- Until
recently, the geo-politically attractive deepwater route was technically
challenging but is, however, now practical on normal contractual terms.
A shallow
conventional coastal route to India involves laying a pipeline across the Indus
Canyon which was effectively impossible and even today, is still extremely
challenging, technically. Conventional pipeline design, although concerned with
many factors, is dominated generally by the need to withstand an internal
pressure. The higher the pressure that products can be passed down the line,
the higher the flow rate and greater the revenue potential. However, factors
critical for deepwater pipelines become dominated by the need to resist
external pressure, particularly during installation.
Local infield
lines, such as subsea umbilicals, risers, and flowlines (SURF) usually are
modest challenges as they are small in diameter and inherently resistant to
hydrostatic collapse. In smaller sizes, these lines generally are produced as
seamless pipe which is readily available and generally economical. However,
deepwater trunklines and long-distance tiebacks present a greater challenge. To
increase subsea production these lines tend to be larger in diameter with a
thicker pipe wall to withstand the hydrostatic pressure and bending as it is
laid to the seabed.
Typically these
lines are often 16 in. to 20 in. (40 cm to 50 cm) in diameter, which presents a
further complication as the pipe sizes lie at the top end of economical
production for seamless (Pilger) pipes. The Pilger process can produce the
thick walled pipe required for these developments but often the manufacturing
process is slow, the cost of material high, and the pipe lengths short. As a
result, the most economical method to manufacture these lines is the UOE
process. The increasingly stringent industry demands have driven this design
toward its practical limits of manufacture and installation.
Corus Tubes has
responded by manufacturing UOE double submerged arc welded (DSAW) linepipe to
the deepest pipelines in the world. This pipe overcomes significant challenges
associated with deepwater developments and facilitated a number of pioneering
projects such as Bluestream and Perdido. In the UOE process, steel plate is
pressed into a “U” and then into an “O” shape and then is expanded
circumferentially. Wall thickness and diameter requirements for deepwater
trunkline pipe continue to be challenging for manufacturing economics and
installation capabilities.
Det Norske
Veritas (DNV) says the acceptability of a pipeline design for a given water
depth is determined by means of standard equations that measure the
relationship between OD, wall thickness, pipe shape, and material compressive
strength.
CONCLUSION: The
time has now come to import gas into India through deepwater gas pipelines
across the Arabian Sea from Oman and/or Iran. The export of gas to Oman will
mark a significant economic development in the relations between the two
countries, where as excess gas, which is projected to account for 50% of the
total amount of the gas exported to Oman, would be delivered to Japan, South
Korea and India. Estimated the US$ 60 billion gas supply deal states between –
Iran, Oman & India. The biggest turnover business in the world.
Fox Consultancy
Services will build on the extensive
study of the deepwater route from Oman during the mid 2009’s. $3 million was
spent developing the technology, performing detailed FEED and soliciting,
receiving and evaluating competitive construction bids.
This work is
now strengthened by studies undertaken since 2009 by Fox Consutancy Team and by the major body of industrial deepwater
pipelay experience over the last decade. The route will reach down to around
3,300 meters and will be just over 1,100km in length. A major study of a
similar line to Gujarat from Iran was more recently undertaken by our team.
As per our
information - much has been written on the carbon footprint of oil versus
natural gas, scant attention has been paid to the transport and delivery of
either fuel. In comparison to oil, which is largely transported worldwide by a
fleet of more than 38,000 marine tankers, 93 percent of the world’s natural gas
continues to be supplied through pipelines. More than 60 countries have, on
average, 2,000 kilometers, or 1,243 miles, of pipeline for gas transmission
within their borders and about 10,000 kilometers, or 6,214 miles, of new
pipelines are planned for this decade, often traversing difficult terrain and
deep marine waters.
However, the
role of pipelines is diminishing as liquefied natural gas, or LNG, operations
provide the fuel to a greater number of markets. LNG is natural gas that is
cooled to -161 C, at which point it becomes a liquid and occupies only 1/600th
of its original volume, making it convenient for shipping. The process to bring
the gas to such low temperatures requires highly capital intensive
infrastructure. Liquefaction plants, specially designed ships fitted with
cryogenic cooling tanks, regasification terminals and domestic transmission
infrastructure all make LNG relatively expensive in construction and operational
cost. The clear advantage of LNG shipments lies in access to distant markets
which become uneconomical for pipeline transport, usually beyond 3,000
kilometers, or 1,864 miles.
