TERMINAL FOR LIQUEFYING NATURAL GAS IN CYPRUS SAFETY & SECURITY OF INSTALLATIONS AND OTHER FACTORS

Frixos Thalassetis MBA Oil & Gas Management M.A. Management e-mail: frixosthalassetis@hotmail.co.uk Tel: +357 99488165

With the assistance and support of Mr Harry Theocharous (CEO) Crudex (Cy) Enterprises Ltd (Mentor to Frixos Thalassetis in his MBA dissertation Cluster Logistics in Oil and Gas Midstream Sector: Planning Cyprus Supply Chain

TERMINAL FOR LIQUEFYING NATURAL GAS

This study has been carried out in order to identify the optimum and most efficient method of liquefying natural gas, highlight the necessity for maximum safety & security of the installations involved as well as to recommend further options for increased profitability. Natural gas can be condensed from gas to liquid and reduce its volume by 600 times when cooled down to 160 C. This property of natural gas was first discovered by the English scientist Michael Faraday in the 19 th century and the German engineer Carl Von Linde constructed the first system for liquefying natural gas. However, the commercial utilization of natural gas, as we know it today, began as recently as 1961 with the signing of a fifteen-year agreement between Algeria and Britain for the transportation to Canvey Island of one million tons of liquefied natural gas annually. The commissioning of the first liquefaction plant at Arzew in Algeria in 1964 signaled the first commercial utilization of exporting liquefied natural gas. Other properties of LNG are: it is odourless, colourless, non-corrosive, lighter than air and disperses easily in the atmosphere. It has the appearance of white water vapour when released in the air and is flammable at concentrations between 5% and 15% (Lower Flammable Limit and Upper Flammable Limit). Worldwide, there are 31 fully operational LNG terminals, 13 others are under construction and a further 19 are being planned, among them the one in Cyprus.

How does an LNG terminal operate?

The complete chain of LNG production includes the following stages: Extraction of natural gas from wells drilled on the seabed Channeling of natural gas from the wells to the LNG terminal via subsea pipelines Volume measurement and extraction of impurities prior to liquefaction at the terminal Storage of LNG in cryogenic tank containers Transportation of LNG via pipelines from the tank containers to the jetty terminal for loading in specially designed LNG transport ship-tankers Transportation by sea to the sale destination Transfer of LNG to the destinations storage tanks

Re-conversion of LNG into gas (regasification) and adjustment of the chemical composition so as to be suitable for the various intended uses Transfer of natural gas to the distribution network of the destination country for domestic or other use

A typical LNG terminal implements the following five processes: 1. Pre-treatment: Volume measurement and removal of various heavy impurities 2. Removal of sulphur, carbon dioxide and Nitrogen 3. Removal of water 4. Removal of mercury 5. Fractionation of natural gas and separation into methane, ethane, propane, butane, gasoline products and liquefaction of methane (which is about 90% of the derived liquefied gas) by cooling it down to 160 C.

Choice of terminals technology

The most important factors pertaining to the success of an LNG terminal is the choice of the operating technology and the production capacity of the plant expressed in millions of tons per annum (MTPA). This is due to the fact that all stocks of natural gas shall be utilized on the basis of performance, liquefaction costs as well as on the percentage of recovered by-products during the liquefaction / fractionation (Natural Gas Liquids & Liquefied Petroleum Gas), which can be used as fuel in the operation of the terminal thus reducing the cost of liquefaction or even sold at prices fixed in international markets. This should improve significantly the economic performance and profitability of the terminal.

Available technologies / processes

Method C3 MR (Pre-cooled Propane (C3), Mixed Refrigerant process) A basic schematic of the C3 MR process is shown in the Figure below. Natural gas from the acid gas removal unit is dried and pre-cooled to about -35C by propane. After pre-cooling, it passes up through a tube circuit in the main cryogenic heat exchanger where it is liquefied and sub-cooled to between -150C to -162C by mixed refrigerant (MR). Its the most widely used method and was developed by APCI (Air Products & Ch emicals Inc.). This method is renowned for its simplicity and reliability.

