SPE 161583

The Optimization of Natural Gas Transportation

Michael J. Economides, University of Houston, Xiuli Wang, XGas, Francesco Colafemmina, S.A.F.E., and Vanni
Neri Tomaselli, Blue Wave Co.

Copyright 2012, Society of Petroleum Engineers

This paper was prepared for presentation at the SPE Hydrocarbon, Economics, and Evaluation Symposium held in Calgary, Alberta, Canada, 2425 September 2012.
This paper was selected for presentation by an SPE program committee following review of information contained in an abstract submitted by the author(s). Contents of the paper have not been
reviewed by the Society of Petroleum Engineers and are subject to correction by the author(s). The material does not necessar ily reflect any position of the Society of Petroleum Engineers, its
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reproduce in print is restricted to an abstract of not more than 300 words; illustrations may not be copied. The abstract must contain conspicuous acknowledgment of SPE copyright.

Abstract
More than 2,600 trillion cubic feet (Tcf) of natural gas reserves are considered as stranded internationally, outside of
North America (i.e., not connected to production).This figure is essentially equal to the 2,800 Tcf currently connected to
production. The total world reserves, including North America, are around 7,000 Tcf. Confusing the situation and putting
impediments to smooth development, in contrast to oil, is the enormous disparity among natural gas prices in various parts of
the world: $1/MMBTU in Russia, $2.5 in the US, $8 in Europe, $16 in the Far East. Lack of adequate and diversified
transportation is the reason.
It has been repeated often that oil is fungible and hence easy to transport with pipelines or easy to load and unload
tankers, whereas natural gas is not. Natural gas can be transported with on-land pipelines but it gets rather expensive with
underwater pipelines. Traditionally, the cost per length of offshore pipelines has been considered ten times the onshore cost.
The main alternative has been liquefied natural gas (LNG) but other options have been offered such as compressed natural
gas (CNG) and the chemical conversion of gas to transportable fuels, collectively called gas-to-liquids (GTL). The latter has
changed over the years with alcohols getting new prominence.
This work presents new information from recent experiences and attempts to provide a methodology of optimization
for the transportation options for natural gas. Emphasis is given to new CNG technologies. Guidelines and new limits are
presented to provide the appropriate means of transportation and reduce the volume of stranded gas currently in place. Worldwide demand for natural gas is expected to force the issue because of massive new needs, headed by China.
Introduction
In its 2010 report the International Energy Agency (IEA) provided an estimation of ultimate natural gas recovery of
over 30,000 Tcf, a figure twice as large as the one contained in the 2009 report. Starting with the new IEA estimate, Figure 1
separates the portion of natural gas that is now considered as reserves (6,609 Tcf) with the expected future reserves (over
23,000 Tcf). Although much more gas exists in the form of natural gas hydrates, Fig. 1 does not include much of that but the
suggested volume already predicts 200 years of natural gas supply at current use of about 110 Tcf of gas per year.
Where is the gas? Figure 2 shows the largest natural gas reserves holders in the world, using US government
sanctioned definitions. Russia leads by far with reserves of almost 1,600 Tcf. Russia dominates European gas exports and is
poised to play a big role in future Chinese imports. Iran follows with over 1,000 and then Qatar with almost 900 Tcf. Qatar is
particularly meaningful because of recent markedly enhanced LNG trade while Iran because of sanctions is a net importer of
natural gas (EIA, 2011). (Note: Figures for reserves or ultimate recovery from different sources vary somewhat. They are
kept intact as in the original sources.)
Expected demand of natural gas will outpace overall world energy demand, the latter expected to show an average
of 1.5 percent increase per year (EIA, 2012.) Natural gas will increase at 1.8 percent as shown in Figure 3 (IEA, 2012.) Even
more significant, non-OECD nations will increase their gas consumption by 2.5 percent. Chinas natural gas demand will
increase by an imposing 7 percent and Indias by 4.7 percent. Natural gas is well on its way to gain energy market share from
both coal in power generation and oil in transportation.
In the emerging world superpower, China has an unusual predicament with natural gas. In 2011, about 70 percent of
Chinas total energy still derived from coal (BP, 2011), 18 percent from oil, and only 4 percent from natural gas. Although
Chinese energy consumption in 2010 reached 96.6 quadrillion Btu (or 2,432 million tonnes oil equivalent) with an annual
growth rate of 11.2 percent, accounting for 20.3 percent of global energy consumption, and surpassing the US as the worlds
largest energy consumer, Chinas energy makeup is still very primitive. Energy consumption per capita, especially natural