Whereas oil
pipelines can cause ecological damage due to leaks and spills, the only “spill”
hazard from gas pipelines involves potential combustion of leaks that can lead
to uncontrolled forest fires.
Monitoring of
the pipeline route is therefore vitally important, using remote sensing
technology and physical monitoring and security in key locations. With such
measures in place, pipelines can also be a source of lasting cooperation
between countries that can be considered a derivative planning benefit for
international donors and multinational investment.
Energy usage
and greenhouse gas emissions are perhaps the most significant areas where
pipeline gas can have an advantage over LNG. However, this advantage is also
highly dependent on various design factors. According to a recent study
commissioned by the European Union, the typical energy “penalty” for gas
delivery via pipelines is 10-15 percent (efficiency of 85-90 percent), whereas
for LNG it is approximately 25 percent (efficiency of about 75 percent).
The efficiency
for pipelines begins to decrease as the length of the project increases. This
is also true for greenhouse gas, or GHG, emissions.
The energy used
for the cooling process and subsequent decompression can be harnessed to some
degree for various purposes. For example in Japan LNG users have found that the
use of cryogenic power production for deep freeze food storage units can be a
derivative benefit of LNG.
When comparing
GHG emissions pipelines come out far ‘greener’ than LNG. For example, in
Europe, pipeline transmission has a seven-fold lower carbon footprint than LNG.
However, the GHG contributions of pipelines increase considerably over distance
due to fugitive emissions of methane that are often inevitable along large
pipeline tracks and these grow much faster than the transportation emissions
from the tankers traveling over large distances.
Therefore,
pipeline GHG emissions equalize emissions from LNG transport when transport
distance is around 7,500 kilometers, or 4,660 miles.
Hence, It is a
very good proposition to Build this Route. Oman to India. It depends on some
factors. Large-diameter and long distance pipelines imply very high capital
investment. They require both large, high-value markets and substantial proven
reserves to be economically viable. Capital charges typically make up at least
90% of the cost of transmission pipelines. The key determinants of pipeline
construction costs are diameter, operating pressures, distance and terrain.
Other factors, including climate, labour costs, the degree of competition among
contracting companies, safety regulations, population density and rights of
way, may cause construction costs to vary significantly from one region to
another.
In addition to
the common conditions, the transmission cost of gas through pipelines in the
model is a function of further technical conditions. The relevant conditions
are gas pressure, allocation of compressor stations, choice of the gas flow
formula, choice of single line or parallel lines, installation cost of pipes
per size and length, that of compressors per horsepower, physical and economic
life of use, fixed and variable O&M costs that are hopefully adequately set
in the model.
Figure 1 shows
the conceptual model for cost estimation of pipelines. This show that the total
cost consists of the costs of gas processing, pipelines and gas compressor
stations. Actually we add the cost of feasibility studies or relevant
preparation cost to the first portion. We give the interval between compressor
stations and calculate resultant length of two parts, i.e., ones of conceptual
equal length and another of different at the end of the line. For the segments
of equal length, the beginning and ending pressures are naturally assumed the
same to all segments respectively.
Figure 2 shows
how these two parts are created to find the number of compressor stations
required and the pipeline length of segments. A gas flow formula is applied to
the both segments separately to find the pressure at the destination.
The gas flow
calculation is performed to find a right pipe size through a reverse computation
system to give the desired pressure at the destination. A two-inch larger size
than theory is selected.
The cost of the
pipelines is calculated based on the given unit cost of pipe installation in
terms of US$/km/inch (nominal diameter). While the average or standard unit
cost of pipe installation varies from region to region, it normally spans over
from 18 to 80 US dollars in non-Japan world, excluding exceptional cases like
deep seas or high mountains as well as river or channel crossings. We will
tentatively set it as 35 US Dollars /km.inch considering majority of pipelines
in our case for comparison may be offshore.
Given an annual
quantity of gas and target gas pressures, as well as other factors, the program
computes necessary pipe sizes and then capital costs, which, together with
other information on O&M costs, lead to cash flow analysis in the given
period. The gas flow or annual quantity of gas can be in 109 m3 (billion cubic
meters or “bcm”) per year or in any other unit. Compressor horsepower is
calculated and reflected on the capital and O&M costs. A gas flow formula
is automatically chosen among Panhandle A, New Panhandle or others by an
indicator in a variable in the outside user functions.
