20th World Petroleum Congress, Doha 2011

Forum 04: Solutions for stranded gas

Commercial Use of Stranded gas

Mr Ajay Marchanda, Indian Oil Corporation Ltd, India

Mr Sanjay Manchanda, Indian Oil Corporation Ltd, India

Mr Alok Roy, Indian Oil Corporation Ltd, India

Abstract
Smaller gas reserves away from consumption points have historically been flared because
their low volumes and/or large distance to end consumers make them economically unviable.
However increase of energy prices, shifting towards natural gas use due to environmental
concerns and technological advancement are motivating producers towards making the use
of stranded gas for commercial use.

The estimate of stranded gas is currently 3,000 TCF across the globe and therefore
represents billions of dollars in unutilized assets. Hence it is imperative to harness
technological advances and design innovative schemes to bring this gas to the market and
contribute towards achieving energy security. Various options are now available to use such
stranded gas.

Scalable Transportation System - Floating CNG systems consists of a fleet of ships or barges
that provide continuous gas delivery from offshore stranded gas fields to consumption centre.
The fleet can be easily scaled up or down by adding or reducing the ships/barges, as desired.
Producers can transport gas using such system that would otherwise be uneconomic by
subsea pipeline and too small for LNG projects because the bulk capital invested here as
floating assets, which can be redeployed.

Skid Mounted Small Scale Liquefaction Plant: Small scale LNG equipment placed near
stranded gas wells and convert into LNG, and then transport in cryogenic form. It is an ideal
monetization strategy for the gas sources in case of lower life as it provides enormous
flexibility in terms of tapping such gas till its availability and then shifted towards another Gas
reserves.

Small Power Plant at Gas Source: Gas Turbine Generators at gas source can commercially
utilize stranded Gas either for local/captive use or by transmitting through grid, in case of low
volume long life, as cost of transmission of power is much lowers than the cost of gas
transmission.

1.0 Stranded Gas

Stranded Gas refers to natural gas that has been discovered but has not been developed due
to their location or the economics of getting the natural gas delivered to the marketplace. For
example a reserve may be called as Stranded Gas reserve when volumes of gas is not
sufficient for the economics of new pipeline network, to connect to the existing pipeline
network or to a market place.

There are a large number of natural gas reservoirs in the world which have not been
exploited, whether for their small size and/or their long distance to consumer points.
Approximately 1,400 fields are estimated to have between 0.25 and 5 Tera cubic feet (Tcf) of
natural gas, a quantity that does not permit its exploitation with a standard conventional
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approach . Approximately 40% of the world’s available natural gas reserves are classified as
“Stranded Gas”. Below figure displays worldwide stranded reserves.
Figure 1.1: Worldwide Standard Gas Reserves

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 20th World Petroleum Congress, Doha 2011
Forum 04: Solutions for stranded gas

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Source: Gas2

1.1 Need for Monetization of Stranded Gas

Skyrocketing Energy Price: Record high petroleum products pricing with oil >>$100US, This
increase in energy prices makes even costly sources of energy in economically viable range.
Green Concerns: Natural Gas has been emerging as the most preferred fuel due to its
inherent environmentally benign nature. With increase in pollution levels, the awareness for
clean environments has also increased; causing dramatic shift in its use as most preferred
fuel.
Gas flaring is also increasingly recognized as a large environmental problem, contributing
more than 1% to global emissions of CO2. In recent years, nations across the globe have
engaged in substantial regulatory efforts to curb flaring, thus there is need for solutions which
can offer economic means for marketing flared gas.
Increasing Gas demand & Price: Recent catastrophic events in Japanese nuclear plants
have raised the safety concerns of Nuclear power projects. Effect of which, countries are
facing huge resistance for renewing the existing nuclear power plants and Greenfield projects.
This increased the requirement of Gas in Power sector, thereby increasing global gas
demand and prices.

1.1.1 Need for Monetization – Indian Perspective:

India has 51.2 Tcf (BP statistics 2011) of Proved resource of conventional gas reserves
whereas production in 2010 was 50.19 bcm (1.78 Tcf) and imports around 25% of total
consumption through LNG imports. Apart from conventional resources, India has 63 Tcf of
3.
Technically Recoverable Shale Gas Resources Further, in reserves already under
production, total amount of flared gas in India is around 1.0 bcm in 2009 (as per GE
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Estimates) and same is rising every year. If 20% of all these reserves can be considered as
stranded reserves; still that’s a huge figure.