SPE 161583

gas consumption per capita, is still far below the average level of energy use in developed countries such as the US (China:
US = 1:27, cubic meters/yr/capita, Wang, 2012). Such an environmentally adverse energy mix has not been seen in the
developed world since the nineteenth century (Tran et. al., 2011). This affects pollution, emissions, and efficiency
(Economides and Wang, 2010). To reach a semblance of a developed countrys energy profile, China must increase its
natural gas usage and this is an expressed policy of the government (Wang and Wang, 2011). Over the next decade natural
gas in Chinas energy mix has been decreed to increase from 4 percent now (4 Tcf) to 10 percent (10.6-12 Tcf) in 2020. This
will be perhaps the greatest geopolitical energy challenge of the coming decade.

Figure 1 World Natural Gas Reserves vs. Ultimate Recovery (Data Source: IEA, 2011)

Figure 2 Top 15 Countries Who Have the Gas (Data Source: BP, 2011)

There is a considerable disparity among countries that produce and consume. Although the US and Russia are both
large producers and large consumers, most other countries are consumers with a few potential exporters of natural gas. A
classic case is the Mediterranean Sea which separates northern African producers with consuming nations in Europe (Figure
4.) The need of transportation across bodies of water becomes necessary.
Because of unresolved transportation issues much of natural gas reserves in the world are stranded, i.e., there is no
market for the gas. About 49 percent of gas reserves in the world are labeled as stranded (IHS, EIA, IEA, 2011). Figure 5
contains additional breakdown of stranded versus connected gas in both offshore and onshore locations outside of North
America.

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Figure 3 Natural Gas Demand by Region in the Golden Roles Case (Data Source: IEA, 2012)

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Figure 4 Natural Gas Production and Consumption in Mediterranean Sea Area (Data Source: BP, 2012)

Figure 5 Stranded Gas That is Outside of North America (Data Sources: IHS, EIA and IEA, 2011)

Marine Natural Gas Transportation Means

Currently, about 70 percent of global gas is transported trans-nationally by pipeline and 30 percent by liquefied
natural gas (LNG). Table 1 includes some of the most important recent movements and highlights of natural gas. Pipelines
are the most efficient way to transport gas onshore but offshore potential is limited due to the high cost. Offshore pipelines
cost about ten times more for the same length compared to onshore pipelines, so the distance between the gas source and the
market, the water depth, and underwater terrain are compounded.
Table 2 contains some offshore pipeline examples. A logical comparison is between the Libya to Europe
Greenstream pipeline, completed in 2003, and the comparable depth Gazproms Nord Stream pipeline under the Baltic Sea,
completed in 2012. Cost per mile dropped by about 60 percent. A far bigger challenge is when water depth increases
considerably. Table 2 also contains a column of would-be cost for the South Stream pipeline, expected to traverse water
depths of 1,000 to 2,000 meters. The cost estimate of $16 billion should be viewed with major skepticism and very much an
effort by Gazprom (the origin of these estimates) to deflect alternative potential sources for gas for Europe.

