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Introduction to Natural Gas MonetizationNimir O. Elbashir

Petroleum Engineering Program, Texas A&M University at Qatar, QatarTEES Gas and Fuels Research Center, Texas A&M Engineering Experiment Station, USA

CHAPTER MENU

Introduction, 1Natural Gas Chain, 2Monetization Routes for Natural Gas, 4Natural Gas Conversion to Chemicals and Fuels, 9Summary, 13

1.1 Introduction

Natural gas, mainly methane, has been known and utilized since the ancient Greek and Chinesecivilizations. Natural gas began playing a prominent role in the energy market as early as the1780s, during the start of the Industrial Revolution, where it was used in the United Kingdomas a source of lighting for homes and streets. Baltimore became the first city in the United Statesto light its streets using natural gas by the mid-1880s.

Currently, natural gas enjoys a significant share in the primary energy mix market comparedto other fossil fuel sources (oil and coal) as well as renewables and other sources (hydro andnuclear). As shown in Figure 1.1 the contribution of natural gas as a primary energy sourceincreased by almost 40% from 1995 to 2017, and as the fastest-growing fuel per annum, itsshare is expected to reach 30% by 2035 [1, 2]. Countries with the largest natural gas reserves areRussia (∼1,688 trillion cubic feet (tcf )), Iran (∼1,187 tcf ), Qatar (∼890 tcf ), the United States ofAmerica (∼388.8 tcf ), Turkmenistan (∼353 tcf ), Saudi Arabia (∼290 tcf ), United Arab Emirates(∼215 tcf ), Venezuela (∼195 tcf ), Nigeria (∼182 tcf ), and Algeria (∼159 tcf ). These countriescontrol almost 80% of the proven global natural gas reserves [3].

The global demand for natural gas is shown in Figure 1.2. The figure shows the apparent riseof natural gas demand in the United States and the rest of the world as a result of the significantenhancement in shale gas production, while the forecast shows a slight decrease in demandfor the European nations. The world’s largest consumers of natural gas are the United States,Russia, China, and Iran, while the most significant producers are Russia, the United States,Canada, Qatar, and Iran.

Qatar, a small country in the Middle East, is a good example of a success story in natural gasproduction and monetization since it is the fourth-largest producer of natural gas, globally [4].

Natural Gas Processing from Midstream to Downstream, First Edition.Edited by Nimir O. Elbashir, Mahmoud M. El-Halwagi, Ioannis G. Economou, and Kenneth R. Hall.© 2019 John Wiley & Sons Ltd. Published 2019 by John Wiley & Sons Ltd.

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2 Natural Gas Processing from Midstream to Downstream

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Figure 1.2 The past and the prospected demand of natural gas (data obtained from [2]).

At current reserves-to-production (R/P) rates, Qatar has more than 135 years’ worth of naturalgas [4]. Thus, natural gas will continue to be a major contributor to Qatar’s economy for theforeseeable future. Qatar also aims to be at the forefront of developing innovative ways to mon-etize natural gas, not only in economic terms but also in environmental terms. This chaptersheds light on the differences in natural gas monetization pathways of major world players inthis field, either as producers or as consumers, with a focus on Russia, the United States, andQatar. The first section of this chapter will briefly highlight the differences between the signif-icant monetization routes for natural gas while the second part will reflect the differences innatural gas monetization between Russia, the United States, and Qatar.

1.2 Natural Gas Chain

As shown in Figure 1.3, the “Upstream” part of natural gas chain starts with the exploration andthe production of natural gas from either a conventional source (associated and non-associated

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Table 1.1 Typical composition of natural gas from the wellhead to the pipeline.