The cost
results of both pipeline and LNG are then jointly treated as the functions of
the distance of transmission. The cross point of the two lines are calculated
to find the distance which we will call the “dross distance” and gives the same
cost of gas in terms of thermal value to both the LNG and pipelines.
Our question is how factors will change the cross distance. This
simple algorithm is illustrated in Figure 4 and the resultant relationship will
be illustrated later.
|
Calculate
the distance to equate the costs of pipeline and LNG
|
Hence Finally,
it is cheaper to transport gas thru Pipeline. And, it is more practical despite
the risk of spillage. But in offshore, the gas spillage may not harm as much as
the Oil spillage will cost to the environment.
Pipeline Cost -
Pipeline costs in the US have been adapted from the data annually reported in
the Oil & Gas Journal as sourced from the US Federal Energy Regulatory
Commission (FERC) together with various information of the relevant pipeline
and compressor projects. The costs are indeed varied even within the US and it
is dangerous to directly apply those to developing countries. The recent
average costs of pipelines are little higher than ten years ago, on the current
basis, being around 20 to 60 US dollars per km.inch for normal onshore and
certain long pipelines in 1999. Figure 5 illustrates the aggregate US pipeline
cost distribution in 1999 sourced from the said journal in November 2000. The
variation is large for cases of off-shore lines or river or channel crossings
or any other conditions like loop lines. A pipeline installation cost consists
of 24% material, 42% labor, 26% miscellaneous and the rest for right of way
(ROW) acquisition in the average here.
At the same
time the author has looked into the cost numbers in the world which appear in
the media from time to time especially for developing countries. Pipeline costs
in developing countries are relatively
lower than in the US, setting aside exceptional cases, due to apparent lower
costs of labor. ROW and miscellaneous costs may be also lower. Instead at the
same time, more workers may be necessary in those countries which may lack
expertise and pipe construction industry to accommodate laying secured
pipelines.
When we consider
“pipeline or LNG?”, we normally suppose that much of the transportation routes
may be offshore, although potential cases of comparison with totally onshore
pipes may exist, too. Recent offshore pipelines are often laid in challenging
conditions as seen in the Blue Stream Line in the Black Sea, whose cost should
not be low at least in the beginning. Involving the investment in pipe
installation ships and other technological development, the cost for those
pipes may heavily deviate from the proportional relationship to the distance.
We will exclude those technology edge cases in our simulation of comparison.
Considering all
these conditions, i.e. factors of nature of developing status, offshore
pipelines and closer to regular pipelines, the author has chosen US$ 55.00 /
km/inch as a typical starting cost for comparing with LNG later. The simulation
model of course can easily change any such cost instantly but we will take it
as the base case.
Loop lines are
often implemented to match the growth of demand in the course of time to avoid
excessive one time advance investment, but are author believes also considered
for security. The second line added to the original one is assumed cheaper than
the first one. While how cheaper it is can be set freely, we assume in the base
case that the cost of the second one is 40% lower.
As such, the
pipeline cost may not necessarily be totally proportional to the distance, but
the author has no means to define how to relate them otherwise generally.
The compressor
stations also need a cost estimate. How compressors will be arranged for the
offshore pipelines assumed for comparison with LNG may have to be defined.
Possibly much longer average intervals will be adopted using smaller islands on
the route. While somewhat uncertain, we assume the cost of the compressor
stations tentatively as US$ 1841 / kW (i.e., $1000 / HP (British horsepower)).
LNG
Liquefaction Cost : - LNG liquefaction capital costs may be said as 40-50 %
lower compared to 10 years ago in terms of thermal thanks to the effect of
technology breakthroughs, general plant market competition and economy of
scale. LNG liquefaction cost has decreased in the last 30 years, based on
Shell’s presentation in the Asia Pacific Energy Forum in Manila in 1999, excepting
a number for 2000 which was converted from other data from media. Also a published brochure of BP in 2002 says
that a typical construction of a liquefaction plant costs more than 200 US
Dollars per ton per annum. Assuming this number is US$205 / (t/y), a typical
LNG liquefaction plant of, e.g., 4 x 106 (i.e., 4 million ton) may cost 820
million US Dollars. There may be large differences in the costs between the
first plant train and other trains to be completed thereafter. Also we may not
assume all sizes of plants to be available; there will be optimum sizes
depending on market and physical conditions. We will, however, disregard this
factor and assume any sizes in the model.
