Remote Stranded Gas: Challenges, Opportunities and Strategies for Development AkaChidike Kanu Sunlink Petroleum Limited, Lagos, Nigeria Abstract Nigeria currently ranks 7th in the world in natural gas reserves but a substantial amount of the gas is flared and, in spite of recent gas development projects, the country is still one of the nations flaring the most gas. Stranded gas generally, may be described as any gas resource that is uneconomic to monetize at the time.
This includes flared associated-gas; certain re-injected gas; ‘stranded’ gas caps, which are not accessible until much after the production of oil; remote gas reserves which are difficult or costly to access; and small gas reserves whose volume are considered as non-commercial. About 40% of the Nigeria’s total proved gas reserves have been reported as not available in the short-term as these exist as stranded gas caps. In addition, sizable amounts of non-associated gas reserves, which are considered available in the short-term, are but located in remote offshore, and often in numerous and sparse distributions.
This scenario of gas reserves location and distribution poses accessibility and economic challenges. The cost of gas gathering, conditioning and export facilities constitutes a major component of total field development cost, particularly for remote field development opportunities. Therefore selection of appropriate and cost-effective development concept is important in determining the commerciality of a field development opportunity. A number of concepts for gas transport and processing are available. However the overall viability of a gas project depends on technical as well as commercial, legal and regulatory factors.
This paper discusses the issues, constraints, trends and prospects for the economic development of stranded gas reserves, whose volumes and location are often considered as non-commercial and remote. It identifies the challenges, expounds the opportunities and explores strategies for effective resource gas utilisation. Key words: gas, stranded, reserves, development, opportunity. Introduction: Nigeria’s current proved natural gas reserves are approximately (182 TCF), making the country’s gas reserves the 7th largest in the world. The gas quality is high, without sulphur, low in CO2 and rich in liquids (condensate) content.
However, substantial amounts of the gas are still flared and the country is still among the nations flaring the most gas. Stranded gas generally may be described as any gas resource that is uneconomic to monetize. The set of stranded gas therefore encompasses flared associated-gas; gas that are re-injected purely for regulatory compliance, rather than for reservoir pressure maintenance; gas caps, which are not accessible until much after the production of oil; remote gas reserves which are difficult or costly to access; small gas reserve volumes, which are considered non-commercial for development.
About 40% of Nigeria’s total proved gas reserves have been classified as stranded gas caps, which are not accessible in the short-term (A. L. Yar’adua, 2007). In addition, there exists a sizable amount of non-associated gas reserves which are located in remote offshore locations, often in numerous but sparse deposits. This set of stranded gas have been considered as available in the short-term, however economics of field development limits the prospects of their availability in the near-term.
To ensure commerciality of stranded gas development opportunities and consequently achieve the goals of the Nigeria Gas Master Plan, germane development strategies that address the remote stranded gas challenge is imperative. These challenges and issues are highlighted in this paper. It is discussed, the trends and prospects for the economic development of stranded gas reserves whose volume and location are often considered as non-commercial and difficult for development. Finally, some strategic policy mechanisms for effective gas resource development planning are suggested.
Development Challenges The major challenge in handling and marketing natural gas is the large volume at ambient temperatures and pressure. That is, gas has to be transported economically from source to market. For a given gas utilisation project proposal, a wide range of development concept options are evaluated to determine the commerciality of a potential investment decision. Factors that determine the feasibility of a gas utilization project include: resource volume availability and accessibility, demand growth, market size and regulatory environment.
The economics of any gas project is thus determined by: available reserves, development facilities costs, operating costs, commercial and fiscal terms in place. Nearly none of these factors currently favours development of stranded gas fields. Consequently opportunities for stranded gas development always come out uncompetitive amidst other alternatives which are considered much more economic. Nigeria is among the top gas flaring countries of the world, accounting for about 16% of global gas flares. Official data for 2004 indicated that Nigeria lost over 24 billion m3 (8.
5 TCF) of natural gas by flaring during that year alone (Petroleum Economist, November 2007). This volume of gas is equivalent to about 5% of the country’s total proven reserves, and would convert to about 255 million tonnes of Methanol. [pic] Figure 1: Indicative Short/Medium Term Reserves Balance1 According to the Nigeria national agenda for gas, the challenge is sustaining a portfolio of strategic gas opportunities with available and affordable supply. Thus the objective of the Gas Master Plan is to assure long-term gas security for Nigeria through managed resource exploitation.
