Alaska LNG heat could be right for Asia

Liquefied natural gas from Alaska North Slope gas could burn hotter than Lower 48 exports, which would be better for some buyers

Bill White

Researcher/writer for the Office of the Federal Coordinator

Alaska North Slope gas exported to Asia could hold a key attraction over other U.S. LNG exports: The Alaska gas would burn hotter.

To adopt the gas industry’s jargon, Alaska’s liquefied natural gas would be somewhat “wet” or “rich” compared with the “dry” or “lean” gas other U.S. liquefaction plants will process into LNG.

And many Asian buyers love wet gas — which is laced with gas liquids that raise the heat content. Especially in key markets such as Japan, South Korea and Taiwan, power-plant turbines, industrial furnaces and household appliances are calibrated to burn rich gas.

A gas-fueled kitchen stove built for a Japanese home could not be used in the United States without modification, and vice versa.

Gas out of the ground comes in as many varieties as Starbucks has blends of coffee. Try to feed raw natural gas through your household furnace or your patio propane grill and you risk a miserable stay in a hospital burn unit.

Even LNG, which undergoes robust processing before heading to sea, is not a singular, uniform product. Some blends are wetter than others, making them unsuitable for certain markets without further processing. Some are drier, making them unsuitable for other buyers without extra cost.

The absence of a homogenized natural gas commodity on the world market might seem less surprising when one realizes that the natural gas business is a relatively young industry.

Unlike its glamorous big brother — crude oil — which has been a high-octane business since the late 1800s, the modern natural gas industry got legs only in the 1950s, starting in North America, coming of age with the Cold War, suburbia and rock ‘n’ roll.

The overseas LNG trade arrived a generation later, ripening into adolescence in the late 1970s, coinciding with Mideast nationalization of oil production, runaway inflation and disco dancing.

As the gas industry expanded by pipeline and by LNG tanker, different regional systems developed in isolation from one another, sort of how different languages emerged around the world. Each new gas system was a unit unto itself, based on the quality of local or regional gas supplies. In industrialized North America, dry gas was amply available, so that’s what is piped to U.S. furnaces. Japan, South Korea and Taiwan built their systems on the wet-gas LNG blends from nearby Indonesia, Malaysia and Brunei.

Only in the past 10 years or so — as some gas brewed for one market got served to other customers — has the market difference between dry gas and wet gas even begun to matter much.

The global gas trade that arose over the past 50 years is a story of resource haves and have-nots, of oil-price shocks and degrees of industrialization, of stranded gas reserves and entrepreneurial risk taking.

Elements of this story have worked against Alaska gas, stranding the state’s North Slope reserves in a harsh environment distant from major markets. But the gas under Alaska’s Arctic has its advantages, too. It is wetter than some dry-gas resources of Eastern Australia’s coal-bed methane fields, British Columbia shale plays and East Africa offshore deposits — gas that could compete with Alaska for Asian LNG buyers in the 2020s.

The blend of Alaska Arctic gas that ExxonMobil, BP and ConocoPhillips might superchill into LNG could be almost ready-made for the Asian market.

Calories of energy

•1.01 million British thermal units, or Btu — This is the heat content of 1,000 cubic feet of methane, a standard measure of methane. Energy content is reported in Btus so that different fuels — gas, oil, coal — can be compared. Natural gas usually is priced in units of 1 million Btu.

•1.022 million Btu — The average heat content per thousand cubic feet of U.S. pipeline gas, the gas that goes to power plants and home furnaces. This pipeline gas is almost pure methane.

•1.06 to 1.13 million Btu — The heat content that Japanese and South Korean utilities expect from the gas they burn. (Some sources will show different ranges based on different assumptions about the temperature and pressure of the gas. The range given here serves to show that Japan and Korea use a higher-Btu gas than found in pure methane or U.S. pipeline gas.)

Liquefied North Slope Alaska gas should fall within the Btu window of Japan and Korea, with likely a minimum of about 1.07 million Btu of energy per thousand cubic feet. Certain decisions by the gas producers, their customers and others could push this Btu number higher.

More poetic members of the gas industry refer to the Btu content as “gross calorific value.” In other words, higher Btu gas serves up more “calories” of energy.

Gas industry engineers, poetic or otherwise, have a say in this, too. They note that not all Btus are created equal. Gas supplies with identical Btu measures might have different densities, because different mixes of methane, ethane, propane, etc., can result in identical Btus. Density can matter a lot as gas passes through a burner nozzle on its way to ignition. For example, a gas that combusts inefficiently can emit lots of dangerous carbon monoxide — just as an ice-cold auto engine releases more carbon monoxide than normal when started.

As the International Gas Union, a trade group, put it in a 2011 report, “All gas-fired equipment is designed and built for a particular gas specification. This will include a range of gas qualities within which the appliance will function correctly. If gases outside this range are combusted, this can lead to a range of problems from poor quality combustion through to equipment damage and ultimately dangerous operation.”

So engineers crafted a formula that adjusts the heating value to account for gas density, putting different gas blends on the same footing. This formula results in the Wobbe Index for gas, a term we’ll drop from this discussion because Btu differences tell the story well enough.

Why carbon atoms are important

Hydrocarbons — because hydrogen and carbon atoms compose the parts of gas that produce energy.

One carbon atom plus four hydrogen atoms equal methane.

