Japan MES Hydrate Technology to Boost Gas Output

Dow Jones Newswires

TOKYO (Dow Jones Newswires), Jun. 26, 2009

A Japanese company hopes to start commercial production of natural gas within three years using new technology that improves the economics of exploiting small- and medium-sized gas fields.

Mitsui Engineering and Shipbuilding Co., a major shipmaker which is also active in natural gas hydrate technology, is now talking with several foreign energy groups for joint ventures using the technology, after successful trials over the past three years.

Its NGH system has the potential to boost annual natural gas supplies by the equivalent of 10 million metric tons of liquefied natural gas using reserves that might otherwise be left untouched due to the high cost of building pipelines or full-scale LNG projects.

"An ideal partner has its own reserves and funds for development, and is stable as an organization" like a national energy company, said Hajime Kanda, project manager at Mitsui Engineering and Shipbuilding, also known as MES.

He declined to identify the companies involved in the talks.

The technology involves drilling into gas pockets either onshore or offshore and then, in a surface plant or ship, converting the gas into a crystalline solid by adding water, chilling it to -20 degrees Celsius and subjecting it to high pressure.

This is different to research being carried out in several countries to mine existing, naturally formed gas hydrate reserves lying deep underwater on the ocean bottom.

These solid particles can be easier and cheaper to transport than gas delivered in pipelines, or via huge conventional LNG processing plants that freeze gas to -162 degrees Celsius, which is then moved on expensive pressurized, refrigerated tankers and finally regasified in receiving terminals at ports and released into pipeline networks.

The gas crystals can relatively easily be converted to gas using warm water and then fed into pipelines for delivery to users.

Two years ago, in a previous interview with Dow Jones Newswires, Kanda revealed how MES was building a 5-tons-a-day trial NGH unit in the western Japanese city of Yanai, in cooperation with Chugoku Electric Power Co.

That test, which covered the stability of the whole supply chain, from production to transportation to regasification, was successfully completed in March, he said.

MES now plans to work with a partner to build a scaled-up 100-tons-a-day plant, and from there, around 2012, to build a commercial plant with a capacity of at least 6,000 tons a day, Kanda said.

Lower Costs

The relatively low cost of this system compared to conventional LNG -- temperatures needed in the processing and transport are not nearly as low -- makes it attractive, he said.

The gas crystals contain about 170 times their volume of natural gas, compared with 600 times in the case of LNG, he noted.

The overall cost of developing smaller gas fields using NGH technology is cheaper than LNG production, unless the gas needs to be delivered to very far away places, Kanda said.

Critical to the success of such a project will be how much competing energy sources cost.

In 2007, MES set up a joint venture with Mitsui & Co. to market its technology.

"NGH is good for small, offshore gas fields...such reserves are generally expensive to produce" whatever means are used, said Hidetoshi Shioda, senior analyst with Mizuho Securities Co.,

Whether the technology is widely adopted "all depends on oil prices," Shioda said.

A MES study completed last year with eight Japanese companies, including Japan Oil, Gas and Metals National Corp., showed that the cost of an offshore project in Indonesia to develop about 1 trillion cubic feet of recoverable reserves and deliver it to Japan over 20 years would be about 20% lower than an equivalent LNG project under the same conditions.

The cost advantage would be 30-40% if the gas was sent by pipeline, for example, for use in Jakarta.

Although NGH is cheaper than LNG, crude oil prices of around $80 a barrel would be necessary to make profits using the technology, as NGH production involves smaller economies of scale, Kanda said.

In the long term, it seems clear that energy prices will rise, he said.

"NGH is not competing with LNG, it is a technology that complements gaps between pipeline gas and LNG," said Kanda.

More than 5 trillion cubic feet of recoverable reserves and 20 years or longer in terms of commitments by customers are needed to justify the massive investment costs for an LNG project.

NGH would require smaller reserves, but these would need to be at least 1 trillion cubic feet.

Apart from gas producing countries in South East Asia, MES thinks the technology would be useful to develop small to- medium-sized gas reserves in places like inland China and Russia.  

A Japanese company hopes to start commercial production of natural gas within three years using new technology that improves the economics of exploiting small- and medium-sized gas fields.

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