India at present faces huge road blocks in turning these resources in to market supply due to
high development cost and lack of pipeline infrastructure. The bulk of flaring is also mainly
due to lack of gas infrastructure. Whereas on the demand side, India has huge potential for
Gas, Inter Ministerial reports says India has additional demand of 21 bcm in 2015 even at the
prices of 13-15 $/MMBTU. Thus there is definite need for Monetization of Stranded reserves
in India.

© World Petroleum Council

 20th World Petroleum Congress, Doha 2011
Forum 04: Solutions for stranded gas

1.2 Commercial Solutions for Monetization of Stranded Gas

Solutions for monetization depend upon two parameters, the quantity of gas available &
distance to the final market.

Figure 1.2: Efficient options for Monetizing Natural Gas

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Source : Xgas

1.2.1 Scalable Transportation System; CNG Marine Transportation:

Introduction:
CNG marine transportation is a new concept in gas shipping, CNG is an emerging effective
method and economic solution of transporting natural gas to shorter-distance niche markets.
Using CNG Marine transportation, smaller reserves not suitable for pipelines or LNG can be
monetized and brought to the market and it is suited to both onshore and offshore reserves

Technology
CNG Marine technology offers an economically attractive way to deliver commercial
quantities of natural gas by ship to customers within 2,000 kilometers (1,200 miles). CNG is
compressed and sometimes chilled (but not liquefied) at pressures of 2,000 to 3,000 psi (130
to 200 atm). CNG ships are in effect ‘floating pipelines.’ The on-shore facilities required for
loading and off-loading from CNG transport are simple and inexpensive (as Gas is not
required o be kept at Cryogenic temperatures) compared to LNG.

Scope:
A CNG project (operation) is more quickly planned and implemented than LNG. CNG
shipping can be the best method to monetize Stranded Gas reserves quickly and can also be
a temporary solution to create a market history in order to justify a pipeline, or LNG,
transportation later. Flexibility of system allows ships to be re-deployed to other production
areas or markets when no longer needed. Figure 1.3 shows capex distribution of flexible &
permanent in Pipeline, LNG and CNG infrastructure.

Figure 1.3: Capex Distribution

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 20th World Petroleum Congress, Doha 2011
Forum 04: Solutions for stranded gas

Source: TransCanada6
Economic Evaluation:
Simplicity of system provides low initial capital commitment to initiate gas flow. The biggest
investment cost in the CNG supply (value) chain is in the midstream shipping component
(redeployable or movable assets), contributing up to 90% of the capital investment needed.
This Cargo capacity is normally designed and optimized for a specific project. A
representative median cargo size is considered to be around 14 MMSCM. There are designs
proposed for cargo capacity of 28 MMSCM

For transporting 10 MMSCMD, say for 1000 kilometers, 5 ships with each having a capacity
of around 14 MMSCM will be required, this will add additional tariff of around $2.45 MMBTU
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to Gas price. (Source: SeaNG Tariff Estimator ). On assumption, that gas is loaded and
discharged on a continuous basis over a 15-year project life.

Technology Providers
Several companies have developed CNG delivery systems (Viz, Enersea, TransCanada,
SeaNG. , Knutsen, Transcanada, CETEch, and Transocean).

1.2.2 Skid Mounted Small Scale Liquefaction Plant:

Introduction:
In most cases, gas reserve are stranded, as gas volumes are smaller and there is no
sufficient potential demand to justify this resource for local use. Normally these reserves are
not contemplated for conventional Liquefied Natural Gas (LNG) export development and on
those occasions small/medium scale LNG projects can be explored.

Small Scale Liquefaction plants are also intended for utilization of natural gas in areas without
pipeline infrastructure and for the use of LNG as vehicle and maritime fuel. In countries like
India, the remotely located marginal fields & CBM fields do not justify the high investments in
pipelines as these fields are located far away from consumer markets. So, liquefaction
technology offers opportunity to liquefy the natural gas and bring the same to consuming
locations to effectively utilize these energy sources. Small Scale Liquefaction plants:
• Provides flexibility in terms of switching from one source to the other after the gas
reserves are depleted at the source as skid mounted units have small foot print.
• Enables quick deployment due to low gestation period compared to establishing
pipeline infrastructure

Technology:
Small scale liquefaction is an established technology now. There are number of operating
plants in US, Europe, Asia and Australia. There are many variants of this technology;
however most of them utilize the mixed refrigerant cycle to liquefy the gas. Storage and

© World Petroleum Council

 20th World Petroleum Congress, Doha 2011
Forum 04: Solutions for stranded gas

transportation of LNG is a very mature technology and has been done for many years in
various parts of the world.

