LNG SMART

Will Mustang’s new technology settle everything?

By AL ROGERS

RodnReel.com

HOUSTON – As Shell U.S. Gas & Power moves forward with plans to put a controversial open loop LNG processing terminal off the southwest Louisiana coast, engineers with another Houston firm are promoting a new system they say will not harm marine life or the environment, while giving the oil and energy companies the chance to make even greater profits than expected.

Researchers and developers at Mustang Engineering have unveiled a re-gasification process that uses ambient air instead of millions of gallons seawater to warm the minus-256-degree liquefied natural gas (LNG), transforming it back into natural gas. Mustang’s “LNG Smart” system was invented by Ned Baudat in December 2003 and a patent was applied for in early 2004. Since then his new twist on an old air vaporization process has been fine-tuned by a team of a dozen engineers with Mustang Engineering.

The company currently has five patents pending on new LNG processes.

“We’ve actually had it in operation in 2004,” said Joe Nelson, engineering manager with Mustang Engineering. “Since then we’ve been in the process of developing it and showing the rest of the industry that it is a viable process.”

Viable may be an understatement. Officials with Mustang see great potential in this latest technology and have made it a main focus of their business strategy. Engineers have made recent trips to meet with the Federal Environmental Regulatory Commission (FERC) in Washington, D.C. and the United States Coast Guard (USCG).

It appears that their new technology has been well received.

“It makes good sense in the Gulf Coast and warm climate areas,” said Miles Soudek, Mustang’s Business Development Manager for the Midstream Sector. “It offers has advantages that other technologies don’t.”

Soudek said their new technology would have no negative impacts on marine life – an issue being debated by opponents and proponents of open loop or open rack vaporization (ORV) systems. He said the new technology would significantly reduce the fugitive air emissions, combustion by-products such as carbon dioxide (CO2) and nitrogen oxide (NOx). Because the LNG Smart systems use ambient, or surrounding air, project engineers say the development will offer its greatest benefits in warmer climates. And because of the subtropical climate and muggy, humid temperatures off the Louisiana coast, using warm air to vaporize super-chilled LNG here seems to make good sense.

There is currently one LNG processing terminal, Excelerate Energy’s Gulf Gateway, operating 116 miles off the southwest Louisiana coast. Meanwhile two other projects, Shell’s Gulf Landing and ChevronTexaco’s Port Pelican have already received federal permits to begin open loop operations. Another four applications for open loop systems remain in various stages of the federal regulatory process. All five companies that have requested to use ORV systems because these systems are less expensive to operate than the only other major alternative, closed loop or submerged combustion vaporizer (SCV) systems.

There are huge concerns about the devastating impacts that are expected to come with open loop processing of LNG. ORV systems, which virtually remain untested in waters off the U.S. have come under vehement opposition from the recreational and commercial fishing interests, conservationists, and fisheries management agencies with at every state and federal level. At issue are ORV systems, which use as much as 200 million gallons of seawater a day to warm and vaporize 1 billion square cubic feet a day (1bscfd) of LNG from its cryogenic state, transforming it into natural gas. After this gas, which is mostly methane, reaches a desired temperature it is transported via underwater pipelines to onshore distribution facilities.

There has been a growing opposition to ORV systems, primarily from the people who enjoy and rely on the Gulf’s vital marine resources. They claim literally billions of the smallest of marine creatures including fish eggs, larvae, shrimp, crustaceans, zooplankton and other microorganisms will perish in the ORV process. And so far there has been no consensus on what those impacts will be. Meanwhile, the oil and energy corporations contend that the impacts will be slight. But with vast discrepancies in the fish mortality estimates of environmental impact studies (EIS) presented so far, no one knows what the impacts will be. These EIS studies have been criticized for being inaccurate, inadequate and inconclusive.

In addition, opponents also say the cumulative impacts of several ORV systems operating simultaneously have not been considered. In at least one petition filed in 5^th Circuit Court in New Orleans, plaintiffs claim that the Maritime Administration’s (MARAD) decision to issue permits to Shell and two other applicants is in direct violation of federal law - the National Environmental Policy Act (NEPA), which clearly requires that cumulative impacts be studied.

And the opposition is to ORV processing continues to grow. Most recently Louisiana Gov. Kathleen Blanco, who supports LNG development, said she intends to oppose any future initiatives that include ORV processing. She cited unknown impacts to the Gulf’s marine resources and the abbreviated time frame of the federal regulatory process. Like others, Blanco has insisted that closed loop (SCV) processing appears to be the best choice.

But that was last month, when only a few industry insiders were aware of the new development. Today, there is hope that LNG can be processed in a manner acceptable to everyone involved.