ComponentWellhead Gas,Mole%

Pipeline Gas,Mole%

Methane (CH4) 70–98 95–98Ethane (C2H6) 1–10 2–5Propane (C3H8) Trace–5 0.5–1.5Butanes (C4H10) Trace–2 0.2–0.5Pentanes (C5H12) Trace–1 TraceHexanes (C6H14) Trace–0.5 TraceHeptanes & heavier (C7H16+) Trace Trace

Carbon Dioxide (CO2) Trace–3 0.5–2.0Nitrogen (N2) Trace–15 0.5–1.5Hydrogen Sulfide (H2S) Trace–2 <0.000004Mercury (Hg) *200 to 300 μg/m3 *200 to 300 μg/m3

Water (H2O) Trace–5 <0.0001

reservoirs) or a non-conventional source (shale, coalbed methane (CBM), oil sand, or tight gasreservoir). The different technologies that have been used to extract, process, transport, store,and distribute natural gas depend on the location and composition of the gas as well as theproduction location. The second part of the natural gas chain is the “Midstream,” wherebythe major treatment takes place, depends on the application of the gas and the specificationrequired by downstream processes and the end users. A typical composition of natural gasfrom the wellhead to the pipeline is shown in Table 1.1. The purpose of the “Midstream” part isto remove components other than methane from natural gas in a series of separation processesthat would combine different technologies and processes. Figure 1.4 shows a typical sequenceof midstream natural gas processing plant. The “Downstream” part of the natural gas chaindepends mainly on the end use of natural gas, and it could be composed of a physical treatment(e.g., liquefied natural gas (LNG)) or chemical treatment (e.g., gas-to-liquid (GTL)).

1.3 Monetization Routes for Natural Gas

1.3.1 Large Industries and Power Plants

The industry and the power plants sector account for the highest monetization of naturalgas compared to others [5]. Specifically in the United States, coal began modestly in 2008and dropped from 48.21% to 33.18% in 2015. Coal lost 15 % of the market, while natural gasincreased 11% in the same period, as shown in Table 1.2. Renewable sources (not includingsolar and hydropower) increased 3.6% to 6.7% overall. The electricity sector is a major emitterof CO2 in the United States, and it is assumed to be responsible of 29% of global warming emis-sions. Coal is the major source for these emissions, and therefore natural gas and renewablesemerged to substitute for coal in this sector [6, 7]. That results in natural gas and renewablespicking up 14.8% of the market (i.e., or ∼99% of the market lost by coal). In 2016, natural gasbecome the major sources of electricity in the United States (∼34%) followed by coal (30%),nuclear (∼20%), and the renewables (∼16%) [8].

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Table 1.2 Role of natural gas in the United States electricity generation.

Annual Total Coal Natural Gas Renewables

2006 48.97% 20.09% 2.36%2007 48.51% 21.57% 2.52%2008 48.21% 21.43% 3.04%2009 44.45% 23.31% 3.63%2010 44.78% 23.94% 4.02%2011 42.28% 24.72% 4.69%2012 37.40% 30.29% 5.29%2013 38.89% 27.66% 6.01%2014 38.64% 27.52% 6.39%2015 33.13% 32.66% 6.65%2016 30.4% 33.8% 13.10%

Table 1.3 Advantages and disadvantages for monetizing natural gas in industry and power plants.

Main advantages Disadvantages and constraints

• Creates economies of scale (large individualofftakes)

• Offers good load factor• Can avoid costly treatment facilities as gas

quality is not usually critical• Provides basic gas infrastructure for subsequent

expansion• Requires no storage on users’ premises and

avoids waste disposal problems• Uses conventional technology• More eco-friendly (no SOx and less NOx and

CO2 emissions, no particulates, etc.) than coaland most oil products

• Possibly lower value in competition with coal,fuel oil, hydro, etc.

• Load factor may be low if the end consumerinstalls dual-fired capability or buys gas on aninterruptible basis.

Table 1.3 lists the main advantages and disadvantages of monetizing natural gas in the largeindustry and power plant sectors. The major advantage is that natural gas doesn’t require anexpensive midstream treatment, while the major challenge is the low load factor due to the useof dual-fired generators, which is common practice in many places.

1.3.2 Small/Medium Industries and Commercial Users

The size and importance of the small/medium industries and the commercial user sector varyfrom country to country, and represent the use of natural gas in small machines like heatedbig/medium-sized washing machines that have dephosphatizing, rinsing, and drying treat-ments for fasteners and general small metal components. This sector has a strong presence inthe developed nations but much lower contribution in developing nations. Table 1.4 shows thesummary of the advantages and the disadvantages in monetizing natural gas in this sector. Themajor advantage in monetizing natural gas in this sector is that has high load factor offtakesand higher values in terms of heat compared to conventional steam. On the other hand, the

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Introduction to Natural Gas Monetization 7

Table 1.4 Advantages and disadvantages for monetizing natural gas in small/medium industries andcommercial users.

