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A DISSERTATION REPORT SUBMITTED IN PARTIAL FULLFILLMENT OF THE REQUIREMENTS FOR EXECUTIVE MASTER OF BUSINESS ADMINISTRATION (OIL & GAS) OF UNIVERSITY OF PETROLEUM & ENERGY STUDIES, INDIA
FEBRUARY - 2011
ABSTRACT
Natural gas is emerging as the preferred fuel due to its environmental friendly nature. It is one of the prime sources of clean fuel. Natural gas mostly consists of methane as a major constituent. Pipeline and waterway transport are the main option modes to transport oil and gas, which have their individual characteristics, strengths, competences, and inter-substitution. Natural gas is low in density1. This makes natural gas difficult to transport. As of today there are only two proven ways of transportation for natural gas viz. pipelines and marine vessels. Transporting natural gas via pipelines across the ocean is nearly impractical. Natural gas after converting from Gas-to-Liquid state which is also known as LNG is now increasingly transported by specially constructed vessels across the world. CNG can be transported on short distances by road tankers. Domestic production of natural gas is around 87 million standard cubic meters per day. Current producer for natural gas in India are Oil and Natural Gas Corporation, Oil India Limited and other joint ventures2.
In this paper various transport modes for natural gas has been studied. The study aims to highlight on the issues such as various transport modes, types of transport modes for natural gas, economy of transport modes, safety issues in the transportation of natural gas, technical advances in design of transportation modes(both for pipelines and marine vessels), city gas distribution, limitations of the ways of transportation, storage structures, and availability of infrastructure for natural gas, comparison with transportation of other type of energy sources, geopolitical impact on the natural gas availability, comparison between pipelines and waterwaymode of naturalgas.
1: Natural Gas Information from MOPNG 2: IEA report on Natural Gas India, 2010 i
TABLE OF CONTENTS
Abstract Table of Contents Chapter 1 Introduction 1.1 Background 1.1.1 Overview of Natural Gas and Natural Gas Industry in India 1.1.2 Supply and Demand Scenario for Natural Gas in India 1.1.3 Purpose of the Study Chapter 2 Literature Review Chapter 3 Research Methodology 3.1 Sources of Data Chapter 4 Analysis and Findings 4.1 Options of Natural Gas Sources and Transportation for India 4.2 Process of Liquefaction and issues in transmission 4.2.1 Cost Factor 4.2.2 Safety Issues Chapter 5 Conclusion and Scope of Work References
i ii 1 1 1 3 4 6 8 8 9 10 13 13 14 28 29
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Chapter 1 INTRODUCTION 1.1. Background 1.1.1. OVERVIEW OF NATURAL GAS AND NATURAL GAS INDUSTRY
Natural gas also called marsh gas, swamp gas, and landfill gas; a gaseous fossil fuel that is found in oil fields, natural gas fields, and in coal beds; a mixture of hydrocarbon and small quantities of non-hydrocarbons that exists either in the gaseous phase or is in solution in crude oil in natural underground reservoirs, and which is gaseous at atmospheric conditions of pressure and temperature.
Natural gas for the ease of transportation or storage is converted into liquid. LNG occupies about 1/600th of the volume of natural gas. Depending upon composition, natural gas becomes a liquid at -1620 C at atmospheric pressure. (http://www.giignl.org/fr/home-page/ lng-basics/, February 17, 2011)
Natural gas is emerging as the fuel of choice. The requirements of natural gas as fuel of choice are increasing worldwide due to various reasons. The main reasons can be cited as climate change, the properties of natural gas as clean fuel, regulatory requirements, requirements by various industry sectors like power, fertilizers, transport industry (vehicles) etc. Beside above factors, the rising and fluctuating prices of crude oil, depleting sources for easy oil, nature of coal as highly pollutant, scarce availability of other clean and
cheaper fossil fuels, high cost in renewable energy sources may be cited as reasons why importance being gained by Natural Gas as important fossil fuel.
