MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage Assignment 1 Technical and economic review of four possible methods of developing East Mediterranean gas resources through Cyprus Authors: Supervisor: Nikolaos G. Felessakis Dr Richard J Barnes 1
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MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage
Assignment 1
Technical and economic review of four
possible methods of developing East
Mediterranean gas resources through Cyprus
Authors: Supervisor:
Nikolaos G. Felessakis Dr Richard J
Barnes
(8653)
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MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage
Introduction..................................................................................41. Converting all the gas to LNG in a LNG plant located at Vassilikos and selling to international markets in Europe & Asia......................5
1.1 Introduction.........................................................................51.2 Connection LNG plant and Reserves......................................61.3 LNG Plant Configurations......................................................7
1.3.1 1. Gas preparation...........................................................................71.3.2 2. Liquefaction.................................................................................71.3.3 3. Storage and loading....................................................................7
1.4 Storage tanks......................................................................81.5 European and Asia Market....................................................8
2. Converting all the gas to LNG in a floating LNG plant and selling to international markets in Europe and Asia....................................9
2.1 Introduction to floating LNG plant.........................................92.1.1 The FLSO vessel..............................................................................92.1.2 The FLNG vessel............................................................................10
2.2 Technical Characteristics....................................................113. Exporting the gas from Cyprus by pipeline to Greece and then Italy to tie-in to the European system...........................................12
3.1 Introduction.......................................................................123.1.1 The main processes of compressor station:..................................123.1.2 Metering Stations..........................................................................133.1.3 Control Stations and SCADA Systems............................................13
3.2 Exports by pipeline.............................................................133.3 Pipeline network................................................................15
4. Exporting the gas from Cyprus by pipeline to Turkey and then to tie-in to the proposed Nabucco pipeline........................................165. Techno-Economical Analysis....................................................17
5.1 Introduction.......................................................................175.2 Analysis of LNG plant and floating LNG................................18
5.2.1 Advantages of LNG plant...............................................................185.2.2 Disadvantages...............................................................................18
5.3 Analysis of Pipeline Connection Cyprus-Greece-Italy............205.4 Analysis of Pipeline Connection Cyprus-Turkey....................235.5 Resume...........................................Error! Bookmark not defined.
5.5.1 The European market gas needs...................................................255.5.2 The Asian market gas needs.........................................................265.5.3 Gas export Pricing Overview.........................................................27
Figure 1-2 Plant 1 – Minimum Number of Units in LNG Facility Source : (Kotzot et al., 2007).........................................................................................7Figure 2-3 The first FLNG project from Shell “Prelude” .................................10Figure 3-1 Example of Compressor Station....................................................12Figure 5-2 Total amount of gas available for export......................................18
MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage
Histogram 2 Pipe Line Parameters...................................................................6
Table 5.5.1-1 Increase of demand on EU import............................................25Table 5.5.2-1 Natural Gas Consumption in non-OECD Asia, 2015-2040 (bcm*)....................................................................................................................... 26Table 5.5.3-1 Natural Gas Prices $/Mmbtu ....................................................27
Words Counter
Main document 2347
Index 530
Bibliography 223
References 93
Figures 88
Table 54
Histogram 28
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MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage
Introduction
This project aims to analyze four possible options for the natural gas (NG)
development and the export plans of the available NG resources in the
Eastern Mediterranean via the Republic of Cyprus (RoC).
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MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage
1. Converting all the gas to LNG in a LNG plant located at Vassilikos and selling to international markets in Europe & Asia.
1.1 Introduction
The option of an LNG plant requires several parameters. The following
Histogram 1 can briefly describe them (Nobole Energy International, 2013)
Histogram 1 LNG Structure plant & parameters
This analysis is based on the indications of the potential resources coming
from the Aphrodite and Leviathan Reservoirs.
LNG Plant Analisys
Technical Analysis
Plant Configurations
PipeLine Network's
liquefaction Facility
Gas preparation
Liquefanction
Storage & Loading
Marine Terminal
Time Requierd Recuaierd Area
Economical Analisys
Project Cost
Total Cost
Pay Back Period
Price ($/Tcf)
Market Analisys
Domestic International Markets
Asia
Europe
Aveliable Sources
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MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage
MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage
The IGI is considered by the European Union as a Projects of Common
Interest11. This project would be possible to import over 8 bcm/year of NG to
Italy, an amount that represents approximately 10% of the country's
consumption.
IGI Poseidon’s subsidiary ICGB signs a MoUC with TAP12 that is aiming at
assessing the technical aspects of the possible interconnection of the two
infrastructures.