Main advantages Disadvantages and constraints

• Higher value than steam-raising and similarbasic heating uses

• High load factor, unless space heating is involved• Requires no storage on users’ premises and

avoids waste disposal problems• Good volume potential, but slower build-up

than for steam raising and similar uses• Ease of control/flexibility at point of use• More eco-friendly than coal and most oil

products

• Need for treatment facilities, as gas quality isusually important

• Cost and operation of a more complexdistribution system

• More sophisticated technology at point of usethan steam raising

• Need for service/maintenance back-up support

gas has to be treated in a more expensive midstream process compared to monetization inpower plants.

1.3.3 Residential

One of the first priorities of “local” natural gas monetization is residential heating requirements.Gas is delivered to homes through pipelines or in tanks as CNG (compressed natural gas). Thisis the conventional use of natural gas to warm homes or for water heating. Also, it is also usedin stoves, ovens, clothes dryers, lighting fixtures, and other appliances. Table 1.5 lists the majoradvantages in using natural gas in residential versus the disadvantages and the challenges facingthe same.

1.3.4 Natural Gas Export

1.3.4.1 Pipeline ExportA major route of natural gas transportation both within state and out of the state is via pipelines.Russia is one of the world’s largest producers of crude oil (including lease condensate) and thesecond-largest producer of dry natural gas, ∼20 tcf in 2016. The majority of Russia’s reservesare located in West Siberia, with the Yamburg, Urengoy, and Medvezhye fields accounting for asignificant share of Russia’s total natural gas reserves. Russia has built strong pipeline network

Table 1.5 Advantages and disadvantages for monetizing natural gas in small/medium industries andcommercial users.

Main advantages Disadvantages and constraints

• High gas value in free market economies• High load factor, unless space heating is involved• No storage on users’ premises• Good volume potential if space heating is

involved, but usually a slow build-up unlessthere is an existing town gas grid

• Ease of control/flexibility at point of use• More eco-friendly than coal and most oil

products

• Need for treatment facilities as gas quality isessential

• High cost of gas distribution system unless thereis an existing town gas grid

• Substantial service/maintenance back-upsupport essential

• Relatively low average offtakes per connectioneven if space heating is involved, in which casethe load factor will be low

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Table 1.6 Advantages and disadvantages for transporting natural gas via pipeline.

Main advantages Disadvantages and constraints

• Where feasible/practicable, pipelines are usuallyquicker and easier to construct and operate thanLNG projects

• Conventional technology unless deep-watercrossings are involved

• Offtake prospects in other countries that mayhave to be crossed en route to the ultimatemarket

• Substantial revenue-earning potential if volumesare large

• Large offtake volumes are usually necessary forexports to be economic

• Potential supply security problems if severalcountries are involved

• Maintenance/operation of the system in foreigncountries may be difficult

• Net-backs diminish with reducing volumesand/or increasing distances

• Contractual and corporate structurecomplexities if several countries are involved

utilities (259,913 kilometers (km)) for local distribution of natural gas and for export of itsnatural gas to Europe. In 2014, almost 90% of Russia’s 7.1 tcf of natural gas were exported tocustomers in Europe via pipelines, with Germany, Turkey, Italy, Belarus, and Ukraine receivingthe bulk of these volumes. As a result, Russia’s economy is highly dependent on its oil and gas,and hydrocarbon revenues, which account for more than 40% of the federal budget revenues.These pipelines that travel long distances should sustain high pressure in the pipeline anywherefrom 200 to 1500 pounds per square inch (psi). The United States has the world largest pipelineinfrastructure both for onshore and offshore lines, of 2,225,032 km of interstate and intrastatetransmission pipelines, and distribution pipelines (1,984,321 km of this network is for naturalgas transportation). Canada ranks number three after the United States and Russia with a totallength of 100,000 km [9]. According to the U.S. Department of Transportation, pipelines arethe safest, most environmentally friendly and most efficient and reliable mode of transportingnatural gas [10].

Table 1.6 lists the advantages and the disadvantages for exporting natural gas via pipelinewhether overland or subsea.