Our model cost
function for a liquefaction plant is based on a set of data derived from a
World Bank Report on LNG projects of 1994, which is not necessarily published
and shows that the cost (CAPEX) of a 5 x 106 ton plant was about US$1870
million then. We have adjusted this number by a factor of five (0.5) to meet
recent cost conditions discussed in the above. A scale factor of 0.7 is used to
meet the cost of a required size of the plant, as well as another small
adjustment term is added.
|
Year
|
|
Index
of Capex $/ton/y (Brunei=100)
|
|
1969
|
|
Brunei
|
100
|
|
1975
|
|
Malaysia 1
|
80
|
|
1985
|
|
West Australia
|
86
|
|
1990
|
|
Malaysia 2
|
67
|
|
1993
|
|
Nigeria
|
64
|
|
1995
|
|
Oman
|
50
|
|
1999
|
|
(not identified)
|
45
|
|
2002
|
|
Ras Laffan
|
40
|
|
Figure .
|
Trend
of Liquefaction Plant Cost (Shell, 1999)
|
For the
operation and maintenance (O&M) costs, we are simply assuming a 4.5 % of
CAPEX for annual fixed cost and 0.0474 $/GJ (or, 0.05 $/mmBtu) for the variable
O&M, considerations being given to the complexity of the plant.
We must discuss
LNG Ship Cost : - We will consider only the cases of ocean gas transportation
while LNG is also transported onshore by trucks and trains. LNG ship building
costs are widely reported as to be less than 200 million US Dollars for a one
of 135000 m3 cargo size while it used to be more than 300 million.
A Japanese gas
utility news paper (the Gas Jigyo Shinbun in Japanese) reported in February 16,
2000, that the average cost of LNG ships has changed as in Figure below, citing
an article in a Poten & Partners report.
The size of
majority of LNG ships is around 125000 m3, the size having been generally
gradually increasing. The recently contracted one reportedly reaches 145000 m3,
the cost being reported as less than US$ 170 million. Also several smaller
ships of varied sizes less than 40000 m3 exist to meet the requirement of local
markets recently.
In our model, the cost of a ship is expressed by a function:
Ship
Cost (CAPEX) = a * Ship Size + b
where the
coefficient (a) and the constant (b), with further breakdown for each, are
adjusted to meet the recent cost conditions stated before.
|
Year
|
US$ million
|
|
1990
|
260.3
|
|
1991
|
235.2
|
|
1992
|
218.0
|
|
1993
|
219.7
|
|
1994
|
230.5
|
|
1995
|
214.7
|
|
1996
|
221.5
|
|
1997
|
191.9
|
|
1998
|
187.3
|
|
1999
|
172.9
|
The fixed
O&M cost may be a function of: the annual repair cost, the dry-dock cost
and the crew cost. The model considers several factors affecting these costs.
It assumes, e.g., that a ship is put into dry-dock for six weeks a year for an
assumed cost.
The variable
O&M cost should be a function of boil-off gas rate, bunker fuel price, and
transportation distance, which are simulated to meet in an actual case. The
function is eventually expressed as:
Variable
O&M = c * transportation distance*amount of LNG (thermal value) where the
coefficient “c” reflects the considerations stated above.
LNG Receiving
Terminal :- The largest cost of an LNG
terminal is normally incurred in LNG tanks, of which various types and sizes
exist. The quantity of LNG storage required changes from region to region
according to the climate, market characteristics, availability and size of
other gas storage, LNG ship cargo size, energy stock policy, etc.; these
factors have to be first defined and the defined size and number of tanks are a
variable in the cost function.
Other
facilities normally required are the LNG berth, the unloading facility, LNG pumps,
return gas blowers, vaporizers, odorization facilities, sampling and measuring,
etc., Considering the heavy weight of the tank cost, we have defined a formula
of the terminal CAPEX as follows:
Receiving
Terminal Cost = d * Size of LNG Storage + e
where “d” and
“e” are coefficient and constant, with breakdowns, adjusted to produce the a
value closer to actual cases. The required amount of storage is computed
separately.
Operation cost
may depend on power consumption quantity and power price, repairs and labor, as
well as others. The fixed O&M cost reflects the labor and repair cost, and
the variable O&M cost reflects the power use expenditure.
Finally making
conclusion on Gas Sales and Economic Analysis on Pipeline vs Shipping : - Gas
sales amount is defined for each year from the information of gas flows at
plateau, operation start year and the number of buildup years automatically for
economic analysis. Cashflow tables are automatically created to give net
present values of the costs and gas sales volume to produce the values of
economic cost. A terminal value is given at the end of the calculation period
based on the economic book value of the facilities calculated on the assumed
economic life.