Forced air vaporization is not a new process. But Baudat’s invention, and improvements made in the last several months have pumped new life into an old idea. When the world’s largest, most powerful and influential oil and energy companies were filing applications for permits with the federal government last month, few people were aware of the new technology.

Nelson, who is a member of the R&D team that developed the LNG Smart process, and Scott Worthington, manger of Mustang’s Midstream Sector, said they became aware of the opposition in the Gulf States to ORV systems while making a recent presentation. The company built and tested a demonstration unit in late 2004. Mustang officials said similar technology is now being used in India.

Opponents to ORV initiatives have strongly encouraged oil companies and elected officials to go with SCV or closed loop vaporizer units. And until recently, this was the best known technology that was available. Essentially, SCV systems use the same water that constantly circulates. These systems will harm marine life. But even closed loop systems are not without problems. The EPA has voiced serious concerns over toxic air emissions, and periodic water discharges that are necessary.

Significant impacts on the vital fisheries resources in the Gulf are expected if open loop processing operations begin. But in spite of these problems, and concerns voiced by the National Marine Fisheries Service and Gulf of Mexico Fisheries Management Council, big oil companies like Shell, ExxonMobil, Excelerate Energy, ConnocoPhillips and Freeport MacMoran have been reluctant to even consider closed loop technology because of one thing – the costs it will take to operate these facilities.

LNG Smart systems may offer these profit-consious companies the financil financial incentives they need to make the best decision for everyone.

The additional costs are because closed loop (SCV) systems require that a small fraction (between 1- and 2-percent) of the companies' natural gas be burned to heat the water that warms the LNG. According to estimates provided by Shell U.S. Gas & Power, SCV technology at their Gulf Landing terminal would result in between $20 million and $43 million annually in additional operating expenses. Greg Koehler, president and project manager for Gulf landing has previously stated that closed loop systems were not “economically feasible.”

Many opponents to the open loop projects initiated by Shell and others said they have little doubt that the numbers Koehler provided are biased and would be likely be closer to $20 million than the $43 million he said. And they may be right. Industry sources say the amount of natural gas needed to operate a SCV system at a terminal the size of Gulf Landing would fluctuate between 1- and 1½-percent. At an LNG facility that processes 1 billion standard cubic feet of natural gas per day (based on 1½-percent of their natural gas at conservative current market cost of $5 per million btus) the additional operating expenses at Gulf Landing would be about $25 million a year.

Shell officials said that with these additional operating expenses they would be unable to remain competitive in the LNG market.

But there is now good news for Shell and other major players in the oil and energy industry. In the Gulf of Mexico the LNG Smart process can save companies up to $25 million annually (operating at 1bscfd). This means they can essentially process LNG at the same cost of using outdated ORV technology, without negatively impacting marine fisheries or the environment. Our marine resources would remain unscathed, the air would be clean, and Shell and other companies would make their profit margins.

The LNG Smart process uses an air exchange heater system comprised primarily of ordinary components. While there is not much innovative about the parts, company officials said the components have been arranged in a in a manner that maximizes efficiency.

Mustang’s new process does rely on secondary backup loop that burns gas, but only when winter temperatures are extremely low. Because of our warm climate studies show that it would be only necessary to utilize the auxiliary fuel system three to four weeks out of each year, the additional expenses of for that period would be about $3.5 million. During the rest of the year (48 to 49 weeks) no fuel would be burned, resulting in the $25 million in annual savings to oil companies.

However, in extremely cold environments the savings to a company would not be nearly as significant. For instance a facility comparable to Gulf Landing in Maine would only accrue a savings of $12 million a year, because of the necessity to burn more fuel to warm the LNG.

An official with one LNG company said this week they do not intend to change their (ORV) plans in the middle of the permitting process. In an interview with RodnReel.com publisher Mike Lane, Shell spokesman Dennis Winkler described the LNG Smart system as “untested technology.”

“I asked (Winkler) ‘if untested technology is not good for Shell, then why is it good for the people of Louisiana?’” Lane said. Lane said his understanding is that Shell fully intends to persue ORV processing, which does remain virtually untested in our country’s offshore waters.

The forced air vaporization process has been demonstrated successfully in the test unit built by Mustang. And another similar system has been in operation overseas for almost a year.

The Mustang technology does cost slightly more to build. Nelson said the additional expenditures are about 10 percent, depending on the scope of the project. But in the long run the operational savings will cover the initial costs relatively fast.

“Our studies show that the additional costs of facilities in the Gulf of Mexico would be recovered in about a year and a half,” he said.

It is not often that a compromise is offered that satisfies everyone involved. Mustang Engineering’s LNG Smart vaporization process may be the answer to a problem that will be felt in coastal communities worldwide.