1.3.4.2 Liquefied Natural Gas (LNG)Natural gas liquefaction is a physical treatment of natural gas to change methane from thegaseous phase to liquid phase to reduce its volume to 1/600 to ease its transportation and stor-age. The LNG process is a sophisticated technology. Only a very limited number of energy com-panies are capable of designing and operating such a process, which requires cooling methaneto extremely low temperatures for the liquefaction process to take place. LNG is odorless,colorless, non-toxic and non-corrosive. It is classified as a flammable hazardous substance,specifically when vaporized into a gaseous state. The LNG process involves a gas treatmentplant that is similar to the midstream plant shown in Figure 1.4. The gas is then cooled to sepa-rate the heavier hydrocarbons such as C3, C4, and C5+ components. These heavier componentsare fractionated to produce condensates (C5+ and liquefied petroleum gas (LPG) products). Thelean gas is then liquefied in cryogenic exchangers at (–165 ∘C), and the liquefied LNG is thenflashed to atmospheric pressures and stored in specialized atmospheric tanks prior to shipping.This technology allows the transportation of natural gas in the liquid phase form for thousandsof miles under maximum pressure of 4 psi using special ships designed for this purpose.

Qatar is a peninsula that extends into the Arab Gulf followed by several islands and is con-nected with the eastern coast of the Arabian Peninsula only from the southern part of thecountry. The economy of Qatar before the oil and natural gas boom relied on pearl diving, fish-ing, agriculture, and handicrafts. Qatar’s success in becoming a world-leading nation in natural

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Introduction to Natural Gas Monetization 9

Table 1.7 Advantages and disadvantages for transporting natural gas via LNG technology.

Main advantages Disadvantages and constraints

• Direct supply/contractual relationship betweenseller and buyer(s)

• Greater local employment prospects than forpipeline gas exports

• Technology transfer potential, which can beparticularly important for developing countries

• Expansion by increasing liquefaction capacity orships is physically easier than expanding pipelinesupplies.

• Greater scope for producing countries (ascommercial partners) to participate outsidenational boundaries, i.e., in shipping and/or trading

• Sophisticated technology• Capital intensive with long lead times• Need for regular, high offtakes to be economic• Some energy is lost in the liquefaction process• Net-backs diminish with reducing volumes

and/or increasing distances

gas monetization is based on the discovery of the North Field, the world’s largest non-associatedgas reservoir with a reserve of ∼900 tcf natural gas (14% of the total world’s known reserves ofnatural gas). The North Field was discovered in 1971. It is a joint ownership with Iran’s SouthPars (6,000 square km is the area of the North Field that is in Qatari territorial waters while3,700 square km (South Pars) is in Iranian territorial waters). Since 2012 Qatar has reacheda natural gas production of around 70 million tons per year, and very recently in July 2017Qatar Petroleum announced its plans to introduce new projects to increase this production to100 million tons per year. The history of Qatar in building up the world’s largest LNG facilitiesstarted with the creation of Qatargas in 1984 (a joint venture with Qatar Petroleum, the nationalenergy company), which led several joint venture projects with world-leading energy corpora-tions (e.g., ExxonMobil, Shell, and Total). In 1996 Qatargas sent its first LNG shipment to Japan,and in 2012 Qatar’s national gas companies (Qatargas and Rasgas) became the world’s largestproducer of LNG, reaching a capacity of 42 million tons per annum. Qatar established Nakilat(Qatar Transport Company) in 2004 as the owner, operator, and manager of Qatar’s LNG vesselsand to provide shipping and marine-related services to a range of participants within the Qatarihydrocarbon sector. This company owns the world’s largest LNG ships currently including 67vessels. In January 2018, Qatar’s two major LNG companies merged to become Qatargas [11].

Russia, a major producer of natural gas, has the Sakhalin II LNG project of 9.6 million tons ofLNG per year. It sells its product to Japan, South Korea, the USA, and Mexico. The United Stateshas only one operational LNG plant, the Cheniere plant at the Sabine Pass Facility, which has acurrent capacity of 2 billion cubic feet per day. It is expected that United States will become amajor player in the LNG market by 2019, with five additional LNG projects under constructionwith a total capacity of about 7.5 billion cubic feet per day (see Figure 1.6).