The average
incremental economic cost (AIC) is given by the following formula:
AIC
= NPV (costs) / NPV (gas volume)
Where,
NPV is the net present value over the calculation period and can be
conveniently given by a Worksheet function:
=The
first year’s value + NPV(discount rate, 2nd year: last year)
The physical
conditions are tabulated in Figure below. For the comparison, the quality of
gas is assumed to be the same to both the pipeline and LNG cases.
|
Changeable Item
|
Assumed Number
|
Remarks
|
|
Distance
|
2000 km
|
|
|
Gas quality (gross)
|
39.69 MJ/m3(15C)
|
=1063 Btu/scf = 10000 kcal/Nm3 (0 C)
|
|
LNG liquid density
|
0.45 t/m3
|
|
|
Transport capacity
|
6.207 10^9m3/y (0dC)
|
= 635.2 mmscfd (60F) = 5.00 million
t/y
|
|
Wellhead gas price
|
US$ 1.000 /mmBtu
|
|
|
|
Figure 1 Physical Assumptions
Figure Below shows
economic, financial or general conditions common to the both. No inflation is
assumed for real term price calculation and no tax or duty is considered for
the economic analysis.
|
|
Changeable Item
|
Assumed Number
|
Remark
|
|
Project begins in
|
2003
|
|
|
Period
|
20 years
|
|
|
Discount rate
|
8%
|
real
|
|
Economic life of facilities
|
30 years
|
|
|
Inflation
|
0%
|
Calculation in real terms.
|
|
Taxes & inflation
|
neglected
|
|
|
Installation contingency
|
5%
|
|
|
FS or Preparation costs
|
$ 15 million
|
|
Figures Below -
shows the specific base case assumptions
for pipeline and LNG respectively.
|
|
Changeable Item
|
Assumed Number
|
Remark
|
|
|
Project capacity
|
6.207x 10^9 m3/y (0 C)
|
=LNG 5 million t/y
|
|
|
Initial pressure
|
5000 kPa
|
= 50 bar
|
|
|
Pipeline pressure (Max)
|
7500 kPa
|
= 75 bar
|
|
|
Pipeline pressure (Min)
|
5500 kPa
|
= 55 bar
|
|
|
Final pressure
|
4000 kPa
|
= 40 bar
|
|
|
Interval between compressors
|
200 km
|
|
|
|
|
Construction yrs
|
3 years
|
|
|
|
|
Demand buildup yrs
|
5 yeas
|
|
|
|
|
Starting gas price
|
US$ 0.948 /GJ
|
=$ 1 /mmBtu, at process inlets
|
|
|
Pipeline cost
|
US$ 35 /m/ inch
|
|
|
|
|
Compressor cost
|
US$ 1000 /HP(US)
|
|
|
|
|
Gas processing plant
|
US$ 160 million
|
(fixed)
|
|
|
Choice of one (1) pipe or two
|
1
|
|
|
|
|
Cost of 2nd parallel line
|
60%
|
|
|
|
|
Figure 01 Assumptions on Pipeline
|
|
|
|
|
|
|
|
|
Changeable Item
|
Assumed Number
|
Remark
|
|
|
|
Project capacity:
|
5 million ton/y
|
635.2mmcfd(60F)
|
|
|
|
Ship cargo size
|
135000 m3
|
= 60,750 t
|
|
|
|
Ship speed
|
18 -21 knots
|
|
|
|
|
Loading + unloading time
|
25 hours
|
Port maneuver inclusive
|
|
|
|
Dry dock
|
40 days/ 2.5years
|
|
|
|
|
Storage at Receiving terminal
|
2 tanks
|
|
|
|
|
Construction period
|
4 years
|
|
|
|
|
Ship Building
|
4 years
|
|
|
Figure 02 Assumptions on LNG
We
have derived an assumptions in these tables are for a beginning case and the
model can change them for simulation cases. As per the above referenced tables,
the total costs are somewhat comparative between pipeline and LNG on the given
assumptions. The table also shows that while the both are capital intensive,
the pipeline is more dependent on the capital expenditure. (with respect to the
unit gas cost, $1.00/mmBtu is equal to $1.055 /GJ.)