Total gas demand needs to be resolved with available reserves in time (Figure 1). Gas Development Concepts A number of technology concepts for gas transport, conditioning and processing are commercially available. The major natural gas transport and utilisation alternatives are illustrated in Figure 2. In the following discussion, technology solutions for gas development are reviewed. Gas re-injection or recycling is included not as a method of gas utilisation but as a viable alternative to gas flaring. [pic] Figure 2: Natural gas Transport and Utilisation Alternatives (DNV, 2002)
Re-injection or Recycle is often applied offshore in order to boost oil recovery by maintaining reservoir pressure and simultaneously reduce or eliminate the need for gas transportation facilities. This is still an attractive option for small volumes of associated-gas, where strict restrictions on gas flaring are enforced, and investment in processing or export infrastructure would render the prospect uneconomical. However for reservoirs with substantial gas reserves, re-injection is often considered uneconomic. It should be mentioned that water injection is the commonly used alternative technique to boost oil recovery.
Pipeline is the most convenient and principal method of transporting gas; either from an offshore location to onshore for processing or to interface with existing distribution grids. It is also used for transportation of export gas, although the installation and operation of pipelines through deep waters in a safe and reliable way is a challenge. The economics of gas transportation through pipeline is subject to distance. Comparative cost of gas delivery by pipelines versus LNG (C. Durr, et al, 2005) is shown in Figure 3. [pic] Figure 3: Comparative Cost of Gas Transportation Systems
Generally, use of sub-sea pipeline is limited to transportation of large gas volumes over relatively short distances. Similarly for gas volumes less than 5. 7 million SCMD (standard cubic meters per day) (200 MMSCFD) use of pipeline rapidly looses viability to other alternatives such as Compressed Natural Gas (CNG) and electricity conversion (R. Eriksen, et al, 2002). Liquefied Natural Gas (LNG) has become the principal development concept for conveying large gas volumes, more than 11 – 14 million SCMD (400 – 500 MMSCFD) over significantly long distances, more than 2,500 km.
LNG development is currently characterised by large investments in liquefaction facilities and LNG carriers, in addition to the need for long-term contractual agreements as no spot market exists yet. Also, LNG production plants, to date, have been sited only onshore due to their large-scale technical complexity and overall economics. Therefore the viability of a remote offshore gas field development opportunity via LNG is determined by the economic limit of selected method of transportation of the gas to shore.
In addition, since the LNG plants require large feed gas volumes, in the range of 13 – 17 million SCMD (450 – 600 MMSCFD) or 3. 8 – 5. 5 mtpa (metric tons per annum) per LNG train. Consequently substantial upstream investment in gas gathering facilities is normally required in order to commercialise remote stranded natural gas reserves into onshore LNG. Combination of these factors presents a grim picture for prospects of developing remote stranded gas into conventional LNG. Development of Floating Production Storage and Offloading LNG (LNG FPSO or FLNG) facility for offshore applications is ongoing and mature.
Current FLNG concepts are smaller in capacity (1. 0 – 2. 0 mpta) compared to conventional LNG plants. FLNG concepts are in principle most applicable to remote offshore stranded reserves. Moreso some developers have claimed to achieve cost reduction of about 30 – 40% of unit capital cost compared to a standard onshore liquefaction project. LNG FPSO is considered an unproven technology. However, it is easily acknowledged that the concept is only a combination proven technologies such as gas liquefaction process and floating production and storage systems.
The major concerns over FLNG have bordered on reliability and operational safety, including concerns for containment, offloading and mooring. Plans have been reported underway for application of LNG FPSOs for gas assets in Nigeria and Australia (OGJ, 2008). Generally, implementation of FLNG concepts has been limited by inherent technical and commercial risks, in addition to regulatory framework uncertainties. Gas-to-Liquids (GTL) Diesel and Synfuels refer to the liquid hydrocarbons and the range of oxygenated products produced by the catalytic conversion of synthetic gas (syngas) by the Fischer-Tropsch (FT) process (Figure 4).
End products are determined by the length of hydrocarbon chain which, in turn, is determined by catalyst selectivity and reaction conditions. Product range includes synthetic diesel and gasoline, naphtha, kerosene, alcohols, dimethyl ether and waxes, with water or CO2 produced as by-products. Figure 4: Simplified GTL Process Diesel from FT synthesis has improved properties, namely: virtually sulphur free, higher octane values, cleaner burning and non aromatic. However GTL diesel has poor cold-weather properties.
Also GTL process is complex, energy intensive and associated with high investment costs. Therefore several modifications and process developments have targeted lowering capital costs and overall energy requirements particularly by way of catalyst engineering and oxygen extraction technologies. A non-FT process that converts natural gas to synfuels has been reported (P. A. Fischer, 2002). GTL technologies are not offshore. GTL Methanol is a synfuel produced by syngas and methanol synthesis processes. Methanol like other synfuels can utilise exiting infrastructures relatively easy.
