A few months ago the President of Polish company PL Energia, a company supplying Liquefied Natural Gases to the local market, was visiting Cryolor in France in search for some LNG trailers. When informed that Cryolor was a subsidiary of Air Liquide, he asked $quot;Who or what is Air Liquide?$quot;.
There seems to be a huge gap between the world of industrial gases and that of LNG. Nevertheless, both worlds extensively use cryogenic techniques in liquefying gases.
What is the origin of this gap? Is there indeed a difference? If yes, on what level? If no, why this gap? How is it reflected in the economic environment? Is synergy a possibility or is it even logical? Or is the antagonism justified? These are the questions that need to be addressed.
Let's first have a closer look at both worlds and try to understand the differences and similarities. Then let's address whether these two gas sectors should indeed be separate. I will also consider the emerging business of small scale LNG and see if this market can bridge the gap.
Two separate worlds?
Firstly, lets look at some technical aspects of the two sectors.
At atmospheric pressure, pure natural gas (methane) liquefies at -162Â°C, nitrogen at -196Â°C and oxygen at -182Â°C. Cryogenic temperatures are almost always involved when handling and treating air gases or natural gas. The techniques involved are basically the same, although the purpose might be different.
Cryogenics are primarily used in the world of industrial gases for production purposes, such as in cryogenic air separation plants. In the world of natural gases, on the other hand, cryogenics are primarily used for liquefaction to reduce volumes - with an eye on lower cost transport. But even this initial difference is rather flimsy: industrial gases are often liquefied for efficient transportation and cryogenic techniques are often applied during natural gas production and purification. Nitrogen removal systems, for example, are mostly based on the cryogenic principles applied within the world of industrial gases.
At the beginning of the 1960's, when the first LNG facilities were built, the world of industrial gases was already commercially over 60 years old. LNG terminals were considered part of the energy sector, unrelated to industrial gases. There were multiple areas where the techniques overlapped, but the two worlds remained apart; one was supplying energy to the market, the other was using it. This situation did not change for decades. It is only in the last few years, and on a very limited scale, that the first steps have been made to bridge the gap.
White-Martins, the Brazilian subsidiary of Praxair, started its first small scale LNG project in August this year. The example is marginal; small scale LNG is an emerging market, albeit probably on the point of a break-through. At the laboratory or prototype level several industrial gas companies are involved in the small scale liquefaction of natural gas. On a commercial scale it is still a non-event.
What about the commercial aspects of the businesses? These two worlds are completely different in terms of the money involved. As expected from the energy sector, the amount of capital being invested in natural gas is significantly higher than that in industrial gases.
Traditional natural gas and bulk LNG plants demand investment exceeding several billion dollars. Air Separation Units require an investment of several million dollars; plants exceeding an investment of $40 million are rare. So commercially there is no real comparison - the world of natural gas is far larger. This is reflected by the technical standards and levels applied while dealing with natural gas compared to those applied to industrial gases.
This is probably one of the major reasons the world of industrial gases is reluctant to get involved in Natural Gas. The projects are too big for them, the capital investment too high, and the procedural requirements too demanding.
It is also interesting to look at the engineering aspects of both. Natural Gas Plants and bulk LNG plants are mainly built by major, world famous engineering companies, such as Foster-Wheeler, ABB, Sofregaz, Bechtel and Kellogg. These companies work according to strict specifications, on all levels. An average LNG bulk plant represents hundreds of thousands of engineering man-hours.
ASUs are usually not built by big engineering companies, but by the industrial gas companies themselves. The prime focus is to sell industrial gas 'molecules'. The main ASU manufacturers are Air Liquide, Linde, Air Products and Praxair, although there are others, some of them independent cryogenic engineering companies.
Does this mean that the air gases companies apply lower technical standards than the big engineering companies which handle natural gas? Certainly not. On the contrary, the standards applied by industrial gas companies are often more appropriate for the purpose and application than those applied by engineering companies. This is because they only focus on industrial gases, while engineering companies, in principle, do everything, and need a broader set of standards and specifications - which does not imply that they are better.
Air Products was the first company to start to bridge the engineering divide by producing LNG cold boxes. They have been so successful at this that most of the LNG plants built contain an Air Products cold box. However, while Air Products builds these units in shared facilities with ASU manufacturing, the marketing of the range is completely separate to that of air separation. In more recent times Linde, through its engineering division, has started to bridge the gap as well.
The number of larger engineering companies focusing on natural gas is limited. The best examples are Sofregaz, originating from Gaz de France, and Costain. Most others see natural gas as an interesting, growing opportunity within a broader scale of services they offer.
The Equipment Support Supplier
One of the most striking facts about the two businesses is that their sub-suppliers segregate them, clearly intentionally. For example,consider Nordon-CryogÃ©nie, a famous supplier of Brazed Aluminium Heat Exchangers (BAHX), used in the world of air gases as well as in the world of Natural Gas Liquefaction. This company clearly separates the two worlds, having one department for LNG and another for air gases. Why? What is the difference between a BAHX for LNG and one for air gases? The answer is simple: nothing.
Take another famous sub-supplier, Cryostar. One department handles cryogenic pumps and turbines for air gases and another department handles cryogenic pumps and turbines for LNG.
One last example relates to well known valve suppliers such as Herose and Bestobell. They produce cryogenic valves for air gases, and cryogenic valves for LNG - again marketed by separate departments!
Of course LNG is not an air gas, and valves for use with it have different requirements in design, choice of materials and construction to those for liquid nitrogen. But the same is true for valves designed for liquid oxygen. Is the fact that a valve is for LNG a technical justification to consider it to belong to a completely different world? It is hard to justify such reasoning.