Cost summary:
|
|
|
|
|
Capital
|
|
O&M Cost
|
Total Cost
|
|
Unit
|
|
Case of 2000 km
|
|
|
Cost
(NPV)
|
|
(NPV)
|
(NPV)
|
|
Gas
Cost
|
|
|
5.00 mil. ton/y
|
|
|
US$
million
|
|
US$
million
|
US$
million
|
|
$/mmBtu
|
|
Long term cost:
|
LNG
|
|
1,762
|
|
738
|
2,499
|
|
2.695
|
|
(Ave. levelized)
|
Pipelines
|
|
2,216
|
|
333
|
2,549
|
|
2.626
|
|
|
Figure: Cost Summary of LNG and
Pipeline
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LNG:
|
$/mmBtu
|
|
Pipeline:
|
$/mmBtu
|
|
|
|
Process inlet
|
|
1.000
|
Process inlet
|
1.000
|
|
|
|
Liquefaction
|
|
0.967
|
Gas processing
|
0.134
|
|
|
|
Shipping
|
|
0.265
|
Transmission
|
1.492
|
|
|
|
|
Re-gasification
|
|
0.463
|
|
|
|
|
|
|
|
|
|
|
2.695
|
|
|
|
2.626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Figure
: Breakdown of Unit Gas Cost of LNG and Pipeline
Some
of these costs shown in the tables are imaginary only based on the assumptions like
the starting gas cost of US$ 1.00/mmBtu and exclusion of all taxes and duties
as well as others as stated before; thus the values may not represent real
costs. Rather, significant is only the comparison between pipeline and LNG and
if the stated assumptions are right, the costs of the both are now found close
to each other for the distance of transportation of 2000 km.
Cost in Relationship
with Distance :-How the difference in the distance will affect the comparative
costs is the next question. The model can show the relationship with the
distance as in Figure below.
The two cost
curves for pipeline and LNG with respect to distance are distinctive. The cost
of pipeline quickly increases with distance since we have assumed that the
pipeline cost is calculated simply based on the cost per length; the almost
whole cost depends on the length here, regardless of how real this is or not.
On
the other hand, in the case of LNG, much of the investment is made in the
liquefaction and re-gasification which are not distance dependent. The parts of
the shipping in the whole LNG chain is surely distance dependent, but its share
in the total cost of the chain is rather small and the recent ship cost
decrease further affects the less dependence on the distance.
|
Gas Transportation Cost vs. Distance -
Base Case
|
|
|
|
5 mil. t/y=
|
635
|
mmscfd
|
Cross at:
|
2,107 km
|
|
|
|
|
|
Gas Transportation Cost Comparison
|
|
6.000
|
|
|
|
|
|
|
|
|
|
5.000
|
|
|
|
|
|
|
|
|
$/mmBtu
|
4.000
|
|
|
|
|
|
|
|
|
3.000
|
|
|
|
|
|
LNG
|
|
|
|
|
|
|
|
|
|
|
2.000
|
|
|
|
|
|
Pipe
|
|
|
|
|
|
|
|
|
|
|
|
1.000
|
|
|
|
|
|
|
|
|
|
0.000
|
|
|
|
|
|
|
|
|
|
1000
|
1500
|
2000
|
2500
|
3000
|
3500
|
4000
|
|
|
|
|
|
|
Distance
km
|
|
|
|
|
Figure
above : Cost Changes with Distance
We
assume that the transportation connects only two points, i.e. supply and
receiving. In fact a distinctive characteristic between pipeline and LNG is
that the pipeline may deliver the gas to the markets located on the pipeline
route. Long onshore pipelines with certain markets on the route may show a
different pattern of project economics from our case. Therefore the additional
benefit of pipelines will have to be separately considered and discussed beside
our model, as well as that of LNG, although we do not elaborate in this paper.
The
“cross distance”, which we have defined in this paper and gives the same cost
to the pipeline and LNG in our model, is calculated as 2107 km, for the
transportation distance above which LNG is economically more advantageous as
shown at the top right of Figure 10. This number used to be around 4000 to 5000
km when the liquefaction and shipping cost were almost twice in terms of gas
thermal value decades ago.
FACTORS
AFFECTING THE CROSS DISTANCE :- Project
Size and Choice of Parallel Pipes - What other factors will affect the cross
distance which is defined in the preceding paragraph? Next several tables show
several factors considered to affect the choice of pipeline or LNG.
Figure
below shows the effect of the project size and the choice of one pipeline or
two parallel pipelines on the cross distance above which LNG is economically
cheaper. The curves are not necessarily smoothly continuous since the
compressor station arrangement is involved and the amount of computation
occasionally prohibits a small laptop to make a decisive output. In the case of
parallel lines, the second line is assumed to cost 60% the first one (in
CAPEX).
