9.3 Characteristics of LNG Value Chain

  • LNG market has evolved from long term contracts between suppliers and off-takers that underpinned LNG projects to increasing commodity trading
  • Process requirements for liquefaction and LNG product specifications mean that stringent treatment of feed natural gas streams are required to remove contaminants (acid gas, water, mercury)
  • Upstream production facilities are dependent on location and characteristics of reservoir / source
  • Co-production of LPG, condensate or crude are dependent on the source
  • Core liquefaction process accounts for only half the cost of an LNG plant, which in turn could be less than half the cost of the total LNG supply chain
  • Bigger is always better for capital and operating cost efficiency up to critical equipment constraints
  • Competitive technology market has resulted in two main providers
  • Maximum train capacity and configuration is set by gas turbine, refrigeration compressor and heat exchanger technology
  • Multi-train plants allow phasing of investment and production, greater total production (than maximum single train) and greater capital cost efficiency (shared infrastructure)
  • Project EPC providers and execution strategies are driven by the business models of the technology providers (exclusive or not, equipment supply or not)
  • During peak project development activity of the last decade, resource constraints (personnel, skills, materials) have caused significant capital cost escalation
  • Project schedules typically are 4 - 5 years for execution from project sanction (FID). Development schedules prior to FID can be much longer and more variable as upstream development concepts are defined and markets and off-takes committed.
  • LNG storage, marine facilities and tanker fleet are major components of the value chain
  • Size and configuration of storage and shipping have grown along with size of LNG plants and number of LNG tankers increases in relation to overall production
  • Regasification facility capacity significantly exceeds liquefaction capacity. This means that a greater number of consumers buy from a lesser number of producers, each producer has multiple markets available.
  • All LNG export facilities are constructed at or near shore for marine facilities access
  • Near shore location drives site selection and construction strategy
  • Site selection is subject to environmental and community stakeholder considerations which can be stringent and constraining
  • Facilities layout is optimised for construction, phasing (addition of trains), hazard risk mitigation, site conditions, modularisation
  • Hazard risks of LNG production include those of other gas processing (flammability, explosion)
  • Additionally materials of construction suitable for cryogenic conditions are required and rapid phase transition explosion is a risk for contact with water