Securing LNG supplies

Sakhalin’s oil and gas fields hold recoverable reserves estimated at 17.3 trillion cubic feet of natural gas and one billion barrels of oil and natural gas liquids. When running at full capacity next year, Sakhalin II will add 5% to the world’s current LNG capacity. It will meet almost 8% of Japan’s gas needs and 5% of South Korea’s. The first cargo of LNG arrived at Tokyo Bay in Japan on April 6.

The LNG plant near Prigorodnoye in the south of Sakhalin Island has a capacity of 9.6 million tonnes of LNG a year. It is expected to reach that output in 2010. The highly automated plant has two LNG production units and is currently operated and maintained by around 300 people, mostly Russian.

LNG sold in long-term contracts

Sakhalin Energy has agreements to supply LNG to Japan — the world’s largest market for LNG — South Korea and other markets for up to 20 years. About two-thirds of Sakhalin Energy’s LNG will be exported to nine buyers in Japan, with the remaining third going to South Korea and North America. It will be used for heating and cooking in homes and to generate power. Sakhalin Energy expects more than fifty LNG cargos to leave Prigorodnoye in 2009.

“These are new markets for Russia and the economic ties will help Russia grow its role in the Asia-Pacific region and contribute to political stability there through long-term energy security,” says Sakhalin Energy Commercial Director, Victor Snegir.

Global LNG demand is expected to to grow at an average annual rate of 6% to 8% for the next few years despite the recent economic downturn. That’s three to four times the global annual growth rate of natural gas overall. “Demand will pick up again and the world will need more projects like this in order to meet that demand,” says Ian Craig, Chief Executive Officer of Sakhalin Energy.

Harnessing the cold

Shell pioneered the commercialisation of LNG technology more than 40 years ago. A clear, non-toxic liquid that forms when natural gas is cooled to –162 degrees Celsius (-260 Fahrenheit), LNG can be transported by sea in specially designed ships and stored more easily than natural gas because it occupies up to 600 times less space. In Sakhalin, the cold weather provides a helping hand.

“Until now we have only used the LNG process in countries around the Equator where temperatures are high all year,” says Bert Christoffels, asset manager of the LNG plant. “Here we work in summer and in very cold winter temperatures. That is new and influenced the way we designed and built the plant.”

For Sakhalin II, Shell developed a two-stage liquefaction process that takes advantage of very low temperatures to cool the natural gas using a special refrigerant mix and an air-cooling process. The composition of the mix can be changed to suit the colder climate in winter. Thanks to creative engineering solutions like these, Sakhalin II uses 6% less energy than a similar Shell facility in the Middle East and 9% less than a Shell plant in the Far East and turns the gas saved into LNG. It also produces less carbon dioxide.

Before shipping, the LNG is stored in two insulated storage tanks. The earth beneath the tanks is warmed electrically to prevent freezing. Frozen soil expands, and would destabilise the ground beneath the tanks.

Ice-breaking LNG carriers

The LNG is loaded on LNG carriers from an 805-metre long jetty in an operation that can take up to 16 hours. Customers’ vessels pick up LNG from the newly built Prigorodnoye port. In addition, three carriers each with a capacity of 145,000 cubic metres were specially built in Japan for Sakhalin Energy for shipping LNG — the Grand Aniva, Grand Elena and Grand Mereya. Their extra-thick steel hulls can plough through ice.

All key components at the LNG plant have been engineered to survive the most severe earthquake that can be expected in the area measuring up to 7.5 on the Richter scale. Such an earthquake is only expected to occur once in 1,000 years on the southern tip of Sakhalin Island. Cross bracing with girders on steel structures adds extra strength while reinforced concrete structures were made thicker. Key joints were also reinforced.

The two LNG storage tanks were designed not to collapse or leak even in the case of an earthquake roughly equivalent to one that destroyed over 3,500 houses and damaged 11,000 in Niigata, Japan in 1964 — an earthquake of this magnitude is only expected to occur in the area once in 3,000 years. The tanks are fixed to their reinforced concrete foundations to limit motion.

Construction of the LNG plant started in August 2003. At its peak around 10,000 people from more than 40 countries were employed on the site.