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Table 1 Recent Important Gas Movement (Data Source: BP, 2011)

2010

2011

Global Gas Movements, Bcm

986

1,025

4%

Global LNG Movements, Bcm

298

331

11%

30%

32%

2%

76

103

35%

95

106

12%

108

131

21%

LNG Shares
Qatar LNG Exports, Bcm
Japan LNG Imports, Bcm
China Gas Consumption, Bcm

Incremental

Table 2 Offshore Pipeline Examples (Data Source: ENI, Nord Stream, Gazprom)

Liquefied Natural Gas (LNG)

LNG has dominated marine transport for decades and recent expansions, headed by Qatar but with Australia close
behind, will capitalize on the expected natural gas growth. Qatar almost unilaterally accounted for the LNG trade increase
between 2010 and 2011 (Table 1).
Of particular significance has been the natural gas situation in the United States, especially since the evolution of
shale gas. Figure 6 shows the considerable recent activity in shale gas production which essentially climbed from nothing to 7
Tcf in 2011, representing 30 percent of total US production. This created a new situation in a number of ways.
The United States no longer needs to import LNG and regasification terminals built following the price hikes and
trends towards shortages in the early 2000s are no longer needed.
Prices have gone down to as low as $2 per thousand standard cubic feet (Mscf), although they have bounced back
somewhat.
A surfeit of natural gas is likely to result in LNG exports. At least three companies have announced plans for LNG
liquefaction facilities, constructed inside their re-gasification terminals (See Table 3). Cheniere has announced three
contracts for large LNG export volumes that would essentially guarantee full capacity use of the Sabine pass
terminal for 20 years. The expansion of the Panama Canal which would allow the passage of large LNG tankers
would promote US LNG exports further. Cost estimates, presented in Table 4, show US LNG landed prices in both
Europe and Asia to be at least as attractive to considerably more attractive to current prices ($10 to $12 for Europe,
as high as $16 in Asia).

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Figure 6 U.S. Natural Gas Production (Data Source: EIA, 2012)

Table 3 Proposed LNG Export Terminals in North America, May 2012

Location

Capacity,
Bcf/d

Type

Company

2.4

Export

Cheniere

Sabine/Lake Charles,
LA, USA
Freeport, TX, USA

1.8

Export

Freeport LNG

Corpus Christi, TX, USA

1.8

Export

Cheniere

Kitimat, BC, Canada

Douglas Island, BC,
Canada

0.7

Export

0.25

Export

Apache Canada Ltd.

BC LNG Export
Cooperative

Table 4 LNG Cost (Data Source: Cheniere, February 2012)

($/MMBtu)

Europe/Americas

Asia

Henry Hub

4.00

4.00

Capacity Charge

2.50

2.50

Shipping

1.00

2.80

Fuel/Basis

0.60

0.60

Delivered Cost

8.10

9.90

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Compressed Natural Gas (CNG)