Source: A. Sengupta, Director (F&C), Petronet LNG, January 19, 2010 The Indian energy sector is dominated by state owned companies. Oil and Natural Gas Corporation and Oil India Limited dominated the upstream sector. Private players coming into the picture after economic reforms of the late 1990s and opening up of petroleum sector to private companies. Introduction of NELP helps
attract private entities into upstream sector. Organizations like Cairn, Reliance, NIKO, and Shell are participating in development of infrastructure for LNG. Infrastructure for production, storage, process and transmission requires huge capital cost. Insufficient supplies: The bulk of Indias supplies are produced domestically but demand for gas is increasing while production from the old fields has been dwindling. While most gas production used to be produced by state-owned companies, this is changing rapidly: JVs and private companies represent an increasing share of domestic production. Although domestic production will double between 2008 and 2012, developing domestic gas resources is critical to increase supplies to the Indian market. Even if NELP has resulted in a certain number of discoveries, including the major Krishna Godavari KG-D6 field, it also has some shortcomings. India is also likely to see imports increasing over the next two decades. Although India is also located near significant resources of gas in Turkmenistan and Iran, pipeline interconnections remain a distant prospect. India has been turning to LNG instead and is building new regasification terminals, adding to existing capacity. Future supplies in the coming five years will therefore continue to be based on two sources: domestic production and LNG imports.
same time LNG being imported by sea route from the countries for ex: Qatar and Iran. Purpose of this study is to compare the different available modes of transportation for natural gas in its various forms. Current scenario implies that natural gas can be transported either by pipelines or marine vessel on global basis.
The mode of transport varies from nation to nation depending upon advances in the technology, local and state regulations etc. In India natural gas is transported via pipelines and imported by sea route on majority basis. Petronet LNG limited has recently started supplying LNG in specially designed road tankers for the purpose of carrying cryogenic products. Liquefied Natural Gas (LNG) shipping is destined to be one of the most lucrative businesses in the future. India is expected to become a major importer of LNG in the next 2 to 3 years. LNG terminals are being established in various locations like Dahej, Kochi, Ennore, Dhabol, and Pipavav
In-depth review of literature indicates studies have been conducted on pipeline mode of transporting natural gas within India. Reports are also available on various transnational pipeline options, for ex: Myanmar-India pipeline, Iran-Pakistan-India pipeline, Turkmenistan-Afghanistan-Pakistan-India pipeline etc. Studies also conducted on national pipeline network, CGD, interstate pipelines and piped natural gas. Comparative study for comparing transmission mode for natural gas is not available yet and there is much scope to compare various options of importing natural gas to India in one combined study. Such type of study will be helpful for regulatory authorities, government institutions, financial institutions, private equities in future planning of securing the vital energy source of natural gas.
Chapter 4
4% 4%
9%
40%
Petrochemical
City Gas LPG Iron & Steel 3%
Figure 1: Consumption Pattern of Natural Gas in India By 2030 natural gas is expected to account for more than 10 percent of Indias energy consumption. Strategically therefore Natural gas is important fuel for Indias development. Dependence on natural gas is justified due to economic, environmental, technical reasons. To fulfill the growing need of natural gas requirements, India needs balance infrastructure for receiving, supplying, distributing, storing of this vital energy source. At this stage though several studies, reports available for pipeline scenario in India; comparative study for effective transportation modes is not available. Marine transport and pipeline transport have their own advantages and disadvantages. This study tries to focus on comparing various modes of transport for natural gas in its various forms, history of marine transport, future of marine transport with reference to LNG, history of pipeline transport and future of pipeline transport for natural gas in its various forms. 9
Key issues In Transportation of Gas Pipeline Density is very low compare to USA & China Existing connected market cannot absorb future supplies National Pipeline Grid Needs priority & focus for speedy implementation Requires huge investment Levy cess Pass on benefit of logistics & transport cost savings to end users Integrated grid to link any source to any market
Source: Hydrocarbon Vision 2025, GOI.
International transportation of products by pipelines is preferred to other modes of transport for the reasons of safety, operational conveniences and its environmental benefits. In most cases, transportation of products by pipelines is cheaper in comparison to other modes like rail and road. Recent gas discoveries are expected to lead to new pipeline infrastructure set-ups. Similarly, the product pipelines may also see growth with new refineries being set-up.
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Natural Gas
Compressed
Liquefied
Natural Gas
Natural Gas
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Natural Gas
Indigenous Pipelines
Subsea Pipelines
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http://www.igu.org/html/wgc2003/WGC_pdffiles/10502_1045747614_1430_1.pdf
4.2. Process of Liquefaction and Issues In Gas Transmission: Safety / Cost / Logistics / Time/ Market 4.2.1 Cost Factor: Currently, the countrys gas supply is dominated by administered price
mechanism (APM) gas, which is supplied at a subsidised rate. Going forward, private/JV fields will dominate gas supply. Price of gas from JV fields is market-determined and governed by production sharing contracts (PSCs) signed with the government. The landfall price of RIL gas at $4.2 per million metric British thermal units (mmbtu) is sharply higher than the landfall price of APM gas at $1.8 per mmbtu. On the back of APM gas price increasing in the medium term, CRISIL Research expects the average gas price in India (delivered excluding sales tax) to increase from around $4.3 per mmbtu in 2008-09 to about $6.2 per mmbtu in 2013-14 - an increase of 44 per cent.