11 Among the Projects of European Interest (highest level of priority recognized by the EU) with decision 1364/2006, as the project was considered compliant to the 5 criteria of article 22 of the EU directive 55/2003.12 http://www.igi-poseidon.com/pannelli/popup.asp?id=715
Figure 3-9 Eastern Mediterranean Pipeline, Source
http://www.efylakas.com/archives/19226
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MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage
3.3 Pipeline network
According to the original design, the pipeline will consist the following parts13:
a) A 150km underwater section from the deposits to Vasiliko, Cyprus,
b) A 650km underwater section from Vasiliko to the shore of eastern
Crete,
c) A 400km underwater section from Crete to Peloponnese,
d) A 260km land section running across Peloponnese,
e) An underwater section crossing the Gulf of Patras and finally,
f) A 220km land section from the shore of Aetolia-Acarnania to
Thesprotia
The Poseidon pipeline will be consisted form14:
The compression station in Thesprotia,
The onshore section is approximately 600 km pipeline between the
compression station and the Greek landfall,
The offshore pipeline between the Greek and Italian landfalls, is around
207 km.
Nowadays, there is a project under-study about the feasibility for constructing
MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage
4. Exporting the gas from Cyprus by pipeline to Turkey and then to tie-in to the proposed Nabucco pipeline.
The exporting gas by pipeline scenario from Cyprus to Turkey, requires:
A 200km pipeline from Aphrodite reserve to Vassilikos
Another Onshore 60km pipeline to Kyrenia,
From Kyrenia an offshore 65km pipeline to the coast of Turkey,
Another onshore 200km pipeline to connect with the possible
position off Aydincik to Ceyhan and then
Approximately 530km onshore pipeline to Nabucco.
Therefore, 990km onshore and 265km offshore pipelines network will be
needed, while it is assumed that the reserve will be at 5bcm using only the
Aphrodite resource. In case part of the Leviathan reserve is also transferred
through the above pipeline, then the sum would be 8bcm, while there would
be needed another 250km of Leviathan-Vasiliko pipeline connection.
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MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage
5. Techno-Economical Analysis
5.1 Introduction
The following rough estimates the net revenue to be earned from the gas sold
as LNG or via pipeline, respectively, taking into account the major cost and
price factors (Gurel et al., 2013).
Figure 5-10 Eastern Mediterranean Region Potential
Markets
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MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage
5.2 Analysis of LNG plant and floating LNG
The available gas for export will depend firstly on how much is used for
domestic consumption. The CERA of the RoC estimates that 25 bcm will be
used until 2035. This reduces the amount of gas available for export from 198
bcm to 173 bcm.
Figure 5-11 Total amount of gas available for export
5.2.1 Advantages of LNG plant
The LNG can be exported anywhere in the world. According to the current
practice the LNG is usually sold under long-term contracts. It should be
stressed that the Asian gas market is growing faster than Europe’s. Thus,
selling gas via LNG in the former market would be a more profitable
investment than selling pipeline gas in Europe. Another advantage is that LNG
production, takes place on a single site, making it less vulnerable to attack
than a long pipeline. Furthermore, the LNG has 600 times smaller volume
than the natural gas, allowing large quantities to be exported at anytime thus,
reducing the transport costs16.
5.2.2 Disadvantages
The LNG plant is a very large running and investment cost, which reduces
considerably the revenue that can be generated. In Table 5.2.2-1, a rough
estimate of the net value of gas sold via LNG is illustrated, taking into account
16 Presentation by Pete Wallace, Senior Project Manager and Business Development Manager - Tractebel Engineering, Brussels, ’Construction of Vasilikos LNG Plant: Questions of Feasibility?’, 17 November 2011 at a seminar hosted by the European Rim and Investment Council (ERPIC), 17 November 2011.
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MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage
the major cost and price factors. The tables 5.2.2-3- 5.2.2-4 attempt to
capture the major investment and running costs.
Table 5.2.2-1 Estimated revenue from block 12 gas after running and investment
costs17
As the Table 5.2.2-1 shows, after deducting domestic consumption, another
amount must be deducted for LNG power consumption, estimated at 12.5%.
This reduces the gas available for sale to 152 bcm. At prevailing prices for
LNG in Europe, the gas worth $63 billion before the investment costs. The
next major investment cost is the construction of a single-train LNG plant,
estimated by the government at €7 to €10 billion18. Finally, the pipeline cost 17 Sources: Reuters (LNG prices); Pete Wallace, Tractebel Engineering (pipeline/km costs);Minister Sylikiotis (LNG plant cost); DEFA (distances from Block 12 to Vassiliko and pipeline cost).18 Minister of Commerce, Neoclis Syliokiotis, speaking at a seminar organized by the European Rim Policy and Investment Council (ERPIC) on 15 May 2012.