The
results show that the cross distance decreases by 400 to 600 km in case of the
choice of two pipes compared to one pipe; meaning that LNG is further more
competitive if pipeline side plans parallel lines from the beginning by that
extent.
This
also shows that the bigger the project, the pipeline is more advantageous; up
to 2900 km in case of one pipe choice.
|
Effect of Project
size:
|
2 pipes
|
1 pipe
|
|
Million ton / year
|
Cross Distance in
km
|
|
3
|
1,503
|
1,841
|
|
4
|
1,504
|
1,921
|
|
5
|
1,771
|
2,262
|
|
6
|
1,866
|
2,425
|
|
7
|
1,944
|
2,565
|
|
8
|
2,009
|
2,687
|
|
9
|
2,063
|
2,634
|
|
10
|
2,262
|
2,888
|
Figure
Below: Effect of Project Size and Choice of Two Pipes on the Cross-Distance
Effect
of Potential Pipeline Cost Cut : For the pipeline to be more advantageous than
LNG in shorter distance, a simple solution may be to lay cheaper pipelines if
possible through any means. Although we have set the base pipeline installation
cost as $35/m/inch, the actual cost varies from project to project and much
lower cost also exists as well as higher. Figure below show that when LNG
related costs are set at the basic conditions stated before, how the unit cost
of the pipeline changes the cross distance. The project size in the base case is
annual 5 million ton of LNG. On the pipeline side, only the one pipe case is
shown here. This shows that when the pipeline is installed at lower than US$25
/m/inch, it is more advantageous than LNG at a distance longer than 3000 to
4000 km. Since we sometimes hear of actual implementation at such a cost level
or even lower, we think this still real in some regions. The author hopes the
cost of pipelines be lowered in the future in view of that the general decrease
of the cost of pipelines have been slow compared to LNG in the last decade,
while technological development in pipeline laying in challenging conditions
have been remarkable.
|
Unit Pipe Cost in US $/m/inch
|
|
Cross Distance in km
|
|
15
|
|
5,647
|
|
25
|
|
3,069
|
|
35
|
|
2,107
|
|
45
|
|
1,604
|
|
55
|
|
1,295
|
|
65
|
|
1,086
|
|
75
|
|
935
|
|
85
|
|
821
|
|
95
|
|
731
|
|
105
|
|
660
|
|
115
|
|
601
|
|
Figure Above How Pipeline
|
Affects Cross Distance Cost
|
Effect
of the Cost of Liquefaction Plant and LNG Ships : - The assumed cost of
liquefaction plant in the Base Case is US$ 1092 million for a project of 5
million ton per year. This level may be already a result of remarkable
technological breakthroughs and economy of scale everyone would appreciate.
Figure Below shows the effect of further cost cut of an LNG liquefaction plant
on the cross distance, while the author is not aware of any physical
possibility of such cost cutting in liquefaction.
|
Liquefaction Cost
Decrease by %
|
Cross
Distance in km
|
|
0
|
2,107
|
|
2
|
2,078
|
|
4
|
2,050
|
|
6
|
2,021
|
|
8
|
1,993
|
|
10
|
1,964
|
Figure above Effect of Cost Cutting of
LNG Liquefaction on Cross Distance
Similarly
Figure Below shows the effect of the cost cutting on LNG ships. In the base
case we started from US $165 million for a ship of 135000 m3, which appeared in
the media recently.
|
LNG Ship Cost
Decrease by %
|
Cross Distance in
km
|
|
0
|
2,107
|
|
5
|
2,089
|
|
10
|
2,070
|
|
15
|
2,053
|
|
20
|
2,035
|
Figure
Above Effect of Cost Decrease of LNG Ships on Cross Distance
Effect
of Discount Rate : We will finally look at the effect of the discount rate. The
rate in our base case model is 8 %, which reflects recent general low interest
rate in the world financial market as well as investor’s desire for firm
conditions for participation in the risk exposed projects combined. The rate in
our model should be in real terms which excludes the inflation rate.
Figure
Below shows how the discount rate affects the cross distance in our model in
the Base Case. The case here again means the one pipe case and the project size
of 5 million ton per year.
|
Discount Rate %
|
Cross
Distance in km
|
|
8%
|
2,107
|
|
9%
|
2,045
|
|
10%
|
1,993
|
|
11%
|
1,948
|
|
12%
|
1,910
|
|
13%
|
1,878
|
|
14%
|
1,850
|
|
15%
|
1,825
|
Figure
Above Effect of Discount Rate on the Cross Distance
A
trend found in the table of Figure above means that with a higher discount rate
LNG will be more advantageous. This is explained by lower CAPEX of LNG projects
compared to the pipelines for a longer distance, since the capital expenditure
is normally spent in earlier years of the project period with lower level of
discount in the discounted cash flow.