Table 1.7 lists the major advantages and the constraints facing LNG technology, which hasshown significant growth lately to reach 258 million tons in 2016 with more than 879 milliontons per annum (MTPA) of proposed project development, concentrated in North America,East Africa and Asia Pacific [12].

1.4 Natural Gas Conversion to Chemicals and Fuels

Natural gas can be directly or indirectly converted to chemicals and fuels via different chemi-cal catalytic routes (see Figure 1.5). The critical step in these chemistries is the breaking of the

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Introduction to Natural Gas Monetization 11

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Baseline LNG IMPORTS

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Figure 1.6 Historical, current and predicted trends in natural gas expansion in the United States. Y-axisrepresents US natural gas trade in trillion cubic feet.

carbon–hydrogen bond of methane, a step that requires a large amount of energy and normallytakes place at relatively high temperatures. The indirect conversion routes of methane to syn-thesis gas or syngas (a mixture of carbon monoxide and hydrogen) takes place at temperaturesabove 800 ∘C. The gas-to-liquid (GTL) technology is one such indirect conversion route of natu-ral gas and comprises three main stages. In the first one, methane is re-formed to form syngas (ahigh temperature process and the most expensive part of the GTL technology, which accountsfor 65–70% of the total cost). The second stage involves the Fischer-Tropsch (FT) chemistryto convert syngas into condensates and liquid hydrocarbon over an iron-based or cobalt-basedcatalyst at lower temperatures than the reforming technologies. The FT reactor accounts for20–24% of the cost of the GTL plant. The third stage is the refining stage to produce fuels andthe other hydrocarbon products, which accounts for 9–11% of the GTL plant costs. The highcost of the first stage (the re-forming stage) is because of the high temperature requirementsof the process and the need of pure oxygen in the plant, specifically for the partial oxidationre-former and the autothermal re-former. Despite the great potential of the GTL technologyfor the production of ultra-clean fuels (free of aromatics and sulfur), the energy-intensive tech-nology faces three major hurdles:

1) High CO2 emission especially in the re-forming stage that challenges its environmental ben-efit as an ultra-clean fuel

2) Economy-of-scale limitations of the FT stage to make the GTL process economically sound,requiring either a large-sized slurry reactor (Sasol technology), or multi-tubular reactorsfilled with catalyst particles (Shell technology)

3) GTL fuels and other products require special marketing campaigns as well as design blend-ing with additives for them to compete as premium fuels with crude-oil refinery products.Typical GTL products compared are shown in Table 1.8.

Qatar is a global leader in the GTL field with two large-scale plants, the ORYX GTL plant – ajoint venture between Qatar Petroleum (QP) (51%), and Sasol-Chevron (49%) that came online

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12 Natural Gas Processing from Midstream to Downstream

Table 1.8 Typical composition of GTL products.

Product Carbon Number Boiling Range

Petroleum gas Methane C1 −164∘CEthane C2 −89∘CPropane C3 −44.5∘CButane C4 −0.5∘C

Light distillates Naphtha C5–C12 30–205∘CGasoline C4–C12 35–220∘C

Middle distillates Kerosene C8–C16 150–325∘CDiesel/gas oil C9–C16 180–380∘C

Heavy distillates Fuel oil C9–C20 310–525∘CResidual fuels Heavy fuel oil C12–C70 425–600∘CLubricants Base oils C20–C50 >400∘CWax Wax C20–C60 520–620∘CResiduum Coke, asphalt, tar C50+ >600∘C

in 2007 – and the world’s largest GTL plant, the Pearl GTL Plant (a joint venture between Shelland QP). The ORYX GTL project uses about 330 million cubic feet per day (MMcf/d) of naturalgas feedstock from the Al Khaleej field to produce 34,000 barrel/day (b/d) composed of 24,000b/d diesel, 9,000 b/d naphtha, and 1,000 b/d of LP gas. The Pearl GTL project uses 1.6 billioncubic feet per day (Bcf/d) of natural gas feedstock to produce 140,000 b/d of GTL products aswell as 120,000 b/d of natural gas liquids and LPG. Qatar is one of few countries having GTLplants along with South Africa, Nigeria (Escravos GTL plant of similar capacity and technologyfor the ORYX GTL Plant of Qatar) and Malaysia (the Bintulu GTL plant). Other major naturalgas–producing countries, such as Russia and the United States, have yet to build large-scaleGTL plants partially because of the challenges listed above as well as because of the strongmarket of natural gas on the local monetization in terms of electricity and other sectors asdiscussed above.