Method - This method was developed by APCI (Air Products & Chemicals Inc.). The AP -X is basically the C3 -MR process with the addition of a nitrogen expander loop that provides the final cooling instead of a mixed refrigerant. This addition increases the production capacity per liquefaction train by up to 8 MTPA. This method has been successfully implemented in 6 liquefaction trains in Qatar with a production capacity of 7.8 MTPA per train. Compared to C 3-MR, this method provides reductions in operational costs with savings up to 40% of the mixed refrigerant mixture as well as up to 20% of the propane (C3) used for pre-cooling.

Method DMR (Dual Mixed Refrigerant) This method, developed by Shell, uses two cooling cycles with mixed refrigerant. The first involves ethane and propane and the second nitrogen, methane ethane and propane. This method is adopted in the LNG terminal being constructed on the island of Sakhalin and has a production capacity of 4.8 MTPA. This method is efficient at very low atmospheric temperatures. The LNG terminal in Sakhalin has by far exceeded the original estimated cost of its construction.

Method SMR (Single Mixed Refrigerant) This method, also called the PRICO Single Mixed Refrigerant process, uses one refrigerating cycle with mixed refrigerant. The production capacity of this method is 0.5 1 MTPA and is suitable for small productions of LNG.

Method Conoco Phillips Cascade Process It consists of three Joule Thomson cooling cycles using: 1) pure methane, 2) ethylene and propane and 3) refrigerants. The drawbacks of this method include its large size and large amount of equipment. Its maximum production capacity is 5.2 MTPA.

Other relevant factors pertaining to the installation of a successful LNG terminal include: 1. Selecting the right location: Vasiliko, the selected location for the Cyprus LNG terminal has the advantage that it is a long way from residential areas and at the same time, it is very close to the sea, the motorway and the electricity generating station; moreover, the nearby sea is sufficiently deep to accommodate a jetty terminal where large LNG shiptankers can be anchored. 2. Choosing suitable partners: Under the umbrella of Suitable Partners come all the already licensed companies of the Cyprus EEZ (Exclusive Economic Zone) including the ones that would be licensed in the third round of licensing as well as neighbouring countries and/or companies licensed in their own EEZs. Other potential partners could be countries, companies, banking institutions or other interested bodies wishing to ensure / secure sources of LNG supply and dividends from the terminals operations. 3. Selecting the correct economic model for financing the project. The economic model for financing the project should take into account the projected (future) LNG prices when the terminal becomes operational, the anticipated demand, the loan interests, the projects life cycle (years of operation, production capacity and performance), the financial credibility and capability of the lenders, a.o. 4. Transportation of machinery & equipment at the appropriate time. There are two options regarding the transportation of machinery & equipment: a) Transportation of the various parts required and assembly on site and b) transportation of the preassembled equipment. There are advantages and disadvantages for either option, which relate directly to the technical characteristics and available technology in each country as well as the project itself. 5. The availability of adequately trained manpower for the installation and operation of the

plant. The manufacturers of LNG equipment are facing severe problems in finding properly qualified personnel for the installation of their equipment. This problem is even more acute in Cyprus, a country with very limited experience in the construction of such projects. It is imperative, therefore, to train an adequate number of people in particular disciplines pertaining to the installation and operation of LNG plants. Failing to do so, we shall have to import foreign skilled personnel thus imposing additional costs and loss of potential employment for many Cypriots accompanied by outgoings of foreign exchange.

Other factors affecting the economic performance of a terminal include its distance from the drilling platforms, labour costs, seasonal temperature variations, chemical composition of the extracted natural gas as well as the targeted quality of the LNG produced.

The basic components / processes of an LNG terminal include: A feed pipeline from the wellhead to the terminal One or more liquefaction trains where the extraction of impurities and water and the liquefaction of natural gas takes place Fractionation (separation of liquefied methane from other hydrocarbons) and storage of the LNG needed to be used as fuel in the liquefaction process The LNG storage tanks The jetty for loading LNG to ship-tankers The storage installations for refrigerants

Ancillary installations for electricity generation, heating etc. Water storage containers for fire-fighting purposes, Administration offices, sewage treatment, road network and other associated infrastructure Allocation of the LNG terminals capital expenditure Pre-treatment: 6% Liquefaction: 50% Ancillary installations: 16% LNG storage tanks: 18% Loading jetty: 10%

The annual operating cost of an LNG terminal is estimated at 3% of the total capital expenditure. It is essential to point out that each terminal is different and no two terminals are identical because they are constructed according to their unique individual characteristics and operated under the conditions associated with their location; therefore, there are large differences in construction costs.