In addition, Methanol development offers a very wide array of product value-chain e. g. methanol to gasoline (MTG), methanol to olefins (MTO), methanol to olefins to gasoline and distillates (MOGD), dimethyl ether (DME), methanol to power (MTP), etc. However, the market is currently limited and needs to be developed before a major breakthrough can be expected. Compressed Natural Gas (CNG) is considered attractive when the distance to the market is in the 500 – 1,500 km region and production output moderate.
The economics of CNG transport falls somewhere between that of subsea pipeline and LNG transport (P. G. Rynn et al. , 2007). Key deficiencies are low energy density and currently unproven transportation technology. CNG also requires purpose-built carriers. The CNG concept is currently maturing and the first operational CNG carriers are still expected. Gas-to-Hydrates are clathrates (molecular “cages”) that trap gas within a water-ice lattice. The roughly 160:1 gas compression ratio within the lattice (P. A. Fischer, 2002) could allow economic transportation of gas
in the form of hydrates. Furthermore, this substance is rather easily handled compared to LNG/CNG and is considered attractive for transportation distances in the range 2,000-2500 km (R. Eriksen, et al, 2002). However, the energy density is relatively low and significant research breakthrough on commercialised solutions is yet to be announced. Consequently, this is still a development option for the future. Policy Mechanisms for Development Following are suggested policy actions that could steer and facilitate effective and sustainable stranded gas development and utilisation:
Initiate and support pertinent research and development (R&D) in natural gas development. R&D alliances between government, academia and industry will promote access to vital and useful information, effectively support policy direction, and promote mutual understanding between major stakeholders. It is required, specialised R&D that cover the entire gas value-chain, and address crucial focus areas such as Modelling and Optimisation of Value Distribution for different development concepts. Such studies will provide answers to crucial issues such as: – Resolving government versus investor goals: are they congruent or conflicting?
– Where is the best value along development concepts value-chain? – What is the impact of State ownership? – Appropriate technologies for stranded gas development – Etc. This strategy has been successfully applied in Norway and Trinidad and Tobago via SINTEF and NGIA respectively. Proactively define and release regulatory guidelines, including any fiscal incentives, local content, etc that specifically but broadly address deployment of new and emerging development concepts with potential strategic impact on national gas utilisation plans.
Examples of concepts that require early government policy direction include FLNG, Methanol FPSO, Methanol-to-Power and non-FT GTL. Such policy framework will direct and aid active investor participation and promote the potentials of Nigeria as a vanguard for technology development and innovations in the gas sector. Generally expeditious passage of downstream gas act and fiscal terms will minimise major project uncertainties and accelerate investment decision processes. Implement existing commitment to flares-out, without further shifts.
There is a need to demonstrate seriousness of the drive for gas development and utilisation by ending routine gas flaring in Nigeria by 2008 as committed. The following will facilitate the elimination of gas flaring: – Effective regulatory framework for utilisation of associated-gas – Local markets for produced gas i. e. power and chemicals – Infrastructure to transport gas to markets Catalyse growth of domestic gas market via strategic investment alliances for participation in strategic industrial sectors such as Methanol, Fertiliser (ammonia) and GTL.
This could be achieved through: Encouraging participation of Nigerian operating companies, in joint venture with competent technical partners, in the mid/down-stream segments of the gas value-chain. Creation of new Gas PSC and third-party PSC agreements for target gas development programs, and the review of existing government JV agreements with respect to gas project funding could also be considered. Appropriate investment approach to both gas development (supply) and utilisation (demand) would be essential, in order to: – Develop domestic gas market
– Reduce the dominant control by few major players – Improve on the current feature of the Nigeria gas market – Stimulate competitive project financing Reference 1. Durr, C. , Coyle, D. , Hill D. and Smith S. , “LNG Technology for the Commercially Minded”, Gastech, 2005. 2. Eriksen R. , Brandstorp J. M. , Cramer E. , “Evaluating the Viability of Offshore LNG Production and Storage”, Gastech, 2002. 3. Fischer P. A. , “Natural Gas: Part 8: Monetizing Stranded Gas”, World Oil Magazine, Vol. 222, No 11, Nov. 2002. 4. Yar’adua Abubakar L.
, “The Nigerian Gas Master Plan”, Gas Stakeholders Forum Abuja, Nov. 2007. 5. Petroleum Economist, Vol. 74, No. 11, p. 22, Nov. 2007. 6. Rynn P. G. , Patel H. N. and Serratella C. , “ABS Development of a Guide for Compressed natural Gas Carrier”, Offshore Technology Conference, 2007. ———————– H2O (Steam) H2O n(-CH2-) (Waxes) GTL Products (Diesel, Naphtha, Alcohols, etc. ) CO H2 O2 CH4 Fischer- Tropsch Synthesis Product Upgrade Syngas Production ? How much is economically developable in the near-term? Reserves Required Reserves Available