Compressed natural gas (CNG) is compressed and sometimes chilled (but not liquefied). CNG ships are in effect
floating pipelines (Wang and Marongiu-Porcu, 2008). The on-shore facilities required for loading and off-loading from
CNG transport consist of simple jetties or buoys which are minimal compared to LNG. CNG, on principle, is a proven
technology that has been around since the late 60s. It has been used in many public and commercial vehicles as fuel and has
been transported on land as well, even the marine transportation is not new. The marine CNG transportation we are talking
about here is the new generation of CNG vessels with relatively low cost and high efficiency.
Since 2000, due to an unexpected increase in gas prices, marine CNG has been considered as a viable solution for
gas transportation alternative to LNG and pipelines. CNG technology is meant to be applied to marine environments where it
was supposed to be an easy way to monetize assets not economically exploitable with existing technologies (stranded gas
reserves). In the stranded gas category one can include not only small gas reserves that simply do not justify Capex
intensive technologies such as pipelines and LNG, but also reserves placed in an extreme environment (e.g. on difficult
seabed that makes impossible the deployment of a pipeline).
A typical marine CNG value chain foresees light investments on fixed infrastructure (compression and
decompression stations onshore buoys or jetties), thus allowing a wide range of flexibility to the technology itself. The
main investment consists of the ship together with the containment system of CNG. All the proposed technologies for marine
CNG transportation do not overcame the typical ratio of 200-250 bars for the storage of CNG in the containment system. A
simple comparison with LNG (gas is carried liquefied at a ratio 1:600) can give an idea of the amount of gas that can be
transported with such a technology: 1/3 of that of an average LNG carrier.
Another aspect that should be underlined is the simplified business model established by marine CNG proponents: a
tariff for CNG transportation ($ per transported Mscf). In this case no direct investment is required by the producing
companies, but is left to the CNG operator through project financing to all the Capex.
Compressed natural gas (CNG) is a conceptually mature gas transport technology but while ready, it has yet to be
applied commercially on a large scale to monetize stranded gas. It is intended to transport natural gas across water to
previously inaccessible areas (Wang, 2011).
The following reasons can be useful in the understanding of this failure.
Old technological solutions: 2/3 of the marine CNG proponents based their technology on all steel pressure vessels
or coiled pipes. In this way no innovation was in place, but just a combination of existing solutions for a marine
application. The same concern of land based transportation (steel is too heavy and consequently has a strong impact
on Opex) was replicated in the marine environment. Furthermore corrosion and safety issues were not approached in
a convincing way. Internal and in some case also external inspection were not allowed by the proposed systems, thus
amplifying the health, safety, and environment (HSE) concerns.
Wrong marketing approach: marine CNG proponents were selling a claimed perfect technological solution but in
most case were just selling good ideas, with limited approvals, limited tests, no real or pilot applications, interesting
but not verifiable economics. During ten years they lost in this way the confidence of the market. Many
announcements were made, but few facts followed.
Extreme competition: competition with LNG and pipelines instead of integration is one of the main reasons of
marine CNG failure. Most of petroleum companies were already engaged with long term investments on LNG or
pipelines. Asking them to replace LNG with CNG should imply that a major benefit can came from this new
technology, but having no history behind, CNG was not considered a safer shore than LNG. Also the unrestrained
competition between marine CNG proponents was a reason of failure: criticizing each others technologies
weakened the entire emerging sector.
Marine CNG Chain
The typical marine CNG chain contains a system of buoys at loading and unloading point and assuming gas treatment
on ship and a containment system at ambient temperature and pressures between 200-250 bar (2,900 3,526 psi). However,
marine CNG can also provide transportation to and from jetty based facilities, foreseeing land based infrastructure for gas
treatment and processing and can also be chilled at average temperature of -30C (-22F) to increase gas density or reduce the
overall pressure needed to transport a fixed volume of gas, as we will see through the following analysis of the existing
marine CNG technologies.
In a typical CNG chain, during the initial part of the loading sequence, the gas is heated onboard in order to keep the
cargo containment system at ambient conditions. After the loading sequence is completed, CNG ship disconnects the loading
buoy, and commences the sea voyage.
At the discharging end, the discharging buoy is picked up and connected to the CNG ships loading/unloading
manifold system.
The discharging buoy is connected to a pipeline system, which again is connected to the onshore or offshore receiving
system. This system normally consists of a discharging compressor and gas metering. During the initial phase of the
discharging sequence, gas is heated onboard the CNG ship in order to maintain the system temperatures at ambient
conditions. The CNG ship is emptied by way of pressure/flow control without any compression until the system pressure