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MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage
from Block12 to Vassilikos reaches the $2 billion19. By adding the exploration
pipeline and the construction costs the total investment cost for an LNG plant
is around $12.6 billion. After deducting the gas losses for domestic
consumption and operating and investment costs, the net revenue of the gas
in Block 12 sold via LNG would be just above $50 billion.
A floating LNG plant, a fairly new technology, could be approximately 30%
more expensive for construction than an onshore plant20.
The second disadvantage is that it takes many years to build a plant and that
has a negative impact on NPV21. Thirdly, shipping the LNG is an energy-
intensive business, with each day of shipping consuming around 0.1-0.25% of
the cargo, according to some estimates. This reduces the profits when the
LNG is shipped to Asian markets.
The current plan in Cyprus, is to build a single-train plant of 5Mtpa, partly
because more than 7 tcf gas is needed to run anything larger. A larger plant
could be built if Israel decided to use an LNG plant in Cyprus to exploit its
reserves in Leviathan. Additionally, the RoC might have to wait for additional
discoveries in its EEZ.
5.3 Analysis of Pipeline Connection Cyprus-Greece-Italy
To be viable, a long pipeline of 1200km would need a very large amount of
gas. DEPA has said that the pipeline would have a capacity of 8 bcm/year.
Using all of the gas available in the RoC’s Block 12 would be enough to keep
the pipeline running for around 20 years at full capacity. The obstacle to
Cyprus-Greece pipeline is the investment cost. Before investment but after an
estimated 5% loss in transit, gas sold via pipeline to Greece would be worth
$74 billion at today’s prices22. The tender form Delek is to supply
approximately the amount 0.9 Bcm of NG to Cyprus per year23.
19 Presentation by DEFA Chairman Costas Ioannou at the Levant Energy Forum, 26 June 2012, slide 13.20 ERPIC presentation by Pete Wallace, 17 November 2011 Source http://www.youtube.com/watch?v=iiHVzA9E2PY21 Net present value is a way of accounting for the ‘time value of money’. Thus, a dollar earned today is worth more than a dollar earned in five years’ time because it can be invested and earn a return.22 Prices of Russian gas at the German border23 Delek: Submission of Offer to the Public Tender for the Supply of Natural Gas to Cyprus http://www.4-traders.com/DELEK-GROUP-LTD-6494439/news/Delek--Submission-of-Offer-to-the-Public-Tender-for-the-
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MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage
Table 5.2.2-2 Estimated revenue from gas sold via pipeline to Greece24
According to the estimates in Table 5.2.2-2, the additional investment cost of
a pipeline from Vassilikos to Greece would be almost $17 billion. This would
reduce the net revenue that could be generated to $54.5 billion. Thus, it is
little different in value from the $50bn gained from exporting gas as LNG.
5.4 Analysis of Pipeline Connection Cyprus-Turkey
The main advantage of the pipeline gas from Cyprus to Turkey is that
investment costs, at least for shorter pipelines of this length, are considerably
Supply-of-Natural-Gas-to-Cyprus-18341876/24 sources: index.mundi (natural gas prices); DEFA (distances from Block 12 to Vassiliko);DEPA (distances from Cyprus to Greece); Quantum Energy (likely depth of pipeline).
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MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage
lower than the construction of LNG facilities. This leads to considerably more
net revenue after investment.
Table 5.2.2-3 Estimated revenue from gas sold via pipeline to Turkey
According to the estimates in Table 5.2.2-3, the gross value of gas via pipeline
after domestic consumption and losses in transit is $74 billion—the same as a
pipeline to Greece. This is already $11 billion higher than the revenue
available after power consumption from an LNG plant. Moreover, the
investment costs are far lower, at around $4.8 billion, compared with $12.7
billion for the LNG plant. Thus, the net revenue that can be generated by gas
sold via pipeline to Turkey comes out at $69 billion, compared with $55 billion
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MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage
for a pipeline to Greece and $50 billion for an LNG plant. The second
advantage of piped gas is that it takes less time to build than an LNG plant.
Table 5.2.2-4 Revenue generated by different export options25
25 sources: Natural gas prices from index. mundi; LNG prices from Reuters; pipeline costs from Pete Wallace, Tractebel Engineering; LNG plant cost from Minister Sylikiotis; distances from Block 12 to Vassiliko from DEFA;distance from Cyprus to Greece from DEPA; pipeline depth to Greece from Quantum Energy figures on electricity cable.