CONCLUSION
on LNG Pipeline vs Shipping : - We have tried to respond to the question of how
LNG and pipelines compete in the recent economic environment raised in the
World Gas Conference 2003 Call for Papers as straightly as possible. The cost
data are taken from media and the economic considerations exclude tax and
duties as well as inflation, resulting in only theoretical simulations. We have
to recognize that actual costs are different from project to project.
Cases exist
where LNG is more economical at less than 2,000 km of gas transportation taking
into consideration recent project costs. LNG may be competitive especially when
there is security issue that enforces a pipeline to be planned for loop or in
two parallel lines.
The
cost cutting competition in the last decade of relevant chemical and gas plants
including LNG schemes, has shown dynamic changes in the comparative
relationships between the pipeline and LNG. Pipeline costs in ordinary cases,
in fact, have not changed too much apparently, but pipelines are now being
materialized in such conditions as had been previously thought impossible or
very tough, e.g., in thousands of meters deep or across wide rivers, within
certain economic reach. After initial frontier development of challenging
pipelines that is going now, there is hope for lower cost of such pipelines in
the near future. At present LNG cost has caught up in the shorter
transportation distance.
We
have not assessed real benefit of pipelines and LNG outside the cost comparison
either. Within a large continent, pipeline is the only possibility prohibiting
such comparison. When there are many markets scattered on the transmission
route, the pipeline may be a better selection for supplying broader markets.
LNG on the other hand has benefit from storage function and access to
diversified natural gas supply sources. Energy stock function of an LNG
receiving terminal may be serious in gas lean countries which lack old gas
fields for gas storage.
The
author writes this paper mainly considering Southeast Asian countries. The
Southeast Asian archipelago has possibility of both pipelines and LNG, where
everyone concerned may be interested in which is more economical. Differently
from long haul transmission of gas to remote industrial countries, the case of
LNG has long been ignored in intra-regional transportation. The author has
developed this simulation in the course of natural gas studies in Indonesia and
the Philippines, and found that LNG can be a possibility for much shorter
distance than in the past.
Fox
Consultancy Services wish to build on the extensive study of the deepwater route
started during the mid 2009’s, strengthened by the development work now
undertaken by Fox group and the major body of industrial deepwater pipelay
experience over the last decade. The deep water section will reach down to
3,500 meters and will be just over 1,000km in length.
History
of action : On 28th March 2009, Dr. Rumhy, Oman Oil & Gas Minister, agreed
in principle to give "Right of Way" and other clearances to this
project concept, in presence of Indian Ambassador. Written confirmation from
Qatar Energy Ministry within recent months that Concept of Oman –India Pipeline
is on the "Waiting List" for gas. Doha Gas Conference March 2009:
evidence that the "LNG Glut" price collapse makes diversification
into gas pipeline export increasingly attractive to Gulf States. Presentation by the then Mr Pandey,
Secretary, Petroleum & Gas Ministry in Delhi, April 2009. Mr Pandey offered
his Ministry's help. Also presented to Power and Fertilizer Ministries.
Gathering Support also received from Foreign Affairs Ministry in recent weeks
aimed at adoption of Concept came in news paper for Deepwater Gas Pipeline by
Planning Commission. Increasing support
from the Indian Ambassadors in Oman, Iran and Qatar in securing Natural Gas
Supplies and necessary Permissions.
Invitation
from India to present & project and
hold gas supply discussions in Tehran, 24th-25th May 2009.
Key
success factors :- World class design and build consortium; low project risk. Route
outside of Straits of Hormuz and neighbours’ EEZs gives Fox Group Companies a
desirable low political risk profile. Non-volatile, long-term bi-partisan
pricing, complementary to LNG “spot-market” volatility: superior financial risk
profile. Replaces wasteful use of Naphtha for fertiliser production “Green
Energy” and carbon reduction benefits. Fox Group Companies provides a historic
opportunity for convergence of West and South Asian regional economic interests
into the Fox Energy Corridor, by forming a new "Gas Highway" of
multiple deepwater pipelines. Gas Hub can emerge over time in Oman.