SPE 161583

reaches the receiving system pressure, which can typically be around 70 bar (1,015 psi).
Marine CNG can provide a constant or interruptible flow of gas to the final market. This is accomplished by
establishing a fleet of marine CNG ships such that gas can be taken by the supplier on a steady flow or uninterruptible basis,
and then shipped to market, where is offloaded to the gas market or to storage facilities.
For continuous gas deliveries, a system of two or more loading and discharging buoys are used. It should be noted that
the CNG ships can also be equipped with gas drying and compression facilities depending on the nature of the value chain.
After metering, the gas is routed via a pipeline system connecting the onshore or offshore facility with the offshore loading
buoy, which consists of a riser, swivel and connector. The loading buoy is picked up by the same methods as currently used
for offshore oil loading operations and proven at pressures up to 300 bar (4,350 psi).
New Marine CNG Technology: Shifting from Midstream to Upstream
In recent years, despite the crisis of the marine CNG concept, a new technological solution was developed to
overcome the limits of past proposals. The new features of such a technology can be summarized as follows:
Composite lightweight containment system with larger diameter pressure vessels stored vertically inside the ship at
ambient temperature and average 250 bar (3,626 psi). Composite container may weigh as little as 40 percent of
metal containers of similar capacity;
Presence of devices for internal and external inspection of the containment systems;
Capability to carry raw/wet gas, thus avoiding gas treatment onshore or onboard;
Enhanced ship design to ameliorate efficiency during the transportation phase (faster ships, reduced Opex).
Together with the new technology there is a new approach of marine CNG niche towards the upstream petroleum industry.
CNG is today considered not only a viable solution for gas transportation, but is becoming a solution for raw gas
management. Considering the actual trends of gas prices globally and the foreseen unification and reduction of gas price in
future years, CNG cannot be considered only as an economical way to monetize stranded gas, but will became an instrument
to enhance oil production through raw gas disposal. Indeed the economic benefit for petroleum companies is still in oil
production and second on gas monetization. Shifting from a midstream to an upstream solution is a positive challenge that
will rehabilitate CNG over the next few years.
New Marine CNG Technology Description: Composite Tank Design
The design of the new composite pressure tanks is based on the non load-sharing liner concept where an inner nonstructural layer provides impermeability during hydrocarbon transportation and support for the composite material to be
wound externally to the inner layer. The inner layer is often called liner and is also the design feature that provides corrosion
resistance to the overall structure.
The liner can be either metallic or non-metallic. When a metallic liner is selected, the pressure tank is designed and
manufactured with the liner in compressions state, induced by the outer composite structural layer. This compression state is
aimed to extend the fatigue life of the metal liner.
In the case of a non-metallic liner the most common choices are related to thermoplastic or thermosetting polymers.
In this case, a joint of multiple components does not constitute a structural concern like it happens with metal components.
The optimal design for the composite layer is based on the filament winding technique, allowing the reinforcing fibers to be
aligned where the higher strength is needed. Hoop stress is accounted by the circumferential fibers while axial stress is
accounted by the helical fibers. The circumferential winding is only placed in the cylindrical section of the pressure tank
while the helical winding is placed both on the cylindrical section and on the heads of the pressure tank. The heads of the
liners also have a geodesic-isotensoid shape allowing the helical fibers to be wound following geodesic paths.
Only axial openings are foreseen to maintain the highest possible structural integrity of the pressure tank and to
allow simpler certification paths (ASME, 2011). The end fittings often called nozzles are designed to be integrated in the
composite structure and to be compatible with flanges and pipes to be connected externally and to be integrated in the overall
containment system.
The new technologies are conceived to provide a more efficient, cost-effective and lightweight CNG transportation.
The main aspects considered as critical and limiting the CNG industry are the following:
The limit of hydrogen gas containment (ASME, 2010), where natural gas is expected to be less aggressive than
hydrogen on the containment structures;
The limit of certifying manufacturers instead of assessed material properties regarding composites (fibers and resin
systems).
This approach shows the high disparity that currently exists between the certification of metal pressure tanks and the
certification of non-metallic materials for these applications.