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MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage
5.5 Conclusion
5.5.1 The European market gas needs
The European context26 sees a relentless increase in energy consumption. The
current data together with the market forecasts27 can be characterized as
follows:
the European gas demand is expected to grow from the present 558
bcm/annum to 720 bcm/annum in 2020,
The Europe's dependence on imports will continue to rise, from 45% of its
requirements at present to approximately 65% by 2020.
Table 5.5.1-1 Increase of demand on EU import28
26 Reference here is to the so-called EU 30, which includes, in addition to the member states of the European Union, also Norway, Switzerland and Turkey.27 Sources: IEA World Energy Outlook, BP Statistical Review, ENI, IHS, CERA, Edison28 Source: http://www.igi-poseidon.com/english/strategicvalue.asp
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MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage
5.5.2 The Asian market gas needs
A clear view for the Asian energy needs for the future is that the LNG imports
increased about 77% from a year ago to 2.65 mmt29. Furthermore, China will
have the greatest increase in demand, with its consumption rising from
around 158 bcm in 2015 to 495 bcm in 204030.
Table 5.5.2-2 Natural Gas Consumption in non-OECD Asia, 2015-2040 (bcm*)31
29 http://www.bloomberg.com/news/2014-02-21/china-lng-imports-rise-to-record-for-second-month-on-new-plants.html30 "Annual Energy Outlook 2013 Table: World Natural Gas Consumption by Region, Reference Case," Energy Information Administration, accessed September 5, 2013, http://www.eia.gov/oiaf/aeo/tablebrowser/#release=IEO2013&subject=0-IEO2013&table=6-IEO2013®ion=0-0&cases=Reference-d041117.
31 Source: U.S. Energy Information Administration, Annual Energy Outlook 2013.
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MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage
5.5.3 Gas export Pricing Overview
LNG prices in Europe were estimated in 2012 at $11-12/mbtu and Japanese
benchmark prices are between $15-17/mbtu. If Delek and Noble decide to
liquefy 10 bcm/y of their gas in Vassilikos the net profit margins of the LNG
option for the second LNG train can be several times higher than the $1-
$1.75/mbtu Cypriot and Israeli exporters would hope to get from selling their
gas to Turkey. (Tsakiris, 2013)
Table 5.5.3-3 Natural Gas Prices $/Mmbtu 32
32 BP Statistical Review of World Energy June 2013
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MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage
Analyzing the overall cost for the development of the Aphrodite gas33 through
an LNG terminal in Vassiliks is around $8-$9/mbtu, then gas exports to Europe
can generate a net profit of approximately $2.5-$3/mbtu. If export contracts
to Asian markets are closed by Delek/Noble within 2015-2016 then the
potential profit margins could high as $7-$8/mbtu. (ibid.) An export strategy
equally dividing Cypriot LNG exports between Europe and Asia- would
generate an average net profit for LNG exports at $5.125/mbtu compared to a
best estimate of $3/mbtu for the Turkish pipeline option. Additionally,
sending all Cypriot gas exports to Turkey would essentially create a
monopsony relationship that is by definition against the interests of any
exporter even if there were no political impediments governing this
commercial relationship. That is why it is more likely that the solution of LNG
plant and at least 50% of the projected exports from Aphrodite and Leviathan
would go to Asian markets (ibid.)
33 Actually in strict techno-economical terms even Aphrodite’s reserves are still not proven. What we have are relatively accurate estimates of prospective reserves that will be fully verified after the production test which will follow the completion of the second appraisal wells that will drilled in the second half of 2014.
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MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage
6. Glossary
tcm = trillion cubic meters
FID = final investment decision
tcf = trillion cubic feet
RoC = Republic of Cyprus
MTPA = million tones per annum
MT = million tones
EEZ = Exclusive Economic Zone
MoUC = Memorandum of
Understanding and Cooperation
mmcm = million cubic meters
mmBtu = million British thermal
units
mcm = thousand cubic meters
LNG Liquefied natural gas
km = Kilometer
cm = cubic meters
CERA = Cyprus Energy Regulatory
Authority
bcm = billion cubic meters
DEFA = Natural Gas Public
Company
NPV = net present value
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MOE 506 LNG Processing, Storage, Transport, Re-gasification, Distribution and Usage
7. Bibliography
Arms of innovation. 2014. [Film] France: dsp an endemol company.
BBCnews, 2013. "Shell's record-breaking Prelude takes to the water". [Online]