Why, then, are the two separate? It seems to be because an LNG valve can be sold at a higher price than an air gas valve. Not because of technical aspects - simply because more money goes around in the world of LNG. More paperwork is required, but the valves do not differ enough to justify the difference in price.
The first conclusion we can draw is that the two worlds are indeed separated, but the technical grounds for this separation are weak. The major reason for this separation is the scale. The scale of projects in natural gas are an order of magnitude higher than those in the industrial gas sector. The capital investment, economic risk and required engineering level surpass that of the industrial gases business. This gap is, in general, further supported by the sub-suppliers to both markets, inspired by commercial considerations.
Small scale LNG, will it bridge the gap?
The rising demand for small scale LNG
The energy market is shifting. Political strategies and the steadily increasing price of crude oil have made natural gas and LNG the subject of increased media attention. Huge LNG liquefaction plants are emerging all over the world and associated with these projects are new large LNG terminals. But beneath this global trend, a second business is evolving: small scale natural gas liquefaction plants.
It is only economically viable to transport LNG over long distances when the quantity involved is huge. The LNG is shipped to a terminal, re-gasified, and then distributed via high-pressure pipelines, which are present in almost all countries in the world. Between the point of production and the consumers there are often thousands of kilometres of pipeline. However, the demand for natural gas is increasing rapidly, and the cost of extending pipelines to all the demand centres may be prohibitive. What is the alternative?
LNG can be transported in trailers, but once the distance exceeds 300-400km, the economic feasibility becomes questionable. Eventually the product will have completely evaporated. The Polish company PL Energia, located in the western part of Poland, buys LNG in St. Petersburg, Russia. A one-way trip is almost 1,000 km and takes a week. The cost of transport, losses, risks and all other obvious problems make such enterprise at least doubtful.
Small Scale Liquefaction Plants provide an answer to this. It is possible to liquefy part of the natural gas coming through the pipelines. From such liquefaction points it can be transported by LNG trailers over short distances (300-400km) to satellite plants where the LNG is re-gasified for local use. The demand for such plants is growing quickly. The reason is obvious: the traditional sources of energy such as diesel, gasoline, butane and propane are becoming more and more expensive.
The technology behind small scale
While the demand is new, the techniques offered by the classical engineering companies, traditionally involved in the world of natural gas, are rather old-fashioned and therefore inappropriate. They offer the same technology used in the bulk plants.
Bulk LNG plants often produce in excess of 15,000tpd of LNG. The technology they use is either Cascade Cycle or Mixed Refrigerant Cycle (MRC). Both techniques require a high capital investment, a high maintenance cost and a crew of highly skilled personnel. Their primary advantage is that power consumption, one of the most important ongoing cost parameters, is minimized as far as possible.
Applying the same processes towards small scale LNG plants, which need to produce only a hundred tons per day, is a mistake. This technology does not easily scale down; the plants still require more capital investment than can be economically justified, despite the low power consumption. This is why there has been little break through yet in small scale LNG production plants. It simply costs too much.
This is a problem that can be solved by the industrial gas community. It presents an opportunity for those with cryogenic engineering capability. In the industrial gas market, the concept of a product exchanger is well known. The technique is used to liquefy oxygen, a gas having some similar dangers and safety aspects to natural gas.
The concept is simple: a simple single nitrogen loop is applied. Firstly, nitrogen is cooled in the same way as in a nitrogen liquefier, using expansion turbines to reduce the temperature. The cold nitrogen is then sent into a simple two-stream heat exchanger, the product exchanger. The subsequent heat exchange cools an incoming stream of natural gas, liquefying it. The nitrogen then comes out at ambient conditions, and is recycled.
This technique is well known in the world of industrial gases but it is almost unheard of within the world of natural gases and LNG. It is safe, reliable and - ideally for small-scale LNG - requires a low capital investment cost. The applied process cycle has only one disadvantage; the relatively high power consumption. However, the industrial gas community has become more branded these days as a solution provider - is this an opportunity?
Small scale LNG and Industrial Gases -
closing the gap
Cryonorm Projects, a company based in the Netherlands, is executing the first commercial small scale LNG plant project in Europe, applying the above process cycle. The plant is in Poland and will be a 100tpd natural gas liquefaction plant. Cryonorm is applying its core competency in cryogenics, gained from the industrial gas industry, to the world of natural gas.
Prior the start of the project the impact of the higher power consumption was offset against the low capital investment and compared with the higher investment required for the MRC technique used in the world of natural gas. The conclusion was that it would take over 133 years of operation before MRC would start to pay off!
Cryonorm is not the first company to do this; the American company Cryopak succeeded in a similar installation in China in collaboration with a Chinese company. In Brazil, White Martins, traditionally a pure industrial gas company, is executing the first small scale LNG project in South America.
There is LNG, there is small scale LNG, and there are industrial gases. The gap between LNG and industrial gases is huge and it is not likely this gap will be bridged in the near future. Despite the fact the two worlds overlap on a technical level to large extent, the mindset is completely different. Two different worlds with different targets, existing next to each other, divided, but often using similar or same technologies.
Once the magnitude of 'projects' comes down the first bridges will be built to close the gap with the world of industrial gases. This is the case with $quot;small scale LNG$quot; projects. The hurdles - capital cost and investment - fall away, so the starting and ending points of the bridge are now on the same level. This seems to be the mandatory condition. The bridge is not built yet, but at least the two sides can see each other clearly.