Cooling natural gas to about −163°C (-260°F) at normal pressure results in the condensation of the gas into liquid form, known as Liquefied Natural Gas (LNG).

LNG can be very useful, particularly for the transportation of natural gas, since LNG takes up about one six hundredth the volume of gaseous natural gas, similar to reducing the volume of a beach ball to the volume of a ping-pong ball.

While LNG is reasonably costly to produce, advances in technology are reducing the costs associated with the liquefaction and re-gasification of LNG. Because it is easy to transport, LNG can serve to make economical those stranded natural gas deposits, for which the construction of pipelines is uneconomical.

Production Process
When natural gas is extracted from underground reservoirs, it often contains other materials and components, such as those listed below, that must be removed before the gas can be liquefied and used by the consumer.

* Sulphur, carbon dioxide and mercury, which are corrosive to equipment.

* Water, which would naturally freeze and cause equipment blockage if not removed as the gas is cooled.

* Heavier hydrocarbons and carbon dioxide which can freeze (like water) and cause equipment blockage and gas ignition problems.

To convert the natural gas to a liquid, it is cooled to the temperature at which the main component, methane, will form a liquid (approximately -256°F or -160°C).

The liquefaction process works much like a typical refrigerator: cold liquid refrigerants such as propane and ethylene are reduced in pressure and evaporated as heat is exchanged with the natural gas steam.

As this happens, it cools the natural gas to the point where it turns into a liquid. Once the gas has been liquefied, it is sent to storage to await shipping.

Health & Safety
Risks when handling with LNG come from its three characteristics: dispersion, flammability and extremely low temperature products.

Extremely cold LNG can inflict direct consequences and cause wounds or damages. A steam cloud that turns up upon effusion can, if carried with wind, get at inhabited areas and if there’s a gas concentration in this steam between 5-15%, then this steam is easily flammable.

Fire as a result of such a process can provide extremely high temperatures. A good property of LNG exhalation is the fact that it heats itself and that steam rises in air (gas-created steam is easier than the air).

Soaring Prices
The increased global trade in natural gas has been driven partly by huge investments since 2003 in facilities to liquefy gas for export – chilling it to -160°C – as big Western oil companies saw a business opportunity and ramped up spending on LNG infrastructure.

This created economies of scale and further drove down the price of producing and shipping LNG over long distances, triggering a revolution in gas markets.

Previously, countries such as Nigeria, which has ample natural gas, had no easy way to sell it due to a lack of pipelines feeding the markets needing the fuel. The same was true of Qatar, also home to enormous gas reserves.

One key change involves the way LNG sales contracts are written. Until recently, buyers were in the driver’s seat, able to strike long-term deals and lock in their costs for many years.

A seller, such as Indonesia for instance, might have agreed to ship LNG to Japan for 10 years at relatively rigid prices.

Today however, sellers have the clout. Sellers are demanding that contracts be loosened to let them divert their output to markets where prices are higher. (In return they generally agree to share the profits with the customer).

This free-for-all has let suppliers auction their product to the highest bidder, adding to increasing price volatility.

Booming Demand for LNG
International LNG trade has grown rapidly in recent years as new export facilities have started operations in several countries. In 2006, 13 countries exported natural gas in the form of LNG to 17 importing countries.

International trade equalled the equivalent of more than 7.5 trillion cubic feet of natural gas in 2006. By the end of 2010, there will likely be five additional exporting countries for a total of 18 LNG source countries, although not all will be consistent suppliers of LNG to the US.

Countries in Europe and Asia also rely heavily on LNG supplies. By far the largest volume of LNG consumption is in Asia, where Japan and South Korea are the largest importers, accounting for more than 55% of global LNG demand. In Europe, Spain is the largest importer with about 11% of global consumption.

Prices in these countries in recent years have surpassed market prices in the US, resulting in the occasional diversion of shipments from the US to these countries.

Future Liquefaction Capacity
The global LNG liquefaction capacity at the end of 2007 was about 29 Bcfd. Liquefaction capacity is expected to grow by about 4 Bcfd to 33 Bcfd in 2008. The chart below shows the expected capacity split by region based on existing facilities and facilities under construction.