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The most preferred alternative methods of gas supply are pipeline transportation of natural gas, LNG and CNG. Transportation of natural gas through high-pressure pipelines is cheaper than LNG for distances of 7,200-8000 km; for longer distances, LNG is preferred. Transport of CNG over long distances involves relatively newer technology, the commercial feasibility of which is still being explored3. Current Pricing Mechanism in India The natural gas pricing scenario in India is complex and heterogeneous in nature. There are wide varieties of gas price in the country. At present, there are broadly two pricing regimes for gas in the country - gas priced under APM and non-APM or free market gas. The price of APM gas is set by the Government. As regards non-APM/free market gas, this could also be broadly divided into two categories, namely, domestically produced gas from JV fields and imported LNG. The pricing of JV gas is governed in terms of the PSC (Production Sharing Contract) provisions. It is expected that substantial gas production would commence from the gas fields awarded by the Government under the New Exploration Licensing Policy (NELP). As regards LNG, while the price of LNG imported under term contracts is governed by the SPA (Special Purchase Agreement) between the LNG seller and the buyer, the spot cargoes are purchased on mutually agreeable commercial terms4.
3: Gas-related gyan for accountants, Business Line, New Delhi, Petronet LNG website 4: Pricing of Natural Gas In India, Harsh Kanani, 14th January 2011
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for transmission of natural gas. As of today, shipping policy of India with respect to natural gas transportation in India is not clear and transparent.
Proposed transnational pipelines to India for natural gas have their own issues of geopolitics, cost, threat due to terrorism etc.
LN G Shipping Policy The Directorate General of Shipping has issued guidelines on the chartering of LNG carriers (5th July 2004). Currently, the guidelines provide that licenses will be granted to carriers for the import of LNG only if the vessel is an Indian flag vessel or if the Indian partner owns the LNG vessel wholly (or owns not less than 26% of the ownership of the company owning the said LNG vessel). In such a case, owners will have to submit an unconditional undertaking to convert the vessel into an Indian flag vessel within one year after the introduction of the tonnage tax regime ((TTR) 5. The current LNG shipping policy restricts LNG import only on Indian flag vessels the Indian companies with a minimum of 27% in possession of the carrier. The company may import LNG on a spot basis on ships other than Indian flag vessels to import. This is subject to the condition that the charge on this item ships to 11% of the total LNG imports will be limited in the year. The debate in shipping circles about the LNG shipping policy is expected to allow greater choice of carrier. The limitation in the current LNG shipping is based on the foreign company and any reform is likely to cause the anger of the local shipping companies. The prevailing LNG guidelines were distributed on the basis of global practices and then, with the aim of India framed to meet energy needs. The guidelines from the way the participation of foreign companies, equity contribution by domestic companies through the transfer of technology over a period of time followed.
5: Gas and LNG overview, A report by Shardul Thacker and Dipti Rambhia, Mulla & Mulla, Mumbai
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Indian shipping companies demand specific subject, so that the banks are willing to fund them for the purchase of ships. Without these companies unable to compete with the much financially stable foreign companies. In its latest market study: RNCOS experts explain that a change in policy are only sufficient for foreign shipping giants like Royal Dutch / Shell in the Indian market to overcome, because it Indian Oil & Gas Industry An Industry Analysis LNG import can with their own transport companies6 .
6: http://indiadebate.in/2011/02/investors-and-players-not-satisfied-with-new-lng-shipping-policy-2/
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When facilities at the port are adequately upgraded, operations can switch from using a FSRU to using an onshore LNG terminal. As explained before, the two qualities, heating value and LNG composition, are of great importance since they affect design of the regasification terminals equipment. A general layout of an onshore receiving/ regasification LNG terminal is outlined as follows.