Ethane has more heat content per unit than methane because it has two carbon atoms, not one, to fuel the burning process. A natural gas blend of methane with a taste of ethane burns hotter than just methane.

Propane has three carbon atoms and more heat content yet. Butane four. Pentane five. And so on. With enough carbon atoms you get crude oil.

Methane is considered dry gas. Over time, the other components became known as natural gas liquids because with a change in temperature or pressure these can become liquid and separate from the vaporous methane.

Methane laced with enough gas liquids is known as wet gas — a synonym for high-Btu natural gas.

The oldest natural gas market — North America — has built industries around each hydrocarbon within raw natural gas.

Methane fuels household furnaces and power-plant turbines. Ethane is a petrochemical feedstock and is transformed into ethylene to make such products as plastic bags. Propane also is a petrochemical feedstock as well as a fuel for heating rural homes and broiling steaks on backyard grills. Butane helps make synthetic rubber for tires and is cigarette-lighter fuel.

Turning leftovers into money

But one by one over many decades, North American industries developed around each component, tracing their births to entrepreneurs who found cash in what others considered waste. Today, in a textbook feat of capitalism, profit is gained from the entire spectrum of natural gas components, in much the same way that slaughterhouses and butchers carve a whole hog into different products.

The gas liquids industries came first. Plants got built that could “fractionate” the gas stream — separating the gas into its various components. Until World War II, liquids — particularly propane and butane — comprised pretty much the whole U.S. gas industry. Methane, if it was produced at all, was vented or flared to get rid of it, or piped short distances from fields to nearby towns.

As long-distance gas pipelines were laid in the 1950s — and these pipelines connected to each other over time — standards developed so that pipeline gas was pretty much the same across North America. It was a triumph of efficiency. Anybody’s gas could travel through any pipeline system to any customer.

Because North America gas liquids already had their own markets, pipeline gas for home furnaces, power plants and industrial uses became what was left over — essentially pure methane with perhaps traces of liquids that raise the Btu content a tad.

This pipeline gas — dry, low-Btu methane — is what proposed Lower 48 liquefaction plants would superchill into LNG for export.

Hot gas in Asia

In the Asia-Pacific market, Japanese utilities were the first buyers. They targeted huge stranded gas reserves in Brunei, Indonesia and Malaysia. These countries had no petrochemical industries, no internal markets for propane and butane. They had no economic reason to strip liquids out of their methane.

So the liquids stayed in the LNG.

At the time, Japan was weaning itself off oil-based fuels after global oil prices soared in the 1970s. Japan built its natural gas use around high-Btu gas. Brunei LNG packs about 1.13 million Btu per thousand cubic feet. Much Indonesian LNG comes in at about 1.12 million Btu. Today LNG from Indonesia’s legacy plants is about 90 to 92 percent methane and 5 to 6 percent ethane, with a smattering of propane and butane.

South Korea began LNG imports in 1986 and Taiwan in 1990. They bought from the same plants supplying Japan, and high Btu became their standard, too.

Today these three countries, plus China and India, consume about two-thirds of the world’s LNG. They buy from plants across the globe, some of which sell rich gas and some — such as the Caribbean’s Trinidad and Tobago — relatively lean gas.

To ensure the consistency of LNG, a utility can boost the Btu measure by juicing the gas with propane, or lower the Btu count by stripping gas liquids or injecting inert nitrogen. However, the machinery of all that spiking or diluting adds cost to the LNG value chain.

Tokyo Gas modifies the different blends of imported LNG so that the heating value of its gas is almost constant, the IGU said in its 2011 report.

Osaka Gas deals with diverse LNG cargoes by supplying customers with gas within a range of heating values. The utility “detuned users’ appliances to operate over the defined range,” the IGU said.

One Japanese utility — Tokyo Electric Power — has taken note that substantial volumes of lean LNG could hit the market within 10 years from U.S. Gulf Coast terminals and three Eastern Australian plants under construction that will liquefy low-Btu coal-bed methane. TEPCO is planning to install expensive storage tanks and other infrastructure in Japan to segregate lean gas from its other LNG imports.

China’s story is different. Its first LNG imports arrived in 2006, and more comes in every year. The country also has substantial domestic gas production — unlike Japan, South Korea and Taiwan. China has yet to develop uniform standards that apply to the gas Btu hodgepodge delivered to its industries, the IGU said.

In a June 2012 report, global financial services company Credit Suisse downplayed the lean-gas/rich-gas challenge for buyers, calling it a “manageable issue” for Japan, South Korea and Taiwan. As for China and India, the issue is less important because they already are coping with a motley mix of gas supplies.

(A quick aside: ConocoPhillips’ low-Btu LNG exports from its Nikiski, Alaska, plant were a historical aberration in Asia-Pacific trade. This plant pioneered exports to Japan in 1969, but its output soon was dwarfed by LNG shipments from Brunei, Indonesia and Malaysia. The Alaska plant’s low Btu count — about 1.014 million per thousand cubic feet — resulted from feed gas that was almost pure methane straight out of the ground. The plant produced the driest LNG in global trade until shipments ended in fall 2012. Buyers in Japan spiked the Alaska LNG with gas liquids.)

Part 2 of this story will appear in the Aug. 25 issue.

Editor’s note: This is a reprint from the Office of the Federal Coordinator, Alaska Natural Gas Transportation Projects, online at www.arcticgas.gov/alaska-lng-could-have-right-heat-content-asia-buyers