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Figure 7 New Generation CNG Pressure Vessel (Courtesy of Blue Power Group, 2012)

Figure 7 shows a new composite CNG container whose diameter ranges from 1 to 3.5 m (3.28-11.5 ft) and the
length from 10 to 25 m (32.8-82.0 ft). Temperature of storage is ambient whereas the pressure is up to 250 bar (3,626 psi).
The liner consists of ductile, lightweight materials for hydraulic containment applications. There are a number of potential
manufacturers of this material which provides for high impregnation properties and high impermeability to NG. The
wrapping consists of lightweight structural materials and fire resistant epoxy resin. There are different fiber solutions (carbon,
glass). The material is stronger than steels (carbon-based composites) and is very damage and defects tolerant.
Figure 8 is a depiction of a vessel carrying the new generation CNG containers. Of particular importance of the
composite CNG containers is their ability to haul raw gas.
Table 5 contains the relevant economic variables for a new generation, 15 Bcf/year CNG project. Of particular
interest is the tariff varying from $4.50 to $6.50 per Mscf, making CNG quite attractive in many parts of the world.

Figure 8 CNG Ship with the New Generation CNG Containers (Courtesy of Blue Power Group, 2012)

10

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Table 5 CNG Costs for a 15 Bcf/yr Project (Courtesy of Blue Power Group, 2012)
Gas to be transported
Ship (260 MMscf capacity x 2 ships)
Equipment (loading-offloading)
Tariff ($/Mscf)
Expected IRR

15 Bcf/yr
$460,000
$65,000
4.50-6.50
8%-15%

Gas to Liquids (GTL)

A much talked about option for stranded gas utilization is gas-to-liquids, GTL. Technologies for the conversion to
liquid fuels from any hydrocarbon resources are long established through the synthesis gas route and the Fischer-Tropsch
reactions. The economics of GTL depend on both the price of natural gas and, especially, the price of oil. They are large scale
operations, far larger than CNG. Also, the physical size of the processes is large, making them practically impossible for
floating, offshore locations.
However, ethanol which has proliferated as an oxygenate to motor-vehicle gasoline and has been produced as a
biofuel using corn as a feedstock with large government subsidies, offers an intriguing new possibility.
A new technique, proposed by Celanese company has shown to produce 100 percent ethanol from any fossil fuel
and this process may be particularly attractive for stranded natural gas. The process, using synthesis gas and the FischerTropsch can be an alternative to monetize large volumes stranded natural gas.
Discussion
It is clear that the transportation of natural gas is both key for the commodity to be stranded and its ultimate
monetization. Figure 9 contains the general ranges of application of the three main means of transport:
Pipelines have a length limit especially at deep water.
LNG can traverse large bodies of water and can carry large volumes of gas.
CNG, on the other hand, makes economic sense for smaller volumes and shorter distances. Light weight, compositematerial containers may have been the necessary element to expand CNG range in both quantity and distance. Their
corrosion resistance allows them to haul raw gas which makes them particularly useful to offshore stranded gas,
especially one produced in association with oil.
GTL can be superimposed on any of these solutions, subject to economic and market demand. Ethanol for natural
gas is an intriguing new possibility that warrants extensive investigation.

Figure 9 The Range of Optimum Natural Gas Transportation Modes

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11

Conclusions
Transportation or lack thereof is crucial to the monetization of natural gas and its extraction from the label stranded.
This will become an increasingly important activity as the world uses more and more natural gas both generally and in
particularly to fulfill the enormous Chinese demand. Pipelines and LNG are well understood and will continue to grow and
fill a vital role in gas transportation. For example, for the transportation of 6 Bcf/d at a distance of 10,000 miles only LNG
can be marshaled. New generation of CNG that would allow the gathering of raw gas from offshore locations, will play a
significantly enhanced role, especially for quantities less than 2 Bcf/d and distances of less than 2,000 km or considerably
less. GTL, especially alcohols from natural gas are likely to emerge as a competitor to all current modes of transportation for
the same natural gas used for the alcohol manufacturing. Extensive and site-specific economic studies are needed for such
choices.
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