The major advantages and constraints of converting natural gas (mainly methane) to fuelsand chemicals is listed in Table 1.9.

Table 1.9 Advantages and constraints in natural gas conversion to chemicals and fuels.

Main advantages Constraints

• Volumes of gas utilized in conversion aremodest compared with most pipeline gas andLNG projects

• Low into-plant gas prices are usually needed tomake conversion projects viable if the prices ofalternative feedstock, notably oil products, arealso relatively low

• Capital intensive but come with long lead timesand therefore create stable long-term markets

• Sophisticated technology is involved in mostinstances

• Energy is “lost” in the conversion process• Some products may become over-supplied and

therefore difficult to market• Export prices/net-backs will be influenced by

competitors’ activities and world prices• Project may need “under-writing” by government

to succeed• Lower revenue-earning potential in absolute terms

than pipeline gas or LNG

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Introduction to Natural Gas Monetization 13

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Figure 1.7 The United States natural gas historical, current and forecast natural monetization distribution [3].

1.5 Summary

This chapter summarizes the monetization routes of natural gas with focus on the experience ofthree countries that are considered among the major producers and/or exporters of natural gasand its products (the United States, Qatar, and Russia). Each of the aforementioned countriesdeveloped different natural gas monetization strategies depending on the local needs and theestablished marketing plans for its natural gas wealth. As shown in Figure 1.7, the United Statesnatural gas monetization plant has not been changed in recent years despite the significantincrease in the role of natural gas in its energy mix as a result of shale gas and tight gas produc-tion that reached almost 60% of total U.S. dry natural gas production in 2016 [13]. This bookcovers different topics related to the fundamentals and applied side of these aforementionedmonetization technologies from the upstream to midstream to downstream.

Acknowledgment

Part of the material covered in this chapter is a result of research funded by Qatar NationalResearch Fund (QNRF) in several National Priority Research Project (NPRP) that are focusedon advancing natural gas processing in Qatar, specifically the Gas-to-Liquid Technology. Also,part of the assessment of natural gas monetization techniques is obtained from Shell work-shops notes on natural gas processing. The author also would like to acknowledge ORYX GTLcompany for their support of their support of several projects in natural gas monetization sum-marized in this chapter.

References

1 BP Energy Outlook 2017 Report. Available from: https://www.bp.com/content/dam/bp/pdf/energy-economics/energy-outlook-2017/bp-energy-outlook-2017.pdf.

2 Key world energy statistics, 2016. International Energy Agency.3 ExxonMobil Energy Outlook, 2016 report. ExxonMobil. Available from: http://corporate

.exxonmobil.com/en/energy/energy-outlook/a-view-to-2040

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14 Natural Gas Processing from Midstream to Downstream

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6 Environmental Protection Agency. Inventory of U.S. greenhouse gas emissions and sinks:1990–2015; 2017.

7 Energy Information Agency (EIA). How much of the U.S. carbon dioxide emissions areassociated with electricity generation? 2017.

8 U.S. Energy Information Agency. EIA—electricity data. Available at: https://www.eia.gov/electricity/; 2017.

9 The United States Central Intelligence Agency (CIA)The world fact book. Available from:https://www.cia.gov/library/publications/the-world-factbook/fields/2117.html.

10 U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration.Pipeline safety fact sheet. Available from: https://www.aga.org/research/fact-sheets/pipeline-safety/.

11 CNBC Energy News. Qatar announces huge rise in gas production amid diplomatic crisis.Available from: https://www.cnbc.com/2017/07/04/qatar-ratchets-up-gas-production-30-percent-despite-sanctions.html.

12 International Gas Union. 2017 world LNG report; 2017. Available from: https://www.igu.org/sites/default/files/103419-World_IGU_Report_no%20crops.pdf.

13 U.S. Energy Information Administration (EIA). How much shale gas is produced in theUnited States? 2016. Available from: https://www.eia.gov/tools/faqs/faq.php?id=907&t=8.