Other commercial products and by-products produced at an LNG terminal

Natural gas is composed primarily of methane at proportions varying between 80 and nearly 100% (Alaska: 99.72%). The rest of the composition is ethane, propane, butane, pentane and other hydrocarbons. The successful separation and recovery of these products depends entirely on the technology of the liquefaction plant and the desired quality of LNG, which, in Cyprus case, depends on the quality of the natural gas available.

LNG Ethane

Applications Ethylene for manufacturing plastics and as raw material in the petrochemical industry

Products Plastic bags, plastics, anticoagulants, detergents

Propane

Domestic and industrial heating and as raw material in the petrochemical industry

Heating fuel

Butane

Raw material in the petrochemical industry

Plastic rubber for tyres, gas-lighter gas, liquid petroleum gas Gasoline, polystyrene, solvents

Pentane

Gasoline production

Proposed method for the Cyprus LNG terminal Taking into account that virtually all the natural gas reserves in the Cyprus EEZ and possibly a large proportion of the ones belonging to neighbouring countries would be processed in the Cyprus terminal as well as that the implemented technology is wholly responsible for the total amount of LNG and by-products (LPG, NGL, a.o.) produced, the technology that stands out above all others by far is the AP-X process developed by
Air Products & Chemicals Inc. based on the most widely used, reliable and proven C 3-MR process.

The AP-X process incorporates a nitrogen cooling loop that saves up to 20% of the propane and 40% of the mixed refrigerant required in the C 3-MR process; moreover, liquefaction train capacities of up to 8 MTPA are feasible in tropical climates. Lower unit cost for LNG production means more competitive sale prices for LNG and its byproducts in the international markets. The AP-X process meets the challenge of increased demand and lower unit cost for LNG production. It is worth mentioning that the initial cost of construction of the LNG terminal should not be a restrictive parameter as to the selection of the most appropriate process, since, ultimately, the operational performance of the LNG plant is the decisive factor of the final economic outcome of the project. Security of the Cyprus LNG terminal The Middle East is infamous for its turbulent history and the political tensions and upheavals in the area that include numerous acts of sabotage on energy installations. Oil installations are extremely valuable for any country since they represent a significant part of the national infrastructure and, therefore, are targets for attacks of terrorism and

sabotage since their destruction would affect catastrophically the countrys economy and cause enormous environmental damage. A new category of risk/danger has been added recently, namely the one involving cyber-attacks. Energy installations involve high construction costs on the one hand but high profit expectations on the other. They include sensitive operational networks and state-of-theart equipment. Above all, however, they involve human lives. For the aforesaid reasons, it is imperative that these installations are protected against malevolent attacks such as acts of terrorism, sabotage, theft and natural disasters. Safety System for hydrocarbon installations Numerous specialized tracking devices for preventing potential risks occurring on the installations are available for continuous monitoring and protection against hazards originating at sea, land or air. Such systems offer protection against ignition sources, fire detection, location and extinction, control and communication, drilling rigs protection, subsea and terrestrial monitoring, floating barriers preventing approach to the rigs, prevention of divers approaching, control of entrance-exit of installations. Such systems are: Remotely Operated Vehicles (ROV) for underwater monitoring, autonomous underwater monitoring devices with tracking and categorization of risks (AUS), tracking systems for speedboats and explosion-proof, thermal and night cameras, rig surveillance systems a.o. An integrated safety zone Simply guarding the hydrocarbon installations does not provide adequate protection. The Government departments responsible for national security in collaboration with the persons responsible for the terminals security must prepare integrated solutions of data collection, sets of procedures and a plan of action to address all possible risk scenarios. Monitoring of the Cyprus EEZ must be on a 24-hour basis. The coordination of the national security forces (police, army, fire-fighting service, intelligence a.o.) together with the persons responsible for the control and monitoring of the various points of the terminals facilities shall make it possible to respond immediately should any unwelcome circumstances arise. Therefore, an integrated safety zone, using advance technology control & monitoring equipment (sonar, radar, sensors, surveillance cameras a.o.) will act as an integrated system tailored to the wider protection and requirements of such a vital and sensitive area. Special units should be created, specialized in the safety & security of the terminal and housed therein. An information exchange arrangement between collaborating countries and companies must be worked out for the early detection of threats and risks.

