All at sea

Sea-based technologies for handling natural gas promise huge cost savings, and are leaving Israeli regulators behind.

At the Samsung shipyards in South Korea, the largest ever apparatus to set to sea is being constructed. Its length, 488 meters, is almost double that of the Titanic. It will have a displacement weight of 600 thousand tonnes, equivalent to five aircraft carriers. Its job will be to produce gas from the Prelude reserve, 200 kilometers from the Australian coast. Pumping the gas, separating the expensive condensate, liquefying the gas, and the other operations that currently take place in land-based installations, will all be performed on this huge facility. 50 million liters of water an hour will be pumped to help cool the gas to minus 162 degrees Celsius, the temperature at which it becomes liquid. An area the size of 175 Olympic swimming pools in the belly of the facility will be used to store the liquid gas. Yet despite its monstrous dimensions, the floating gas liquefaction plant (FLNG) will still be 75% smaller than a land-based liquefaction plant.

The Prelude FLNG vessel in distant Western Australia heralds a revolution in the natural gas industry. More and more gas infrastructure installations are going offshore thanks to technological advances. One of the first places to feel the outcome of the revolution is Israel.

A changed picture

Israel's gas export policy, recently given the green light by the High Court of Justice, was designed to suit the longstanding technology of land-based gas liquefaction plants. In its interim report, the government commission headed by Ministry of Energy and Water Resources director general Shaul Tzemach recommended allowing the export of at least 400 billion cubic meters (BCM) of natural gas. "What is the professional basis for the understanding that the minimum necessary is 350 and not, say, 200?" asked Deputy Attorney General Avi Licht at the commission's concluding session. "It's technology," answered National Economic Council chairman Eugene Kandel, and did an instant calculation showing the minimum amount of gas that would justify construction of a land-based liquefaction plant. "Gross, it's 360. That's the calculation. Very simple", Kandel said with finality. The commission added the extra 40 BCM to the quota as a safety margin. "Braces" as Ministry of Finance representative Shaul Meridor described it.

FLNG technology was known to some members of the commission at the time of the discussions, but they refused to treat it seriously. "FLNG is not a reality," said economist Morris Dorfman at one of the sessions. Less than two years later, and the picture is changing before our eyes. FLNG technology is still not proven, but at the Eco Energy Israel Energy and Business Convention two weeks ago it was presented as the best solution for exporting gas from the Leviathan field. Not a word was said at the convention about the plan to construct a liquefaction plant on the Israeli coast.

The FLNG facility that the Leviathan developers wish to build is one of seven currently planned around the world, of which two (Prelude in Australia and a facility for Malaysia's Petronas) are already at advanced stages of construction. The Leviathan facility would be smaller than the one being built for Western Australia. The main reason for that is that the Israeli gas is "cleaner" than the gas produced in Australia and does not contain heavy condensates that require complex refining installations. The fact that the Mediterranean Sea is relatively calm is another point in favor of FLNG, which requires complete stability in the water in order to be able to pump liquid gas into tankers. Even so, this is a 400 meter-long sea monster that will cost $4-5 billion to build. There is currently lively competition between three international consortia to build the facility: Technip Samsung, which is building the Prelude facility, and two other consortia led by Hyundai and DSME. According to the presentation by Yehuda Saban, VP regulation at Delek Drilling, the facility for Leviathan will have an annual output of 3 to 4.7 million tonnes (4.2 to 6.6 BCM). And now we come to the dramatic difference: the FLNG facility will need a minimum of 80-100 BCM to make constructing it worthwhile, less than a third of the amount required for a land-based facility.

Does all this mean that the conclusions of the Tzemach commission are no longer relevant? Not necessarily. The limited exports by means of FLNG leave Israel with enough gas for other export channels (by pipeline to Turkey, Egypt and Jordan, for example). Reliance on one single channel weakens the developers bargaining position vis-a-vis buyers, and increases risk exposure, whereas negotiating on several channels at the same time creates synergy.

The main problem in laying a pipeline to Turkey or to Egypt and Jordan is political. The Egyptian and Jordanian regimes are not overjoyed at being portrayed as collaborating with the Zionists. Relations between Israel and Turkey are fickle, and the need for the pipeline to traverse Cyprus's exclusive economic zone makes it necessary to reach agreement between the Turks and the Cypriots, who are in bitter, almost insoluble dispute. These difficulties could be surmounted by means of new technology presented at the convention by Ronen Hadash, who represents SeaNG, an international consortium controlled by Japanese company Marubeni, Teekay of the US, and Enbridge of Canada. This is a floating facility for compression of natural gas (FCNG). Gas compression installations, it turns out, are the next technology about to migrate from land to sea.

FCNG is based on a ship for treatment and compression of gas, which it supplies to special tankers. The compression technology is simpler and cheaper than liquefaction technology, and the length of a compression ship is not more than 200 meters. For distances of up to 1,000 kilometers, FCNG can provide a cheaper and more flexible alternative to existing solutions, one almost immune to geopolitical risks. SeaNG supplies the gas reserve owners with the compression ship and its ancillary systems in exchange for a treatment and shipping tariff, estimated at $1.8 per million thermal units (MMBtu) in the case of Turkey, obviating the need to invest billions in infrastructure. FCNG technology is still unproven and exists mainly on the drawing board, but within 2-3 years it is likely to emerge as the next big thing, just as happened with FLNG.

Published by Globes [online], Israel business news - www.globes-online.com - on December 4, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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