Economics
A study was made for setting up of a small scale liquefaction plant by utilizing the natural gas
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available in the marginal fields of Rajasthan, India . Economics were evaluated for 1 Lac
SCMD (76 TPD) Liquefaction plant with storage of LNG for 3 days inventory and LNG tanker
loading facility, for 75 MT/day. Project cost was estimated around 18 Million USD (As per
2009 Est.). At 14.1% IRR, Liquefaction Cost estimated to be around 5 $/mmbtu and
transportation cost of 3$/mmbtu (for approx 500Kms). These costs add to the well head cost.
Considering the demand price in nearby area’s (within 400-800 Kms) various from 8 to
14$/MMBTU, It shows that significant value realization can be achieved if the well head cost
lies below 3$/mmbtu.

Thus appropriate gas utilization scheme is a key component as it decides the value
realization for the monetized gas. The highest value realization for gas can be diesel
replacement in diesel engines and other applications that run on diesel. Value realization from
selling LNG/LCNG as automobile fuel will also fetch a very Good value realization. Another
source of value realization can be transporting LNG in tankers to the industrial customer for
replacing Bulk LPG/ Naptha provided those customers are available within 100-200
kilometers.

Elsewhere in China, Small scale LNG has been playing an important, though supplementary,
role in enabling the small gas producers of western China to explore business in the
secondary demand centers in other parts of China. Currently China’s total small scale LNG
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capacity is 2.5 MMTPA and expected to increase to 6.6 MMTPA by 2015 . These Plants in
China mainly exploit larger price gap between inland gas producing and coastal gas
consuming markets.

1.2.3 Small Power Plant at Gas Source:

Gas Turbine Generators at gas source can commercially utilize such Stranded Gas either for
local/captive use or by transmitting through grid, in case of low volume long life, as cost of
transmission of power is much lower than the cost of gas transmission. Hence, the gas fields
that has been discovered, but remains unusable for either physical or economic reasons may
be utilized commercially. Stranded Gas can be used as fuel that generates electricity with gas
turbine generators with an investment for as little as $785/kW (plus shipping costs and any
related set-up costs). Stranded Gas wells with a nearby electric transmission line with a
minimum production of approximately 70,000 cubic feet of natural gas per day – can become
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a new profit centre . With a minimum of 400 mcf/day it is possible to install a gas turbine
generator and generate about 1.0 MW of electricity, 24 x 7 x 365. The power generated may
be utilized to fulfill the requirement of the establishments in case of Stranded Gas available
with Oil Fields.

1.3 Conclusion
For shorter and smaller gas volumes, Compressed Natural Gas (CNG) could play a niche, but
significant role in gas trading, providing a more economical marine transportation option than
LNG. Although sea borne CNG transportation is a conceptually mature technology and ready
for deployment, it is yet to be applied commercially, on a large scale. But CNG will play an
increasingly important role in the future

The difficulty to access to new natural gas reservoirs and new LNG supplies as well as the
increasing development of new technologies for the production of small scale LNG will drive
the growth of Small scale liquefaction plants. However, Oil and gas prices scenarios might
have an important role in the medium term.
Different solutions will be applicable for different Stranded Gas sources, the choice of solution
depends upon the well head cost of gas, distance from the market, terrain/place where source
is located and the price at which demand for gas exists in the target market.

© World Petroleum Council

 20th World Petroleum Congress, Doha 2011
Forum 04: Solutions for stranded gas

Bibliography:

1. “A new Business Approach to conventional Small Scale LNG” presented at the IGU
th
24 World Gas Conference by Enrique Dameno Garcia-Cuerva, Director Business
Development and Technology- Repsol-Gas Natural LNG (STREAM).
2. “Gas2” Company website taken on Aug’2011. http://www.gas-2.com/applications/
stranded-gas.
3. “World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the
United States” – EIA report released, Apr’2011
4. “Recent global trends and policy considerations" by Michael F. Farina, GE Energy,
Jan’2011.
5. “XGAS LLC’ Company website taken on Aug’2011. http://www.xgas.us/cng.html.
6. “CNG Transportation Pakistan’s Natural Gas Solution” presented at Pakistan Energy
Conference by The TransCanada, April 2011
7. “SeaNG Tariff Estimator tool” taken on Aug’2011. http://www.coselle.com/tariff-
estimator.
8. “Business Model for Small Scale Liquefaction (76 TPD) Plant” Internal Paper of
IndianOil dated Oct’09.
9. “China’s Mini LNG and its Future Prospects” – issue#49 of Facts global Energy’s,
China Energy Series: Gas Edition released on August 2011
10. “The Renewable Energy Institute” website taken on Aug’2011
http://cogeneration.net/ barnett-shale-natural-gas.

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