Additional options The Cyprus LNG terminal is capable of creating additional sources of wealth and benefits for the nation if it built storage tanks beyond the content capacity required to satisfy the terminals needs. The ensued benefits shall be: 1. The spare capacity of the storage tanks can be used to store LNG bought whenever prices are low due to low demand and sold at higher prices when demand increases. This practice is implemented successfully in the USA.
$/1000 ft3 LNG Purchase price LNG Sale price Nov 2012 7.21 8.86 Dec 2012 5.22 11.75 Jan 2013 7.86 10.11 Feb 2013 4.47 10.85 Mar 2013 5.03 10.02 Apr 2013 4.90 11.35

Source: EIA 2013 2. The possibility of alternative sales (Cyprus could deliver LNG loads sold by other countries in cases when the said countries are unable to deliver or due to the distances involved, it is cheaper for them). Various energy centres use this practice of exchange of stocks without the physical transportation of the loads taking place. Cyprus has the advantage of being close to the Suez Canal and at the centre of three Continents. 3. Cyprus can store other countries reserves against a storage charge.

Interior of LNG Tank The primary objective of the LNG storage tanks is obviously to store LNG. They must be constructed in such a way so as to minimize evaporation (boil-off gas) and ensure impermeability against leaks. These tanks must have powerful thermal insulations and extremely robust constructions against leaks, cracks, earthquakes or external shocks. They can be built either above or below ground level. The ones above ground level have the advantage of low construction cost compared to the underground ones but higher rate of evaporation and greater risk against leaks.

Comments In order to be possible for Cyprus to plan, design and programme correctly the eventual construction of the LNG terminal it needs first to have at hand some key data and information regarding the quantities and the physical characteristics (composition) of the natural gas reserves in the Cyprus EEZ as well as the extent of interest by neighbouring countries to transfer their own natural gas for liquefaction to Cyprus. It is the conclusion of this study, for the reasons explained and analysed herein above, that the most appropriate method for the liquefaction of natural gas is the AP-X process. In summary, these reasons are the increased production capacity, lower production unit cost and reliability of the process. It is worth mentioning that Qatar, the biggest LNG producer in the world, has recently upgraded six (6) of its existing liquefaction trains, which are now capable of producing 7.8 MTPA each. Moreover, by choosing the AP-X process, a clear message would be sent that Cyprus is proceeding with the construction of an LNG terminal utilizing the most efficient process with the biggest production capacity available to date, making it possible to process natural gas reserves of neighbouring countries. This possibility, coupled wit h Cyprus European status should make the island an attractive base for new companies and foreign investment. Regarding the construction of LNG storage tanks with increased capacity, the benefits far outweigh the additional original capital expenditure. On the issue of safety & security of the terminal, it cannot be overemphasized that it is vital to implement a system that would ensure that any threats or risks, independent of their origin, either manmade or otherwise, are kept to the minimum possible. Failing to do so, we might have to face financial ruin as well as loss of life and property and environmental disasters of epic proportions. Sources: http://www.qatargas.com.qa/ (Energy Information Administration) http://www.counterterrorexpo.com/page.cfm/link=220 http://www.airproducts.com/company/news-center/2009/07/0701-air-products-new-ap-xlng-tech-placed-on-stream-at-worlds-largest-lng-process-train-in-qatar.aspx Statoil (2012) LNG Plant Overview http://www.chiyoda-corp.com/technology/en/lng/liquefaction.html http://www.lngjournal.com http://www.gastechnology.org/Training/Documents/LNG17-proceedings/Process-6Brigitte_Ploix.pdf Dr Ch. Ellinas Presentation