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Once the LNG tanker (1) is docked and safely moored, LNG is gradually chilled to 160C. Then, the LNG is transferred onshore with the aid of the pumps inside the ships tanks and the multi-purpose jetty (2). This jetty is comprised of liquid loading arms and one vapor return loading arm. An insulated pipeline is used to transfer the LNG form the carrier to the terminals LNG tanks (3) with an unloading rate of approximately 10,000 m3/h. The capacity of the tank is 160,000 m3and the standard requires at least two storage tanks. Vapours generated in unloading are returned to the carrier via an insulated vapour-return pipeline, in order to keep positive pressure in the ships tanks, thus a constant flow of pumped LNG. Besides, losses of electrical power, vapour are safely vented through the cold vent (9). When there is demand for Natural Gas, low pump pressures (4) keeps the LNG move from the tanks to the recondenser (5). It is the fact that stored in the storage tank; some LNG is heated to become vapour. This vapour or boil-off gas (BOG) is removed and processed by the BOG compressor (6) before
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going to the recondenser (5). In the recondenser (5), BOG is recondensed and mixed with the LNG from the low pressure pumps (4). After that, through high pressure pumps (7), the LNG is moved to the vaporizers (8). Here the LNG is turned to Natural Gas and then transported to users with pipeline pressure. (Canaport LNG 2009 and Mustang 2005) Several vaporizer technologies in LNG regasification have been developed. Vaporizers can utilize air, seawater or gas itself as the primary heat source. The factors to be considered in choosing a vaporizer technology are initial investment, operational costs, maintenance, reliability, availability, air emissions, water emissions, and environmental footprint and impact. The widely used technologies in use nowadays are seawater-based and gas-based. The operations and costs associated with
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gas-based vaporizers differ significantly from those of seawater vaporizers: the gasbased requires more space and operating costs compared with the seawater-based. Especially, gas-based technology is not preferable in view of its greenhouse gas emissions. (CEE 2006, 44-54.)
In case that there is sufficient seawater, seawater-based vaporizers are of great economic sense and environmental friendliness. PV Gas sees seawater-based technology a wise solution given that the endowed resource of seawater in Vietnam ports can help efficiently make use of the technologys advantages. There are two main designs using seawater heat including open rack vaporizers
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(ORVs) and shell and tube vaporizers (STV). Above all vaporizer technologies, the most commonly used in the world is ORV vaporizer. (CEE 2006, 44-45.) In addition to fixed facilities, utilities for terminal operations are in a utilities building, with the exception of electricity. Electricity is commonly supplied from a local electricity grid. Offices and control room at the receiving LNG terminal are required to be located away from the process area for safety reasons in case of flames or explosions. (Mustang 2005) http://www.lngfacts.org/ C:\Users\SAM\Desktop\ANLNGPROJECTININDIASettingupofanimportterminalANDTH EROLETRANSPORATION.pdf
War and Oil - The Pipeline Politics By Rohit Singh Issue: Vol 24.2 Apr-Jun 2009 | Date: 02 September, 2010, LANCER INDIAN DEFENCE REVIEW, http://www.indiandefencereview.com/
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Reference 6
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Reference 22
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1.
UNDERGROUND STORAGE OF NATURAL GAS - AN OVER VIEW-August 27,2009, ENGINEERS INDIA LIMITED
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Source: http://www.iglonline.net/Documents/Presentation/Roadshow_23_Jan_05.pdf
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Chapter 5
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References
1. Ministry of petroleum and natural gas, India 2. International Energy Agency 3. Websites: M/s. GAIL India Limited M/s. Petronet LNG Limited M/s. Shell Hazira LNG M/s. Ratnagiri Power and Gas Limited M/s. Infraline India Limited M/s. Vedam books M/s. Qatar Gas USA Energy Information Administration
4. Society of Petroleum Engineers 5. LNG Pedia 6. LNG Unlimited 7. Natural gas.org 8. Petrofed India 9. India Hydrocarbon Vision Report 2025 10. Report of the working group on petroleum & natural gas sector for the XI plan (2007-2012). Ministry of Petroleum & natural gas, November 2006 11. IEA- Natural Gas Report for India 2010 12. Market development in India, reviewing the strategies for natural gas 2030, Rajeev Mehrotra, GAIL(India) Limited, New Delhi
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13. The oil and gas sector overview in India 2009, KPMG India 14. Development of Natural Gas Industry in India, presentation by Mr. Suresh Mathur, Ex. CMD, Petronet LNG Limited, 21st may 2010 15. Handbook of Natural Gas Technology and Business, Edited by Parag Diwan and Ashutosh Karnatak, Pentagon Energy Press, 2009, xxxii, 976 p, ISBN : 81-8274-436-3, 16. http://www.marketresearch.com/map/prod/2382989.html 17. Business Line, India
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